Court Opinion

ID: 9540738
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:19:30.408747+00
Date Added: 2024-06-11T15:00:16.061301
License: Public Domain

MOSK, J., Concurring and Dissenting.
I concur in the judgment. I dis-I agree, however, with the majority’s conclusion that Seaman’s Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752 [206 Cal.Rptr. 354, 686 P.2d 1158] (Seaman’s) was wrongly decided. Although in retrospect I believe its holding was too broad, our task, both for the sake of sound public policy and stare decisis, is to clarify rather than repudiate that holding.
The majority would displace Seaman’s with “a general rule precluding tort recovery for noninsurance contract breach,[1] at least in the absence of violation of ‘an independent duty arising from principles of tort law’ [citation] other than the bad faith denial of the existence of, or liability under, the breached contract.” (Maj. opn., ante, at p. 102.) I agree that the bad faith denial of the existence of a contract or contractual liability, alone, cannot give rise to tort liability. I agree as well with the tautological proposition that a breach of contract is made tortious only when some “independent duty arising from tort law” is violated.
In my view, however, this “independent duty arising from tort law” can originate from torts other than those traditionally recognized at common law. There are some types of intentionally tortious behavior unique to the contractual setting that do not fit into conventional tort categories. Allowing for the possibility of tort causes of action outside conventional categories is *105consistent with the malleable and continuously evolving nature of tort law. “ ‘The law of torts is anything but static, and the limits of its development are never set. When it becomes clear that the plaintiff’s interests are entitled to legal protection against the conduct of the defendant, the mere fact that the claim is novel will not of itself operate as a bar to the remedy.’ ” (Soldano v. O’Daniels (1983) 141 Cal.App.3d 443, 454-455 [190 Cal.Rptr. 310, 37 A.L.R.4th 1183], quoting Prosser on Torts (4th ed. 1971) pp. 3-4.)
Seaman’s should be viewed within the context of this common law tradition of innovation. When Seaman’s is understood in light of its facts, it stands for the proposition, in my view, that a contract action may also sound in tort when the breach of contract is intentional and in bad faith, and is aggravated by certain particularly egregious forms of intentionally injurious activity. Because, as will be explained, there is no such tortious activity in the present case, I concur in the majority’s disposition.
I will discuss below the various circumstances under which courts have found or may find a breach of contract to be tortious—circumstances broader than may be suggested by the majority’s holding. As I will explain, a tortious breach of contract outside the insurance context may be found when (1) the breach is accompanied by a traditional common, law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion or; (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigatable harm in the form of mental anguish, personal hardship, or substantial consequential damages. I will then explain why in my view Seaman’s was correctly decided. Finally, I will explain why Seaman’s is distinguishable from the present case.
I.
The notion that a breach of contract might be tortious causes conceptual difficulty because of the fundamental difference between the objectives of contract and tort law. “ ‘ “[Whereas] [c]ontract actions are created to protect the interest in having promises performed,” “[t]ort actions are created to protect the interest in freedom from various kinds of harm. The duties of conduct which give rise to them are imposed by law, and are based primarily on social policy, not necessarily based upon the will or intention of the parties . . . ” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515 [28 Cal.Rptr.2d 475, 869 P.2d 454] (Applied Equipment Corp.), quoting Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 176 [164 Cal.Rptr. 839, 610 P.2d 1330, 9 A.L.R.4th 314].)
This difference in purpose has its greatest practical significance in the differing types of damages available under the two bodies of law. “Contract *106damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectations of the parties are not recoverable.” (Applied Equipment Corp., supra, 7 Cal.4th at p. 515.) Damages for emotional distress and mental suffering, as well as punitive damages, are also generally not recoverable. (Id. at p. 516.) “This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.” (Id. at p. 515.) “In contrast, tort damages are awarded to compensate the victim for injury suffered. [Citation.] ‘For the breach of an obligation not arising from contract, the measure of damages ... is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.’ (Civ. Code, § 3333.)” (Applied Equipment Corp., supra, 7 Cal.4th at p. 516.) Both emotional distress damages and punitive damages are, under the proper circumstances, available to the tort victim.
