Reliance Damages and Restitution

Reliance damages are damages awarded to someone who has foreseeably relied on an ordinarily unenforceable promise.  Reliance damages are awarded for the purpose of putting the promisee in the position he would have been in had the promise not been made in the first place. For example:

Tony promises to give Cornelius $10,000 to buy a car. In reliance on the promise, Cornelius spends $9,000 buying a car. Tony then reneges on the promise. In this case, because it was foreseeable that Cornelius would rely on the promise, the courts will award him reliance damages in the amount of $9,000, thereby putting him in the same position he would have been in had the promise never been made.

Restitution is usually awarded where one party has provided a benefit to the other party and it is awarded to repay the party providing the benefit the reasonable value of the benefit he gave. Typically, restitution is awarded in situations where one party has provided a benefit to another party under a contract and that contract turns out to be unenforceable. For example:

Michelangelo promises to pay Picasso $5,000 if Picasso paints Michelangelo’s house. Picasso begins the job and when he is a quarter of the way through the work, the house burns down. As we learned in the last chapter, this contract is now unenforceable because the subject matter of the contract has been destroyed. In this case, the court will award Picasso restitution for the reasonable value of the work he did on the house before it was destroyed.