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The difference between Contract, Tort and Restitution

This lecture deals with some preliminary, but fundamental, issues which need discussion before embarking on a detailed consideration of the case law and statutes which make up the English law of contract. These issues are principally concerned with identifying what the law of contract is, and its scope.

The order of treatment is to look first at what is meant by the “classical” law of contract. The issue of the subject matter of contract law is then explored. This leads into a discussion of the ways in which contract can be distinguished from other areas of law involving civil obligations, such as tort and restitution. The question of whether we have a law of “contract” or of “contracts” is considered next.

The concept of the classical law is “invented” in two senses. First, although based on decisions of the courts, the synthesis of those decisions into a (more or less) coherent body of law was largely the work of the “treatise writers”, whose work decided which cases would be given prominence, and who encouraged the formulation of principles of general application to a wide range of transactions. Secondly, the recognition of the model of contract law which emerged from the latter part of the 19th century as “classical”, with the intention of using that model as the basis for an argument that the requirements of “modern” contract law were different, and that adherence to the classical model was inhibiting its development, is largely the product of the work started by commentators writing in the 1970s.

Whatever the accuracy of the precise historical origins of the classical theory, it is now generally accepted that it is centered around the concept of “freedom of contract”, probably as a reflection of the dominance in the 19th century of laissez-faire economic attitudes. At a time of the swift industrialization and increasing commercialization of society, the best way of allowing wealth to develop was to let those involved in business regulate their own affairs, with the courts simply intervening to settle disputes. The parties to a contract will be governed by rational self-interest, and giving effect to transactions which result from this will be to the benefit of both the parties and society.

“Freedom of contract” in this context has two main aspects. The first is that it is the individual’s choice whether or not to enter into a contract, and if so with whom - in other words, the freedom to contract, or “party freedom”. The second is the freedom to decide on the content of the contractual obligations undertaken, or “term freedom”. This allows parties to make unwise, and even unfair, bargains - it is their decision, and the courts will not generally intervene to protect them from their own foolishness.

The paradigmatic contract which emerges from the classical theory has the following characteristics:

(1) It is based on an exchange of promises.

(2) It is executory. This means that the contract is formed, and obligations under it arise, before either side has performed any part of it.



(3) It involves an “exchange”, so that each side is giving something in return for the other’s promise. It is the existence of this mutuality (given effect through the doctrine of “consideration”) which generally gives rise to enforceability.

(4) The content of the contractual obligations is determined by deciding what the parties agreed, or what reasonable parties in their position would have agreed, at the time the contract was made. Later developments are of no significance.

(5) Disputes about a contract can generally be determined by asking what the parties expressly or impliedly agreed (or should be taken to have agreed) in the contract itself. This is sometimes referred to as the “will theory” of contract.

(6) The transaction is discrete, rather than being part of a continuing relationship.

(7) The role of the court is to act as “umpire” or “arbiter”, giving effect to the parties’ agreement. In particular, it has no role in deciding whether or not the transaction is “fair”.

There is probably also an underlying assumption that the parties are of equal bargaining power.

The type of contract which most closely fits the above paradigm is probably the commercial contract for the sale of goods, where the buyer and seller agree that at some agreed date they will exchange the ownership of goods of a specified type for a specified of sum of money. In practice, however, most contracts are not of this kind, and attempts to apply to them rules which were designed to be suitable for the paradigmatic case are likely to produce tensions and problems. Nevertheless, the classical theory of contract, and its model of the typical contract, can still be seen to cast its shadow over English law. In the latter part of the 20th century it was the subject of sustained attack by academic commentators, and many judicial decisions can be seen to have moved, in practice at least, from the strict classical formulations. There is still a reluctance, however, to abandon them, and it is frequently the case that the courts when involved in a development away from the classical model will continue to use language which suggests that they are being faithful to it. The challenge for the student of the modern law of contract in England is to reconcile the fact that it is still rooted in classical theory, at least in the way in which its concepts are expressed, while at the same time developing away from it. It is within this traditional framework that the courts continue to consider contract cases. The substance of many of their decisions, however, and virtually all the interventions of Parliament, are taking the law in new directions. The form may be “classical”, but the content is ‘modern’, and this tension must be kept in mind in considering all that follows.

Do we have a law of contract or a law of contracts? The premise of a contract text of this kind is that there is a sufficient body of general rules and principles which apply to all (or virtually all) contracts to say that there is a “law of contract”. The counter-argument can be based on two grounds, both largely to developments in the area over the past 100 years.

First, it can be pointed out that there are many specific types of contract which are now the subject of quite detailed statutory regulation. Contracts of employment, consumer credit agreements and contracts for the sale of land, for example, all operate within elaborate statutory frameworks. Even the type of agreement which might be regarded as the archetypal contract - the exchange of goods for money - is governed by the Sale of Goods Act 1979, the Unfair Contract Terms Act 1977 and, if the buyer is a consumer, the Unfair Terms in Consumer Contracts Regulations 1999. This dichotomy is reflected in the format of Chitty on Contracts, which appears in two volumes, one devoted to General Principles, the other to Special Contracts.

