Reliance Damages

What are Reliance Damages?

The amount necessary to compensate the injured party for expenses incurred in reasonable reliance on the contract. The Amounts spent in part performance, preparation for or in reliance on the K.

What is the goal of reliance damages?

The goal of reliance damages is to restore the injured party to pre-transaction status by looking backwards at what the injured party had relied upon rather than on what they were expecting from the contract.

When do parties seek reliance damages?

The injured party may seek reliance damages if they cannot prove expectation damages with reasonable certainty or the contract would have been unprofitable for them had the breaching party actually performed.

What is the rule for offsetting losses?

The non-breaching party’s reliance damages may be reduced by any loss the breaching party can prove with reasonable certainty the injured party would have suffered had the K been performed.

How do you calculate Reliance Damages?

Reliance damages are calculated by taking the expenses incurred in reliance minus losses the breaching party can prove with reasonable certainty.

What are the limitation on recovery of Reliance Damages?

1. Must be reasonable foreseeable to the breaching party at the time of K: Non-recoverable costs: If a party incurs costs that are considered to be "speculative" or "unnecessary," those costs may not be recoverable, and the damages need to be a direct result of the breach or reliance on the contract.

2. Must be provable with reasonable certainty

3. Duty to mitigate applies: The injured party does have a duty to mitigate further damage or losses.

4. Causation: The breach must have been caused by the breaching party’s actions in order for the injured party to be able to recover reliance damages.

Can Reliance Damages Exceed Expectation Damages?

Majority Rule: Reliance damages cannot exceed expectation damages. Expectation damages are a ceiling for damages awarded to the injured party.

What is the difference between Essential and Incidental reliance damages?

Essential Reliance: Essential reliance expenses are those costs incurred in preparation for or in performance of the K that was breached.

vs.

Incidental Reliance: Incidental reliance expenses are those costs incurred that are related to collateral K entered into in reasonable reliance on the K that was breached, but are not directly tied to teh contract’s performance or preparation.

Are Pre-Contract “reliance expenses recoverable”

Pre-Contract reliance expenses are costs incurred BEFORE the K was ever made.

Rule: Generally these are not recoverable unless the Plaintiff can prove the expenses with reasonable certainty and that the parties had reasonable grounds to believe such expenses would not be wasted.

Are foregone opportunities recoverable as reliance expenses?

Foregone Opportunities are gains the plaintiff would have made had she not relied on the K.

Rule: Foregone opportunities are generally recoverable.

What is the split in authority on whether promissory estoppel plaintiffs are limited to reliance damages?

One View: Only reliance damages are available to a promissory estoppel plaintiff.

Competing View: Under Rest. court have discretion to determine the measure of damages arising out of a PE claim so the full range of K remedies are available.

What are some issue spotting tips for reliance damages?

1. What are the essential reliance damages?

2. What are the incidental reliance damages?

3. Are these two things foreseeable?

4. Did the entrepreneur satisfy their duty to mitigate.