Legal Question in Business Law in California

Re: What is Detrimental Reliance

Thank you for your posting.

Detrimental reliance is defined, generally, as "reasonably expected reliance may under some circumstances, which make binding a promise for which nothing has been given or promised in exchange". (Earhart v. William Low Co. (1979) 25 Cal.3d 503, 600 P.2d 1344.)

Where legal consideration is lacking courts sometimes look at your actions in gearing up for a project, and award you the value of the contract, if it was reasonable for you to spend money and take action in reliance on the contract.

I hope that this information helps, but if you want more information, have further questions, or feel that you need legal representation, please feel free to email me directly at [email protected]. It's my pleasure to assist you in any way that I can.

Re: What is Detrimental Reliance

"Detrimental reliance" means taking an action based upon someone else's promise which, by itself, leaves you in a worse position than when you started.

In order to sue for breach of contract, you have to show the existence of a binding contract. One way to do this is by referring to a document signed by both parties, but another is to prove a variety of facts including detrimental reliance.

If A promises something to B in exchange for B doing something and B then takes steps to its detriment in order to live up to its end of the agreement, then the agreement is a binding contract -- provided that B took these steps in reliance on the existence of the agreement (i.e., B would not have taken these steps otherwise) and that B's reliance is reasonable under the circumstances.

From your limited facts, it seems likely that you added five people to your staff in the expectation that you would be assigned this new project, but it is not clear that you and the client had actually reached an agreement that you would be handling the project or that your decision to hire these staff was reasonable under the circumstances. Without more facts I cannot offer an opinion about your rights.

Re: What is Detrimental Reliance

Your claim against the canceling party is a classic instance of detrimental reliance and what is called "promissory estoppel." The first term means you relied to your detriment on what at least appeared to be a promise by the other party. The second term means that the other party is "estopped" (stopped, prevented, legally blocked) from denying liability, even though no formal contract was formed, because of its promise.

Section 90 of the Restatement (2nd) of Contracts, which is a sort of multi-state bible of contract law, has the following to say:

90. Promise Reasonably Inducing Action or Forbearance. (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance.

At trial, your attorney and you will have the following tasks: (a) showing to the satisfaction of the jury (or judge) that the defendant made you a promise; (b) that your reliance on the promise was reasonable, i.e. that you did not foolishly incur costs and commitments while a final and binding contract was still pending, and (c) you will need to develop and offer acceptable proof of your financial damage, including proof that the harm you assert flowed as a consequence of the other party's breach of the promise.

The other party's likely defense is that your firm made premature and unwarranted assumptions that there was work to be awarded and that it would certainly be awarded to it. They will also attack any claim of financial loss that could have been mitigated or avoided by prompt action when you learned that you weren't getting the contract.