Tort and contract law also differ in the moral significance that each places on intentional injury. Whereas an intentional tort is seen as reprehensible— the deliberate or reckless harming of another—the intentional breach of contract has come to be viewed as a morally neutral act, as exemplified in Justice Holmes’s remark that “[t]he duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it—and nothing else.” (Holmes, The Path of the Law (1897) 10 Harv. L.Rev. 457, 462.) This amoral view is supported by the economic insight that an intentional breach of contract may create a net benefit to society. The efficient breach of contract occurs when the gain to the breaching party exceeds the loss to the party suffering the breach, allowing the movement of resources to their more optimal use. (See Posner, Economic Analysis of Law (1986) pp. 107-108.) Contract law must be careful “not to exceed compensatory damages if it doesn’t want to deter efficient breaches.” (Id. at p. 108.)
But while the purposes behind contract and tort law are distinct, the boundary line between the two areas of the law is neither clear nor fixed. As Justice Holmes also observed, “the distinction between tort and breaches of contract, and especially between the remedies for the two, is not found ready made.” (Holmes, The Common Law (1881) p. 13.) Courts have long permitted a party to a contract to seek tort remedies if behavior constituting a contract breach also violates some recognized tort duty. The courts “have extended the tort liability for misfeasance to virtually every type of contract where defective performance may injure the promisee. An attorney or an abstractor examining a title, a physician treating a patient, a surveyor, an agent collecting a note or lending money or settling a claim, or a liability *107insurer defending a suit, all have been held liable in tort for their negligence. . . . The principle which seems to have emerged from the decisions in the United States is that there will be liability in tort for misperformance of a contract whenever there would be liability for gratuitous performance without the contract—which is to say, whenever such misperformance involves a foreseeable, unreasonable risk of harm to the interests of the plaintiff.” (Prosser & Keeton on Torts (5th ed. 1984) Tort and Contract, pp. 660-661, fns. omitted.) Stated another way, “ ‘[c]onduct which merely is a breach of contract is not a tort, but the contract may establish a relationship demanding the exercise of proper care and acts and omissions in performance may give rise to tort liability.’ ” (Groseth Intern., Inc. v. Tenneco, Inc. (S.D. 1981) 440 N.W.2d 276, 279.)
Nor are the rules that determine whether the action will sound in tort or contract, or both, clear-cut. When the breach of contract also involves physical injury to the promisee, or the destruction of tangible property, as opposed to damage to purely economic interests, then the action will generally sound in tort. Thus, a manufacturer that sells defective automobiles may be liable to an automobile dealer in contract for delivery of nonconforming goods, but will be liable in tort if one of the nonconforming automobiles leads to an accident resulting in physical injury. But society also imposes tort duties to protect purely economic interests between contracting parties— such as the duty of care imposed on accountants for malpractice (see Lindner v. Barlow, Davis & Wood (1962) 210 Cal.App.2d 660, 665 [27 Cal.Rptr. 101]), or on banks for wrongfully dishonoring checks (see Weaver v. Bank of America (1953) 59 Cal.2d 428, 431 [30 Cal.Rptr. 4, 380 P.2d 644])—as well as the recognition of intentional torts such as promissory fraud. The complete failure to perform a contractual obligation generally sounds in contract, but once a contractual obligation has begun, a failure to perform which injures the promisee may sometimes sound in tort. (Prosser & Keeton on Torts, supra, pp. 661-662.) Perhaps the most reliable manner to differentiate between actions that are purely contract breaches and those that are also tort violations is the following abstract rule: courts will generally enforce the breach of a contractual promise through contract law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies.
