Detrimental Reliance is when a Person Trusts Someone Else’s Promise or Assurance, and is Injured because of that Trust
You will typically learn about detrimental reliance when you study promissory estoppel and fraud. In both promissory estoppel and fraud cases, the plaintiff will need to prove detrimental reliance.
In other words, detrimental reliance is an element of promissory estoppel and of fraud because plaintiff will need to show in both types of cases that he trusted the defendant, and as a result of that trust he was injured.
In promissory estoppel cases, the plaintiff will claim that defendant promised her something, she reasonably relied on that promise, but was injured as result of her reliance. Another way to say that she relied on the promise and was injured as a result is “detrimental reliance”. As you can see in the video on the right, although there was no contract between the parties, Patty reasonably believed the promise of the defendant and as a result, she suffered economic harm. Possibly, she will be able to recover damages from the defendant based on promissory estoppel because of her detrimental reliance on defendant’s promise.
Detrimental reliance is also an element of an action based on fraud. A plaintiff alleging fraud must show that (i) defendant made a statement; (ii) the statement was false; (iii) defendant knew the statement was false; (iv) plaintiff reasonably relied on the statement; and (v) plaintiff was injured as a result of that reliance.
The last two elements above (reasonable reliance and injury) are what we can call detrimental reliance. For example, let’s say defendant lies to plaintiff by telling him that she has invented the cure for diabetes and he believes her. If plaintiff invests in the company, defendant will be liable for fraud. Defendant in this case invested in plaintiff’s company based on her assurance that she had discovered the cure for diabetes. His investment is worthless, therefore, he has detrimentally relied on her false assurance.