1.2. The Subject Matter of Contract Law

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:

1. enforcing promises; or

2. regulating the market in the provision of goods and services; or

3. 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.

1.3 Contract, Tort and Restitution

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, as indicated above, 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.