Tortious interference

Tortious interference, also known as intentional interference with contractual relations, in the common law of torts, occurs when a person intentionally damages the plaintiff's contractual or other business relationships. This tort is broadly divided into two categories, one specific to contractual relationships (irrespective of whether they involve business), and the other specific to business relationships or activities (irrespective of whether they involve a contract). There is also a tort of negligent such interference.

Description

Tortious interference with contract rights can occur where the tortfeasor convinces a party to breach the contract against the plaintiff, or where the tortfeasor disrupts the ability of one party to perform his obligations under the contract, thereby preventing the plaintiff from receiving the performance promised. The classic example of this tort occurs when one party induces another party to breach a contract with a third party, in circumstances where the first party has no privilege to act as it does and acts with knowledge of the existence of the contract. Such conduct is termed tortious inducement of breach of contract.

Tortious interference with business relationships occurs where the tortfeasor acts to prevent the plaintiff from successfully establishing or maintaining business relationships. This tort may occur when a first party's conduct intentionally causes a second party not to enter into a business relationship with a third party that otherwise would probably have occurred. Such conduct is termed tortious interference with prospective business relations, expectations, or advantage or with prospective economic advantage.

In either of the above situations, the tortfeasor's conduct typically is intentional. There have been assertions that there is no cause of action for merely negligent interference with the performance of a contract or with prospective business advantage.^[1] That statement is incorrect, however, for some jurisdictions recognize such claims^[2] although many do not.^[3]

Case law

An early, perhaps the earliest, instance of recognition of this tort occurred in Garret v Taylor, 79 Eng. Rep. 485 (K.B. 1620). In that case, the defendant drove customers away from the plaintiff’s quarry by threatening them with mayhem and also threatening to “vex [them] with suits.” The King's Bench court said that “the defendant threatened violence to the extent of committing an assault upon ... customers of the plaintiff ... whereupon ‘they all desisted from buying.’’ The court therefore upheld a judgment for the plaintiff.

In a similar case, Tarleton v McGawley, 170 Eng. Rep. 153 (K.B. 1793), the defendant shot from its ship Othello off the coast of Africa upon natives while “contriving and maliciously intending to hinder and deter the natives from trading with” plaintiff’s rival trading ship Bannister. This action caused the natives (plaintiff’s prospective customers) to flee the scene, depriving the plaintiff of their potential business. The King's Bench court held the conduct actionable. The defendant claimed, by way of justification, that the local native ruler had given it an exclusive franchise to trade with his subjects, but the court rejected this defense.

The tort was described in the case of Keeble v Hickeringill, (1707) 103 Eng. Rep. 1127, styled as a "trespass on the case". In that case, the defendant had used a shotgun to drive ducks away from a pond that the plaintiff had built for the purpose of capturing ducks. Thus, unlike the foregoing cases, here the actionable conduct was not directly driving the prospective customers away, but rather eliminating the subject matter of the prospective business. Although the ducks had not yet been captured, the Justice Holt wrote for the court that "where a violent or malicious act is done to a man's occupation, profession, or way of getting a livelihood, there an action lies in all cases." The court noted that the defendant would have the right to draw away ducks to a pond of his own, raising as a comparison a 1410 case in which the court deemed that no cause of action would lie where a schoolmaster opened a new school that drew students away from an old school.

The application of the above has since been modified in UK law. In OBG v Allan et al. 2008 1AC 1

Wrongful interference: the unified theory which treated causing loss by unlawful means as an extension of the tort of inducing a breach of contract was abandoned; inducing breach of contract and causing loss by unlawful means were two separate torts. inducing a breach of contract was a tort of accessory liability, and an intention to cause a breach of contract was a necessary and sufficient requirement for liability; a person had to know that he was inducing a breach of contract and to intend to do; that a conscious decision not to inquire into the existence of a fact could be treated as knowledge for the purposes of the tort; that a person who knowingly induced a breach of contract as a means to an end had the necessary intent even if he was not motivated by malice but had acted with the motive of securing an economic advantage for himself; that, however, a breach of contract which was neither an end in itself nor a means to an end but was merely a foreseeable consequence of a person’s acts did not give rise to liability; and that there could be no secondary liability without primary liability, and therefore a person could not be liable for inducing a breach of contract unless there had in fact been a breach by the contracting party.

