Opinion ID: 1213053
Heading Depth: 1
Heading Rank: 2

Heading: Privilege to Interfere with Contract

Text: The burden of proving that Bendix's conduct was privileged or justified was on the defendants. Alyeska Pipeline Service Co. v. Aurora Air Service, Inc., 604 P.2d 1090, 1095, (Alaska 1979) Griswold v. Heat, Inc., 108 N.H. 119, 229 A.2d 183, 188 (1967). The authorities are in agreement that a person may be privileged to interfere in certain business relations in order to protect an investment. [6] Furthermore, there is general agreement that a corporate shareholder, such as Bendix, would have a sufficient economic interest in a subsidiary corporation to interfere in some of the subsidiary's business relationships. [7] Adams argues, however, that this shareholder's privilege does not extend to existing contracts, but only to prospective contracts. For this distinction, Adams relies principally upon language in § 769 and Comment d to that section as it appeared in the original 1939 version of the Restatement of Torts. [8] In the original Restatement, Comment d read as follows: The rule stated in this section [allowing one to interfere in a business relationship] does not apply to the causing of a breach of contract (see Scope Note to this Topic and section 767). The superior court judge apparently accepted Adams' argument, and submitted the following instruction to the jury over Bendix's objection: A stockholder having controlling financial interest in the business of another is privileged purposely to cause him not to enter into or continue a relation with a third person in that business if the stockholder: (1) does not employ improper means; and (2) acts to protect his interest from being prejudiced by the relation. The rule thus stated does not apply to the causing of a breach of contract. [Emphasis added.] The defendants objected to this instruction because it would prevent the jury from finding that Bendix's conduct was privileged if it determined that Marine and Adams had an existing contract. Bendix correctly notes that the proper interpretation of comment d is that when an existing contract is involved, the reader is directed to § 767. Comment d does not preclude a privilege to interfere in an existing contract, it does not deal with the subject. Any ambiguity that may have existed in the 1939 edition of the Restatement has been conclusively removed by recent revisions in the Restatement (Second) of Torts (1979). [9] Comment d to § 769 has now been replaced by comment b to that section, which reads: The rule stated in this section does not apply to the causing of a breach of contract. (See § 766.) This does not imply, however, that the actor's interference is necessarily improper in such a case under the general principles stated in § 767. Consequently, the instruction was based on an erroneous construction of the provisions of the Restatement. We hold that the privilege to interfere in business relations in order to protect an investment does apply to existing contracts under appropriate circumstances and, accordingly, it was error to give the instruction. To determine under what circumstances there is a privilege to interfere in a presently-existing contract, we must decide whether to adopt the criteria suggested in § 767 of the Restatement or some other standard. [10] Unfortunately, the comments and bulk of cases citing § 767 deal with torts by competitors and are of little help here. A typical case involves a situation where one competitor attempts to lure a valuable employee or customer into breaching a contract with another competitor. [11] Where the means used are improper, such as where a defendant tears down his competitor's sign, or converts a carload of his goods and causes the post office to misdeliver his mail, the results are obvious. [12] It is more difficult to predict a result where proper means are used. The courts ordinarily balance the need for free competition with the undesirable effect of disrupting contractual stability. The decisions have not been entirely harmonious. [13] There appears to be a significant distinction, however, between the interests of a person in his competitor's contracts and those contracts in which he has some direct financial interest. One who interferes with a competitor's contracts ordinarily has little to lose and much to gain by successfully causing a breach of contract. Encouraging contractual stability may require imposing legal liability to stop such behavior when it steps beyond limits acceptable to society. But in a case where a person has some direct financial stake in a contract, it appears logical that a person's own economic self-interest would discourage causing a breach of contract because there would be some personal loss. For example, it seems that a stockholder in a closely held corporation would not ordinarily want to interfere in the corporation's contracts because the corporation would become liable for breach of contract, jeopardizing the value of the stockholder's own investment. Accordingly, where a direct interest in a contract is involved, there is