What Is Tortious Interference?
Tortious interference, also known as intentional interference with contractual relations, is a civil wrong that occurs when a third party intentionally damages someone else's contractual or business relationships with a third party, causing economic harm. This legal concept falls under the broader umbrella of Business Law and [Legal Concepts in Finance], protecting established or prospective business relationships from wrongful disruption. The aim of tortious interference claims is to provide a remedy for financial losses incurred due to such interference. It focuses on the improper conduct of an individual or entity that is not a party to the original agreement or relationship.40, 41
History and Origin
The roots of tortious interference can be traced back to English common law. A landmark case often cited as foundational to this tort is Lumley v. Gye, decided in 1853. In this case, Benjamin Lumley, a theater owner, sued Frederick Gye, a competing theater manager, for inducing opera singer Johanna Wagner to breach her exclusive contract with Lumley.37, 38, 39 The court ruled in favor of Lumley, establishing the principle that a third party could be held liable for damages if they intentionally interfered with the performance of a contract by another.34, 35, 36 This ruling broadened the scope of legal protection beyond traditional master-servant relationships to encompass other contractual agreements, setting a precedent for protecting commercial agreements and economic interests from malicious outside influence.32, 33
Key Takeaways
- Tortious interference involves a third party intentionally disrupting an existing contract or a prospective business relationship.31
- The interfering party must have knowledge of the relationship and act with intent to cause harm or gain an unfair advantage.29, 30
- Claims typically require proof of a valid contract or reasonable business expectancy, the interfering party's knowledge and intent, improper interference, and resulting economic damages.26, 27, 28
- It protects businesses from unfair competitive practices that go beyond legitimate market competition.24, 25
- Successful claims can result in compensation for losses and, in some cases, punitive damages or an injunction to prevent further interference.21, 22, 23
Interpreting Tortious Interference
Understanding tortious interference requires evaluating the nature of the interference and its impact on a business relationship. For a claim to be viable, the interference must generally be intentional and improper, not merely the result of fair competitive advantage. Courts examine factors such as the motive of the interfering party, the means used, and the context of the business relationship. The tort exists to prevent wrongful conduct that undermines the integrity of contract law and fair economic dealings. It is not intended to stifle legitimate competition, but rather to deter actions like fraud, threats, or misrepresentation designed to disrupt a valid economic opportunity.17, 18, 19, 20
Hypothetical Example
Imagine "GreenTech Innovations" is in final negotiations to secure a substantial investment from "VentureCapital Firm," which would enable GreenTech to develop a groundbreaking renewable energy project. The terms are largely agreed upon, and a formal funding agreement is imminent. "CarbonCorp," a competitor of GreenTech, learns of this impending deal. Driven by a desire to prevent GreenTech's expansion and protect its own market share, CarbonCorp spreads false and damaging rumors about GreenTech's financial stability and the viability of its technology to key decision-makers at VentureCapital Firm.
As a direct result of CarbonCorp's malicious and false representations, VentureCapital Firm withdraws its investment offer, causing GreenTech Innovations significant [financial loss] and delaying its project. GreenTech could potentially sue CarbonCorp for tortious interference with prospective economic advantage. In this scenario, CarbonCorp knew about the prospective [investment] relationship, intentionally interfered with it using wrongful means (false rumors), and GreenTech suffered damages as a direct consequence.
Practical Applications
Tortious interference claims appear in various aspects of commerce and corporate governance. They are frequently seen in disputes arising from mergers and acquisitions, where one party might attempt to disrupt a deal between two others by inducing a breach of a non-disclosure agreement or a purchase contract.16 This tort also arises in scenarios involving employment contracts, such as when a rival company actively poaches employees under existing non-compete clauses, particularly if it involves inducing them to violate their current agreements.
Furthermore, tortious interference can be a critical tool in addressing unfair trade practices that extend beyond typical antitrust law violations. For instance, if a company uses threats or illegal means to prevent a supplier from dealing with a competitor, it could face a tortious interference claim. The Cornell Law School's Legal Information Institute defines tortious interference as "a common law tort allowing a claim for damages against a defendant who wrongfully interferes with the plaintiff's contractual or business relationships."15 Such legal actions aim to protect the integrity of [business dealings] and ensure fair competition in the market.
Limitations and Criticisms
While tortious interference aims to protect legitimate business dealings, its application is not without limitations or criticisms. One common challenge lies in proving the "improper" nature of the interference and the defendant's specific intent.14 Legitimate competition, even if it leads to a loss of business for a competitor, generally does not constitute tortious interference. For example, offering a better price or a superior product to win over a client is considered fair market activity.13
A significant criticism often leveled against broad interpretations of tortious interference, especially concerning prospective business relationships, is that it may discourage what some economists term "efficient breaches." This concept suggests that a party might breach a contract if doing so, and paying damages, would still result in a net economic gain compared to fulfilling the original contract, particularly if a more valuable opportunity arises. Critics argue that allowing tortious interference claims in such scenarios could impede economic efficiency and legitimate risk management decisions, potentially chilling innovation and free market dynamism.12 Additionally, distinguishing between legitimate due diligence and wrongful interference can be complex, making litigation in this area intricate and fact-intensive.
Tortious Interference vs. Breach of Contract
Tortious interference and breach of contract are distinct legal concepts, though they often involve similar underlying circumstances related to failed agreements. The primary difference lies in the parties involved and the nature of the wrongful act.
A breach of contract occurs when one party to a contract fails to fulfill their obligations as specified in the agreement. The legal action is typically brought by one contracting party directly against the other contracting party for failing to perform. The focus is on the broken promise within the existing agreement between the two parties.
In contrast, tortious interference involves a third party who is not a party to the contract or business relationship. This third party actively and intentionally causes one of the contracting parties (or prospective business partners) to break or disrupt the agreement, causing harm to the other original party. The wrongful act in tortious interference is the external meddling by a non-contracting party, whereas in breach of contract, the wrongful act is the failure to perform by a party to the contract. The Cornell Law School's Legal Information Institute (LII) clarifies that while both may involve a contract, tortious interference focuses on "the wrongful conduct of a non-party to that agreement."11
FAQs
What are the main types of tortious interference?
There are two primary types: tortious interference with an existing contractual relationship (where a valid contract already exists) and tortious interference with prospective economic advantage (where there is a reasonable expectation of a future business relationship or contract).9, 10 Both require proof of intentional and improper interference by a third party.
What kind of "interference" is considered tortious?
Interference is considered tortious if it is intentional, without justification, and uses improper means to disrupt a contract or business relationship. Examples of improper means include fraud, misrepresentation, threats, coercion, or other unlawful acts. Fair competition, such as offering better pricing or services, is generally not considered tortious interference.7, 8
What kinds of damages can be sought in a tortious interference lawsuit?
A plaintiff who successfully proves tortious interference can seek damages for the [economic loss] suffered due to the disrupted contract or business relationship. This can include lost profits, loss of [shareholder value], and other quantifiable financial harm. In some cases, punitive damages may also be awarded to punish the interfering party for particularly egregious conduct.4, 5, 6
Is tortious interference a criminal offense?
No, tortious interference is a civil tort, not a criminal offense. This means that successful claims result in civil remedies, typically financial compensation, rather than criminal penalties like imprisonment. The goal is to compensate the injured party and deter future wrongful conduct, not to prosecute a crime.1, 2, 3