Detrimental reliance: Overview, definition and example
What is detrimental reliance?
Detrimental reliance happens when someone takes significant action or makes a decision based on a promise made by another party, only to suffer harm when that promise isn’t kept. It’s a legal concept often used to hold someone accountable for breaking a promise, even if there isn’t a formal contract in place, as long as the other party reasonably relied on that promise.
This principle protects people and businesses from unfair losses caused by broken promises that led them to act in good faith.
Why is detrimental reliance important?
Detrimental reliance is important because it ensures fairness, especially in situations where one party makes a promise that the other relies on to their detriment. Without this protection, someone could make promises, cause another party to spend money or make decisions, and then back out without consequences.
For businesses, it’s a safeguard against losing out when they’ve reasonably acted on assurances, such as investing resources, hiring employees, or entering into other agreements based on a promise. It’s also a reminder to make commitments carefully, knowing that broken promises can lead to legal responsibility.
Understanding detrimental reliance through an example
Imagine a construction company is negotiating with a supplier for materials to build a project. The supplier promises to deliver the materials at a specific price, and based on that promise, the construction company submits its bid to the client and wins the contract. Later, the supplier backs out or demands a higher price, leaving the construction company unable to meet the terms of its agreement with the client.
In this case, the construction company relied on the supplier’s promise to its detriment. If the matter goes to court, the company might argue detrimental reliance to hold the supplier accountable for the extra costs or losses caused by their broken promise.
An example of a detrimental reliance clause
Here’s how a detrimental reliance clause might look in a contract or agreement:
“Each party acknowledges that any representations or promises made during the course of negotiations shall not be unreasonably revoked if the other party has reasonably relied upon such representations to its detriment.”
Conclusion
Detrimental reliance is a way to ensure fairness when one party suffers because they acted on a broken promise. It protects businesses and individuals who reasonably rely on assurances, even in the absence of a formal contract.
By understanding detrimental reliance, you can recognize when promises may carry legal weight and avoid making commitments lightly. It’s a reminder that trust in business dealings matters—and breaking it can come with consequences.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.