Causing loss by unlawful means: acts against a third party counted as unlawful means only if they were actionable by that third party if he had suffered loss; that unlawful means consisted of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which was unlawful as against that third party and which was intended to cause loss to the claimant, but did not include acts which might be unlawful against a third party but which did not affect his freedom to deal with the claimant. Strict liability for conversion applied only to an interest in chattels and not to chooses in action; this was too radical to impose liability for pure economic loss on receivers who had been appointed and had acted in good faith. This also left open the position where they breached the duty of good faith.

Typical examples

Tortious interference of business.- When false claims and accusations are made against a business or an individual's reputation in order to drive business away.
Tortious interference of contract.- When an individual uses "tort" (a wrongful act) to come between two parties' mutual contract.

Elements

Although the specific elements required to prove a claim of tortious interference vary from one jurisdiction to another, they typically include the following:

The existence of a contractual relationship or beneficial business relationship between two parties.
Knowledge of that relationship by a third party.
Intent of the third party to induce a party to the relationship to breach the relationship.
Lack of any privilege on the part of the third party to induce such a breach.
The contractual relationship is breached.
Damage to the party against whom the breach occurs.^[4]

The first element may, in employment-at-will jurisdictions, be held fulfilled in regards to a previously unterminated employer/employee relationship.

In California, these are the elements of negligent interference with prospective economic advantage, which the plaintiff must establish:

an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff;
the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship;
the defendant was negligent; and
such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship.^[5]

Some cases add that a defendant acts negligently only if "the defendant owes the plaintiff a duty of care."^[6]

California and most jurisdictions hold that there is a privilege to compete for business. “Under the privilege of free competition, a competitor is free to divert business to himself as long as he uses fair and reasonable means. Thus, the plaintiff must present facts indicating the defendant’s interference is somehow wrongful—i.e., based on facts that take the defendant’s actions out of the realm of legitimate business transactions.”^[7] "[T]he competition privilege is defeated only where the defendant engages in unlawful or illegitimate means." ^[8] "Wrongful" in this context means “independently wrongful”—that is, "blameworthy" or " independently wrongful apart from the interference itself."^[9] This may be termed use of improper means. “Commonly included among improper means are actions which are independently actionable, violations of federal or state law or unethical business practices, e.g., violence, misrepresentation, unfounded litigation, defamation, trade libel or trade mark infringement.”^[10] Other examples of "wrongful conduct" are "fraud, misrepresentation, intimidation, coercion, obstruction or molestation of the rival or his servants or workmen."^[11]

Damages

Typical legal damages for tortious interference include economic losses, if they can be proven with certainty, and mental distress. Additionally punitive damages may be awarded if malice on the part of the wrongdoer can be established.

Equitable remedies may include injunctive relief in the form of a negative injunction that would be used to prevent the wrongdoer from benefiting from any contractual relationship that may arise out of the interference, i.e., the performance of a singer who was originally contracted with the plaintiff to perform at the same time.

