Detrimental Reliance

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  • Topic: Contract, 1989, Laches
  • Pages : 8 (2785 words )
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  • Published : February 17, 2013
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Detrimental Reliance
Detrimental Reliance occurs when someone takes action or fails to take action because of what appeared to be a promise made by another individual, without knowing if true or untrue. It is very similar to Promissory Estoppel in that the other party is "estopped" or legally prevented from denying liability, even though no formal contract was formed, because of its promise. An estoppel by representation [of fact] will arise between A and B if the following elements are made out. First, A makes a false representation of fact to B or to a group of which B was a member. [It is not necessary to demonstrate A knew that the representation was untrue.] Second, in making the representation, A intended or [in the alternatively,] knew that it was likely to be acted upon. Third, B, believing the representation, acts to its detriment in reliance on the representation. [It must have been reasonable to rely on the representation.] Fourth, A subsequently seeks to deny the truth of the representation. Fifth, no defense to the estoppel can be raised by A. (The Law of Waiver, Variation and Estoppel)

Section 90 of the Restatement (Second) of the Law of Contracts reads, “Promise Reasonably Inducing Action or Forbearance: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. So, in other words, someone (the "promisor") made a representation of fact which could reasonably expect the other party to rely upon, that is, one party made a promise and the other person (the "promisee") did in fact rely upon the representation or promise. Now, the promisee suffers a detriment or injury as a result of that reliance.

The case of Condrey v. SunTrust Bank of Georgia, 431 F. 3d 191- Court of Appeals, 5th Circuit 2005, Harrell Equipment Company, Inc. ("Harrell Equipment") appeals the district court's grant of summary judgment for SunTrust Bank of Georgia ("SunTrust") regarding a cross-claim brought by Harrell Equipment against SunTrust alleging fraud, conversion, tortious interference with property rights, detrimental reliance, and fraudulent breach of contract. In 1997, Harrell Equipment began to experience the slump in the agriculture industry that was occurring. Therefore, SunTrust told Harrell Equipment that in order to receive further financing, Harrell Equipment would have to reduce its outstanding debt, lower its expenses and sell more of its inventory. Harrell Equipment agreed and reduced its outstanding debt by $1 million; SunTrust, however, later refused to grant Harrell Equipment further financing. The agreement, or lack thereof, that resulted from this refusal is the subject of this appeal. Because Harrell Equipment could not get further financing, it asserts that it considered filing for bankruptcy as its only solution. Harrell Equipment claims that it did not file for Chapter 11 protection because SunTrust branch president, Will Sims, offered, what seemed at the time, a better deal. Pursuant to his offer, Harrell Equipment claims that SunTrust fraudulently induced it to forego plans to file for bankruptcy by entering into an oral agreement whereby Harrell Equipment would (1) allow SunTrust to take possession of all its assets; (2) SunTrust would continue to advance additional funds to Harrell Equipment to maintain business as usual; (3) Harrell Equipment would reduce its indebtedness to less than $1 million over the following year; and (4) thereafter, SunTrust would sell the remaining inventory and assets to a third party designated by Harrell Equipment. The parties, however, did not reduce this agreement to writing. On February 13, 2001, Tommy H. Condrey filed suit against SunTrust, LMC Bainbridge and Harrell Equipment in the United States...
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