Tortious Interference with Contract - a Multistate Comparison

(Note: the following is adapted from materials prepared for Litigating the Business Divorce (BNA, forthcoming 2016), co-edited and co-authored by Brian Gottesman, and from Chapter 15 of Business Law Basics)

Origins and General Principles

One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person, by preventing the other from performing the contract or causing his performance to be more expensive or burdensome, is subject to liability to the other for the pecuniary loss resulting to him.[1]

One who intentionally and improperly interferes with another's prospective contractual relation (except a contract to marry) is subject to liability to the other for the pecuniary harm resulting from loss of the benefits of the relation, whether the interference consists of (a) inducing or otherwise causing a third person not to enter into or continue the prospective relation or (b) preventing the other from acquiring or continuing the prospective relation.[2]

Tortious interference with contract or prospective economic relations has been recognized as an intentional tort since at least the seventeenth century, when the King’s Bench held that threatening another business’s customers with mayhem and “vex[ing] suits,” leading to a situation where the customers “desisted from buying,” was an actionable tort.[3]  Similarly, when the merchant ship Othello fired on the African coast to prevent natives from trading with the rival vessel Bannister, the English courts found that conduct to be actionable interference in the prospective relationship between the Othello’s owners and the native merchants.[4]

Due to their respective places in English common law, both tortious interference with contract and tortious interference with prospective economic relations became an integral part of the common law of each of the United States.  Although variations in application do exist from state to state, the law surrounding these intentional torts remains more or less uniform.

Elements and Damages

Tortious interference with contract requires “the existence of a valid contract between the plaintiff and a third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom.”[5] 

Similarly, the elements of tortious interference with prospective business relations are “(1) the existence of a business relationship, not necessarily evidenced by an enforceable contract; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with the relationship by the defendant; and (4) damage to the plaintiff as a result of the breach of the relationship.”[6]

Most states recognize a more heightened evidentiary standard for proving a tortious interference with prospective business relations than with interference with a contract: 

[W]here there is an existing, enforceable contract and a defendant's deliberate interference results in a breach of that contract, a plaintiff may recover damages for tortious interference with contractual relations even if the defendant was engaged in lawful behavior. Where there has been no breach of an existing contract, but only interference with prospective contract rights, however, plaintiff must show more culpable conduct on the part of the defendant.[7]
It is not generally a defense to a claim of tortious interference that the cancellation of the contract in question was permitted under the terms of the contract or other applicable law:
A third party's lawful termination of a contract with the plaintiff will not, of itself, bar a claim that the defendant tortiously interfered with that contract. The focus of a claim for tortious interference with contractual relations is upon the defendant's wrongful inducement of a contract termination, not upon whether the termination itself was legally justified. In this context, Delaware courts have consistently followed the Restatement (Second) of Torts, which recognizes a claim for tortious interference with contractual relations where the defendant utilizes “wrongful means” to induce a third party to terminate a contract.[8]
The damages available to the party allegedly harmed by tortious interference includes (1) actual pecuniary losses, (2) consequential losses proximately caused by the interference, and (3) emotional distress or harm to reputation, if they could reasonably have expected to result from the interference.  Such damages are reduced by damages recovered in any suit against the breaching party.[9]


A number of limiting factors restrict the utility in most case because of a number of limiting factors.  The first is that the interference by the alleged tortfeasor must be “improper” and “intentional” for claims of both interference with contract and interference with prospective economic relations. This means, first and foremost, that most courts will not recognize a claim for tortious interference where the breach of contract or the loss of a prospective relationship was induced negligently, as opposed to intentionally:

Intentional interference with contractual relations has its roots in the tort of ‘inducing breach of contract.’ Both are intentional torts. As this court explained in an early case, ‘The act of inducing the breach must be an intentional one. If the actor had no knowledge of the existence of the contract or his actions were not intended to induce a breach, he cannot be held liable though an actual breach results from his lawful and proper acts.[10]
Secondly, the impropriety of the alleged tortfeasor’s actions must be established in order to prevail in any tortious interference claim.  The Restatement (Second) of Torts provides some guidance as to what conduct may be considered “improper”:
In determining whether an actor's conduct in intentionally interfering with a contract or a prospective contractual relation of another is improper or not, consideration is given to the following factors: (a) the nature of the actor's conduct, (b) the actor's motive, (c) the interests of the other with which the actor's conduct interferes, (d) the interests sought to be advanced by the actor, (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor's conduct to the interference and (g) the relations between the parties.[11]
The Restatement acknowledges that actual or threatened physical violence, misrepresentation or other fraud, filing or threatening to file frivolous or harassing suits, threats to enlist the powers of the government in bad faith, unlawful conduct (for example, conduct in violation of antitrust laws), improper economic pressure, or violation of business ethics and customs may all form the basis for a claim that the defendant’s activities were “wrongful.”[12]  However, the Restatement recognizes a limited privilege for competitors to interfere with one another’s prospective relations:
One who intentionally causes a third person not to enter into a prospective contractual relation with another who is his competitor or not to continue an existing contract terminable at will does not interfere improperly with the other's relation if (a) the relation concerns a matter involved in the competition between the actor and the other; and (b) the actor does not employ wrongful means; and (c) his action does not create or continue an unlawful restraint of trade; and (d) his purpose is at least in part to advance his interest in competing with the other.[13]
Under this standard, for example, a franchisor cannot generally be held liable for otherwise lawful competition with its own franchisees:
Conduct that is not criminal or tortious will generally be “lawful” and thus insufficiently “culpable” to create liability for interference with prospective contracts or other nonbinding economic relations.
Since the franchisees have not shown that Carvel's conduct was criminal or independently tortious, they cannot recover unless an exception to the general rule is applicable. Such an exception has been recognized where a defendant engages in conduct for the sole purpose of inflicting intentional harm on plaintiffs, but that exception clearly does not apply here. It is undisputed that Carvel's motive in interfering with the franchisees’ relationships with their customers was normal economic self-interest; Carvel wanted to reverse a period of business declines and make itself more profitable. It was not acting solely to hurt the franchisees; indeed, one of the franchisees’ prize pieces of evidence is a statement by a Carvel executive, in colorful terms, that he was completely indifferent to the franchisees’ fate.[14]
Similarly, interfering in the relationship between a party and its at-will employees, absent some expressly wrongful conduct or violation of an agreement not to do so, will not generally form the basis for a tortious interference claim.[15]  Nor is the communication of truthful information regarding a competitors’ pricing likely to rise to the level of “impropriety” required as an element of a tortious interference claim.[16]

Indeed, in recent years many courts have expressed reservations about the prosecution of tortious interference claims.  A concurring opinion in the California 4th District Court of Appeal, for instance, described the issue as follows:

The tort’s ‘protectionist’ premise, however, is at war with itself. For the person who deserves protection in the acquisition of property is not only the interfered-with party but also the interfering party. Why then should the interfered-with party receive favor, while the interfering party is disfavored, by virtue of their respective status? Why should the interfered-with party’s acquisitive efforts be elevated to a kind of property interest, good against the world, while those of the interfering party are deemed illegitimate? It is ‘often assumed … that interference … should produce liability because it is wrong to interfere. This is, however, very much the same as saying it is wrong because it is wrong.’ In the words Lord Bramwell spoke in the House of Lords in Mogul Steamship Company v. McGregor, Gow & Co., supra, [1892] A.C. 25, 47, affirming Mogul Steamship Company v. McGregor, Gow & Co., supra, 23 Q.B.D. 598, ‘[i]t does seem strange’–and more than strange–’ that to enforce freedom of trade, of action, the law should punish’ the interfering party ‘who make[s] … perfectly honest’ arrangements ‘with a belief’ that they are ‘fairly required for [his] protection,’ whereas it rewards the interfered-with party who does likewise. Reason supports the conclusion that, even when there is a breach of contract, the interfered-with party should not be preferred over the interfering party: the breach may be ‘efficient.’ Reason practically compels the same conclusion when there is no breach because there is no contract.[17]
For the foregoing reasons, claims of tortious interference with either existing contracts or prospective relations may be of limited utility unless such claims may be coupled with some breach of fiduciary duty, violation of an enforceable noncompete agreement or provision, theft of confidential information or other contractual or tortious impropriety.  Such claims are therefore useful to supplement existing claims based on breach of fiduciary duty, breach of contract, or some other tortious act.  In the absence of facts supporting such other claims, however, it is unlikely that a claim for tortious interference against a former (or soon-to-be former) business partner will independently prevail.

