Altering Risks and Creating Windfalls: the Case to Abolish Intentional Interference with Contract

Nathan, I've modified wording and sentence structure in several places, which I think adds to clarity and readability, but feel free to revert to the previous version if you disagree. I've also added some questions and suggestions in blue, which may be helpful as this evolves. Your argument is well-structured and well-written, and I learned something new from reading it. For me, the most difficult aspect of your paper (and its biggest area for improvement) is the fact that it is divorced from facts/social context. Your argument is very abstract and theoretical. I would like to see a concrete example of how these areas of law intersect. Some idea of where intentional interference comes into play today would be excellent (and it would also be great if this example could illustrate succinctly why you think the rule should be abolished). As I was reading, I felt like you must have some particularly egregious application of this rule in mind, and I wish you'd say what it is. I would be much more persuaded to abolish if I had a better sense of what's happening on the ground.

Introduction

Intentional interference with contract is a unique cause of action that stands at the intersection of tort and contract law. It provides security by offering damages to actors whose contracts are intentionally interfered with by third parties. However, tort law's view of a contract as a quasi-property right meriting the protection of the law violates some of the basic tenants of contract law. Contracts are not an absolute guarantee of income; they are tools to allocate risk among willing parties who may sue for damages if the other party breaches. By providing an extra source of compensation beyond compensatory damages, the tort alters the balance of risks that were originally bargained for and creates the potential for windfalls.

Your reference in the introduction to windfalls is a bit unclear. Later you note that most of the tort damages are compensatory. Do you mean to say that the problem is that someone could "double dip" by being compensated twice for the same breach (once by the breaching party and again by the third party who interfered)? I think so, but it could be a bit clearer in the intro.

Historical Development

Liability for intentional interference with contract originally came from an expansion of the tort of intentional interference with prospective economic relations (Restatement Second of Torts). In its earliest stages, intentional interference with contract required that the defendant induce breach through an independently tortious act, but Lumley v. Gye (1853) extended the cause of action to non-tortious conduct. This modification exposed third parties to liability for dealings that previously would have been non-actionable, but were now tortious because of a contract. Thus, whereas contracts had previously only given the parties rights against each other, the common law now recognized rights against the world at large.

Current State

Modern courts, recognizing that some interference with contracts may be beneficial, allow third parties to assert affirmative defenses. Although there is no specific standard, these defenses traditionally apply to individuals who have a privileged relationship with one of the contracting parties, or actors who interfere to further their own economic interests. In recognition of the tort’s historical roots, however, parties acting maliciously may not assert an affirmative defense. (Restatement Second of Torts)

Rationales for the Tort

Are there any more compelling reasons for tort liability? There are obvious limitations imposed by the word limit, but you present these three justifications fairly weakly and then discount them. I feel like this needs to be the strongest part of the paper, and it could use some amplificaiton.

The most cited rationale for recognizing intentional interference as a tort is that it offers security to parties who have entered into contracts. Under this reasoning, contracts create quasi-property rights that, when violated under certain circumstances, establish a cause of action. The existence of affirmative defenses, however, undermines this logic. If the parties gain rights based upon the existence of the contract, then courts should enforce those rights equally, regardless of the way in which they are violated.

A second justification for the tort is that it increases the stability of contracts, which leads to a more efficient allocation of resources, because faith in the integrity of contracts allows parties to plan their economic activity accordingly. This claim stands in stark contrast to the efficient breach theory’s principle that “repudiation of obligations should be encouraged where the promisor is able to profit from his default after placing his promisee in as good a position as he would have occupied had performance been rendered.” (24 Rutgers L.Rev. 273, 284). If proponents of the efficient breach theory are correct, tortious interference liability may actually create inefficiency by inhibiting free maneuvering.

Finally, the tort is sometimes justified as punishing third parties for inexcusable interference with contracts. However, most intentional interference damages are compensatory rather than punitive, which casts doubt upon this line of reasoning. Even if courts were inclined to grant large judgments for punitive damages, damages arising out of contract breach are supposed to be compensatory, not punitive, and this principle should extend to third party liability.

Violations of Contract and Tort Principles

What tort principles are violated?

Courts should reconsider the concept of a contract as a quasi-property right. Parties freely enter into contracts to allocate risk. Completion of the contract indicates that the risk has been allocated in the manner the parties intended. Breach of the contract occurs when one party is incapable of completing the contract or decides that the contract’s allocation of the risk is no longer beneficial. In such a scenario, the other party will be compensated for that choice, unless the contract is terminable at will (in which case, each party agreed to bear the risk of the other's termination without compensation). Contracts do have value – which is sometimes indicative of a property right – but no more value than an already compensable allocation of risk. Tort liability for a third party should play no role in the private relations between two freely contracting parties.

An award for intentional interference also creates the potential for windfalls, which contract law seeks to eliminate. As noted above, when breach occurs, the breaching party is liable for damages to compensate for its actions. If the non-breaching party is unable to mitigate the damages, compensatory damages will equal the remaining value of the contract. If the party is able to mitigate, then the new contract plus compensatory damages for breach of the old contract will make the party as well off as if the contract had been performed. Further damages awarded in tort add to the amount of money that the breached party earns and have the potential to exceed the total expected value of the original contract. Although courts award these extra damages in tort, and not in contract, they nonetheless create windfalls.

Conclusion

The tort subfield of intentional interference encompasses a number of actions. Unique among them is intentional interference with contract, which offers the breached party to a contract an opportunity to seek compensatory damages from multiple parties. This provides the opportunity for compensation in excess of lost income and allows a party to capitalize on breach in multiple ways. Because intentional interference with a contract goes beyond the idea of contracts as allocation of risk and creates the potential for windfalls, courts should no longer recognize this cause of action.