What is Contract Law?
Contract law serves as a crucial instrument in both the business of law and the business of commerce. At the core of contract theory is something called consideration. This is the price paid for the promise of another by a party entering into a legally binding agreement (contract). For example, consider the vendor who prints a wedding invitation. When you purchased the printed wedding invitation, you paid a price. When the vendor received your payment, a contract was formed, allowing the vendor the legal right to collect on that price. The wedding invitation printed by the vendor is consideration for the price paid. A court may, and often will, enforce a contract. Without contracts , parties would not be able to retain their rights for breach of contract.
This body of law is based, in part, on common law, but is now primarily determined by statute (i.e., codes) and common law. Contracts may be oral, implied, or written. Certain types of contracts must be in writing under Article 2 of the UCC (Uniform Commercial Code). Such contracts include the sale of goods valued at more than a certain amount (most states say $500 or more), agreements to make a loan valued at more than a certain amount, with an interest rate of over 12 percent, and real estate contracts.
Article 2 also addresses other topics:
Contract law is also concerned with such issues as: In short, it is fair to say that contract law applies to a vast majority of commercial transactions.
What is Tort Law?
The nature and scope of tort law overlap with contract law and other areas of civil law. Tort law is not concerned with the performance of a contractual duty, but rather seeks to remedy civil wrongs or damages (known as torts) for which the person committing the wrongful act (tortfeasor) is legally accountable. The most common confusion regarding tort law occurs over confusing negligence with same. As noted, tort law deals with civil wrongs committed among individuals, that is, wrongs committed between individuals that are not based upon a contractual duty. A contract duty can be express, meaning that the parties have a formal written agreement specifying the terms, or it can be implied based upon the conduct of the parties and the circumstances of the relationship. For example, individuals reaching a "handshake deal" may have a contractual agreement even if no written agreement has been entered into.
A tort action, on the other hand, is an independent right to recovery provided by law. Even if an individual does not have a contractual obligation to an injured party, if one of the defined actions at law has occurred then a tort action exists. For instance, even if a person did not have a statute of frauds based contract with another individual to sell a car, if the individual sells the car and then refuses to complete the sale and deliver the keys to the buyer, there is a right to recovery based upon the tort of conversion. Again, even though the underlying relationship between the parties may never have resulted in a contract, one party tortiously retained the personal property of another.
An individual is not liable for merely acting unreasonably or with poor judgment. Further, tort law does not pertain to mere "harms." The primary purpose of tort law is to provide compensation when one party has intentionally or negligently caused damage to another party via an unlawful, non-contractual act.
Contracts vs. Tort Law: The Main Differences
There are two key elements that define the differences between contract and tort law, aside from the fact that they are two separate branches of law. Those factors are the nature of the obligations involved and the types of damages available for each case.
When damages are awarded in court for a breach of contract, those damages will be directly influenced by the contract itself. All contracts have damages specified in the event of a breach, and these damages become the obligation of the person who causes the breach. For example, if a photographer does not show up for a wedding after being contracted to do so, then he will owe the bride and groom for whatever damages they specifically agree to in the contract (like covering the cost of a new photographer and possibly some liquidated damages).
Tort damages, conversely, are not agreed to before the act itself occurs, so they are not as certain. A judge will award damages based on what he or she sees as a fair value. In some cases, such as product liability lawsuits, it may be possible to get punitive damages against the manufacturer of something that breaks or injures someone. These punitive damages are for situations where the act was either so reckless, or the damages caused so severe, that it goes beyond what is strictly necessary to compensate the injured party for the injury alone.
Contract and Tort: Examples
In the former, injured or aggrieved parties seek compensation or resolution from parties with whom they have a specific contractual relationship. For example, if a customer pays an attorney a $10,000 retainer to handle his case, but the attorney does not do so — even though he does bill for $5,000 of his time — that client may have a claim against that attorney for breach of contract even if the attorney had a very good general reputation in the community. Similarly, if a repair store repairs a customer’s flat tire and re-issues the customer the same tire that has a manufacturing defect, and the tire fails and injures the customer when it fails, the customer may have a claim for breach of contract against the tire store for its failure to properly repair the tire and for a separate product liability claim against the tire manufacturer.
On the other hand, injured or aggrieved parties can engage in tort litigation more broadly against parties for whom they have no specific contractual relationship. For example, if a disgruntled customer decides to "get back" at an attorney who has not properly handled his case by writing a nasty online review of the attorney, that attorney may have a claim for tortious interference with his business and/or defamation, if the customer makes false statements in that review that damage the attorney’s reputation as a reliable and competent attorney. If the customer injures his back when he is going up a flight of stairs when his handrail had been removed and replaced because of a water leak (but was not properly reinstalled), he may have a claim against the landlord for personal injuries and property damage. Other examples that are frequently seen in case law include negligent driving, based upon the failure of a driver to obey certain road rules (i.e., stop signs, traffic signals, etc.) and slip and fall cases, where the injured party seeks to allege that the property owner or occupier failed to maintain the premises in a safe manner that led to an injury.