Additional example

Tortious interference with an expected inheritance - One who, by fraud, duress or other tortious means intentionally prevents another from receiving from a third person an inheritance or gift that he would otherwise have received, is subject to liability to the other for loss of the inheritance or gift.^[12]

Notes

^ See Robins Dry Dock & Repair Co. v. Flint, 175 U.S. 303 (1927) (lost profits held remote damage); Restatement (Second) of Torts § 766C (1979). See also Venhaus v. Shultz, 155 Cal. App. 4th 1072, 1079—1080, 66 Cal. Rptr. 3d 432 (2007) ("[W]e have been directed to no California authority, and have found none, for the trial court’s conclusion that the wrongful conduct must be intentional or willful. The defendant’s conduct must ‘fall outside the boundaries of fair competition’. . . . but negligent misconduct or the violation of a statutory obligation suffice.") (internal citations omitted.).
^ See Union Oil Co. v. Oppen, 501 F.2d 558 (9th Cir. 1974) (holding negligent interference with prospective advantage actionable when risk of harm was foreseeable); In re Kinsman Transit Co., 388 F.2d 821 (2d Cir. 1968) (dictum: stating that negligent interference with contract should receive same legal treatment as other negligent acts); J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 804, 157 Cal. Rptr. 407, 598 P.2d 60 (1979) (“Where a special relationship exists between the parties, a plaintiff may recover for loss of expected economic advantage through the negligent performance of a contract although the parties were not in contractual privity.”) (emphasis supplied); Settimo Associates v. Environ Systems, Inc., 14 Cal. App. 4th 842, 845, 17 Cal. Rptr. 2d 757 (1993) (“The tort of intentional or negligent interference with prospective economic advantage imposes liability for improper methods of disrupting or diverting the business relationship of another which fall outside the boundaries of fair competition.”) (emphasis supplied) (internal citation omitted). There used to be California authority that no cause of action exists for negligent interference with contractual relations. See Fifield Manor v. Finston, 54 Cal. 2d 632, 636—637, 7 Cal. Rptr. 377, 354 P.2d 1073 (1960). But the J'Aire decision, supra, appears to have overruled Fifield. Nevertheless, however illogical it may seem, it is arguable that California does not recognize a tort of negligent interference with contractual relations, but does recognize a tort of negligent interference with prospective economic advantage. See Young v. Fluorotronics, S.D. Calif. 2010). (This is comparable to recognizing manslaughter but decriminalizing murder.)
^ See, e.g., Ramirez v. Selles, 784 P.2d 433, 436 (Or. 1989) ("Negligent injury to one person that harms another's contract or other economic relationship is not a tort, at least not unless some duty of defendant outside negligence law itself protects the injured interest of the plaintiff against negligent invasion.").
^ Richards, Jared. "TruCounsel.com". Nevada Theories of Liability. Retrieved 9 September 2011.
^ North American Chemical Co. v. Superior Court, 59 Cal. App. 4th 764, 786, 69 Cal. Rptr. 2d 466 (1997).
^ E.g., Limandri v. Judkins, 52 Cal. App. 4th 326, 348, 60 Cal. Rptr. 2d 539 (1997).
^ Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg. 216 Cal. App. 3d 1139, 1153—1154, 265 Cal. Rptr. 330 (1989).
^ San Francisco Design Center Associates v. Portman Companies, 41 Cal. App. 4th 29, 42, 50 Cal. Rptr. 2d 716 (1995).
^ Lange v. TIG Insurance Co., 68 Cal. App. 4th 1179, 1187, 81 Cal. Rptr. 2d 39 (1999).
^ PMC, Inc. v. Saban Entertainment, Inc., 45 Cal. App. 4th 579, 603.
^ Charles C. Chapman Building Co. v. California Mart, 2 Cal. App. 3d 846, 857, 82 Cal. Rptr. 830 (1969).
^ Commerce Bank v. Deborah Flavin Durland, 141 S.W.3d 434 (Mo.Ct.App. 2004). (Believed to be the first claim for tortious interference with inheritance expectancy to withstand appeal in the State of Missouri).

