Notes and Comments

Relations Between Contract and Tort Theories

The common law has traditionally attempted to treat contract and tort as two distinct and almost wholly separate areas of law.Thus,breach of contract has traditionally been actionable only in contract despite the fact that the breach was being used to harm the other party.The critical differences between the contract and tort treatments are the nature of the remedies and the characterization of the precipitating action.Although tort remedies are bounded by relatively loose constraints of causation and foreseeability,contract law generally permits recovery only for readily foreseeable damages to tangible interests.As explained in the introductory note to Chapter 16 of the Restatement,Second,Contracts (1975):

[t]he traditional goal of the law of contract remedies has not been compulsion of the promisor to perform his promise but compensation of the promise for the loss resulting from breach.“Willful” breaches have not been distinguished from other breaches,punitive damages have not been awarded for breach of contract,and specific performance has not been granted where compensation in damages is an adequate substitute for the injured party.(https://www.daowen.com)

These differences in remedial schemes are driven by the notion that the breaching party in a contract action is not regarded as a wrongdoer.Under the common law a promisor is not under an unequivocal duty to perform.Rather the duty is to perform or to breach and pay damages.The promisor is not only privileged to breach and pay damages,but is positively expected to do so whenever the gains to be had from breaching exceed the costs of paying damages.The underlying theoretical claim is one of allocative efficiency: when a promisor has an opportunity,through breach,to improve his or her condition while making good any losses suffered by the promise,the breach will result in an improved allocation of resources.

Because the notion of harm in contract law has remained relatively stable while tort law has greatly expanded its classes of compensable harm,some now see the allocative efficiency argument that supports the tort/contract separation as an artificial barrier that denies contract plaintiffs reasonable compensation.Until recently,however,the wall between contract and tort has been a relatively solid one.The only area in which the courts have generally been willing to blur the distinction has been in insurance disputes,as described above in Chapter X.Although many states have embraced the third party insurance tort of breach of the implied covenant of good faith and fair dealing,and others have extended the use of the bad faith action to first party insurance disputes,few states have recognized the validity of this tort outside of the insurance context.A minority of states have,however,cautiously begun to extend its boundaries.