Detrimental Reliance in California Law

Detrimental reliance is a legal term in contract law where one party suffers harm or incurs a loss as a result of relying on the promises or representations made by another party. Detrimental reliance is a term that is often used to force a party to perform their obligations under a contract, under the theory of promissory estoppel.

By Brad Nakase, Attorney

Email  |  Call (888) 600-8654

Have a quick question? I answered nearly 1500 FAQs.

Introduction

Detrimental reliance allows a party to collect damages when there is no consideration. Detrimental reliance is often invoked in cases where one party has taken significant actions based on the belief that another party will uphold their promise. Detrimental reliance, rooted in the doctrine of promissory estoppel, prevents unjust outcomes when one party reasonably depends on another’s promise, even in the absence of a formal contract. This principle protects individuals who take action or refrain from taking action due to such promises. California courts, through statute and case law, recognize detrimental reliance as an equitable tool to prevent injustice. Promissory estoppel ensures that parties cannot escape liability when their promises create justifiable expectations in others, even absent a contract.

For example, in a business deal, a party might rely on a verbal promise to receive funding for a project. If the funding does not materialize, and the party incurs losses as a result, detrimental reliance could serve as a basis for relief.

Principle of Detrimental Reliance

The doctrine of detrimental reliance allows a promise to be enforced if failure to do so would result in injustice. This principle ensures that promises made without formal consideration are not easily disregarded when they induce significant reliance. The California Supreme Court in Kajima/Ray Wilson v. Los Angeles County Metropolitan Transportation Authority, 23 Cal. 4th 305, 310 (2000), stated that promissory estoppel applies “to enforce noncontractual promises when necessary to prevent injustice.” In this context, promissory estoppel serves as the legal foundation that transforms non-binding promises into enforceable obligations under equitable principles.

For example, suppose a contractor relies on a county’s promise to award a construction bid and spends substantial resources preparing for the project. If the county fails to follow through, the contractor could invoke detrimental reliance to seek equitable relief.

Elements of Detrimental Reliance

A Clear and Unambiguous Promise
The promise must be specific and unequivocal. Ambiguity or uncertainty in the promise renders it unenforceable under this doctrine. As noted in Aceves v. U.S. Bank, N.A., 192 Cal. App. 4th 218, 225 (2011), the court requires “a promise that is clear and unambiguous in its terms.” The concept of promissory estoppel reinforces the necessity for such clarity, as it serves to ensure that reliance is grounded in legitimate expectations.

For example, a homeowner promises a contractor that a payment will be made upon project completion, leading the contractor to purchase materials and hire workers. If the homeowner later refuses to pay, the contractor’s detrimental reliance on the clear promise becomes actionable.

Reasonable and Foreseeable Reliance
The reliance must be reasonable and foreseeable under the circumstances. The promisor must expect or should reasonably expect the promisee to rely on the promise. Garcia v. World Sav., FSB, 183 Cal. App. 4th 1031, 1041 (2010), highlights, “Reliance is reasonable if it was both actual and justified under the circumstances.” Promissory estoppel provides the framework for assessing whether reliance was justifiable in light of the promise and surrounding circumstances.

For example, a tenant relies on a landlord’s promise to renew a lease, refrains from seeking alternative housing, and incurs relocation expenses when the promise is broken. This is a classic example of detrimental reliance.

Detrimental Action or Forbearance
The promisee must take a significant action or forbear from acting, resulting in a detriment. The detriment must be substantial and directly linked to the reliance on the promise. Sutton v. Warner, 12 Cal. App. 4th 415, 422 (1993), clarified that “the plaintiff’s reliance must result in a substantial detriment.” Promissory estoppel ensures that such detriment, when significant, becomes the basis for enforcing the underlying promise.

For example, an employee resigns from a secure position based on an employer’s promise of a better job opportunity. If the promised job does not materialize, the employee’s detrimental reliance may give rise to legal recourse.

Injustice Absent Enforcement
Courts enforce promises under promissory estoppel only when necessary to avoid injustice. This element ensures that equity, not mere inconvenience, drives enforcement. In West v. Hunt Foods, Inc., 101 Cal. App. 2d 597, 602 (1951), the court emphasized, “Equity demands enforcement to prevent injustice where reliance was significant and the promise was substantial.” The doctrine of promissory estoppel operates as a safeguard to rectify situations where non-enforcement would produce inequitable outcomes.

