Intentional Interference with Contractual Relations in Colorado, 0716 COBJ, Vol. 45 No. 7 Pg. 65
| Author | Brett Lilly, Scott Hale, J. |
Brett Lilly, Scott Hale, J.
Tort and Insurance Law
Tort and Insurance Law articles provide information concerning current tort law issues and insurance issues addressed by practitioners representing either plaintiffs or defendants in tort cases. They also address issues of insurance coverage, regulation, and bad faith.
Coordinating Editors
William P. Godsman of the Law Office of William Godsman, Denver—(303) 455-6900, willgodsman@gmail.com This article discusses the basic elements of the tort of intentional interference with contractual relations, with particular emphasis on pragmatic considerations practitioners will face in litigating what constitutes improper interference.
This article presents an overview of Colorado law on the tort of intentional interference with contractual relations.1 The essence of the tort is the duty to not interfere with contracts.2 This duty flows from the interest in maintaining the security and integrity of contractual obligations.3 The existence of the contractual relationship gives rise to a duty to those who know about the contract to not intentionally and improperly interfere with it.4
The General Rule
Although some cases refer to the tort as “intentionally inducing a breach of contract,”5 Colorado follows the majority rule, which holds that the tort of intentional interference with contractual relations is not limited to inducing a “breach” of contract, because the tort would have no application if there were no breach.6 The modern rule is that the action “lies, more broadly, for intentional ‘interference with the performance of a contract,’” even if the contract is terminable at will.7
No single rule states a prima facie case of improper interference, or the affirmative defense to tortious interference, the privilege of justified competition. Unlike most other intentional torts, there is often no clear-cut distinction between the requirements to establish or deny liability.8 A comparative appraisal of several factors must be evaluated in the context of each matter. This balancing process is not conducive to generalizations or bright line statements of law. Instead, the determination of whether the interference was improper depends on an assessment of the particular facts of the individual case.9
Contractual relations are generally protected against harms from inducement of breach as well as any intended and improper interference that causes loss.10 A defendant can be held liable for intentionally and improperly causing a breach of contract. But the protection against improper interference in business relations is not limited to liability for inducing breach of contract.11 A defendant can be liable for the harm caused by intentionally interfering with a known contract if he “acted in pursuit of some purpose considered improper.”12
Conduct that intentionally induces a breach of contract or interferes with a contract states a claim.13 Inducing a party to break a contract by persuading and thus causing the party to choose to break the contract will establish the tort, but it is not the only means to do so. “[I]t is not necessary to show that the third party was induced to break the contract.”14
Interference with the third party’s performance includes preventing the performance, depriving the means of performance, misdirecting the performance, or generally “causing him not to perform the contract by preventing his performance by some means other than influencing his mental choice.”15 Tort liability may be imposed on a defendant who intentionally and improperly interferes with the plaintiff’s contract “if the interference causes the plaintiff to lose a right under the contract or makes the contract rights more costly or less valuable.”16
Colorado follows the definition of the tort contained in the Restatement (Second) of Torts (Restatement (Second)) §§ 766 and 767.17 One who intentionally and improperly interferes with the performance of a contract “by inducing or otherwise causing the third person not to perform the contract” is liable for the loss.18 Accordingly, this article discusses the elements of the tort with a particular emphasis on Colorado law and Restatement (Second). The alternative theory of unjust enrichment is also briefly discussed.
Elements
In Colorado, the elements of liability are:
1) the existence of a contract;
2) the defendant knew or reasonably should have known of the contract;
3) the defendant intentionally interfered with the performance of the contract;
4) the defendant’s interference with the contract was improper; and
5) the defendant’s interference with the contract caused the plaintiff damages or losses.19
If a contract is terminable at will, the affirmative defense of justifiable business competition has been recognized.20
Existence of Contract
Contracts, including contracts terminable at will, must exist at the time of the improper interference.21 The contract must be valid.22 An action for interference is not precluded by a possible action for or even a judgment regarding breach of contract against the other party to the contract.23
Knowledge of Contract
A tortious interference with contract claim must be filed within two years after the cause of action accrues.24 A claim accrues when the plaintiff knew or should have known of an injury ascertainable from the defendant’s intentional and improper interference with a contract.25
To be liable for intentional interference with contract, a defendant must be aware of the contract. If there is no evidence regarding knowledge of the contract, then there is no liability.26 The same is true if the plaintiff fails to allege or present any evidence of an existing contract.27
Only the parties to the contract can properly state a claim of interference with the contract by a third party.28 A defendant cannot be liable for interference with her own contract because a claim for tortious interference cannot be maintained among parties to the same contract.29 The proper defendant is the party who interferes with the contractual relation, not any party to the contract itself.30
An interfering defendant may be liable where he commits no independent tort to the plaintiff but does commit a tort to the person in contract with the plaintiff. If the plaintiff’s interests and those of the contracting party are sufficiently close, a tort to the one may be sufficient basis for liability to the other, if harm results.31 This is based on the rule that a defendant who commits an independent tort to a third person “may be liable for all proximately caused harm, including economic harm, resulting from interference with the contract.”32 To be liable, the defendant must have knowledge of the contract “and of the fact that he is interfering with the performance of the contract.”33
Intentional Interference with Performance of Contract
The defendant must intend to interfere with the performance of the contract.
Intent. The basis for liability for interference is intent.34 The plaintiff has the burden of proving the defendant’s conduct was both improper and intentional. A plaintiff must prove the defendant intended for one of the parties to breach the contract, or intended to interfere with the performance of the contract, thereby causing the third party not to perform the contract with the plaintiff.35 Insufficient evidence of a defendant’s intention to interfere with the agreement between the plaintiff and the third party will defeat a claim.36 For example, the conduct must be intended to affect the contract of the specific person in contract with the plaintiff.37
Conduct is intentional if its purpose is to bring about a particular result, or if a person knows the acts or words are likely to bring about the result. Proof of malice or ill will is not necessary, but the presence or absence of malice or ill will may be considered in determining if the conduct is intentional.38 Intent and purpose are interrelated. Acting with the primary purpose of interfering with t he performance of a contract will broaden the scope of liability.39 However, knowledge that interference is a “necessary consequence” is sufficient for liability.40
Intent alone may not be enough for liability to attach. But if the sole motivation was to interfere with the other’s contractual relations, the interference is more likely to be held improper.41 If the conduct is independently wrongful, such as tortious behavior, the desire to interfere with the other’s contractual relations is less essential to finding the interference improper. But if innocent or less blameworthy means are used, such as persuasion or offers of benefits, then the motive, intent, or desire to accomplish the interference may be more essential to a holding that the interference is improper.[42]
Intent, knowledge, and other conditions of mind of a person may be generally alleged under CRCP 9(b). The evidence necessary to establish the element of “intent” may prove to be problematic in interference cases. The element of intent may be proven by direct and circumstantial evidence. Evidence establishing intent may also prove improper conduct. Practitioners should pay close attention to the available and admissible facts in each case to establish these elements.
Interference. A defendant must induce a breach or make it impossible or more difficult to perform the contract. Interference means intentional conduct that causes another to terminate or to not perform a contract, or that makes another’s performance of a contract impossible or more difficult.43 While the paradigm case will involve an actual breach of...
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