G. Interference with Contractual Relationship

• Library: South Carolina Business Torts (SCBar) (2021 Ed.)

G. INTERFERENCE WITH CONTRACTUAL RELATIONSHIP

1. Introduction, Origin, and Development

South Carolina has joined the majority of jurisdictions in recognizing a cause of action for interference with contract or contractual relations. A cause of action for interference with contract was formally recognized in 1939 in Chitwood v. McMillan³⁰⁷ and has been utilized countless times in the last eight decades. In Chitwood, the South Carolina Supreme Court first recognized liability on behalf of a third party for interference with a contract based on the theory that "the parties to a contract have a property right therein, which a third person has no more right maliciously to deprive them of, or injure them in, than he would have to injure their property."³⁰⁸

In Chitwood, the court noted that the cause of action originated in claims against third parties for interference with the master-servant relationship, but it was quickly extended to contracts of all types.³⁰⁹ Unlike tortious interference with prospective contractual relations, "which occurs when a third party interferes with another's justifiable expectation of the procurement of a contract," this tort occurs when a third party wrongfully induces the breach of an existing contract.³¹⁰ The theories and principles outlined in Chitwood were affirmed in cases such as Keels v. Powell³¹¹ and Parker v. Brown.³¹²

The Restatement sets forth the general statement for this business tort.

One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.³¹³

2. Pleading and Proving Interference with Contract

Under South Carolina Law, the liability of a third party for interference with a contract rests on five essential elements:

(1) Existence of a valid contract;

(2) Wrongdoer's knowledge of the contract;

(3) His or her intentional procurement of its breach;

(4) Absence of justification; and

(5) Resulting damages.³¹⁴

Importantly, an action for tortious interference with a contract requires interference by a third party; it does not protect one party to a contract from the actions of another.³¹⁵ Therefore, this action must be brought against a third party rather than a party to the contract.³¹⁶

a. A Valid Contract Exists

First and foremost, there must be a valid and enforceable contract in order to prevail on a claim for interference with contract.³¹⁷ Thus, where there is no valid contract to procure the breach of, there can be no recovery.³¹⁸

For example, in Eldeco, Inc. v. Charleston County School District,³¹⁹ the South Carolina Supreme Court held that in the absence of a breach of contract between a general contractor and an electrical subcontractor, a school district could not be held liable to the subcontractor for tortious interference with contractual relations.³²⁰

b. The Wrongdoer Had Knowledge of a Valid Contract

In order for a third party to be liable for the tortious interference of a contract, the third party must have knowledge of a valid contract.³²¹ Thus, a third party cannot be liable for interfering with a contract of which he was unaware.³²²

However, this does not require actual knowledge. Instead, it is enough to show that the third party had knowledge of certain facts, which, if followed by a reasonable inquiry, would have led to disclosure of the contractual relations and the rights of the parties.³²³

c. The Wrongdoer Intentionally Procured the Breach of the Contract

The third party to the contract must have intentionally procured the breach of such contract.³²⁴ This does not, however, require that the third party intended to harm the plaintiff.³²⁵ Instead, this element is satisfied if the interfering party did in fact intend to interfere with an existing contract.³²⁶

Importantly, an essential element to an intentional interference claims is the procurement of a breach.³²⁷ Therefore, in First Union Mortg. Corp. v. Thomas, there could be no claim for intentional interference with contractual relations when the interference did not procure a breach of contract, even though the defendant interfered with the contractual relations.³²⁸ In that situation, neither element one nor three were satisfied due to the lack of a breach of a contract.³²⁹

On the other hand, intentional procurement of the breach of the contract was established in Broach v. Carter.³³⁰ In Broach, evidence established that the manager of a condominium builder intended to procure a breach of commission agreements between two real estate agents and a brokerage agency, thus satisfying the requirement for an intentional procurement of a breach of contract.³³¹ The manager directly interfered with the agents' commission agreements by negotiating a second contract that included a subordination clause that subordinated the agents' commissions to a construction loan with the bank.³³² The manager knew the subordination would result in an alteration of the agents' rights to immediate payment at closing on the sale of certain condominium units in breach of their commission agreements.³³³

Similarly, in Todd v. S.C. Farm Bureau Mut. Ins. Co., the South Carolina Supreme Court determined that there was sufficient evidence to support a jury's conclusion that the actions of an investigator hired by an insurance agent's employer were intended to procure a breach of the agent's employment contract.³³⁴ The evidence presented at trial indicated that the investigator accused the agent of leaking information about its investigation, fabricated the existence of an informant to justify the accusations, and administered an illegal voice stress analysis of the agent, the results of which were disclosed to the agent's employer shortly before his employment was terminated.³³⁵ The court found that this evidence was sufficient for the jury to determine that the investigator intended to procure a breach of the agent's employment contract and sustain a claim for intentional interference with a contract.³³⁶

d. There is an Absence of Justification

An absence of justification may be inferred, though in order to satisfy this element, the third party must have acted in a way other than the exercise of their own legal rights.³³⁷ The South Carolina Court of Appeals has stated:

The exercise in good faith of a legal right by a party to a contract affords no basis for an action by the second party for the intentional interference with a contract even though the consequences of the exercise of the legal right by the first party is to cause a third party not to perform another contract with the second party.³³⁸

Thus, for example, interference with contract can be justified when it is motivated by a...