Cato Policy Analysis No. 347 June 3, 1999

Policy Analysis

Restoring the Boundary:
Tort Law and the Right to Contract

by Michael I. Krauss

Michael I. Krauss is professor of law at George Mason University School of Law.


Executive Summary

Today courts regularly resolve disputes by applying tort principles when they should apply the law of contracts. When parties have an opportunity to negotiate the terms of their relationship, the resultant contracts ought to be enforced. Tort law is an acceptable substitute only if parties have no opportunity to bargain.

Over the years the boundary between tort and contract has shifted sharply toward tort. For example, physicians serving rural areas are often not allowed to contract with patients for a lower price in return for diminished care. And courts have allowed consumers who buy cars without air bags to recover from manufacturers for injuries that only air bags would have prevented. Sometimes courts even ignore compulsory arbitration provisions that waive the usual judicial procedures for resolving disputes.

Even worse, rules have sprung up that prohibit ordinary commercial contracts. A person forbidden to sell certain productsóbecause a government agency has determined they are too dangerousómay also be forbidden to sell his own laboróbecause the state has determined that the wages he would accept are too low. Contracts once freely negotiated, and subject to private suit in the event of fraud or failure to perform, are increasingly replaced by regulation. Unhappily, once government has advanced a plausible rationale for prohibiting consensual behavior in one area, its tentacles inevitably extend to other areas as well.

Today's torts "crisis" does not exist because corporations are oppressing individuals, or because we need federal legislation to replace state tort rules. The crisis exists because our rights have been given increasingly less respect by government. The crisis exists because we have not allowed tort to be tort, and contract to be contract. We need to restore the boundary between contract and tort.

Full Text of Policy Analysis No. 347 (PDF, 19 pgs, 136 Kb)

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