How Intent and Breach Apply to Contract vs. Tort Law
One of the most significant differences between tort law and contract law is the requirement for some intent in tort. You cannot successfully bring a tort case without proving that the accused did what they did on purpose, whether it was on a conscious level or a subconscious level. With contracts, however, there are those where there’s no intentional breach at all that can still have a successful resolution or trial. In general, people create contracts when they’re seeking profit from their current goods or services. They’re not genuinely concerned with the well-being of their counterparts involved in this private agreement. However, when it comes to torts, they are violating a legal duty owed to the public at large. For that reason, courts tend to take a dim view of their reckless or intentional behavior, seeking to punish it with severe financial penalties.
The court will award damages in tort cases as punitive measures. From a contractual standpoint , it does not matter if an agreement is written or verbal. Both manners of contracts are legally enforceable under the law if the required factors are met. This does not mean that they have been breached. Rather, a breach is an occurrence where one of the parties in a contract fails to do what was required of them under the contract. The required elements to create an enforceable contract are offer, acceptance, consideration, and the capacity to enter into a contract. For example, if you hire a contractor to put a roof on your house and it’s put on in a shoddy manner, you can argue that the contract was breached. If a person contacts you with a business proposal and sends a contract asking you to countersign and return, that is not yet a contract. It only becomes a contract once both parties have signed it. Breaching it would not come until the service or product agreed upon was delivered in a manner that did not meet your expectations described in the contract.
Legal Claims in Contract Law and Tort Law
The legal remedies for a breach of contract differ substantially from those available for a tort. Generally speaking, when a party commits a tort against another, the harm done is not economic in nature. An example of a tort that would not fit into the economic realm would be someone’s reputation. In these instances, the damages awarded for the tort are solely for the purpose of making the victim whole from the harm done by the tort-feasor. The most common form of damages awarded for torts are compensatory damages. These are damages that are specifically directed to make the plaintiff whole once again without punishing the tort-feasor. Compensatory damages are that damage award that fairly compensates the injured party for the injury suffered. At the same time compensatory damages ensure that the injured party is made whole from the tangible harm or injury caused by the defendant. For example, damages awarded to a person whose property was damaged as a result of another’s act would include: the amount required to restore the damaged property and/or profit loss. Since torts are often accomplished by willful acts of negligence, those who commit them are punished in addition to having to pay damages to the injured party. In some cases, punitive damages may be awarded when the tortious act was intentional and caused substantial harm or injury to the plaintiff. Unlike compensatory damages, punitive damages specifically aim to punish the wrong-doer as well as deter other persons from committing similar acts.
In contrast to torts, breaching a contract is purely an economic injury. Negotiated between two or more parties, contracts are considered legal agreements. When one party fails to comply with the contract terms this party is liable to the other(s) for damages. Under contract law, the plaintiff would receive compensatory damages solely as the form of damages for a breach of contract. For example, if a plaintiff purchased a car for $5,000 and the car’s "dealer warranty implied" was to last 5 years, but the car’s engine seized 6 months into ownership, the plaintiff should be awarded the difference between the amount spent on the car and what they would have gotten had the agreement held true. Compensatory damages are the only legal remedy available for a breach of contract. However, the parties to the contract may stipulate in advance, as a part of the terms negotiative process, that if a breach occurs, then the aggrieved party will be compensated in a manner other than compensatory damages.
Business and Personal Implications
As for businesses, the difference is of particular significance in the context of risk management. For example, when buying Directors & Officers Liability insurance, the definitions of wrongful acts and acts, errors or omissions under a contract are distinctly different. Under an Act, error or omission, which is defined to exclude an act taken deliberately, the wrongful acts which are insured are broadly defined. Conversely, under a contract, errors and omissions, the wrongful acts must arise under the contract and be specific acts, errors or omissions, not general acts, errors or omissions, in order for there to be coverage. Similarly, the scope of coverage differs under a business liability policy. The former provides coverage for deliberate breaches but the latter does not. Businesses may be impacted by tort liability in many areas. For example the Competition Act imposes civil and criminal liability on businesses and individuals for antitrust violations; the Canadian Environmental Protection Act imposes criminal liability on businesses and their officers and directors for environmental protection violations; while the Canadian Occupational Health and Safety Act imposes civil and criminal liability when violations may lead to workplace illnesses, injuries, and deaths.
Individuals are also impacted by tort law, particularly as it relates to privacy. In the case of breach of privacy, individuals may sue for trespass, nuisance, defamation, wrongful appropriation, passing off, unfair competition, the tort of intrusion upon seclusion, among other common law torts. Whether these types of claims are actionable is a constantly evolving area of the law which merits watching.
Conclusion: Contract Vs. Tort Law
In conclusion, while the legal concepts of contracts and torts can be intricate, they form the backbone of countless transactions and relationships, both personal and professional. With a fundamental understanding of these terms, individuals can better navigate the complexities of their legal obligations and rights.
Recognizing the differences between contract and tort law is essential for individuals and businesses engaging in a variety of actions. Whether it’s entering into agreements, designing an innovative product, or protecting yourself from accidents , a basic knowledge of these concepts can be invaluable. For your business, being aware of the potential contract liabilities involved with employees, suppliers, and customers, and the tort liabilities that can arise from how you run your daily operations, is critical. Understanding how contract and tort law touch all of our lives can help each of us make more informed decisions moving forward. Although hiring a lawyer can help ensure that you are more universally protected, understanding contract and tort law leads to a more knowledgeable, and therefore safer, society for everyone.