Tort and Contract Law Explained
Tort law and contract law are both integral parts of the American legal system, but they serve different purposes and are governed by different legal standards and principles. Broadly speaking, tort law is a body of law that provides remedies to individuals who have been harmed by the unreasonable, careless, or intentional acts of others. Its primary purpose is to provide a legal remedy for a civil wrong—known as a tort—by which a person has caused harm to another. Tort law cases may seek a variety of damages, including compensation for bodily injuries, loss of or damage to property, loss of income, reputational damage, and emotional distress.
Contract law, on the other hand, arises from the voluntary agreement or promise between two or more parties. The primary purpose of contract law is to enforce the obligations and agreements contained in these contracts and to provide remedies to parties whose contractual obligations have been breached . A contract is a legally enforceable promise or set of promises between parties, and a breach occurs when a party fails to perform their contractual responsibilities. Breach of contract law remedies for non-performance could include the enforcement of the contract’s terms and/or monetary relief.
Though there are some overlaps between tort and contract law—as in the case of negligent misrepresentation, where a person relies on false information provided by someone else, and suffers harm as a result—they are generally treated as two separate areas of the law. Tort and contract law are both important in providing a remedy for different types of wrongs and in helping to compensate victims for their losses. Their role in the legal system is to enforce an individual or party’s responsibility to others and to provide remedies when someone’s acts have caused harm to another. The specific examples of tort and contract law and their application will be discussed throughout this article.
The Major Distinctions Between Tort and Contract Law
The nature of the obligation is very much the first real difference to highlight between tort and contract law. Contractual obligations are in their essence voluntarily entered into by the parties. An agreement is in its heart a contract then. A tortious obligation is ideally a result of a breach of a duty imposed on an individual(s) by law rather than through an agreement. To put it another way, the law itself imposes the duty in a tortious claim. So many times, there are a number of factors driving a case that involve both tort and contract (i.e., a personal injury arising from a car accident). Both claims are being asserted by the plaintiff against the defendant. As such, when injured it is so important to understand whether the claim should be pursued under tort or contract as a plaintiff. Some contracts also have a greater connection with one jurisdiction than with another jurisdiction. The relationship between the parties is also a significant factor. An example of this would be the fiduciary duty that exists between a trustee and a beneficiary or between a partner and a partnership. As for the extent of the remedy in tort law as opposed to contract law, tortious and contractual obligations differ in their nature and extent. Pain and suffering and damages are a part of both, but tort remedies tend to be aimed at the prevention of harms, while contract remedies are aimed at redressing harms already done to the plaintiff. Tort remedies tend to be more focused on the punishment of the tortfeasor (the wrongdoer) and on future protection (injunctions, etc.). Contract remedies tend to focus on the existence of the breach of the contract and are based on the premise of putting the plaintiff back to where they should have been if the contract or promise had been performed.
Categories of Torts and Breaches of Contract
Almost every legal claim is a claim for either a tort or a breach of contract, with torts being by far the more common of the two-though contract breaches are still fairly prevalent in the legal system. While torts and contract breaches share some similarities in that they are both legal violations, the two are normally mutually exclusive. For this reason, understanding the differences-and, to a lesser extent, the similarities-between the two can be essential to determining your best legal strategy.
The most common types of torts are as follows:
Negligence. Negligence occurs when a person fails to act with the level of care a reasonable person of ordinary prudence would exercise under the same or similar circumstances. Driving while texting, drunk driving, failing to clear the snow off one’s car, failing to salt or sand a deck after freezing rain, and failing to adequately cut grass on a rental property are all examples of negligence. Courts will usually decide if there has been a breach of duty of care, sometimes with the use of expert testimony and peer testimony.
Intentional Tort. An intentional tort is exactly what it sounds like. For purposes of this blog post, we’ll go over only the most common types, which are: assault (placing someone in fear of physical harm); battery (touching someone in a non-consensual manner and with the intent to harass, annoy, alarm, abuse, defraud, exasperate, or annoy); false imprisonment; malicious prosecution (wrongfully filing criminal charges against someone you know to be innocent); defamation of character; slander (defaming someone verbally); libel (defaming someone in writing); invasion of privacy; false light; fraud; and trespassing.
Strict Liability Tort. Strict liability torts do not require that the defendant show any wrongdoing, just that the defendant caused harm. These torts are generally applied to people who deal with incredibly hazardous substances that can result in unforeseeable and unpreventable harm, such as explosives, poisons, etc.