[1] Restatement (Second) of Torts § 766A.
[2] Restatement (Second) of Torts § 766B.
[3] Garret v. Taylor, 79 Eng. Rep. 485 (K.B. 1620); accord, Gregory v. Duke of Brunswick, 6 Man. & G. 205, 134 Eng. Rep. 866 (C.P. 1843).
[4] Tarleton v. McGawley, 170 Eng. Rep. 153 (K.B. 1793).
[5] Lama Holding Co. v. Smith Barney Inc., 668 N.E.2d 1370, 1375 (1996); see also ASDI, Inc. v. Beard Research, Inc., 11 A.3d 749, 750-52 (Del. 2010); J.J. Indus., LLC v. Bennett, 71 P.3d 1264, 1267 (Nev. 2003); Prudential Ins. Co. of America v. Financial Review Services, Inc., 29 S.W.3d 74, 78 (Tex. 2000); Chicago Title Ins. Co. v. Alday-Donalson Title Co. of Florida, Inc., 832 So.2d 810, 814 (Fla. App. 2002); Empire Trucking Co., Inc. v. Reading Athracite Coal Co., 71 A.3d 923, 932-5 (Pa. Super. 2013).
[6] E.g., Tamiami Trail Tours, Inc. v. Cotton, 463 So. 2d 1126, 1127 (Fla. 1985); North American Chemical Co. v. Superior Court, 59 Cal.App.4th 764, 786 (1997).
[7] NBT Bancorp Inc. v. Fleet/Norstar Fin. Grp., Inc., 664 N.E.2d 492, 495-96 (N.Y. 1996) (internal citations omitted).
[8] ASDI, Inc., 11 A.3d at 751 (holding conversely that “the case law reflects that a defendant’s tortious conduct that induces a third party to terminate a contract with the plaintiff unlawfully will suffice to establish a claim of tortious interference with contractual relations”); accord, e.g., NBT Bancorp, 664 N.E.2d at 495-96; Restatement (Second) of Torts § 768(b) (“The fact that one is a competitor of another for the business of a third person does not prevent his causing a breach of an existing contract with the other from being an improper interference if the contract is not terminable at will”).
[9] E.g., Restatement (Second) of Torts § 774A; Re: Beard Research, Inc., 2008 WL 5330557, at *1 n. 2; Gonzalez v. Gutierrez, 694 S.W.2d 384, 390 (Tex. App. 1985); Ratner v. Noble, 617 N.E.2d 649, 650 (Mass. App. 1993).
[10] Restatement (Second) of Torts § 766C; Seaman’s Direct Buying Service, Inc. v. Standard Oil Co., 36 Cal.3d 752, 765 (1987).
[11] Restatement (Second) of Torts § 767.  Comment [a] reads in relevant part:
The issue in each case is whether the interference is improper or not under the circumstances; whether, upon a consideration of the relative significance of the factors involved, the conduct should be permitted without liability, despite its effect of harm to another. The decision therefore depends upon a judgment and choice of values in each situation. This Section states the important factors to be weighed against each other and balanced in arriving at a judgment; but it does not exhaust the list of possible factors. The comments in the Section deal with the significance of each of the listed factors.  Since the determination of whether an interference is improper is under the particular circumstances, it is an evaluation of these factors for the precise facts of the case before the court; and, as in the determination of whether conduct is negligent, it is usually not controlling in another factual situation. On the other hand, factual patterns develop and judicial decisions regarding them also develop patterns for holdings that begin to evolve crystallized privileges or rules defining conduct that is not improper. 
[12] Id. at Comment [c].
[13] Restatement (Second) of Torts § 768(a); CGB Occupational Therapy, Inc. v. RHA Health Services Inc., 357 F.3d 375, 388 (3d Cir. 2004).
[14] Carvel Corp. v. Noonan, 818 N.E.2d 1100, 1103-4 (N.Y. 2004).
[15] CGB Occupational Therapy, Inc. v. RHA Health Services Inc., 357 F.3d 375, 388 (3d Cir. 2004).
[16] Walnut Street Associates, Inc. v. Brokerage Concepts, Inc., 20 A.3d 468, 478 (Pa. 2011).