Opinion ID: 1229645
Heading Depth: 1
Heading Rank: 5

Heading: Contract and Tort

Text: (5) Contract and tort are different branches of law. Contract law exists to enforce legally binding agreements between parties; tort law is designed to vindicate social policy. ( Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683 [254 Cal. Rptr. 211, 765 P.2d 373].) We have described the essential difference between contract and tort law as follows: As Professor Prosser has explained: `[Whereas] [c]ontract actions are created to protect the interest in having promises performed,' `[t]ort actions are created to protect the interest in freedom from various kinds of harm. The duties of conduct which give rise to them are imposed by law, and are based primarily on social policy, and not necessarily based upon the will or intention of the parties....' ( Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 176 [164 Cal. Rptr. 839, 610 P.2d 1330, 9 A.L.R.4th 314].) Conduct amounting to a breach of contract becomes tortious only when it also violates an independent duty arising from principles of tort law. The law imposes the obligation that `every person is bound without contract to abstain from injuring the person or property of another, or infringing upon any of his rights.' (Sec. 1708, Civ. Code.) This duty is independent of the contract .... `[A]n omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.' ( Jones v. Kelly (1929) 208 Cal. 251, 255 [280 P. 942].) (6) The differences between contract and tort give rise to distinctions in assessing damages and in evaluating underlying motives for particular courses of conduct. Contract damages seek to approximate the agreed-upon performance. [I]n the law of contracts the theory is that the party injured by breach should receive as nearly as possible the equivalent of the benefits of performance. (1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 813, p. 732; see also Peterson v. Larquier (1927) 84 Cal. App. 174, 179 [257 P. 873].) For the breach of an obligation arising from contract, the measure of damages ... is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom. (Civ. Code, § 3300.) Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectations of the parties are not recoverable. (Civ. Code, § 3300; Mitchell v. Clarke (1886) 71 Cal. 163 [11 P. 882]; Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal. App.3d 442, 455-456 [277 Cal. Rptr. 40]; Menodoyoma, Inc. v. County of Mendocino (1970) 8 Cal. App.3d 873, 879 [87 Cal. Rptr. 740] [applying the rule of Hadley v. Baxendale (1884 Ex.) 156 Eng.Rep. 145 to contract damages recoverable under Civ. Code, § 3300]; see also Note, supra, 8 Loyola L.A.L.Rev. at pp. 323-328.) This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise. In contrast, tort damages are awarded to compensate the victim for injury suffered. (6 Witkin, Summary of Cal. Law, supra, Torts, § 1319 at p. 776.) For the breach of an obligation not arising from contract, the measure of damages ... is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not. (Civ. Code, § 3333.) (7) Consistent with the distinctions just discussed, damages for mental suffering and emotional distress are generally not compensable in contract actions. ( Sawyer v. Bank of America (1978) 83 Cal. App.3d 135, 139 [145 Cal. Rptr. 623].) Similarly, punitive or exemplary damages, which are designed to punish and deter statutorily defined types of wrongful conduct, are available only in actions for breach of an obligation not arising from contract. (Civ. Code, § 3294, subd. (a), italics added.) In the absence of an independent tort, punitive damages may not be awarded for breach of contract even where the defendant's conduct in breaching the contract was wilful, fraudulent, or malicious. ( Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal. App.4th 949, 959 [17 Cal. Rptr.2d 242]; see Crogan v. Metz (1956) 47 Cal.2d 398, 405 [303 P.2d 1029].) Within the different spheres of contract and tort, motivations for conduct are also treated differently. In an intentional tort action, motives amounting to malice, oppression, or fraud may justify punitive damages. (Civ. Code, § 3294.) But the law generally does not distinguish between good and bad motives for breaching a contract. [I]n traditional contract law, the motive of the breaching party generally has no bearing on the scope of damages that the injured party may recover for the breach of the implied covenant [of good faith and fair dealing]; the remedies are limited to contract damages. ( Foley v. Interactive Data Corp., supra, 47 Cal.3d at p. 699, italics in original.) Varying personal or economic reasons motivate one to breach his contract, but the general rule is that ... motives ... are immaterial and cannot be inquired into on the question of compensatory damages. (Note, supra, 8 Loyola L.A.L.Rev. at p. 327; see also Harris v. Atlantic Richfield Co. (1993) 14 Cal. App.4th 70, 82 [17 Cal. Rptr.2d 649] [The imposition of tort remedies for `bad' breaches of commercial contracts is a substantial deviation from the traditional approach which was blind to the motive for the breach.].) (4b) The fundamental differences between contract and tort are obscured by the imposition of tort liability on a contracting party for conspiracy to interfere with the contract. Whether or not a stranger to the contract induces its breach, the essential character of a contracting party's conduct remains the same  an unjustified failure or refusal to perform. In economic terms, the impact is identical  plaintiff has lost the benefit of a bargain and is entitled to recover compensation in the form of contract damages. In ethical terms, the mere entry of a stranger onto the scene does not render the contracting party's breach more socially or morally reprehensible. A party may breach a contract without any third party inducement because of personal, racial, or ethnic animus, or for other nefarious or unethical reasons. In contrast, a breach may be the product of naive or innocent misunderstanding or misperception created by the aggressive solicitation of an outsider. In any case, motivation is irrelevant. Regardless of the presence or absence of third party involvement, the contracting party has done nothing more socially opprobrious than to fall short in meeting a contractual commitment. Only contract damages are due. The imposition of tort liability in these circumstances also thwarts legal rules and policies limiting contract damages to those sums reasonably forseeable to the contracting parties. As a law review commentator observes: While the imposition of liability in tort upon the non-party interferer may be justified in all cases for his intentional disruption of the contractual relation, the party who merely breaches his contract should in all cases be exposed only to contractual liability as he has not assumed the role of an intentional interferer. To impose tort liability upon the contract breaker because of the involvement of a third person (when liability is limited to contract damages when the contract breaker is acting alone) undermines the policies which have developed limited contractual liability. (Note, supra, 8 Loyola L.A.L.Rev. at p. 328.) In its brief in this court, Applied acknowledges the vital commercial importance of foreseeability limitations on contract damages: [W]hen two parties make a contract, they agree upon the rules and regulations which will govern their relationship; the risks inherent in the agreement and the likelihood of its breach. The parties to the contract in essence create a miniuniverse for themselves, in which each voluntarily chooses his contracting partner, each trusts the other's willingness to keep his word and honor his commitments, and in which they define their respective obligations, rewards and risks. Under such a scenario, it is appropriate to enforce only such obligations as each party voluntarily assumed, and to give him only such benefits as he expected to receive; this is the function of contract law. We agree with Applied's summary of contract law. In its contract with Applied, Varian assumed only the obligation to perform the contract or pay damages for breach. It did not assume the independent tort obligation not to interfere with the performance of its own contract. Accordingly, Varian is legally responsible only in contract, not in tort.