On the Distinction between Contract and Tort

Abstract

The classical understanding of the law of obligations was founded on the idea that a sharp distinction could be drawn between contract and tort. Contractual obligations were believed to be voluntarily assumed, while obligations in tort were thought to be imposed by the courts. Despite decades of criticism, the classical view continues to be repeated in authoritative legal texts. Although the principal flaws in the classical model are widely understood, many judges and scholars still insist that at some fundamental level contract and tort can be distinguished. This paper is the first step in an attempt to understand that insistence and its implications. The goal of the paper is to demonstrate the persistence of the idea that contract can be sharply distinguished from tort and to provide a detailed account of the reasons why that distinction does not stand up to close scrutiny.

The paper looks closely at aspects of contract law that are informed by the values and standards attributed to the law of tort. The idea that contractual obligations are voluntarily assumed is undermined by the objective approach to contract formation, the objective approach to contract interpretation and the extent to which default rules shape the parties' primary and secondary (or remedial) obligations. The idea that contracting parties tacitly consent to default rules by their failure to contract around them fails to provide a basis for distinguishing contract from tort. Lack of knowledge of default rules, disproportionate transaction costs and inequalities of bargaining power prevent many contracting parties from routinely choosing contract terms. If, despite those constraints, persons engaging in contractual behaviour can be said to consent to the legal consequences of that behaviour, we can equally say that legal actors engaging in other types of voluntary conduct consent to the obligations arising from that behaviour in the law of tort. The paper also considers aspects of tort law that are informed by considerations traditionally associated with the law of contract; namely, the extent to which obligations in tort can be voluntarily assumed and voluntarily limited or excluded. The paper shows that obligations in contract, like those in tort, are to a significant extent shaped by community standards. Contractual rights and obligations are to some extent shaped by consensus, to some extent imposed by one party on another and to some extent imposed on both parties by law. Similarly, obligations in tort are to some extent shaped by voluntary arrangements between the parties, to some extent shaped by the unilateral actions of one party and to some extent imposed by law.

JEL Classification: K12, K13