Trespass to Land. Trespass to land is the unlawful, intentional entry onto another person’s land.
Trespass to Chattel. Trespass to chattel is the unlawful, intentional interference with another person’s use of his or her personal property.
Conversion. The unlawful acquisition of personal property.
Nuisance. Nuisance is a claim of an unreasonable interference with another person’s use of land or personal property.
Fraud. Claim that another person has intentionally misled a person, causing the victim(s) to suffer losses.
The most common types of contract breaches are as follows:
Nonperformance. The other party performed so poorly that he or she did not perform his or her obligations in any form.
Anticipatory Repudiation. Anticipatory repudiation occurs when a party who contracts to perform an act shows an intention not to perform by performing an act inconsistent with contracting.
Anticipatory Breach. A breach that occurs before the performance is due, and which creates the inability or lack of willingness of a party to fulfill contractual obligations.
Innocent Misrepresentation. A non-intentional misrepresentation.
Fraudulent Misrepresentation. A misrepresentation made intentionally to deceive another person.
Impossibility. It’s impossible to perform.
Impracticability. The contract has become too difficult and/or burdensome to perform.
Legal Recourse and Liability
The legal protections conferred and liabilities imposed on parties differ between tort law and contract law. In a tort action, compensatory damages may be available to victims for the value of their loss, as well as for their pain and suffering. Depending on the jurisdiction, punitive or consequential damages may also be available. Punitive or exemplary damages are awarded in tort law cases where there has been intentional misconducing to provide additional deterrence for the wrongdoers behavior. For example, a court may award punitive damages for libel or slander. However, there are limits to the amount of punitive damages that can be awarded by a court depending on the jurisdiction, and a fact finder may be limited in their award of such damages.
In the case of contract law, a non-breaching party can receive expectation damages, which cover lost profits and other benefits that were expected to be received under the contract. Another theory of recovery is reliance damages, which provide recovery for a non-breaching party based on the amounts expended thus far in relation to the contract (e.g., custom ordered goods and materials, labor, fees, advertising, etc.). There is no recovery for lost profits or other indirect costs where expectation damages are not available, but reliance damages are. Parties cannot receive both, however; they must elect one or the other regardless of the jurisdiction. Additionally, a court may award specific performance, whereby the breaching party is required to perform its obligations under the contract. Generally, though, courts will award expectation damages over specific performance. Equitable remedies such as suit for injunction are also available.
Practical Examples: Tort Vs Contract Law
In practical terms, the distinctions between tort law and contract law can be subtle and sometimes are difficult to recognize. This is particularly true where damages are sought for injury or loss attributable both to a legal duty arising out of an agreement or contractual relationship between the parties, as well as to injury or loss attributable to a breach of duty to exercise care imposed by the law independent of any agreement between or among the parties.
The following case studies highlight some of the more notable examples of the application of principles of tort law and contract law in resolving disputes across various contexts.
Loveless v. Fogel, 71 So.3d 1136 (Fla. Dist. Ct. App. 2011). Lawrence Loveless was a participant in a Florida real estate deal brokered by Rick Fogel and his investment group. When the transaction turned sour, Loveless sought the return of his $300,000 deposit, which Fogel refused to return because he claimed that he made arrangements for an alternative disposition of the property in accordance with the terms of the parties’ agreement. The litigation that followed involved claims for breach of contract, fraud, and negligent misrepresentation.
The plaintiff in Loveless alleged that he had entered into a valid and enforceable contract for the sale of certain property and that he engaged the defendants’ real estate firm to handle the closing. He claimed that the defendants acted negligently by failing to identify the actual property to be purchased and that their negligence was the "direct and proximate] cause" of his financial losses. The trial court granted the defendants’ motion to dismiss, agreeing with the defendants’ argument that the claims of breach of contract and negligent misrepresentation were barred by the economic loss rule.
In issuing its opinion, the court explained that "[t]he economic policy rationales underlying the economic loss rule have given rise to two distinct tests." According to the Florida Supreme Court, the economic loss rule was "designed to [apply] … when a claim for economic damages flows from a breach of a noncontractual duty, as opposed to a tortious breach of a [contractual] duty." The court also noted that "[t]he purpose of the economic loss rule is to exclude tort recovery where the parties have contracted to allocate risks among themselves." Conversely, when "the duty breached is one the parties have not contracted to protect—and the parties have a special relationship such that the party seeking to recover may expect to look to the other for protection from economic risks," the economic loss rule does not apply.
