Can a third party be liable for causing a contract to be breached by others? The answer is yes under certain circumstances.

by feldmanwallach

by Jason Feldman, Partner, Feldman & Wallach,

The two relevant cause of action are intentional interference with economic advantage; and interference with existing and prospective contractual relations.

1.  The elements for a cause of action for intentional interference with economic advantage are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.[1]

The wrinkle with this cause of action is that the intentional acts aimed to disrupt a relationship (#3) requires an ‘independent wrongful act’ such as fraud or another tortious means. It is not just beating someone out for a job or contract, but doing so by doing something unfair [libel, slander, etc.] to disrupt relationships with third parties.

2.  The elements for interference with existing and prospective contractual relations are: (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.”[2]

Wrongfulness independent of the inducement to breach the contract is not an element of the tort of intentional interference with existing contractual relations. Because interference with an existing contract receives greater solicitude than does interference with prospective economic advantage.  It is not necessary that the defendant’s conduct be wrongful apart from the interference with the contract itself.

It is necessary to distinguish the tort of interference with an existing contract because the exchange of promises which cements an economic relationship as a contract is worthy of protection from a stranger to the contract. Intentionally inducing or causing a breach of an existing contract is therefore a wrong in and of itself. Because this formal economic relationship does not exist and damages are speculative when remedies are sought for interference in what is only prospective economic advantage, some wrongfulness apart from the impact of the defendant’s conduct on that prospect should be required.   Additional aspect of wrongfulness is not an element of the tort of intentional interference with an existing contract.

Moreover, the tort of intentional interference with performance of a contract does not require that the actor’s primary purpose be disruption of the contract. As explained in comment j to section 766  of the Restatement Second of Torts: “The rule stated in this Section is applicable if the actor acts for the primary purpose of interfering with the performance of the contract, and also if he desires to interfere, even though he acts for some other purpose in addition. The rule is broader, however, in its application than to cases in which the defendant has acted with this purpose or desire. It applies also to intentional interference, in which the actor does not act for the purpose of interfering with the contract or desire it but knows that the interference is certain or substantially certain to occur as a result of his action. The rule applies, in other words, to an interference that is incidental to the actor’s independent purpose and desire but known to him to be a necessary consequence of his action.

“One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.”[3]

“The fact that this interference with the other’s contract was not desired and was purely incidental in character is, however, a factor to be considered in determining whether the interference is improper. If the actor is not acting criminally nor with fraud or violence or other means wrongful in themselves but is endeavoring to advance some interest of his own, the fact that he is aware that he will cause interference with the plaintiff’s contract may be regarded as such a minor and incidental consequence and so far removed from the defendant’s objective that as against the plaintiff the interference may be found to be not improper.”[4]

[1]    Korea Supply Company v. Lockheed Martin Corporation, (2003) 29 Cal.4th 1134, 1153.

[2]    Quelimane Company, Inc. v. Stewart Title Guaranty Company, 19 Cal. 4th 26 (1998); Pacific Gas & Electric Co. v. Bear Stearns & Co., 270 Cal. Rptr. 1 (1990).

[4] Rest. 2d Torts, § 766, com. j at p. 12; Quelimane Company, supra.