The Ultimate Guide to Business Tort Law

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The Ultimate Guide to Business Torts

Business torts, also called "economic torts," are tortious interference actions designed to protect trade and/or business.

What Is a Tort?

A tort is an act that results in injury, suffering, unfair loss or harm to another person. Torts are governed by tort laws and serve two basic purposes (1) to compensate the victim for any losses caused by the defendant’s violations; and, (2) to deter (discourage) the defendant from repeating the violation in the future.

What Are Business Torts?

Business torts can be defined by seven separate categories:

1) Tortious Interference with Contract

Tortious interference with contract occurs when a third-party intentionally causes a contracting party to commit a breach of contract or where the third-party disrupts the ability of one party to perform his obligations under the contract. As a result, the plaintiff does not receive the performance promised under the terms of the contract.

In order for tortious interference with contract to be proved, the following elements must be present:

  1. Existence of a contractual relationship or beneficial business relationship between two parties.
  2. Knowledge of that relationship by a third party.
  3. Intent of the third party to induce a party to the relationship to breach the relationship.
  4. Lack of any privilege on the part of the third party to induce such a breach.
  5. The contractual relationship is actually breached.
  6. Damage to the party due to the breach.

2) Tortious Interference with Business Relations

Tortious interference with business relations occurs before a contract has been formed between two parties. The tortfeasor in this relationship acts to prevent the plaintiff from successfully establishing or maintaining a business relationship with a third party. The conduct causes the third party not to establish the relationship with the plaintiff, when otherwise it would have occurred. The tortfeasor’s conduct must be intentional. The plaintiff must also prove that the business relationship would have happened but-for the conduct of the tortfeasor. In many situations, this can be difficult to prove.

Elements of tortious interference with business relations include:

  1. Existence of a beneficial business relationship between two parties.
  2. Knowledge of that relationship by a third party.
  3. Intent of the third party to induce a party to the relationship to breach the business relationship.
  4. Lack of any privilege on the part of the third party to induce such a breach.
  5. The contractual relationship is breached.
  6. Damage to the party against whom the breach occurs.

3) Injurious Falsehood

Injurious falsehood is an intentionally false statement made to cause damage to another. Injurious falsehood is classified as a business tort, because the false statement is confined to damage to a person’s business reputation. Malice must be proven. Malice is proven when it can be shown that the tortfeasor knew the statement was false when it was made.

4) Negligent Misrepresentation

Misrepresentation is a general term that means "false statement of fact that has the effect of inducing someone into a contract." Negligent misrepresentation is one of three types of misrepresentation in contract law. Negligent misrepresentation means that one did not directly lie, but the person made a representation without having a reasonable basis for making it.

The required elements of a negligent misrepresentation cause of action are the following::

  1. A person made false representation about a material fact.
  2. The person had no reasonable basis to believe the statement was true.
  3. Representation was made with intent for the other party to rely on its truth.
  4. The other party believed the misrepresentation and reasonably relied on it.
  5. Based on reliance of the misrepresentation, the other party suffered damages.

5) Fraud or Fraudulent Misrepresentation

Fraud is deliberate deception to secure unfair or unlawful gain. The intent behind fraudulent misrepresentation make it the most serious of all types of misrepresentation. As a result, it carries the most severe penalties. The required elements for a tort cause of action include the following:

  1. Intentional misrepresentation or concealment of a material fact.
  2. The misrepresentation is made with the intent for the other party to rely on it.
  3. The other party does rely on the material fact.
  4. The reliance on the material fact harms the person.

Fraudulent misrepresentation need not be a positive verbal assertion. It can be any act that would deceive another including simple gestures, innuendos, half-truths, and in some instances, silence.

6) Unfair Competition

Unfair competition is a legal concept wherein competitors compete on unequal terms as a result of favorable or disadvantageous conditions applied to some competitors and not others. Unfair competition can also be found in situations where the actions of some competitors harm others by preventing competition on fair and equal terms.

7) Conspiracy

Conspiracy in a civil or business matter occurs where there exists between two or more parties an agreement to deprive a third party of legal rights or deceive a third party to obtain an illegal objective. The elements required for a conspiracy are the following:

  1. A voluntary agreement between two or more persons.
  2. The agreement can be oral or in writing or implied by the conduct of the parties.
  3. An overt act by one or more conspirators in furtherance of the agreement.

The goal need not be accomplished in order for conspiracy to be found. In fact, in most jurisdictions, if the goal of the conspiracy is accomplished, the conspiracy charge will likely be dropped. For example, if the conspiracy is to commit tortious interference with business relations, and that goal is accomplished, the parties will be charged with tortious interference with business relations.

Remedies for Business Torts

Remedies for business torts include legal remedies, punitive damages, and equitable remedies.

1) Legal Remedies

Legal remedies in tort are also known as "damages." Damages are compensatory, meaning that they are given for the purpose of compensating the victim for their injuries, losses, and pain/suffering. Compensatory damages are divided into two classes: Special and General.

General damages are those which flow naturally from the defendant’s conduct. Examples of general damages would be pain and suffering. Special damages are damages which financially compensate the injured person for losses suffered as a result of the defendant’s actions. Special damage are out of pocket expenses that must be proven. Examples of special damages include lost wages, medical expenses, and other financial losses.

2) Punitive Damages

Though not permitted in contract, punitive damages are awarded in tort causes of action. Punitive damages are meant to punish the defendant for their conduct and to deter future similar conduct. Punitive damages will be awarded in situations where the defendant’s conduct is especially heinous and where the jury determines that compensatory damage would not fully compensate the plaintiff for their harm.

3) Equitable Remedies

The most common equitable remedy in tort causes of action is an injunction. An injunction is a court order issued that compels are party to act or refrain from acting. A party that fails to adhere to an injunction will face criminal or civil penalties.

Injunctions are typically awarded in situations where monetary damages would not fully compensate a plaintiff for their harm. There are two main types of injunctions: Prohibitory injunctions that prohibit a party from acting and mandatory injunctions that compel a party to act. Injunctions can be modified or terminated if circumstances change in the future.

Do I Need an Attorney?

If you have been harmed by a business tort, an experienced business attorney can help you navigate the difficult road ahead and protect your rights. In most business tort actions, much is at stake, so it is best to bring an attorney on to defend  your business and/or livelihood.

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Last Modified: 08-18-2015 09:14 AM PDT

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