reason to be more liberal in granting the privilege to interfere with an existing contract. Case law has been fairly consistent in recognizing a privilege when a direct financial interest with a contract is involved. At least two cases have involved interference with contracts by corporations with common groups of stockholders. In Felsen v. Sol Cafe Manufacturing Corp., 24 N.Y.2d 682, 301 N.Y.S.2d 610, 249 N.E.2d 459 (1969), the New York Court of Appeals concluded that a parent corporation was entitled to cause the breach of an employment contract between a subsidiary corporation and its treasurer absent malice toward the employee, or illegal conduct. The court concluded that the parent was concerned with the internal management of its subsidiary, a legitimate economic concern. In Babson Brothers Co. v. Allison, 337 So.2d 848 (Fla.App. 1976), a Florida Court of Appeal concluded that an Illinois corporation could interfere in a dealership arrangement between a Florida corporation and a dealer in that state where the same two families held a controlling interest in both corporations. The court focused on the clear financial interest of the stockholders in the two corporations. Several cases have held that a corporate officer or shareholder is justified in causing the breach of an employment contract with the corporation so long as the breach was procured in good faith and not contrary to those [interests] of the corporation. Griswold v. Heat, Inc., 108 N.H. 119, 229 A.2d 183, 188 (1967); Worrick v. Flora, 133 Ill. App.2d 755, 272 N.E.2d 708, 711 (1971). The courts have recognized a variety of other economic interests as supporting the privilege. In Bergfeld v. Stork, 7 Ill. App.3d 486, 288 N.E.2d 15 (1972), the court concluded that a lessor had a sufficient economic interest in his property to interfere in a sublease that caused a potential purchaser not to buy a tenant's business. The court noted that it was not inconsistent with a good faith purpose. Id. 288 N.E.2d at 18. In Nitzberg v. Zalesky, 370 So.2d 389 (Fla. App. 1979), the court concluded that a lending institution could condition a loan of additional funds to a corporation on the requirement that plaintiff, a corporate employee, be paid less. Two cases have recognized that taxpayers (corporate and individual) are privileged to cause the breach of a contract between a municipal government and a third party. Bledsoe v. Watson, 30 Cal. App.3d 105, 106 Cal. Rptr. 197, 198-99 (1973); Middlesex Concrete Products and Excavating Corp. v. Carteret Industrial Association, 37 N.J. 507, 181 A.2d 774, 781 (1962). Finally, our opinion in Alyeska Pipeline Service Co. v. Aurora Air Service, Inc., 604 P.2d 1090, 1093 (Alaska 1979), adopted a good faith test to determine if Alyeska could interfere in the performance of a contract between one of its subcontractors and Aurora Air Service, where Alyeska alleged that it was concerned with air safety. Our conclusion is that, where there is a direct financial interest in a contract, the essential question in determining if interference is justified is whether the person's conduct is motivated by a desire to protect his economic interest, or whether it is motivated by spite, malice, or some other improper objective. In applying this test to the present case, we are convinced that any Bendix directive that may have prevented Marine from fulfilling its contract obligations to Adams was motivated by a legitimate concern for Bendix's investment. Adams does not appear to allege anywhere that the Bendix directive was the product of ill will or maliciousness. In fact, the directive was apparently not aimed at Adams at all. Marine might have continued to do business with Adams had it been able to find someone willing to purchase its survey data on a contractual basis. In his opening argument, Adams' lawyer argued that Marine turned on Mr. Adams and deliberately undercut his own effectiveness. The charge was raised in connection with Adams' attempt to offload the equipment from the barges during 1970, and does not seem to involve Bendix. The only direct contact Adams had with a Bendix employee seems to have occurred at a meeting in 1971, well after the contract was breached, when Adams demanded payment for the 1970 season from Marine. Bendix's regional counsel, Shaffer, attended the meeting. This case is distinguishable from our opinion in Alyeska. In that case, there was evidence from which a jury might conclude that Alyeska was motivated to interfere in a contract between its subcontractor, RCA, and Aurora Air Service, to retaliate for a payment dispute between Aurora and Alyeska. There is no element of retaliation here. The evidence demonstrates that Marine's inability to sell its survey data, combined with poor business conditions on the North Slope generally, called for prudence in investing additional funds in speculative survey work. Under the circumstances, Bendix was justified in making a decision that would ultimately cause one of its subsidiaries to become liable for breach of contract. Bendix's motion for judgment n.o.v. should have been granted.