Interference with Existing Contractual Relations

Interfering with an existing contract occurs when an outside party interferes with a contract between two parties.

This interference results in one or more of the following:

• An increase in contract expenses
• Contractual aggravation
• A breach of contract

Interfering With an Existing Contract

Although the law involving interference with a contractual relationship is still developing, there are some consistent factors to consider:

• Existing agreements or contracts
• Interfering parties knew or were aware of existing agreements or contracts
• Interfering with the performance of a contract intentionally

In What Types of Contracts Does Interference With Relationships Occur Most Often?

Except for marriage contracts, any contract may be interfered with.

The following are some common types of situations:

• Employment contracts
• Service contracts
• Purchase contracts

What Kind of Interference Is Required by the Interfering Party?

There is no technical requirement regarding the kind of conduct that may interfere with a contract’s performance. The interference may be through conduct or by persuasion through a simple request. Other authorities have held that interference may consist of physical or economic harm.

How Is Tortious Interference Defined?

Interference by a third party can significantly harm your business, regardless of whether you have a formal contract or a handshake agreement.

Vendors, distributors, agents, insurers, lenders, and subcontractors, to name a few, are essential to most businesses. An action for intentional interference with contractual relations, also known as tortious interference, can be brought if someone unfairly disrupts one of your business relationships, such as by enticing an essential supplier to break its agreement with you.

In What Ways Does the Law Regulate Tortious Interference?

In the case of interfering with a business competitor’s business relations, there is no criminal law that can be used to punish them. You are instead protected by the contract and tort laws in your state if you are subject to tortious interference. The law of contract governs claims between parties to an agreement, while tortious interference applies to acts of individuals and companies with whom you have no agreement.

Despite the fact that tortious interference claims involve existing contracts or business relationships, their focus is on redressing the wrongdoing of a third party.

What Are the Elements of a Tortious Interference Claim?

Third parties can interfere with two types of business relationships. The first is relying on existing agreements.

Second, anticipatory reliance on non-contractual relationships that could become contractual or otherwise creates an expectation of economic advantage.

There are two varieties of tortious interference, interfering with existing contract relationships and interfering with prospective economic advantage.

Interference With Existing Contracts

This cause of action requires the existence of a business contract and the claim that a third party has wrongfully interfered with it. Each state has requirements to prove tortious interference with an existing contract.

In general, you will need to prove the following:

• Your business and another business had a valid contract
• This contract was known to a third party (the defendant)
• A third party interfered with your contract relationship by intentional and wrongful means.
• That interference harmed your contractual relationship.

Interference With Prospective Economic Advantage

Formal contracts are not always necessary for important business relationships.

If your company is negotiating to acquire another company, you may expect to increase revenues and gain other benefits. You might have a claim against someone who interferes with these negotiations or a prospective business relationship.

Similar to proving interference with an existing contract, this claim requires the same elements.

All of the following must be shown:

• Even if there was no contract, your company had a business relationship with another party
• This relationship was known to a third party (the defendant)
• Your business relationship was intentionally and wrongfully interfered with by a third party, and
• The interference harmed your business relationship.

The most famous case involving interference with prospective economic advantage occurred in 1984 when Pennzoil sued Texaco for interfering with Pennzoil’s purchase of Getty Oil. Pennzoil won its case, resulting in the largest civil damages award in American history (more than $10 billion in economic and punitive damages) and, for a time, the largest bankruptcy in American history. In the end, Pennzoil’s damages claim was settled for $3 billion.

It is more difficult to prove interference with prospective relationships in some states than interference with existing contracts.

Examples of improper conduct are fraud, misrepresentation, economic pressure, launching civil lawsuits or criminal prosecutions, or even physical violence.

When deciding whether a third party’s interference was improper, some states consider the following factors:

• The behavior of the third party
• That person’s motivations
• A third party’s behavior that interferes with the interests of a third party
• Third parties’ interests
• The interests of society in protecting the interests of the third party and the party that person is interfering with
• How direct or indirect the third party’s behavior was in relation to the interference,
• Relationships between the parties.

Other states focus on whether the third party’s behavior amounted to tortious conduct independent of the interference. Make sure you apply the proper criteria according to your state’s laws.

A Negligent Interference With Prospective Economic Advantage in California

There is a third type of tortious interference claim possible in California: negligent interference with prospective economic advantage. The main difference between intentional and negligent interference with prospective economic advantage is that intentional interference requires the interfering third party to harm your interests intentionally and wrongfully. A negligent interference occurs when the interfering party knew about your existing business relationship and was duty bound not to harm it.

An interfering third party is negligent if they fail to act with care and avoid causing harm. To prove damages, you must prove that the negligent interference prevented or hindered an actual economic benefit that would otherwise have resulted from your relationship by preventing or hindering an actual economic benefit.

Tortious Interference Damages

As a result of the third party’s interference, you may have a successful claim against one party in tort (the interfering third party) and another party in a contract (who broke its agreement with you because of the third party’s interference). Lawyers typically allege both interference with an existing contract and interference with prospective economic advantage as alternative causes of action so that if one fails, the other may still succeed.

The interference of a third party with a contract or prospective economic advantage will not always result in legal liability. A legitimate competitive activity can be used as a defense. Society’s interest in preserving a competitive free market may trump your desire for certainty, stability, or exclusivity in your business relationship. This can happen if the third party causes your contract partner to leave an agreement that is terminable at will or if the third party competes with you to achieve its own economic advantage (that is, it is not acting solely to harm your business).

What Should I Do if an Outside Party Interferes With My Contract or Agreement?

A variety of different factors can influence inducement to breach a contract and interference with contract claims. Contract law differs in each state, and an experienced contract attorney would help you to complete any requirements and procedures in a timely manner before filing deadlines.