Chapter 40 WRONGFUL INTERFERENCE WITH CONTRACT
| Jurisdiction | North Carolina |
40 WRONGFUL INTERFERENCE WITH CONTRACT
A. Definition
Wrongful interference with contract is a tort action designed to remedy a defendant's deliberate interference with the performance of a contract that exists between the plaintiff and a third party.1 A defendant who induces another to terminate or fail to renew a contract with the plaintiff may be held liable under North Carolina law for malicious interference with contractual rights if that defendant acts without justification.2 The tort is referred to by several titles: "wrongful interference with contract,"3 "tortious interference with contract"4 and "malicious interference with contract."5
The theory of the doctrine which permits recovery for the tortious interference with a contract is that the right to the performance of a contract and to reap the profits therefrom are property rights which entitle each party to protection and to seek compensation by action in court for an injury to such contract.6
The classic cases of tortious interference involve hiring an employee under contract to another to compete directly against the former employer, or a threat by the defendant to a third party designed to force that party to breach a contract with the plaintiff to injure the plaintiff's business.7
B. Elements
The elements of an action for wrongful interference with contract are:
(1) A valid contract between the plaintiff and a third person that confers on the plaintiff a contractual right against a third person,
(2) The defendant knows of the contract,
(3) The defendant intentionally induced the third person not to perform the contract,
(4) The defendant acted without justification, and
(5) The plaintiff suffered actual damage as a result of the defendant's actions.8
C. Elements Defined
1. Valid Contract Between Plaintiff and Third Person that Confers on Plaintiff Contractual Right Against Third Person
Without a valid9 contract,10 there is no action for wrongful interference with contract.11 However, if no contract exists and the plaintiff claims interference with the making of a contract or some other future economic advantage, a related cause of action may apply.12 A person cannot interfere with a contract to which he or she is a party, and, therefore, is not a proper defendant in an action for wrongful interference with a contract.13 Generally, the interferer (defendant) must be an "outsider" — someone who is not a party to the contract and has no legitimate interest in its subject matter.14 However, even a non-outsider may incur liability.15 In Smith v. FordMotor Co.,16 the court said there should be no immunity from suit for malicious procurement of the termination of a contract when the defendant's action bears no relation whatsoever to the source of the non-outsider status17 — i.e., with a wrongful purpose.18 In that situation, said the court, the defendant's status as an outsider or non-outsider is pertinent only to the "question or justification for his action."19
A plaintiff may recover damages resulting from a wrongful interference with a contract for personal services.20 An employment contract terminable at will may be the subject of an action for wrongful interference.21
2. Defendant Knows of the Contract
It is essential that a plaintiff sufficiently alleges that the defendant had knowledge of the agreement at issue.22 Courts rarely discuss the knowledge element; however, a Restatement commentary addresses it. The commentary says that to be liable, the defendant must have knowledge both of the contract and that he or she is interfering with its performance.23 The defendant does not induce or otherwise intentionally cause someone to fail to perform if he or she has no knowledge of the contract even though, says the comment, the defendant's conduct is, in fact, the cause of the failure to perform. On the other hand, it is not required that the defendant appreciate the legal significance of the facts giving rise to the contractual duty, at least in the case of an express contract. The court in Childress v. Abeles said that if an outsider knows the facts that give rise to the plaintiff's contractual right against a third person, then he or she has knowledge of the contract within the meaning of the second element.24 According to the Restatement, if the defendant knows the facts, the defendant is subject to liability even though he or she is mistaken about their legal significance and believes the agreement is not legally binding or has a different legal effect from what it is judicially held to have.25
A complaint apparently need not specifically allege knowledge of the contract if knowledge is clearly established by other allegations.26
3. Defendant Intentionally Induced Third Person Not to Perform the Contract
The defendant must act intentionally.27 Inducement28 of a third person not to perform a contract with the plaintiff is an essential element of the tort.29 Inducement may occur through "refusal to deal." The Restatement says that a refusal to deal is a way in which someone may induce another to commit a breach of a contract with a third person.30 For example, the defendant induces another to break a contract with the plaintiff by threatening not to enter into, or to sever, business relations with the other party unless that party breaks the contract with the plaintiff. In most circumstances, the defendant is free, acknowledges the Restatement, to refuse to deal with the other party for any reason or no reason. However, if the defendant, instead of merely refusing to deal with the other party and leaving that party to make his or her own decision, uses the refusal to deal, or the threat of it, as a "means of affirmative inducement, compulsion or pressure" to make the other party break a contract with the plaintiff, the defendant may be acting improperly and subject to liability.31
Causing an anticipatory breach will satisfy the requirements of the third element32 and, evidently, the plaintiff need not prove an actual breach of contract; interference with rights under a contract will suffice.33 There may be an action where the defendant interferes with the plaintiff's performance, but does not actually induce the third party not to perform.34 Where the third party, not the defendant, induces nonperformance, the plaintiff cannot established the third element of the claim.35 And, if the defendant induces the plaintiff not to perform, there is no action.36 Alleging interference, but not intentional inducement of failure to perform, will not state a claim.37 Interference may come by way of defamatory statements.38
In a case of particular interest to attorneys, the plaintiff law firm charged that well-known Florida attorney, Ellis Rubin, wrongfully interfered with a contract for representation with its former client by inducing the client, then a North Carolina resident, to terminate that contract and employ the defendant on the same matter. Rubin advised the client that he could discharge the plaintiffs, prepared letters dismissing them, and entered into an employment contract with the client, but the evidence showed the client initiated the initial meeting with the defendant and that he was predisposed to discharge the plaintiffs' firm and retain counsel in the state of Florida, to which the client had relocated. The court concluded it was clear that there was no evidence of intentional inducement by Rubin.39
4. Defendant Acted Without Justification
The question of justification is ordinarily a question of fact for the jury.40 "Bad motive is the essence of a claim for tortious interference with contract."41 To meet the fourth element of the cause of action, the complaint must admit of no motive for the interference other than malice.42 Thus, a complaint that admits on its face that the defendant had a proper motive for his or her actions will fail.43 If the claimant fails to show the other party acted without justification, the action fails.44
In order to show a lack of justification, the plaintiff must show malice;45 however, only legal, not actual malice is required.46 In fact, proof of actual malice is not sufficient, since actual malice and freedom from liability may coexist where there is a sufficient lawful reason for inducing a breach of contract.47 A person acts with legal malice if he or she does a wrongful act or exceeds his or her legal right or authority to prevent continuation of a contract.48 A subjective belief that interference is permissible is not sufficient to defeat a claim of tortious interference if legal malice is present.49 In the seminal case of Childress v. Abeles,50 the North Carolina Supreme Court said that, in a legal sense, malice is necessarily present where the second, third and fourth elements of the tort exist. The court also stated that even though actual malice is not an element of the action, it may negate the existence of justification, because an outsider is "never justified in inducing a breach of contract solely for the purpose of visiting his personal hatred, ill will, or spite upon the plaintiff."
A person is justified in inducing termination of a contract if he or she does so for a reason reasonably related to a legitimate business interest.51 The North Carolina Supreme Court has said that in determining whether conduct is justified, consideration will be given to the circumstances surrounding the interference, the defendant's motive or conduct, the interests sought to be advanced, the social interest in protecting freedom of action, and the contractual interests of the other party.52 That the parties are business competitors may be a factor supporting justification. A specific section of the Restatement — one quoted favorably by a North Carolina court53 — addresses the issue. It provides: "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...
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