Sources

Jesse Dukeminier and James E. Krier, Property, Fifth Edition, Aspen Law & Business (New York, 2002), pp. 31–36. ISBN 0-7355-2437-8
John L. Diamond and Lawrence C. Levine and M. Stuart Madden, Understanding Torts Second Edition, Lexis Nexis (New York, 2000), p. 413. ISBN 0-8205-5219-4

[1] See Robins Dry Dock & Repair Co. v. Flint, 175 U.S. 303 (1927) (lost profits held remote damage); Restatement (Second) of Torts § 766C (1979). See also Venhaus v. Shultz, 155 Cal. App. 4th 1072, 1079—1080, 66 Cal. Rptr. 3d 432 (2007) ("[W]e have been directed to no California authority, and have found none, for the trial court’s conclusion that the wrongful conduct must be intentional or willful. The defendant’s conduct must ‘fall outside the boundaries of fair competition’. . . . but negligent misconduct or the violation of a statutory obligation suffice.") (internal citations omitted.).

[2] See Union Oil Co. v. Oppen, 501 F.2d 558 (9th Cir. 1974) (holding negligent interference with prospective advantage actionable when risk of harm was foreseeable); In re Kinsman Transit Co., 388 F.2d 821 (2d Cir. 1968) (dictum: stating that negligent interference with contract should receive same legal treatment as other negligent acts); J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 804, 157 Cal. Rptr. 407, 598 P.2d 60 (1979) (“Where a special relationship exists between the parties, a plaintiff may recover for loss of expected economic advantage through the negligent performance of a contract although the parties were not in contractual privity.”) (emphasis supplied); Settimo Associates v. Environ Systems, Inc., 14 Cal. App. 4th 842, 845, 17 Cal. Rptr. 2d 757 (1993) (“The tort of intentional or negligent interference with prospective economic advantage imposes liability for improper methods of disrupting or diverting the business relationship of another which fall outside the boundaries of fair competition.”) (emphasis supplied) (internal citation omitted). There used to be California authority that no cause of action exists for negligent interference with contractual relations. See Fifield Manor v. Finston, 54 Cal. 2d 632, 636—637, 7 Cal. Rptr. 377, 354 P.2d 1073 (1960). But the J'Aire decision, supra, appears to have overruled Fifield. Nevertheless, however illogical it may seem, it is arguable that California does not recognize a tort of negligent interference with contractual relations, but does recognize a tort of negligent interference with prospective economic advantage. See Young v. Fluorotronics, S.D. Calif. 2010). (This is comparable to recognizing manslaughter but decriminalizing murder.)

[3] See, e.g., Ramirez v. Selles, 784 P.2d 433, 436 (Or. 1989) ("Negligent injury to one person that harms another's contract or other economic relationship is not a tort, at least not unless some duty of defendant outside negligence law itself protects the injured interest of the plaintiff against negligent invasion.").

[4] Richards, Jared. "TruCounsel.com". Nevada Theories of Liability. Retrieved 9 September 2011.

[5] North American Chemical Co. v. Superior Court, 59 Cal. App. 4th 764, 786, 69 Cal. Rptr. 2d 466 (1997).

[6] E.g., Limandri v. Judkins, 52 Cal. App. 4th 326, 348, 60 Cal. Rptr. 2d 539 (1997).

[7] Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg. 216 Cal. App. 3d 1139, 1153—1154, 265 Cal. Rptr. 330 (1989).

[8] San Francisco Design Center Associates v. Portman Companies, 41 Cal. App. 4th 29, 42, 50 Cal. Rptr. 2d 716 (1995).

[9] Lange v. TIG Insurance Co., 68 Cal. App. 4th 1179, 1187, 81 Cal. Rptr. 2d 39 (1999).

[10] PMC, Inc. v. Saban Entertainment, Inc., 45 Cal. App. 4th 579, 603.

[11] Charles C. Chapman Building Co. v. California Mart, 2 Cal. App. 3d 846, 857, 82 Cal. Rptr. 830 (1969).

[12] Commerce Bank v. Deborah Flavin Durland, 141 S.W.3d 434 (Mo.Ct.App. 2004). (Believed to be the first claim for tortious interference with inheritance expectancy to withstand appeal in the State of Missouri).

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