A Brief Overview of Contract Law and Tort Law
Contract law is the body of law that governs the formation and performance of agreements. Contracts are agreements between two or more parties that establish legal obligations to provide goods, services or both. Contracts can be written or verbal, however some contracts are required to be written under state law. There are many types of contracts including sales agreements, leases, and promissory notes all of which have their own specifics regarding formation, performance and enforcement. Parties can be individuals or companies and a party can make a contract with itself (for example an individual agreeing to serve as director of a corporation while also acting as president) or with others (like an employee and employer). Contract law provides the enforcement mechanism to ensure that individuals meet their obligations and receive their benefits as set forth in the agreement.
Contract law is significant to commerce and business practices. It would not be possible to engage in business dealings without contracts to protect either party’s expectations and contributions. For this reason contract law is typically well established with many precedents to assist in interpretation and enforcement of existing contracts. Contracts roughly fall into two categories: those that involve significant exchanges of money and those that do not. If the parties to an agreement establish an exchange of money greater than a set amount (determined by the legislature), the contract must be in writing. There are specific details that must be included to render the contract enforceable. While it is not necessary to use attorneys to create a contract, such a step is encouraged. Individuals or entities that enter into a contract without having the contract drafted or reviewed by an attorney increase the risk of later disputes. Negotiating a contract is always a good time to consult with an attorney so the agreement is represented fairly and correctly.
Tort law is the body of law that addresses civil (non-criminal) wrongs committed against individuals . For example, a tort arises when someone fails to adhere to an established standard of care—such as an automobile driver who fails to stop at a red light—or takes actions that result in economic or personal damages to another individual, such as when someone intentionally attacks another person (assault and battery). There are many types of torts including: negligence, trespass (to land or personal property), false imprisonment, defamation and misrepresentation (negligent or intentional). Each tort has its own elements, which must be satisfied to establish the tort has occurred, however generally, a tort exists if one person harms another person through the failure to act as an ordinary and prudent person in similar circumstances would act. In some circumstances a tort may require that the loss or injury was intentional to be actionable. Torts can also arise in the context of employment. For example, if an employer intentionally harms an employee by trying to cause a workplace "accident" to avoid a workers’ compensation liability the employee has committed a tort against the employee that may be actionable in court. Other torts that are related to employment include: infliction of emotional distress, false imprisonment, black listing, defamation, negligence, impairment of future earnings, wrongful interference with contractual relations and tortious interference with business relations. The most common tort case is negligence, which requires the plaintiff prove that defendant: 1) had a duty of care, 2) breached the duty of care, 3) the plaintiff suffered an injury, and 4) the breach of duty caused the injury. A tort maximizes the remedy to a party making it the favored cause in court. The causes of action that are actionable as torts may also be actionable as criminal violations, resulting in a potential prosecution as well as a civil action. Unlike a contract, a tort is an involuntary relationship and involves circumstances beyond the control of the defendant. The connection between the parties is not the same as if they freely entered into a contract with agreement, acceptance and adequate consideration.
Key Fundamentals of Contract Law
The core principles of contract law can generally be summed up as offer, acceptance, consideration and an intention to create a legal relation between the contracting parties. A fatal flaw in one of these elements will usually render the contract void.
A contract is an offer by one party that contains the terms upon which they are willing to agree to do business with the other person, and this offer is then accepted by the other party. There is a presumption that a contract exists in the form proposed by the offeror and within the ambit of this general rule, the offeror is free to determine what he or she wishes to include in the offer, the terms upon which they will contract and the method they require the offeree to adopt in order to communicate acceptance of the offer.
Against this background, the classic requirements for a valid contract are that an offer (which must include all the important elements of the agreement, including price, must be capable of acceptance and be in relation to a certain subject matter) is made by the offeror to the offeree, which is followed by acceptance of the offer by the offeree.
The offer can be in writing or oral, as long as it is definite enough to enable the nature and scope of the offer to be identified and conveyed to the offeree, who must accept the offer within the time specified within the offer, or if no time period is contained, within a reasonable period of time after the offer was made.
Acceptance must be absolute, full, unconditional and without variation or modification in any terms – it can be expressed by action, words or inaction. Silence, however, does not constitute acceptance.
If there is nothing to indicate the contrary, acceptance is manifested by notification of the acceptance to the person making the offer (the offeror) and must thereby come to the knowledge of the offeror. The person to whom the offer is made (the offeree) could be a particular person or group of persons, all of whom represent a certain class of persons or the world at large.
The offeree must be an identifiable person or group of persons. An offer can be revoked at any time before it has been pronounced, provided that there are no circumstances under which, because of reliance on it, the offeree has acquired a right against the offeror which is indissoluble or definitive.
Consideration, which is an essential ingredient of a contract, refers to the reciprocal nature of the exchange of rights in terms of which the object of the contract is acquired. It can be any reasonable form of compensation, including money, property, a promise, or an act of giving out.
