Reasonable Reliance

The term reasonable reliance refers to, in the law, a person’s belief in a fact, which any reasonable person would believe as well. Reasonable reliance has its place primarily in contract law, though it applies in other situations in which one person took another’s word as true. To explore this concept, consider the following reasonable reliance definition.

Definition of Reasonable Reliance

Noun

  1. What a prudent person would reasonably believe and act upon.

Origin

1350-1400       Middle English

What is Reasonable Reliance

In a situation in which one person is promised a profit or other gain and, based on a belief in that promise, takes certain steps, he is considered to have reasonably relied on the promise. Should he suffer a loss because the promise turned out to be false, he might have a claim to recover damages. Such a claim, that one suffered damage because he took action based on his reliance on another’s word, must be based on a belief that was reasonable.

For example:

Andrew is approached by Ralph, who offers to sell him his interest in the Eifel Tower, which he claims is worth $10 million. Andrew is thrilled to buy a portion of the famed landmark for just $5 million. He immediately invests $100,000 into marketing tours of the Tower, even before he receives his deed.

When he discovers there is no such deed, he files a civil lawsuit seeking to recover, not only his $5 million, but the $100,000 he spent to profit on his investment. The issues of fraud aside, the court is likely to look at how reasonable it was for Andrew to believe that Ralph owned a portion of the Eifel Tower. In this example of reasonable reliance, it seems that any other reasonable person would think that laughable, and so Andrew’s claim for the $100,000 investment would be denied.

Detrimental Reliance

Detrimental reliance refers to the theory that one can be made to perform his obligations under a contract or other promise. This is also referred to as the theory of “promissory estoppel.” In order to prove a claim of detrimental reliance – that one acted based on a belief in another’s promise – the following elements must exist:

  • A promise was made to the claimant
  • Reliance on the promise was reasonable, or even foreseeable
  • The claimant did actually reasonably rely on the promise
  • The claimant’s reliance was detrimental
  • The only fair thing would be to enforce the promise

Because detrimental reliance involves a reliance that any reasonable person would have made, it must be decided on the merits of each individual case.

Reasonable Reliance Damages

Damages for a claim involving reasonable reliance comprise the compensation given to the injured party. The amount of damages that may be awarded are based on the amount the party lost, putting him back in the position financially he was in before the contract was made.

Reasonable reliance damages may be awarded when a defendant is unjustly enriched by the association with the plaintiff. This too amounts to what the plaintiff lost because of his reliance on the defendant’s promise.

For example:

Lars promises to give Stephanie $5,000 to buy a new horse. In reasonable reliance on that promise, Stephanie goes out and buys a beautiful quarter horse mare for $4,500, dipping into her college savings to do so, knowing she can put the money back when Lars ponies up the money.

The weeks go by, and Stephanie doesn’t hear from Lars, and she finally realizes Lars has gone back on his word. She files a civil lawsuit to force Lars to make good on the deal. In this example of reasonable reliance damages, it was reasonable for Stephanie to believe that Lars would give her the money; therefore, the court is likely to award her reasonable reliance damages in the amount of $4,500. This will put Stephanie back into the financial position she was in before she bought the horse.

Reasonable Reliance Example in Promise of Employment

Gustavo Machado is a computer exchange engineer who worked for Microsoft in Texas when, in 2013 a professional staffing agency, TEKsystems, recruited him to work for one of its clients, Ochsner Healthcare Foundation, in New Orleans. Machado was to move to New Orleans, where he would work for Ochsner under TEKsystems’ umbrella for five months, at which time he would become a permanent employee of Ochsner.

Relying on this promise, Machado quit his job in Texas and moved to New Orleans. He signed an at-will employment contract, and Ochsner signed a letter affirming its intent to employ him as an exchange engineer for five months. Instead of putting Machado to work as an exchange engineer, which was promised by both TEKsystems and Ochsner, the company assigned him to work in an active directory position. Machado was not trained for this type of job, however, and just four weeks later, he was fired.

In this example of reasonable reliance, Machado had reasonably relied on the promises made by both TEKsystems and Ochsner when he quit his secure job with Microsoft, and moved his family to a new state. When none of the promises made were upheld, Machado filed a civil lawsuit against both companies on the basis of breach of contract, detrimental reliance, and negligent placement.

Machado’s breach of contract claim centered around the fact that TEKsystems had entered into an oral contract with him, promising to employ him for five months (while he worked at Ochsner). The company breached this contract by terminating him after only four weeks.

Machado’s detrimental reliance claim was based on the fact that both he and his wife quit their jobs in Texas and moved to New Orleans in reasonable reliance on the promises made by both companies that Machado was guaranteed a job, in his professional field, for five months, then moved into a permanent job with Ochsner. Additionally, Machado claimed negligent placement, as TEKsystems had placed him in a job other than the one he was promised, setting him up for failure, depriving him of the potential to be permanently employed by Ochsner.

In October 2014, the TEKsystems filed a motion for summary judgment, arguing against each claim in the lawsuit. After reviewing each claim and countering arguments, the court ruled that each and every claim made by Machado in his lawsuit was valid, and should be heard at trial. The defendant’s request for summary judgment was denied, and the case was set to continue to trial.

Related Legal Terms and Issues

  • Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
  • Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
  • Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
  • Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
  • Estoppel – A legal principle that prevents, or “stops,” someone from asserting a fact that is contradictory to an already established truth.
  • Plaintiff – A person who brings a legal action against another person or entity, such as in a civil lawsuit, or criminal proceedings.
  • Unjust Enrichment – A legal principle that prohibits one person from profiting, or being enriched, at the expense of another person.

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