Intentional Interference with Contractual Relations

Definition.

One who, without privilege or justification, intentionally induces a party to a contract to not perform that contract is liable in tort to such party. This cause of action covers inducement of breach of contract and interference with contractual relations. (Jenni Rivera Enterprises, LLC v. Latin World Entertainment Holdings, Inc. (2019) 36 Cal.App.5th 766.)

Elements of the tort of intentionally interfering with the performance of a contract are: (1) a valid contact 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. (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130.)

Element 1: Valid Existing Contract with Third Party

The plaintiff must allege a valid existing contract between plaintiff and a third party. (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257.)

Voidable, Unenforceable or Conditional Contracts

A cause of action for tortious interference with contract exists even when the contract was voidable. (Reeves v. Hanlon (2004) 33 Cal.4th 1140; Shoemaker v. Myers (1990) 52 Cal.3d 1, 24-25 [noting many cases that have treated interference with voidable and terminable contracts as supporting a cause of action for interference with prospective economic advantage and suggesting the two torts should not be distinguished].)

A cause of action for tortious interference with contract may exist even when the contract is unenforceable. (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 844 [definiteness of obligation to perform under contract was not necessary for maintenance of interference with contract action].)

A cause of action for tortious interference with contract may exist when the contract is at-will. (Pacific Gas & Elec. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126-27.)

A cause of action existed even when regulatory approval was required as a condition precedent to the completion of the contract. (SCEcorp. v. Superior Court (1992) 3 Cal.App.4th 673, 678; but see A-Mark Coin Co. v. General Mills, Inc. (1983) 148 Cal.App.3d 312, 320 [contract subject to court approval or other governmental confirmation and not yet approved or confirmed does not support claim of interference with contract].)

Void or Illegal Contracts

No cause of action for tortious interference with contract exists when a contract is void. (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130.) No cause of action exists when the contract was procured illegally or is contrary to public policy. (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130.)

Terminable Contracts

Liability will exist for interference with a contract that is terminable at will. (Reeves v. Hanlon (2004) 33 Cal.4th 1140.)

Contracts with express termination provisions do not create a privilege to interfere with the contract. (Pacific Gas & Elec. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1127-28.)

Contract with Third Party

Action for tortious interference with contract cannot be maintained against the other party to that contract. (Applied Equip. Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503, 514.)

Corporate agents and employees acting for and on behalf of a corporation cannot be held liable for inducing breach of the corporation’s contract. (Shoemaker v. Myers (1990) 52 Cal.3d 1, 24-25 [no cause of action existed by plaintiff employees against their supervisors, who were employer’s agents vested with power to terminate plaintiffs’ employment].)

Element 2: Knowledge of Contract

The plaintiff must prove that the defendant knew of the existence of the contract at the time of the interference. (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130.)

Plaintiff’s interference claim failed because defendant did not have actual knowledge of the existence of the contract until the day after defendant’s interference occurred. (Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 995-96.)

Element 3: Intent to Induce Breach

The plaintiff must prove that the defendant intended to induce a breach of the contract. (Seaman’s Direct Buying Serv., Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 765.)

A breach that is a foreseeable consequence of defendant’s actions is not actionable unless the defendant acted with the purpose or design of causing the breach. (Seaman’s Direct Buying Serv., Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 765.)

Defendant must have intended to (1) perform the act or acts that caused the interference, and (2) cause the interference itself. (Seaman’s Direct Buying Serv., Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 765.)

The intent to provide a party to the contract with negative information is insufficient. (Gantry Construction Co. v. American Pipe (1975) 49 Cal.App.3d 186, 199.)

Substantial certainty that the defendant’s acts will interfere with the contract may raise an inference of the necessary intent to interfere. (Seaman’s Direct Buying Serv., Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 765.)

Proof of Intent

Plaintiff need not prove that defendant had any improper motive or malice in causing the interference. (Seaman’s Direct Buying Serv., Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 765.)

Defendant’s intent may be established by inference as well as by direct proof. (Savage v. Pacific Gas & Elec. (1993) 21 Cal.App.4th 434, 449.)

Lawful vs. Unlawful Conduct

Defendant’s interference is actionable whether his actions are unlawful or lawful. (Skelly v. Richman (1970) 10 Cal.App.3d 844, 862.)

Element 4: Breach or Disruption of Contract

The plaintiff must show that the defendant’s interference has caused or will cause a breach of contract or a disruption of the contractual relationship. (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257.)

Unlike interference with economic relations or prospective advantage, tortious interference with a contract does not require a showing that defendant’s conduct was wrongful. (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257.)

Interference that makes the contract more expensive or burdensome is sufficient disruption of the contract to state a claim. (Seaman’s Direct Buying Serv., Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 765.)

Plaintiff need not allege actual breach, but only interference with or disruption of contractual relations. (Pacific Gas & Elec. v. Bear Stearns & Co. (1990) 50 Cal. 3d 1118, 1129.) Pleading ultimate facts of interference such as advising, counseling or persuading termination is sufficient. (Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal.App.3d 200, 203-04.)

Where defendant induces a party to a contract to bring litigation, plaintiff must allege that the litigation was without probable cause and concluded in plaintiff’s favor. (Pacific Gas & Elec. v. Bear Stearns & Co. (1990) 50 Cal. 3d 1118, 1129 [defendant’s actions to induce county agency to sue power company over a long-term contract did not interfere with that contract even though plaintiff’s defense costs in such litigation made contract more expensive to plaintiff].)