The trial court’s ruling in Loveless was upheld on appeal, including the finding that the plaintiff’s claims were based on the same alleged acts and omissions causing him financial losses, i.e., the defendants’ failure to obtain a signed contract from the buyer and to close the transaction in accordance with the written terms of the letter of intent . The court agreed with the trial court’s finding "that the duties owed to [Loveless] by the defendants arise out of the parties’ contractual relationship… . [And that the economic loss rule precludes recovery of economic damages in tort (here, for negligent misrepresentation) where there is no recovery in contract] and all of the damages claimed by the plaintiff are either for injuries to the defective [contract] product itself or for any other economic losses."
Mattox v. Heritage Bank, 60 So.3d 449 (Fla. Dist. Ct. App. 2011). In this case, the plaintiff loaned $100,000 to two builders in reliance on three promissory notes, with the defendant (Heritage Bank) acting as escrow agent. When the builders went bankrupt, the plaintiff sued the bank for refusing to release the funds after the plaintiff inquired about a delay in the construction of his new home.
In its decision, the court stated: "There is no separate cause of action for an agent’s breach of contract, unless the contract modifies or negates the general rule that the principal is liable for the actions of the agent." The plaintiff argued that Heritage Bank’s failure to perform its obligations under the escrow agreement had caused his significant financial losses as a third-party beneficiary of the agreement. The court agreed with the trial court’s findings and ruled in favor of the defendant bank, concluding that "[t]here is nothing in the escrow agreement that would prohibit [the bank] from returning the deposit … to the builders because they [were] in the best position to determine whether the closing conditions [had been] met."
Subway Listens LLC v. IBP Franchising LLC, Case No. 5:16-CV-01143-EJD (N.D. Cal. Jan. 07, 2019). Members of the plaintiff group of franchise Subways brought suit against the defendants under California Business and Professions Code §17200 for unfair competition and false advertising, and under fraudulent concealment and fraud theories, alleging that the defendants’ scheme to drain the profits of franchisees was "similar or identical to a scheme to defraud around 5,300 Subway franchisees that has previously been prosecuted by the Federal Trade Commission." In finding in favor of the plaintiffs, the court explained: "Defendants’ marketing campaign represented to franchisees that their profits would increase if they purchased Subway franchises, which indoctrinated franchisees into believing the subway brand was valuable and worth saving even after franchisees’ profits began to fall." The court added that "defendants’ scheme deceived franchisees in a way similar to how all of Subway Corp.’s advertising functions, i.e., enticing franchisees to join the brand for the promise of profits and then (after the franchisees are in) significantly lessening the value of being a Subway franchisee."
When to Consult an Attorney
When you seek to file a tort claim or, instead, need legal assistance with a contract dispute, you should hire an attorney. You do not want to attempt to get reparation without expert legal aid. Generally speaking, a tort attorney handles tort cases. An attorney who specializes in contract disputes handles cases involving contract breaches. With a professional attorney on your side, you are more likely to be awarded: With regard to tort law, when you have been injured due to the negligence or malicious actions of another party, you can seek assistance from a tort claim attorney. If your business or your personal life has been disrupted by actions that violate a contract to which you are party one, you can pursue a civil suit with the assistance of a contract breach attorney.
Final Thoughts
To summarize, tort law and contract law both fall under the larger umbrella of civil law. Both areas of the law help victims of various kinds of wrongdoing seek damages and liability from responsible parties. While they do have some similarities, there are several notable differences as well. Overall, tort law is about holding a person or company responsible for harming another person and seeking payment for bills, pain, suffering, and other associated damages. This is true in cases involving car accidents, dog bites, slip and falls, medical malpractice, and various other personal injury situations, as well as more serious matters like wrongful death claims. Contract law, on the other hand , is about holding people or companies responsible for not fulfilling legally binding obligations or promises. If someone doesn’t comply with the deal they’ve made, it leaves the other person financially vulnerable or in a position where they may have to pay out of pocket for damages, and thus they’re able to pursue compensation for their losses. If you have experienced any kind of wrongdoing in your everyday life, you may need a lawyer to help you with your case. Tort law and contract law are both meant to protect the rights of regular, everyday people who have suffered harm due to another party’s negligence or deception. Knowing what type of lawyer you’ll need and what your rights are as a victim of such wrongdoing is a vital part of protecting your interests.