The consequences of this can be seen by looking at its effect on the way in which the novice law student learns about the law of contract. This in turn will affect the practitioner’s understanding, and will eventually be likely to have an impact on the practical development of contractual doctrine as developed by the courts. The reality is that the contracts falling within ‘specialist’ areas are often treated for didactic purposes as being best dealt with separately from the general law. The LLB course, therefore, will typically have a Contract Law course, but also separate courses on Employment Law, Land Law, Consumer Law, Commercial Law, etc. The general Contract Law course will not have the time to deal in detail with the statutory regimes governing all the different types of contract, and will leave these to be dealt with by the specialist courses. Some of these specialist courses will be optional. The student who does not follow all of them will therefore have an incomplete picture of the rules and principles governing ‘contracts’. More importantly, he or she will be likely to retain the mental ‘pigeon-holing’ encouraged by this structure to their studies, and therefore be less likely to draw connections between different areas.

One response to this is to say that it does not matter. There is in reality a range of different types of contract, and there is no reason why the rules operating in one area should have any impact in another. A contrary view is to argue that the diversity should be embraced as adding vibrancy to the development of contractual principles. An attempt to adopt an inclusive approach has been put forward by Collins. Noting that thegenerality of the traditional approach made it ‘increasingly irrelevant’ to disputes governed by special rules, he puts forward an alternative:

“In order to counter this incoherence and redundancy, the conception of contract law employed here focuses on the social context of market transactions, that is where people seek to acquire property or services by dealing with others." Whilst acknowledging that the law regulates these transactions by classifying them into particular types, this conception of contract law seeks to understand the general principles and social policies which inform and guide the legal classifications and regulation.”[1]

What is the law of contract about? This is a question to which, perhaps surprisingly, there is no clear, universally accepted answer. There are, however, several candidates for the basis of the legal enforceability of contractual obligations. They can be viewed, for example, as a means of:

(a) enforcing promises; or

(b) regulating the market in the provision of goods and services; or

(c) facilitating exchanges (for example, of goods or services for money).

Any of these individually, or some combination of them, can be put forward as being at the root of the law of contract, but none of them is without difficulty.

It is generally recognized that there are three main strands to English law relating to civil liability - contract, tort and restitution. To what extent are these distinct, and is there any overlap between them?

As indicated above, the view taken here is that the province of contract law is the facilitation and enforcement of voluntary exchange transactions. The law of tort, on the other hand, is concerned with imposition of standards of behavior, irrespective of whether the behavior is linked to a transaction, or voluntarily undertaken. There is an overlap, however, in that the performance of a contract can involve a tort, giving rise to the possibility of dual liability. If, for example, during the course of the construction of a building, the negligence of a builder leads to a wall collapsing, injuring a third party, the construction company may be liable in contract for the fact that the wall was defective, and in tort to the injured party for the negligence in its construction. If the person injured were the other party to the contract, then there would be liability in both tort and contract to the same claimant.

The third element in the law of obligations - restitution - has been recognized much more recently as a separate head. The aim of the law of restitution is to prevent “unjust enrichment”. Thus, where a person has been paid money as a result of a mistake, the law of restitution provides the means by which it may be recovered. There is no need for the situation to involve an exchange transaction, as in contract, or for the behavior of the person who has been unjustly enriched to fall below an accepted standard, as in tort. Restitution has links with contract, however, in that it is not infrequently used in situations where the parties have been attempting to make a contract, but this has for no reason failed.

The difference between contract, tort and restitution is sometimes said to be based on the nature of the remedies available in relation to each, and in particular the measure of damages. Thus, in contract, the primary measure of damages is the “expectation” interest, designed to put the claimant info the position as if the contract had been performed satisfactorily (so that benefits to be obtained from the contract, such as lost profits, can be recovered). In tort, on the other hand, the normal measure is to put the claimant into the position he or she would have been in had the tort not occurred. This will generally be backward looking, compensating for loss and damage caused, but not taking into account lost benefits. In restitution the object is the return of property and the disgorgement of unjustified benefits.

Looking at the differences between the various strands of the law of obligations in terms of the remedies is, however, starting from the wrong end. The basis of liability must be the foundation of the distinction between them, with the remedies which are available being a consequence of that liability. There is no absolute requirement, for example, that contract remedies should be centered on the expectation interest. Indeed, it is possible in an action for breach of contract to recover damages on any of the three bases just mentioned - that is, expectation, the ‘tort’ measure (compensating for actual losses, rather than expected benefits) or restitution.


Date: 2015-12-18; view: 1261


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