Defendant interfered with performance of an attorney’s fee contract by causing the attorney’s fees to be withheld until conclusion of an interpleader action brought by defendant. (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 344.)

Element 5: Causation of Breach and Resulting Damage

The defendant’s unjustified conduct must be the moving or procuring cause of the breach of plaintiff’s contract. (Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 997.)

Plaintiff must show that the contract otherwise would have been performed and that the defendant’s wrongful actions were the proximate cause of the resulting breach. (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130.)

For purposes of pleading, the plaintiff may allege proximate causation. The failure to allege that the contract would have been performed but for the defendant’s actions is not fatal to the claim as long as the complaint otherwise alleges facts that show proximate causation. (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257.)

Defendant’s conduct must result in damages to the plaintiff. (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257.)

Remedies

Compensatory Damages

The measure of damages for breach of contract is the amount which will compensate plaintiff for all detriment proximately caused by the breach or which, in the ordinary course of things, would be likely to result from the breach. (Cal. Civ. Code, § 3300.)

Restoration

Damages for breach of contract ordinarily include all amounts necessary to place plaintiff in same position as if breach had not occurred. (Applied Equip. Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503, 515.)

Lost Profits

Future profits can be recovered to extent they can be estimated with reasonable certainty. (Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 907-08; Fisher v. Hampton (1975) 44 Cal.App.3d 741, 747. Lost profits are recoverable to extent they are natural and direct consequence of breach. (Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 457, 277; Postal Instant Press v. Sealy (1996) 43 Cal.App.4th 1704, 1709 [franchisee’s failure to make timely royalty payments to franchisor was not a “natural and direct” consequence of the breach because franchisor chose to terminate contract, thus losing entitlement of future royalty payments].)

Rescission and Restitution

Rescission and restitution are alternative remedies in action for damages where there has been repudiation or material breach of a contract, transfer of unique goods is involved, other remedies are inadequate, subject of contract still exists and interests of innocent purchasers for value and defendant’s creditors will not be unjustly affected. (Wong v. Stoler (2015) 237 Cal.App.4th 1375.)

Equitable Relief

Specific Performance

Specific performance is granted only when money damages are inadequate. (Palo Alto-Menlo Park Yellow Cab Co. v. Santa Clara County Transit Dist. (1976) 65 Cal.App.3d     121, 132-33.)

Injunction (Very Limited Availability)

Injunctive relief is largely within discretion of trial court, considering inadequacy of damages to plaintiff, as well as harm to defendant. (Smith v. Mendonsa (1952) 108    Cal.App.2d 540, 543-44.)

Statute of Limitations

The statute of limitations is two years. (Cal. Civ. Proc. Code, §339, subd. (1); Trembath v. Digardi (1974) 43 Cal.App.3d 834, 836.)

Affirmative Defenses

Justification

Inducing breach of contract is justified where enforcing the contract would be injurious to health, safety or good morals, but is not justified to further defendants’ own economic advantage. (Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33, 35.)

Factors in Determining Justification

In determining whether defendant’s conduct is justified, courts will balance the importance of the objective advanced by the interference against the importance of the interest interfered with and may consider the following factors: (1) the nature of defendant’s conduct; (2) defendant’s motive; (3) the interests of the other party with which defendant’s conduct interferes; (4) the interests sought to be advanced by defendant; (5) the social interests in protecting defendant’s freedom and the other party’s contractual interests; (6) the proximity or remoteness of defendant’s conduct to the interference; and (7) the relations between the parties. (Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal.App.3d 200, 230.)

Lawful Conduct

Justification is a defense only to lawful conduct; if the means of interference are unlawful, the interference cannot be justified. (Savage v. Pacific Gas & Elec. (1993) 21 Cal.App.4th 434, 449.)

Competition

Competition or economic gain alone do not dictate a conclusion that the defendant was justified in interfering with contract, but may provide a foundation for such justification. (Freed v. Manchester Service, Inc. (1958) 165 Cal.App.2d 186, 191 [defendant’s conduct based on competition did not justify interference on face of the complaint].)

Protection of Own Contract

If two parties have separate contracts with a third, each may resort to any means at his disposal to secure performance of his contract even though the necessary result will be to cause a breach of the other contract. (Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33, 37.)

Manager’s Privilege

A manager or agent may protect the interests of his employer by counseling the breach of a third party contract that he reasonably believes to be harmful to his employer’s best interests. (Aalgaard v. Merchant’s Nat’l Bank, Inc. (1990) 224 Cal.App.3d 674, 684.) To claim the privilege, the manager need not be acting solely on behalf of his own employer; he is entitled to protection so long as the employer’s interest was one of the factors motivating his conduct. (Shapoff v. Scull (1990) 222 Cal.App.3d 1457, 1469.)

Litigation Privilege

The litigation privilege (Cal. Civil Code, §47, subd. (b)) may be a defense to actions for intentional interference with contractual relations. (Rosenthal v. Irell & Manella (1982)135 Cal.App.3d 121, 128, 185 [action against law firm members for inducing breach of contract between plaintiff and insurance carrier based on statements made in course of litigation].)

Factors in Determining Privilege

The defenses of privilege or justification are usually established by facts rather than pleadings and depend on a careful balancing of the importance of the objective advanced by the interference against the importance of the interest interfered with, considering all the circumstances, including the nature of the actor’s conduct and the relationship between the parties. (Abrams & Fox, Inc. v. Briney (1974) 39 Cal.App.3d 604, 609-10 [privilege or justification of husband’s interference with wife’s contract with her divorce attorney on basis on public interest in reconciliation could not be resolved on demurrer].)