The intention to create a legal relationship envisages that there has to be some form of common understanding between the parties at the time of conclusion of the agreement that the obligation will affect interests of each of the parties in such a way that it will, if necessary, have the protection of law. Thus, there is a presumption that an agreement between people who are involved in a family situation (e.g. boyfriend/girlfriend, husband/wife or an employer/employee relationship) or commercial relationship (e.g. partnerships, shareholders) will not create legal relations unless it can be shown that they intended otherwise.
Parties often assume that a contract exists when in reality, there really is no enforceable agreement, and this often leads to contract disputes, sometimes even litigation, when in truth there may be no binding contract to dissolve – just a misunderstanding between the parties.
Important Components of Tort Law
All torts have to have the following four elements:
• Duty of Care.
• Breach.
• Causation.
• Damage.
Duty of Care
Duty of Care is a very important element of tort law. Duty of Care is a sensible way for the courts to state that people have to take care not to injure each other. To determine whether a person owes a Duty of Care the elements of the case will be examined to see if the person owed the injured party a Duty of Care. A person will owe another person a Duty of Care if they are in a significant relationship with them and it is foreseeable that their conduct could result in causing them harm. A good example of this is the case of Ha v New South Wales (2007). A group of builders were engaged to build a house. While the house was under construction it was rained on and Mr Ha downloaded the blueprints of the house from the net but didn’t know this because he was only a builder and didn’t know anything about architects drawings. The house was ‘leaking’ so the builders put down 5 kilowires of concrete which Mr Ha thought were earth. By stopping up holes to stop the rain coming into the house, the builders had made it worse and it caused more damage than if they hadn’t done anything. The court stated that the builders owed Mr Ha a Duty of Care. They caused loss and damage by their acts in the course of carrying out their duties. The breach caused the damage.
Breach
If there is a Duty of Care, it will be a breach of the Duty of Care for a person to act in a way that is unreasonable in the circumstances. This is very fact specific. The breached Duty of Care must be a clear breach or so unreasonable in the circumstances that there will be no room for doubt. An example of Breach can be seen where one party was held to not to be in breach of duty to ensure the safety of a child on the premises. The facts need to be taken into consideration. In Ellul v O & M Dredging Pty Ltd & Anor (1969) the defendant, a boat owner and operator of a children’s play ground had set up 3 small inflatable dinghies. Some of the children were playing with the dinghies at the edge of a slipway available to boat traffic when the plaintiff’s son fell into deep water and drowned. The plaintiff sued for damages for the death and alleged that the defendants had been negligent in permitting their son to play on the shore with inflatable dinghies in circumstances where the son was too young to have any appreciation of the danger and where it was foreseeable that he could fall into deep water and drown. The adequacy of the supervision by the defendant was such as to relieve them of liability. It was foreseeable that the plaintiff’s son could fall into the water and drown. However the court found that it was not a breach of their duty of care to do the things that they did. It took into consideration the ‘mischief theory’ which means if they were to try to prevent all mischief the recreation of children would be impossible. If one ‘mischief’ is restricted, there would be unintentional harm that deviates into other areas of recreation. The interference with recreation could be greater than a small risk of harm.
Causation
In order to succeed in litigation, it is necessary to show that the person whose liability was alleged to be owed, was the cause of the damage, loss or injury. If the loss or injury would have happened even if the defendant had not been negligent, then the loss or injury would have occurred regardless of the defendant’s conduct. The behaviour of the defendant has to have been either the cause of the injury or the material increase in the risk of the injury occurring. A classic example where causation was argued was in Crest v State of New South Wales (2007). The plaintiff had taken her horse to a veterinary clinic and left it in the care of the defendant. The horse panicked and broke free from the staff and injured itself. The plaintiff sued claiming that the defendants had been negligent in handling the horse and sued for the excessive veterinary fees and the loss of income from the horse’s failure to recover. It was held that there was no causation present and there was also insufficient evidence to determine that there was a breach of duty of care. The Court ruled that the horse may have broken down regardless of whether there was a breach.
Damage
If a person is a victim in the example above, they have suffered damage. Damage is an essential element because it needs to be established that the plaintiff has suffered some damage which is caused by the defendant.
Differences Between Contract and Tort Law
The key distinctions between contract and tort law lie primarily in the nature of the obligations the parties owe each other, the types of damages available and whether consent or fault is enough to give rise to liability in contract while negligence is necessary to find liability in tort. In contract law, the most common obligations are the repayment of a sum of money or doing some other action that compensates for the breach of contract. In tort law, the most common obligations include the payment of a sum of money that redresses a loss as well as some other court-enforceable form of compensation. Furthermore, contract law covers obligations that people enter into voluntarily. In these agreements, the individual has given consent to the obligation. In tort law, an individual does not have to consent to an obligation. In this way, the courts take the role of ensuring that there is no unfairness in holding an individual accountable to an obligation and damages for a tort are relatively low when compared to those for a breach of contract. In a tort, the obligation is something that simple fairness requires.
