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Interference with Contracts


See Also:

Video-Course: Other Intentional Torts - Module 2 of 5

Terms:

Interference with Contracts:
Interference with the plaintiff's existing or prospective business dealings with a third person.

Illusory Contract:
A contract which binds one person but not the other. An illusory contract is unenforceable.

Terminable at will Contract:
A contract that allows either side to break the contract at any time for any reason.


Interference with contracts, also called interference with economic relations, establishes liability for the defendant’s interfering with the plaintiff’s existing or prospective economic dealings with third persons.

In order to prove a prima facie case of interference with contracts, the plaintiff must demonstrate that the defendant intentionally interfered with an existing contract the plaintiff had with a third person and that the interference caused the plaintiff to suffer special damages. Thus, the contract that is breached must have been existing and binding for this tort to apply. See Brown v. Glickstein, 107 N.E.2d 267 (Ill. 1952).

Please note that interference with contracts protects any legal contract. Illegal contracts will not be protected. However, contracts that are legal but unenforceable will be protected. For example:

FF Inc. is a coal wholesaler. FF Inc. and RailCo sign a contract saying that RailCo will buy all of the coal he needs from FF and FF will sell as much coal as he wants to RailCo. GasCo interferes with the contract and FF suffers special damages. If you look at the contract requirements, you will see that only RailCo is bound by the contract. By saying that he will buy all that he needs from FF, RailCo is saying that he will only buy from FF and, thus, if RailCo buys coal from anybody else, he will be in violation of the contract. However, FF is not required to do anything under the contract. Saying that he will sell all that he wants to RailCo effectively means that FF doesn’t have to sell anything to RailCo. Thus, the contract does not bind FF to anything. A contract that binds one party but not the other is called an illusory contract and, as you will see in our contracts course, illusory contracts are unenforceable. However, despite the fact that this contract is unenforceable, GasCo will be liable for his actions because interference with contracts protects the economic relationship between FF and RailCo and not the contract itself. Thus, even though the contract is unenforceable, GasCo has interfered with the business relationship FF has with RailCo and, for that, he will be held liable. 

If the defendant interferes with a contract that is terminable at will, the defendant will still be held liable. A terminable at will contract is a contract that allows either side to break the contract at any time for any reason. Remember, interference with contracts protects economic relationships, not contracts.

In order for the plaintiff to have a viable cause of action against the defendant, the plaintiff must show that the defendant played an active role in interfering with the plaintiff’s relationship with the third person. However, the defendant does not have to induce the third person to breach his contract with the plaintiff in order to be liable. A showing that the defendant made performance of the contract either impossible or very difficult for the third person will suffice to establish liability. For example:

  1. Metro has a contract with Andre, an opera singer, to perform at Metro’s theater on December 31st. Lucciano, the owner of a competing theater, offers Andre more money to perform at his theater on the same night and, as a result, Andre breaks his contract with Metro. In this situation, Lucciano will be held liable for interference with contract because he has taken an active role in interfering with Metro’s economic relationship with Andre.
  2. Metro has a contract with Andre, an opera singer, to perform at Metro’s theater on December 31st. Lucciano, the owner of a competing theater, kidnaps Andre on the morning of the performance and does not let him go to the theater. In this situation, Lucciano will be held liable for interference with contract even though he did not induce Andre to breach the contract. Lucciano made performance of the contract impossible and this is enough to establish liability.
  3. Metro has a contract with Andre, an opera singer, to perform at Metro’s theater on December 31st. After Andre signs his contract with Metro, he hears that Lucciano, the owner of a competing theater, is looking for someone to perform on December 31st and is willing to pay more money than Metro is going to give Andre. Andre goes to Lucciano and offers to perform on December 31st. Lucciano accepts Andre’s offer and, as a result, Andre breaches his contract with Metro. In this situation, Lucciano will not be held liable for interference with contract because he has not taken an active role in interfering with Metro’s economic relationship with Andre. Simply accepting an offer from Andre, even where Lucciano knows that Andre is already contractually bound to Metro, is not enough to establish liability.

Further, the plaintiff must demonstrate that the defendant knew of the economic relationship he had with the third person and intentionally caused an interference with that relationship.

As far as damages are concerned, the plaintiff will collect all actual damages he has suffered, along with unforeseen expenses that result from the interference, emotional damages and, where appropriate, punitive damages as well.

The only defense to a charge of interference with a contract is privilege. See Childress v. Abeles, 84 S.E.2d 176 (N.C. 1954).

However, privilege will only act as a defense if the defendant was acting under a proper justification and used proper means to interfere with the plaintiff’s economic relationship with a third person.

Privilege will usually protect the defendant where the defendant is acting for a social benefit. However, where the defendant is acting to protect her own economic interests, privilege will depend on whether the interest the defendant is protecting is an existing interest or a potential interest. See Personal Preference Video, Inc. v. HBO, Inc., 986 F.2d 110 (5th Cir. 1993).

If the defendant has an existing economic relationship with a third person, the defendant is privileged to prevent performance of contracts that threatens that relationship. However, the defendant is not protected by privilege if he has no existing relationship with the third person but interferes with the third person’s economic relationship with the plaintiff simply to advance his own business interests.

Further, even if the defendant’s actions are justified so that privilege will protect him, he will lose the privilege if the means he uses to interfere with plaintiff and the third person are illegal or unethical.