Tortious Interference with Contract

To protect the sanctity of contracts, the law has evolved doctrines making it unlawful for a third party to induce the breach of a contract. Those doctrines coalesce in a cause of action called tortious interference with contract. Where the contract hasn't been entered into yet, and the third party prevents a deal from being made, the cause of action is known as tortious interference with prospective economic advantage or tortious interference with business relationships.

The elements of a claim for tortious interference with contract are: (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of the contract; (3) the ‘defendant's intentional procurement of the third-party's breach of the contract without justification; (4) actual breach of the contract; and (5) damages resulting therefrom.

With respect to the first element, the contract must be in force and not illegal. So, for example, a contract in restraint of trade is illegal, and it won't provide an basis for a tortious interference. The same is true for a contract between an employee and his employer that the employee will not join a labor union. And the same is true of a contract which requires the breach of another contract.

Significantly, the first element requires that the defendant be a "third party".  Thus, the defendant may not be an employee or agent of one of the parties to the contract.  The rationale is that an employee or agent acts on behalf of a party to the contract, and is therefore not a third party.

    But like most rules, this one has an important exception.  In particular, an agent becomes a third-party if he acts for his own benefit rather than that of his principal, the party to the contract.  Thus, in one case, union officials who ousted other union officials were deemed possibly to have tortiously interfered with the ousted officials' employment contract with the union.  The reasoning was that, the ousting officials acted, not in the interests of the union, but in order to solidify their own grip on power.

The third element, that the defendant acted without justification, is the hardest element to satisfy. It requires that the interference be wrongful-- i.e., the conduct must amount to a crime or an independent tort. And that won't always be the case.

Consider a case in which A and B had a contract to merge. C sought information from B, which enabled C to present a more attractive offer, resulting in B terminating its contract with A and merging instead with C. When A sued C for tortious interference with A's contract with B, the court held that the second element had not been met because C was merely acting in its own business interest.

In another case, a manufacturer entered into a contract with a distributor for the distribution of certain of the manufacturer's products. The distributor also had a contract to sell its own products to a certain purchaser. The distributor alleged that, in selling the other products, the distributor tortiously interfered the distribution contact. But the court held that, in the absence of allegations that the distributor used dishonest, unfair, or improper means, the tortious interference claim would be dismissed.

So what kinds of interference will support such a claim? If the interference constitutes breach of fiduciary duty, fraud, unfair competition, defamation or other torts, the claim should be sustained. Thus, for example, where the government acted unconstitutionally in interfering in a vendor's relationship with a regulatory body, the interference constituted what's known as a constitutional tort and established a basis for a tortious interference claim.

In another case, a UK company hired the employee of a U.S. company and induced the employee to disclose propriety information belonging to the U.S. company. That stated a claim for tortious interference with the U.S. company's contract of employment because it was a tort to induce the employee to breach his fiduciary duty to the U.S. company.

In another case, a the operator of a website sold digital copies of songs. It's competitor was a licensee of music with a substantial market share. The website operator alleged that the licensee interfered with the website's contract with third parties by threatening those parties, coercing them and making misrepresentations about the website operator. Those acts constituted unfair competition and stated a claim for tortious interference with contract.

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