Intentional Torts of Economic Relations: Definition and Elements

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  • 2:50 Interference with…
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Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

Economic relations torts affect three categories of interference or injury that result in monetary loss. They are injurious falsehood, interference with contractual relations and interference with prospective advantage.

Intentional Torts of Economic Relation

Today's economy drives people to be very competitive. Businesses scan the environment looking for innovative ways to keep ahead of their competition. Some businesses develop new products and services that outperform their competition. Some businesses may engage in intentional interference with economic relations that cause financial harm to others, like stealing a valued employee, publishing false information or even interfering with a business' future economic gains.

Let's break it down. The three types of tortuous behaviors that can affect another party's business conditions are:

  • Injurious Falsehood
  • Interference with Contractual Relations
  • Interference with Prospective Advantage

All three talk about different behaviors but share one common thing: they all cause economic losses.

Injurious Falsehood

When a party publishes or states an injurious falsehood, what they are really doing is making a widespread statement that defames or tarnishes another person's reputation. The statements must be so damaging that in itself causes another economic loss. Before we review an example, it is important to know that certain conditions must be present and proven by the plaintiff:

  • The defendant actually made a false statement about another party's business.
  • Someone other than the plaintiff was made aware of the statement.
  • It can be proven that the statement was made intentionally and to cause harm.
  • An economic loss by the plaintiff can be proven.

In Harwood Pharmacal Co. v. National Broadcasting Company (1961), the plaintiff, Harwood Pharmacal, alleged that the defendant, National Broadcasting Company (NBC), broadcasted a television show in which the defendant contended that a product manufactured by Harwood was dangerous. A sleep aid, called Snooze, manufactured by Harwood came under fire during an NBC broadcast. During the broadcast, it was said that Snooze was addicting and contained so many different types of drugs, one would need to go to a hospital to kick the habit.

The outcome of the broadcast - Harwood's sales decreased, causing an economic loss. Harwood argued that the comments made during the broadcast were defamatory, malicious and intentional. The defendant, on the other hand, stated that they never meant harm. The court maintained that the language used in the broadcast was enough to damage one's reputation and ruled in favor of the plaintiff.

Interference with Contractual Relations

Another economic relations tort deals with interference with contract relations. Sometimes called tortuous interference, interference with contractual relations occurs when a third party intentionally interferes with the contractual relationship of two other parties. A case may help explain. First, let's review the elements needed to make this allegation:

  • The plaintiff had a contract with another party.
  • The defendant had knowledge of the contract.
  • The defendant intentionally enticed the contract party to breach the original contract.
  • There was no justification for the breach.
  • The plaintiff suffered damages because of the breach.

On appeal, White Plains Coat and Apron Co., Inc. v. Cintas (2007) taught us a lesson about competition and the application of elements for tortuous interference. In this case, White Plains Coat and Apron and Cintas Corporation competed for the same customers. In the course of business, it was customary to advertise through mailings and other means to attract new business.

White Plains Coat contended that Cintas lured their customers to breach contracts for services and join Cintas in contractual relations for the same or similar products. White Plains contacted Cintas with a list of customers that they felt breached and ordered Cintas to stop advertising to its customers. When Cintas refused, White Plains filed suit, first in state court and then in appeals court. This was to no avail.

State court believed that Cintas was merely advertising to customers via proper channels and with no intention of interfering with any existing contractual agreements. What had not been established was a pre-existing relationship between Cintas and breaching customers prior to the breach. In layman's terms, the court did not see that Cintas knew specifically of a contractual agreement between any specific parties when they launched their advertising campaigns. So, the question is whether Cintas's interest in generating more business can be viewed as interference with White Plains Apron's contracts with its customers? Both state and appellate courts ruled no, it did not.

Interference with prospective advantage works a little different than this tort. Although interference remains the same, the next tort deals with a third party causing future economic damage to another.

Intentional Interference with Prospective Advantage

In the tort of intentional interference with prospective advantage, the defendant intentionally interferes with the plaintiff's economic future. To say it a different way, if a defendant takes purposeful action against the plaintiff that places the plaintiff's future income or revenue at risk, this may be interference with prospective advantage. A case example may help.

In Tarleton v. M'Gawley (1793), M'Gawley and Tarleton were both traders on the Cameroon coast. During a trading trip, M'Gawley shot at natives to scare them off. He did this, Tarleton alleges, to interfere with the trading between Tarleton and the natives. M'Gawley claimed he did this because he had an exclusive agreement with the natives of Cameroon. However, a court ruled that shooting at the natives interfered with Tarleton's ability to trade, which would cause a future economic hardship. And a careful look at the elements will help to explain the decision:

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