Definition of reliance damages
Further reading
Reliance damages is the measure of compensation given to a person who suffered an economic harm for acting in reliance on a party who failed to fulfill their obligation.
Scope
Reliance damages are valued by a party's reliance interest for the foreseeable amount. It puts the injured party in the same dollar position as if the contract had never been formed.
Application
Under contract law, in a bilateral contract two or more parties owe obligations to each other. Each party acts in reliance that the other party will fulfill their respective obligation. If one party fails to respect their obligation, then the other party or parties may suffer an economic harm. Reliance damages compensate the harmed party/ies for the amount of damages they suffered for acting in reliance on the other party's contractual obligations.
Example
Manny Ramirez and Alex Rodriguez formed a bilateral contract. Manny spent $100 in reliance on the contract, which was foreseeable. However, Alex breached the contract.
Reliance damages protect a party's reliance interest. Manny spent $100 in reliance on the contract, which constituted Manny's reliance interest.
Since reliance damages equal to the value of the reliance interest of the injured party, Alex owes Manny $100. This puts Manny in the same economic position as if the contract never happened.
References:
- Wiktionary. Published under the Creative Commons Attribution/Share-Alike License.
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