For example, a supplier agrees to provide materials on credit, relying on a purchaser’s promise to pay within 30 days. If the purchaser later refuses to pay, causing the supplier financial harm, detrimental reliance serves to enforce the promise.

Defenses to Claims of Detrimental Reliance

No Clear Promise
The absence of a clear and definite promise undermines a claim of detrimental reliance. Vague assurances are insufficient. In Smith v. City and County of San Francisco, 225 Cal. App. 3d 38, 48 (1990), the court ruled that ambiguous statements do not meet the standard for a “clear and unambiguous promise.” Promissory estoppel cannot apply in such cases, as its foundation relies on the existence of a specific and definite promise.

For example, a company suggests it “might consider” a long-term partnership with another business. If the second business relies on this statement and suffers losses, the lack of a clear promise defeats the claim of detrimental reliance.

Unreasonable or Unjustified Reliance
If reliance on the promise is unreasonable or unjustified under the circumstances, the claim will fail. City of Long Beach v. Mansell, 3 Cal. 3d 462, 489 (1970), emphasized that reliance is unreasonable if the promisee should have known the promise was unlikely to be fulfilled. Promissory estoppel requires a reasonable basis for the reliance to ensure fairness to both parties.

For example, a person relies on an unsolicited promise from a stranger to gift them a substantial sum of money. The stranger later reneges, and the person’s reliance on the promise may be deemed unreasonable.

Absence of Detriment
Without actual detriment, a claim of detrimental reliance is unsustainable. In Sprecher v. Adamson Companies, 30 Cal. 3d 358, 368 (1981), the court underscored the necessity of a tangible harm or loss stemming from the reliance. Promissory estoppel, in turn, requires a demonstrable detriment as a prerequisite for enforcement.

For example, a business relies on a promise to reduce rent but suffers no harm when the promise is not fulfilled. The lack of detriment precludes a claim based on detrimental reliance.

Illegality or Public Policy Concerns
Promises that contravene statutory or public policy principles are unenforceable. As stated in Tiedje v. Aluminum Taper Milling Co., 46 Cal. 2d 450, 453 (1956), “An illegal promise cannot support a claim of detrimental reliance.” Promissory estoppel cannot override public policy restrictions, ensuring that only lawful promises are enforced.

For example, a contractor relies on a promise to be paid for work on a project requiring an unlicensed activity. If the work is illegal under California law, detrimental reliance is not a viable claim.

Statute of Limitations

Two-Year Limit for Oral Promises
For oral promises, claims are subject to a two-year limitation under California Code of Civil Procedure § 339. The doctrine of promissory estoppel may be invoked within this timeframe to secure relief for oral agreements that induce reliance.

For example, a freelance worker relies on an oral promise for payment upon completing a project. If the worker files suit after two years, the claim is barred by the statute of limitations, despite detrimental reliance.

Four-Year Limit for Written Promises
If the promise is in writing, the statute of limitations extends to four years under California Code of Civil Procedure § 337. Written agreements involving detrimental reliance benefit from the extended timeframe provided under promissory estoppel principles.

For example, an individual relies on a written promise of financial assistance, takes out a loan, and faces hardship when the promise is unfulfilled. If the claim is filed within four years, it may proceed under detrimental reliance principles.

Discovery Rule and Tolling
The limitations period may be tolled under the discovery rule, which delays accrual until the plaintiff discovers, or should have discovered, the reliance-related harm. NBCUniversal Media, LLC v. Superior Court, 225 Cal. App. 4th 1222, 1231 (2014), affirmed the application of this principle. Promissory estoppel aligns with this rule to ensure equitable relief where reliance-related harm is not immediately apparent.

For example, a party relies on a promise to be reimbursed for expenses but only discovers the harm after reviewing financial statements. The statute of limitations begins to run upon discovery of the detrimental reliance.

Conclusion

Detrimental reliance ensures justice by holding promisors accountable for promises that induce significant reliance. Through the lens of equitable principles, California courts strike a balance between protecting reliance interests and ensuring fairness. The doctrine of promissory estoppel serves as a vital safeguard for individuals and businesses alike, providing remedies in situations where traditional contract law may fall short.

