California Consumers purchased an ice distributing business from S.L. Coker via a contract that contained a non-compete provision for the Santa Monica area so long as the California Consumers were engaged in the same business. When Imperial Ice acquired California Consumers’ interest in the ice distributing business, Coker began selling ice in the area via a deal with Rossier in violation of the contract.
Competitive freedom is sufficiently important to justify one competitor in inducing a third party to forsake another competitor if no contractual relationship exists between the latter two, but a party may not under the guise of competition actively and affirmatively induce the breach of a competitor’s contract in order to secure an economic advantage over that competitor.
California Consumers purchased an ice distributing business from S.L. Coker. In the contract, Coker agreed to a non-compete in the Santa Monica area (where the ice distributing business at issue was located) so long as the California Consumers were engaged in the same business.
Imperial Ice acquired California Consumers’ interest in the ice distributing business, including the right to enforce the non-compete. Coker subsequently began selling ice in the area via a deal with Rossier in violation of the contract. Imperial Ice sued for an injunction to restrain Coker from violating the contract.
Under what circumstances may an action be maintained against a defendant who has induced a third party to violate a contract with the plaintiff?
An action be maintained against a defendant who has induced a third party to violate a contract with the plaintiff when the third party acts with knowledge of the existence of the contract or her actions were intended to induce a breach.
A claim for inducing breach of contract is available when the breach itself occurred through unlawful means, such as libel, slander, fraud, physical violence, or threats of such action. Most jurisdictions include use of moral, social, or economic pressures that are otherwise lawful unless sufficient justification for such inducement exists. Such justification exists when a person induces a breach of contract to protect an interest that has greater social value than insuring the stability of the contract.
A person is justified in inducing the breach of a contract when the contract’s enforcement would be injurious to health, safety, or good morals. The interest of labor in improving working conditions is of sufficient social importance to justify peaceful labor tactics otherwise lawful, though they induce the breach of a contract between other parties.
A person is not justified in inducing a breach of contract simply because he is in competition with one of the parties to the contract and seeks to further her own economic advantage at the expense of the other. Society has an interest in encouraging free and open competition; but, when the encouragement occurs through unlawful means, contractual stability weighs out as more important.
The act of inducing the breach must be intentional, such that the actor had knowledge of the contract’s existence or her actions were not intended to induce a breach. Lack of such knowledge would remove liability even if an actual breach results from the third party’s lawful and proper acts.
Here, Rossier actively induced Coker to violate his contract with Imperial Ice so that Rossier could sell ice to Coker. By inducing Coker to violate his contract, Rossier sought to further his own economic advantage at Imperial Ice’s expense. This conduct is not justified.