In a tort action, the need for negligence means that there is some burden upon the plaintiff to show that the defendant was at fault. In contrast, in a contract, if failure of performance occurs and the elements of the contract are met, then the defendant is liable for damages because of a breach of contract.
How Courts Apply Contract Law and Tort Law
The distinction between contract and tort law is an important one that permeates many aspects of the legal system. Even at the level of law school education, contract law is often covered under the commercial subjects framework where it is taught separately from tort law.
When judges are interpreting contracts, they often look to the intent of the parties and words that have been used in the contract itself to determine what the contract means. Where contract law will typically be governed through interpretation of the contract, the interpretation of tort law will be much more contextual. The approach the courts take in relation to the constituting elements of a tort is based on previous cases of law. For example , the elements of negligence or defamation are not purely defined by word or syntax but rather are fleshed out in case law as the result of various previous decisions and interpretations. Contract law on the other hand is based on the intention of the parties that are involved and what has been expressly written in the terms of the contract. Where tort law relies on the execution of various precedents (previous case law), contract law revolves around interpretation. A key example of this is the difference between liability of the occupiers’ liability and liability in tort law. When in the course of doing business a store owner might be liable for damages in tort law whereas if their is an injury on the premises, case law will question whether that injury is the result of an interpreted intention of the parties that govern that contractual relationship.
Contractual Breaches and Tortious Conduct
Let’s start with examples of contract breaches. Imagine you agree to build a house for a client for a certain fee. Under the contract, you are supposed to complete the house in nine months. You complete it in seven months. Although you’ve completed the house ahead of schedule and your clients are happy, you have still technically breached the contract because the clients did not ask you to complete it in seven months. They asked you to complete it in nine and you still must fulfill the terms of the contract.
Let’s consider another example of a contract breach that is more clear-cut. Let’s say you enter a contract with an energy company to provide outdoor lighting for a big event. The energy company pays you $5,000 in advance and you begin work. After just five days, you call in sick for three weeks and the energy company has to hire someone else to finish the job. You’ve breached the contract by taking so long to complete the job and making the client hire someone else.
Tortious acts also have many different examples. However, the most basic one is that if someone enters your office without getting permission first and damages your property, you are able to file a lawsuit against them. Another example is if someone uses your work without your permission. If you specialize in lead generation and someone chooses to take your work to resell to clients without offering compensation, you can sue for that as well.
The two types of law are clearly very different from one another. While a breach of contract may be slight depending on the circumstances, a tortious act is much more about someone being able to recover something they are rightfully owed.
There is still room for mistakes in both, however. For example, if you thought a contract was offered but it actually wasn’t and you use work based on that assumption, you may be accused of breaking the law in using the work.
Real-World Applications for Individuals and Corporations
For individuals and businesses, the differences between contract law and tort law have significant practical implications. From a business perspective, these differences can determine whether a profit is realized from goods sold and services provided. On an individual level, a personal injury can be sustained for which there is no recourse to recover damages from the responsible party.
For example, an employee can be injured on the job as the result of an employer’s negligence. Under the Americans with Disabilities Act (ADA), the employee may have a claim against the employer if they are terminated as a result of the injury. If, however, the employee is injured because the equipment they were using was faulty, they may not have a claim against the equipment manufacturer because of tort law’s "product liability" limitation. In this particular instance, the employer may have a separate claim for defective products against the third-party manufacturer, and the injured employee may be able to claim workers compensation benefits.
In a different scenario, an individual who is involved in an automobile accident, for example, may suffer great physical injuries and property damage. If the defendant driver (at fault driver) was intoxicated at the time of the accident, then the injured person has a claim against both the at fault driver and potentially against the local bar that served the at fault driver under a theory of "dram shop liability." The key here is that even in a field where there are overlapping principles, the nuances are critical.
One of the most important lessons that can be derived here is that individuals and businesses alike must pay careful attention to the legal implications of their conduct. A poorly worded agreement or an unexpected change in the current state of the law can create advantages for one party and misfortune for the other. When it comes to the law, permanence is a relative term and details do not go away. They are what binds each party together in consultation with the law as a third party arbiter.
Final Thoughts: Contract Law vs Tort Law
Contract law and tort law are both a part of the everyday lives of people in Illinois and throughout the United States. While the general distinction between these two bodies of law is very important for all litigants and businesspeople to recognize, it is not always helpful when trying to identify which law applies to a particular situation. A breach of contracts between parties can overlap in some ways with a tort in a particular situation. Therefore, whether a given action that is contemplated or has taken place falls under contract law or tort law is not necessarily clear.
When faced with a legal situation , it is advisable to contact an attorney who is experienced in both areas of torts and contracts. It is far from uncommon for the law in Illinois and elsewhere to be somewhat vague and for an action to straddle the boundaries between contract law and tort law like in the common example of a tort of fraud, for example. An experienced attorney should be able to carefully evaluate a given set of facts and circumstances and provide useful information on whether to proceed with a lawsuit under contract law, tort law, in both areas of law, or neither.