Reliance Damages: Recovering What You Spent on a Broken Promise
What Are Reliance Damages?
Reliance damages compensate you for expenses and costs you incurred because you relied on the other party's promise. Instead of putting you in the position you would have been in had the contract been performed, reliance damages aim to restore you to the position you were in before the contract was made.
How Reliance Damages Differ from Expectation Damages
- Expectation damages give you the benefit of the bargain — the profit or value you would have received if the contract had been fulfilled.
- Reliance damages reimburse you for out-of-pocket costs you would not have incurred but for the broken promise.
Reliance damages are often sought when expectation damages are too speculative to prove — for instance, in a new business venture where profits are uncertain.
Examples of Reliance Damages
- You spend $15,000 renovating a space for a business, relying on a lease that the landlord then refuses to honor. The renovation costs are reliance damages.
- A contractor purchases $8,000 in specialized materials for a project that the client cancels in breach. The material costs are recoverable.
- A company relocates an employee based on a contract that the other party later repudiates. Moving expenses may be reliance damages.
When Courts Award Reliance Damages
Courts typically award reliance damages when:
- The contract was breached before the injured party received any benefit
- Lost profits are too difficult to calculate with reasonable certainty
- The injured party incurred verifiable expenses in preparation for performance
Limitations
Reliance damages generally cannot exceed what the injured party would have received as expectation damages. If the contract would have been a losing deal, courts may cap reliance recovery accordingly.
When to Consult a Lawyer
If you have spent money in reliance on a contract that the other party has breached, consider consulting an attorney to evaluate which type of damages best fits your situation.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.