September 17, 2015
Con-Tort: Twisting Contract Law?
Nearly everyone knows a contract is simply a promise the law will enforce. “Contracts are mainly governed by state statutory and common (judge-made) law and private law.”1 Torts, on the other hand, are “civil wrongs which can be redressed by awarding damages.”2 Reduced to their fundamental essences, one might easily find it difficult to tell where enforcing a promise ends and redressing a separate civil wrong begins.
The law has struggled with this very issue, giving rise to the term “ConTort.” I’ve always found the term “ConTort” a bit ironic, as it is, in English, nearly identical to the word “contort,” meaning “to twist, bend, or draw out of shape; distort,” which is what some legal scholars believe is happening to contract law under the influence of tort law. In law school, one of my professors used to rail against what he described, in so many words, as a perversion or subversion of contract law by mission creep from the tort law sphere. When the lines between contract and tort are blurred, lawyers get nervous, because ambiguity increases.
But why should you care? That’s just a bunch of legal-academic mumbo-jumbo, right? WRONG. You better know what ConTorts are and how to avoid Torts when using Contracts, or your Contracts might not protect you as well as you think! (I’m definitely looking at you, people who use invoices, proposals, and other documents as “contracts.”)
The ConTort area of law has grown since its birth in the latter half of the 20th century. Many ConTort cases have to do with fraud, deceit, or some kind of material (sometimes negligent) misrepresentation, which resulted in a contract being made. Others have to do with the tortious interference with a contract. One such case is Exxon Corp. v. Miesch.
In the 1950s, “Exxon leased the mineral interests on several thousand acres … near Refugio, Texas.” Exxon Corp. v. Miesch, 180 S.W.3d 299 (Tex.App.-Corpus Christi 2005). These leases included, among other respects, an “an unusually high fifty percent royalty obligation and stringent surrender clauses.” Id. In the early 1970s, Exxon unsuccessfully tried to negotiate with the royalty interest owners (the “Owners”) to reduce the royalty rate by telling the Owners the well was no longer “economical to operate”–that, essentially, more effort was going to be required to continue extracting minerals and they needed a larger share of the profits for it to be cost-effective. This turned out to be untrue. Ultimately, Exxon not only plugged and abandoned the wells, but the company the Owners hired to reopen the wells concluded “Exxon had engaged in a deliberate pattern of sabotaging the wells.” Id.
The Owners sued Exxon for, among other things, “common law waste, statutory waste, negligence per se, and tortious interference” as well as for breach of contract. “Exxon vigorously denied everything, and further added that it couldn’t be liable on a tort when there had been a contract … in place.”3 Exxon asserted, by virtue of the lease agreements, the Owners only had a claim on a Contract theory, not a Tort theory, if they had one at all.
The Court of Appeals decided that, while it was true that Exxon and the[Owners] had a contract, Exxon had committed a tort when it lied about the mineral reserves in order to gain a negotiating advantage for a new contract. The Court said that Exxon had a ‘duty to use reasonable care’ when it provided information to a potential customer. So Exxon committed a tort in trying to form a contract. Id.
In the trial court, the plaintiffs were awarded “$8,600,000 in actual damages, $10,000,000 in punitive damages, and $2,795,000 in prejudgment interest.” Exxon Corp. v. Miesch. Unsurprisingly, Exxon appealed. The judgment of the trial court was affirmed in part and reversed and remanded in part. Having overruled Exxon’s issues on appeal, the Appellate Court affirmed the judgment of the trial court in favor of the royalty interest owners. The Appellate Court also sustained Emerald’s issues on appeal and reversed and remanded its causes of action to the trial court. Id.
Pants On Fire
Ultimately, I believe, “Con-Tort” is really a subspecies of Tort. It’s probably confusing to mix it in with any of Contract law. I know attorneys who focus on Contract law are often averse to anything which might remotely smell like a tort creeping into their field of practice. But the essence of the Con-Tort is tortious, because (1) contract law is (generally speaking) contained in the four corners of the contract (along with a limited body of statutory law and interpretation from the common law), and (2) Con-Torts are civil wrongs which can be redressed by awarding damages–though they might arise out of circumstances involving a contract. Clear as mud, right? Well, maybe these points to consider will be helpful, even if you’re still not 100% sure exactly where to draw the line between contract and tort (don’t worry, you’re in good company with many bright legal scholars).
Honesty is the best policy, as we learned in grade school, whether you’re providing information to a potential customer or you’re simply contracting with a vendor, supplier, or someone within your own business. Actually, my teachers used to say, “Honesty is the only policy.” As Exxon learned the hard way, the law, too, takes a dim view of dishonesty, especially when you’re committing fraud in the inducement to form a contract.
Ensure that you are making accurate representations whenever you communicate about the terms of a transaction or other business dealings. Have your General Counsel review sensitive communications before they are sent to third parties. Remember, any of them could be an opponent in potentially expensive litigation. The time to protect yourself is before a dispute, before a lawsuit is ever filed, when you have control over the facts. Once the facts become the facts, the only thing you can do is try to influence the interpretation. Sometimes, as Exxon found out, there isn’t enough money and there aren’t enough lawyers in the world to spin a case your way when the facts are clearly against you. Usually, ex ante, your best protection from a ConTort suit are preventive legal services, honesty, and sound business practices. It’s either that or a flaming pair of trousers; the choice is yours.
1 Contract. (2011, September 3). Retrieved September 21, 2015, from https://www.law.cornell.edu/wex/contract
2 Tort. (2011, August 23). Retrieved September 21, 2015, from https://www.law.cornell.edu/wex/tort
3 Hammerle, V. (2012, November 6). ConTorts – What are they and Why should you care? Retrieved September 21, 2015, from http://hammerle.com/contorts-what-are-they-and-why-should-you-care/
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