Have a quick question? We answered nearly 2000 FAQs.

See all blogs: Business | Corporate | Employment Law

Most recent blogs:

How to Trademark Your Business Name

How to Trademark Your Business Name

Protect your business name with trademark registration to ensure exclusive rights and safeguard your brand identity from infringement. Follow our step-by-step guide to navigate the trademarking process effectively while avoiding common pitfalls.

Service Charge vs Tip: Is the service charge the same as a tip?

A service charge is mandatory, and a tip is at the discretion of the customer.  Under California law service charges are not considered tips.  Service charges are the amount a customer is required to pay in addition to the beverages and foods purchased at a restaurant.  Service charges belong to the restaurant and not to the employees.

When Is a W-9 Not Required?

A W-9 is not required when payments to a vendor are under $600 in a calendar year. Payments made through credit card processors or platforms like PayPal also do not require a W-9.

Is Small Business Loan Secured or Unsecured

A secured loan places the burden of risk on the borrower. An unsecured loan shifts the burden of risk more to the lender. A small-business loan is secured when backed by specific collateral, typically business assets, such as equipment, inventory or real estate. Secured loans, including those secured by the Small Business Administration (SBA), typically range from $50,000 to $5 million. 

Where Can I Cash a Business Check?

Business check may be cashed at a check-cashing service: Walmart Money Center, Payday Advance, Ingo Money, Moneytree, Money Mart, ACE Cash Express, Speedy Cash, etc.
What Does Net Income Mean for Businesses and Individuals

What Does Net Income Mean for Businesses and Individuals?

Net income, often called "the bottom line," measures financial health by showing the remaining profit after expenses and deductions. For individuals and businesses, net income is a critical metric influencing budgeting, performance assessment, and decision-making.
What Is a Business Plan Executive Summary

What Is a Business Plan Executive Summary?

An executive summary in a business plan outlines your company's mission, market positioning, and financial projections in a concise format. It highlights key points to capture investors' interest, acting as a compelling introduction to your business plan.

Average Revenue For Small Business

Small businesses with no employees have an average annual revenue of $52,000. The average small business owner makes $73,000 a year. In general, the average revenue is around $52,000 per year for a company with a single owner/employee.
What Is the Legal Definition of False Advertising

What Is the Legal Definition of False Advertising?

False advertising involves untrue or misleading claims about products or services, violating laws enforced by the FTC and state authorities. Companies face legal consequences like fines, lawsuits, and cease-and-desist orders for deceptive practices under statutes like the Lanham Act and California's False Advertising Law.

Payment Upfront Meaning & 5 Tips for Getting Upfront Payments from Customers

Upfront payments can be beneficial to many small business owners. Upfront payments protect the owner emotionally and financially. There is no fear of customers disappearing without paying for products or services. It is also a great method by which to build trust with customers. It can also help improve cash flow, thereby letting the business grow and flourish.

How to Calculate Business Profit

A business profit is revenue minus expenses. The profit formula in accounting calculates the net gains or losses incurred by the business for a period by subtracting the total expenses from the total income: Total Income – Total Expenses - Profit
What Are the Benefits of Using a DBA (Doing Business As)

What Are the Benefits of Using a DBA (Doing Business As)?

A DBA (Doing Business As) name allows businesses to operate under a different name, enhancing branding flexibility and privacy. It is essential for opening business accounts, expanding services, and improving public perception without creating a separate legal entity.
How Can You Place a Vending Machine at a Location

How Can You Place a Vending Machine at a Location?

Learn the strategies for securing profitable vending machine locations and key factors to maximize your vending business's success. Discover top site recommendations, legal steps, and tips for approaching property managers effectively.
What Is the Legal Definition of Estoppel

What Is the Legal Definition of Estoppel?

Estoppel prevents a party from contradicting prior statements or actions, ensuring fairness and consistency in legal agreements. Common types include promissory estoppel, equitable estoppel, and estoppel by deed, addressing various legal scenarios effectively.
What Does Business Acumen Mean

What Does Business Acumen Mean

Business acumen involves strategic thinking, decision-making, and understanding organizational dynamics to impact goals effectively. Essential skills include financial insight, stakeholder awareness, and navigating uncertainty for leadership at all levels.

Contact our attorney.

Please tell us your story:

1 + 2 = ?