How to Protect the Sanctity of Contracts

The law protects the sanctity of contracts and existing businesses by making it possible to sue when someone meddles or interferes unfairly with a contract or a business relationship.

The technical names for these legal “causes of action” or civil suits are “inducing breach of contract” and “interference with prospective business advantage.”

Using these theories, you can sue and win money damages or obtain an injunction to stop the meddlesome conduct when a third party interferes with your ongoing business or contractual relationships. In essence, this means that you can sue the third party, not just the person who has breached the contract.

Imagine a movie star has a contract to appear in a new television series. The contract calls for her exclusive services for six months during the filming of the series. But a movie producer tells her she is needed to star in a new blockbuster film about to begin shooting in Europe. The producer persuades the star to walk out on the television deal and join the production overseas. The movie star would be liable to the TV production company for breaching her contract, but the movie producer would also be liable for inducing the breach of the contract. And the producer’s liability could include punitive damages, even more than hers, because the cause of action is based in tort law. (Generally, punitive damages are not awarded in contract cases.)

The “inducing breach of contract” theory has been around for quite some time, at least since 1853, when a British opera star was persuaded not to fulfill her exclusive singing contract.

Over the years, the theory has been broadened to cover existing business relationships that are not contractual. Thus, even though you do not have a firm contract with someone, if a third party interferes with your business relationship, that person may be subject to liability for your lost business.

“The wrong consists of intentional and improper methods of diverting or taking business from another which are not within the privilege of fair competition,” explains Bernard Witkin in his expert treatise on California law.

One case involved a real estate agent who had an oral understanding that he would receive a commission for a pending deal. Even though there was no enforceable written contract, the court held that the buyer could be sued for dealing directly with the seller and excluding the agent.

More recently, the courts have allowed recovery for “negligent interference with prospective business advantage”--that is, when the conduct in question was not intentional but merely careless.

In one such case, a janitorial company was sued because one of its employees threw away a bag of broken glass left overnight on the desk in an attorney’s office. It turned out that the glass was crucial evidence in a personal-injury lawsuit. And its negligent destruction, or so it was alleged, interfered with the prospective business advantage of the lawyer’s client--who needed it to win the case. The suit was dismissed, however, because the bag was not marked in any special way, and it seemed reasonable--not negligent--for a janitor to throw away a bag of broken glass.

In another case, a court refused to allow the owner of a racehorse to recover from a competing jockey who had bumped the horse and caused it to break stride. The prospective business advantage--winning the purse--was deemed too speculative. Horses break from the pack at the last minute, and often win by a nose, said the court, so who can say whether the horse would have won sans the bump?