Intentional Interference with Contract Law Definition Elements & Defenses – California

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. (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945.)

Elements for Tortuous Interference with Contract

To establish this claim, the plaintiff must prove all of the following:

(1) that there was a valid contract between the plaintiff and a third party;

(2) that the defendant knew of the contract;

(3) that the defendant’s conduct prevented performance or made performance more expensive or difficult;

(4) that the defendant intended to disrupt the performance of this contract;

(5) that the plaintiff was harmed; and

(6) that the defendant’s conduct was a substantial factor in causing the plaintiff’s harm. (CACI 2201.)

ELEMENT 1: Valid Existing Contract with Third Party

The plaintiff must allege a valid existing contract between plaintiff and a third party. (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945.)

Contract Must be an Enforceable Contract

A cause of action for intentional interference with contract requires an underlying enforceable contract.  Where there is no existing, enforceable contract, only a claim for interference with prospective advantage may be pleaded. (PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579.)

Terminable At-Will Contracts

Interference with an at-will contract is actionable interference with the contractual relationship, on the theory that a contract ‘at the will of the parties, respectively, does not make it one at the will of others.” (Pacific Gas & Elec. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118.)

Contracts Containing Conditions Precedent

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.) (Court holds that the merger contract was one type of contract subject to a condition precedent, that such contracts can be the basis for tortious interference claims, and that while competing public utilities should be encouraged to engage in competition within the regulatory framework, they should not be able to engage in independent, wrongful action to disrupt a merger before it is considered by the appropriate regulatory agencies).

Void or Illegal Contracts

No cause of action for tortious interference with contract exists when a contract is void. (Bed, Bath & Beyond of La Jolla, Inc. v. La Jolla Village Square Venture Partners (1997) 52 Cal.App.4th 867.) (where tenant never signed lease, only a cause of action for tortious interference with prospective economic advantage could exist).

Contracts Contrary to Public Policy

No cause of action exists when the contract was procured illegally or is contrary to public policy. (Renaissance Realty, Inc. v. Soriano (1981) 120 Cal.App.3d Supp. 13.) 

Terminable Contracts

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.)

 Contract Must Be with Third Party

A contracting party cannot be held liable in tort for conspiracy to interfere with its own contract. (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945.)

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. (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945.)

ELEMENT 3: Intent to Induce Breach

The plaintiff must prove that the defendant intended to induce a breach of the contract. (Id.)

Foreseeable Consequence of Defendant’s Actions

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. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134.)

Defendant must have intended to i) perform the act or acts that caused the interference, and ii) cause the interference itself. (Id.)

Intent to Provide a Party to a Contract with Negative Information

The intent to provide a party to the contract with negative information is insufficient. (Id.)

Substantial Certainty of Interference Raises an Inference of Necessary Intent

Substantial certainty that the defendant’s acts will interfere with the contract may raise an inference of the necessary intent to interfere. (Id.)

Proof of Intent

Plaintiff need not prove that defendant had any improper motive or malice in causing the interference.  (Della Penna v. Toyota Motor Sales, U.S.A. (1995) 11 Cal.4th 376.)

How to Establish Defendant’s Intent

Defendant’s intent may be established by inference as well as by direct proof. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134.)

Lawful vs. Unlawful Conduct

Defendant’s interference is actionable whether his actions are unlawful or lawful. (Siciliano v. Artiano (2011) Cal.App.Unpub. LEXIS 8019 citing (Herron v. State Farm Mutual Ins. Co. (1961) 56 Cal.2d 202).)

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. (Reeves v. Hanlon (2004) 33 Cal.4th 1140.)

Not Required to Show Defendant’s Conduct was Wrongful

Unlike interference with economic relations or prospective advantage, tortious interference with a contract does not require a showing that defendant’s conduct was wrongful. (Quelimane Co. v. Stewart Title Guar. Co. (1998) 19 Cal.4th 26.)

Interference That Makes Contract More Expensive or Burdensome

Interference that makes the contract more expensive or burdensome is sufficient disruption of the contract to state a claim. (C&S Real Estate Group v. Ramirez (2002) Cal.App.Unpub. LEXIS 2566 citing (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118).)

Plaintiff Need Not Allege Actual Breach

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.)

Plaintiff Can Plead Facts of Interference

Pleading ultimate facts of interference such as advising, counseling or persuading termination is sufficient. (Applied Equip. Corp. v. Litton Saudia Arabia, Ltd. (1994) 7 Cal.4th 503.)

Defendant Induces Party to a Contract to Bring Litigation

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. (Id.) (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 Interferes with Performance of an Attorney’s Fee Contract

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.)

ELEMENT 5: Causation of Breach

The defendant’s unjustified conduct must be the moving or procuring cause of the breach of plaintiff’s contract. (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945.)

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. (Id.)

Proximate Cause

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. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134.)

ELEMENT 6: Resulting Damages

Defendant’s conduct must result in damages to the plaintiff. (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945.)

REMEDIES

Compensatory Damages

Interfering party is liable to other party to contract for harm resulting from breach. (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945.)

Lost Profits and Expenses

Damages may include lost profits and expenses incurred in preparing to perform contract before it was breached. (Id.)

Mental Suffering and Damage to Reputation

Plaintiff may also receive compensation for mental suffering and damage to reputation. (Caldwell v. Montoya (1995) 10 Cal.4th 972.)

Tort Damages

Recovery of breach of contract damages against other party to contract does not prevent plaintiff’s claim for tort damages against person interfering with contract. (Applied Equip. Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503.)

No Double Recovery

Although plaintiff may recover both contract damages against other party to contract and tort damages from party interfering with contract, he cannot recover double compensatory damages. (Id.)

Tort Damages Recoverable Only from Interfering Third Party

In breach of contract action against a party to the contract, plaintiff cannot recover from that party tort damages for interference with contract. (Applied Equip. Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503.)

Equitable Relief

Injunction available when money damages are inadequate. (Pacific Gas & Elec. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118.)

Punitive Damages

Punitive damages are recoverable however, plaintiff must show oppression, fraud or malice on defendant’s part. (Renaissance Realty, Inc. v. Soriano (1981) 120 Cal.App.3d Supp. 13.)

STATUTE OF LIMITATIONS

The statute of limitations is two years. Civ. Proc. Code § 339(1).

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. (California Quality Glass & Mirror Corp. v. Peerless Prods. (2002) Cal.App.Unpub. LEXIS 7704 citing (Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33).)

Lawful Conduct
Justification is a defense only to lawful conduct; if the means of interference are unlawful, the interference cannot be justified. (Jenni Rivera Enterprises, LLC v. Latin World Entertainment Holdings, Inc. (2019) 36 Cal.App.5th 766.)

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. (Safeway, Inc. v. Pivotal Sales Co. (2010) Cal.App.Unpub. LEXIS 4072 citing (Freed v. Manchester Service, Inc.  (1958) 165 Cal.App.2d 186).)

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. (Donald G. Webber v. Inland Empire Investments, Inc. (1999) 74 Cal.App.4th 884.)

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. (Applied Equip. Corp. v. Litton Saudia Arabia, Ltd. (1994) 7 Cal.4th 503.)

Privilege
Exercise of an absolute legal right is defense to action for inducing breach of contract. (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945.)

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. (Huynh v. Vu (2003) 111 Cal.App.4th 1183.)

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. (Id.)

However, the manager must act, at least in part, to benefit the company, as it is not an absolute privilege. (Id.)

Litigation Privilege
The litigation privilege may be a defense to actions for intentional interference with contractual relations. Civ. Code § 47(b).

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 Caal.App.3d 604.)