Reliance Damages
What does "Reliance Damages" mean in law?
Reliance damages restore the injured party to the position they occupied before the contract was made by compensating for expenditures and losses incurred in reasonable reliance on the breaching party's promise. Unlike expectation damages, reliance damages do not compensate for lost profits but instead reimburse out-of-pocket costs. Courts often award reliance damages when expectation damages are too speculative to calculate with reasonable certainty, as illustrated in Anglia Television Ltd v. Reed, where pre-contract production expenditures were recovered because lost profits from the unmade television production were impossible to prove. Reliance damages are also the typical measure in promissory estoppel claims under Restatement (Second) of Contracts Section 90.
Definition
Reliance damages restore the injured party to the position they occupied before the contract was made by compensating for expenditures and losses incurred in reasonable reliance on the breaching party's promise. Unlike expectation damages, reliance damages do not compensate for lost profits but instead reimburse out-of-pocket costs. Courts often award reliance damages when expectation damages are too speculative to calculate with reasonable certainty, as illustrated in Anglia Television Ltd v. Reed, where pre-contract production expenditures were recovered because lost profits from the unmade television production were impossible to prove. Reliance damages are also the typical measure in promissory estoppel claims under Restatement (Second) of Contracts Section 90.
Example
After an artist spent $15,000 on materials and studio rental in reliance on a gallery's promise to host a show, and the gallery then canceled, the court awarded reliance damages covering those out-of-pocket expenditures.