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INTENTIONAL INTERFERENCE TORTS WITH PROSPECTIVE ECONOMIC ADVANTAGE

Nature of the Tort of Intentional Interference with Prospective Economic Advantage

The elements of that tort of are: '(1) an economic relationship between [the plaintiff and some third person] containing the probability of future economic benefit to the [plaintiff], (2) knowledge by the defendant of the existence 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) damages to the plaintiff proximately caused by the acts of the defendant.' (Buckaloo v. Johnson (1975) 14 Cal.3d 815, 827.)

It seems clear that this tort is the broader of the two so-called interference torts. The other is interference with contract. The tort of 'interference with contractual relations has its roots in the tort of 'inducing breach of contract.'' (Seaman's Direct Buying Service Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 765.) The latter is merely a species of the former. The principal difference between them is that 'the existence of a legally binding agreement is not a sine qua non to the maintenance of a suit based on the more inclusive wrong.' (Buckaloo, supra, at 823.) 'Both the tort of interference with contract relations and the tort of interference with prospective contract or business relations involve basically the same conduct on the part of the tortfeasor. In one case the interference takes place when a contract is already in existence, in the other, when a contract would, with certainty, have been consummated but for the conduct of the tortfeasor. . . . Rather than characterizing the two as separate torts, the more rational approach seems to be that the basic tort of interference with economic relations can be established by showing, inter alia, an interference with an existing contract or a contract which is certain to be consummated, with broader grounds for justification of the interference where the latter situation is presented.' (Builders Corporation of America v. U.S. (N.D.Cal.'57) 148 F.Supp. 482, 484, fn. 1, revd. on other grounds (9th Cir.'58) 259 F.2d 766, see also Pacific Gas & Electric Co. v. Bear Stearns & Co.(1990) 50 Cal.3d 1118, 1126.)

In either case, '[A]s Justice Tobriner said in the context of voidable contracts: 'The actionable wrong lies in the inducement to break the contract or to sever the relationship, not in the kind of contract or relationship so disrupted, whether it is written or oral, enforceable or not enforceable.' ' (Pacific Gas & Electric Co. v. Bear Stearns & Co., supra, 50 Cal.3d at 1127.) However, it must be remembered that these torts are intentional torts.

In discussing the related tort of inducing breach of contract, the Supreme Court has stated: 'The act of inducing the breach must be an intentional one. If the actor had no knowledge of the existence of the contract or his actions were not intended to induce a breach, he cannot be held liable though an actual breach results from his lawful and proper acts. ' Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33, 37.) The Restatement of Torts explained it this way, 'The essential thing is the purpose to cause the result. If the actor does not have this purpose, his conduct does not subject him to liability under this rule even if it has the unintended effect of deterring the third person from dealing with the other.' (Rest., Torts, section 766, com. d, emphasis added.) It is not enough that the actor intended to perform the acts which caused the result

- he or she must have intended to cause the result itself. Although these views were expressed in the context of the tort of inducing breach of contract, the expansion of that tort into the broader wrongs of interfering with contractual relations or prospective economic advantage has not altered the requirement that the defendant act with culpable intent. (Seaman's Direct Buying Service, Inc. v. Standard Oil Co., supra, 36 Cal.3d at 766.) '[T]o prevail on a cause of action for intentional interference with prospective economic advantage, plaintiff must plead and prove 'intentional acts on the part of the defendant designed to disrupt the relationship.' ' (Ibid., quoting from Buckaloo v. Johnson, supra, 14 Cal.3d at 827.)

A Party To An Economic Relationship Cannot, As A Matter Of Law, Commit Or Conspire To Commit A Tortious Interference Therewith

There is an important limitation to the use of this tort as a remedy for the disruption of contractual relationships. It can only be asserted against a stranger to the relationship. '[C]onsistent with its underlying policy of protecting the expectations of contracting parties against frustration by outsiders who have no legitimate social or economic interest in the contractual relationship, the tort cause of action for interference with a contract does not lie against a party to the contract. ' (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514.) 'It is obvious that if an action is brought for interference with contractual relationship by one party to a contract against another who is also a party to that same contract, the grievance of the plaintiff is, in essence, breach of contract; and, in such case, plaintiff is entitled to recover all damages flowing from the breach. In such an instance to allow the plaintiff to sue under the tort theory of wrongful interference with contractual rights would not only be superfluous, but also would enable him to recover tort damages (e.g., punitive damages, damages for mental suffering) to which he is not entitled under California law.' (Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 999, emphasis added; see also Shoemaker v. Myers (1990) 52 Cal.3d 1, 24.)

Over thirty years ago, an appellate court did hold that one contracting party, by use of a conspiracy theory, could impose liability on another for the tort of interference with that contract. (Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 71-72.) This decision was accepted and followed in a number of appellate cases. However, it was never accepted by the Supreme Court.

Now, in Applied Equipment Corp. v. Litton Saudi Arabia Ltd., supra, 7 Cal.4th 503, the Supreme Court has firmly rejected the Wise rule. It cited two reasons for doing so: '(1) [i]t illogically expands the doctrine of civil conspiracy by imposing tort liability for an alleged wrong

- interference with a contract -- that the purported tortfeasor is legally incapable of committing; and (2) it obliterates vital and established distinctions between contract and tort theories of liability by effectively allowing the recovery of tort damages for an ordinary breach of contract.' (Id., at 510.)

'One contracting party owes no general tort duty to another not to interfere with performance of the contract; its duty is simply to perform the contract according to its terms. The tort duty not to interfere with the contract falls only on strangers -- interlopers who have no legitimate interest in the scope or course of the contract's performance. [para.] The invocation of conspiracy does not alter this fundamental allocation of duty. Conspiracy is not an independent tort; it cannot create a duty or abrogate an immunity. It allows tort recovery only against a party who already owes the duty and is not immune from liability based on applicable substantive tort law principles. Because a party to a contract owes no tort duty to refrain from interference with its performance, he or she cannot be bootstrapped into tort liability by the pejorative plea of conspiracy.' (Applied Equipment Corp. v. Litton Saudi Arabia Ltd., supra, 7 Cal.4th at 514.)

As a matter of law, there is a threshold causation requirement in order to establish the tort of intentional interference with prospective economic advantage. What is required is 'proof that it is reasonably probable that the lost economic advantage would have been realized but for the defendant's interference. (Youst v. Longo (1987) 43 Cal.3d 64, 71.) 'Over the past several decades, California courts analyzing the tort of interference with prospective economic advantage have required such a threshold determination. In Buckaloo v. Johnson . . . , where we set out the five elements of the intentional form of the tort, we stated that the first element requires 'the probability of future economic benefit.' Although varying language has been used to express this threshold requirement, the cases generally agree it must be reasonably probable that the prospective economic advantage would have been realized but for defendant's interference.' (Id., at 71, fn. omitted.)

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