It is also true that public policy does not always favor a limitation on damages for intentional breaches of contract. The notion that society gains from an efficient breach must be qualified by the recognition that many intentional breaches are not efficient. (See Putz & Klippen, Commercial Bad Faith: Attorney Fees—Not Tort Liability—Is the Remedy for “Stonewalling” (1987) 21 U.S.F. L.Rev. 419, 482 (hereafter Putz & Klippen); Sebert, *108Punitive and Nonpecuniary Damages in Actions Based Upon Contract: Toward Achieving the Objective of Full Compensation (1986) 33 U.C.L.A. L.Rev. 1565, 1573 (hereafter Sebert); Patton v. Mid-Continent Systems, Inc. (7th Cir. 1988) 841 F.2d 742, 751 (Patton).) As Judge Posner explained in Patton, supra, 841 F.2d at page 751: “Not all breaches of contract are involuntary or otherwise efficient. Some are opportunistic; the promisor wants the benefit of the bargain without bearing the agreed-upon costs, and exploits the inadequacies of purely compensatory remedies (the major inadequacies being that pre-and post-judgment interest rates are frequently below market levels when the risk of nonpayment is taken into account and that the winning party cannot recover . . . attorney’s fees.” Commentators have also pointed to other “inadequacies of purely compensatory remedies” that encourage inefficient breaches (i.e. breaches that result in greater losses to the promisee than gains for the promisor): the lack of emotional distress damages, even when such damages are the probable result of the breach, and the restriction of consequential damages to those in the contemplation of the parties at the time the contract was formed. (See Diamond, The Tort of Bad Faith Breach of Contract: When, If at All, Should It Be Extended Beyond Insurance Transactions? (1981) 64 Marq. L.Rev. 425; 439-443; see also Sebert, supra, 33 U.C.L.A. L.Rev. at p. 1578.)
In addition to fully compensating contract plaintiffs and discouraging inefficient breaches, the imposition of tort remedies for certain intentional breaches of contract serves to punish and deter business practices that constitute distinct social wrongs independent of the breach. For example, we permit the plaintiff to recover exemplary damages in cases in which the breached contract was induced through promissory fraud, even though the plaintiff has incurred the same loss whether the contract was fraudulently induced or not. (See Walker v. Signal Companies, Inc. (1978) 84 Cal.App.3d 982, 995-998 [149 Cal.Rptr. 119].) Our determination to allow the plaintiff to sue for fraud and to potentially recover exemplary damages is not justified by the plaintiff’s greater loss, but by the fact that the breach of a fraudulently induced contract is a significantly greater wrong, from society’s standpoint, than an ordinary breach. “We are aware of the danger of grafting tort liability on what ordinarily should be a breach of contract action. . . . However, no public policy is served by permitting a party who never intended to fulfill his obligations to fraudulently induce another to enter into an agreement.” (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1238 [1 Cal.Rptr.2d 301].)
As the above illustrate, the rationale for limiting actions for intentional breaches of contract to contract remedies—that such limitation promotes commercial stability and predictability and hence advances commerce—is *109not invariably a compelling one. Breaches accompanied by deception or infliction of intentional harm may be so disruptive of commerce and so reprehensible in themselves that the value of deterring such actions through the tort system outweighs the marginal loss in the predictability of damages that may result. But in imposing tort duties to deter intentionally harmful acts among contracting parties, courts must be cautious not to fashion remedies which overdeter the illegitimate and as a result chill legitimate activities. (See Posner, Economic Analysis of Law, supra, at p. 108.) Thus, courts should be careful to apply tort remedies only when the conduct in question is so clear in its deviation from socially useful business practices that the effect of enforcing such tort duties will be, as in the case of fraud, to aid rather than discourage commerce.
As observed above, not all tortious breaches of contract arise from conventional torts. Numerous courts have recognized types of intentionally tortious activity that occur exclusively or distinctively within the context of a contractual relationship. The most familiar type of tortious breach of contract in this state is that of the insurer, whose unreasonable failure to settle or resolve a claim has been held to violate the covenant of good faith and fair dealing. (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809.) Tort liability is imposed primarily because of the distinctive characteristics of the insurance contract: the fiduciary nature of the relationship, the fact that the insurer offers a type of quasi-public service that provides financial security and peace of mind, and the fact that the insurance contract is generally one of adhesion. (Id. at pp. 820-821.) In these cases, the special relationship between insurer and insured supports the elevation of the covenant of good faith and fair dealing, a covenant implied by law in every contract and generally used as an aid to contract interpretation (Foley, supra, 47 Cal.3d at p. 684), into a tort duty.
Because the good faith covenant is so broad and all-pervasive, this court and others have been reluctant to expand recognition of the action for tortious breach of the covenant beyond the insurance context. (See Foley, supra, 47 Cal.3d at p. 692 [no special relationship in the employment context]; but see id. at pp. 701, 715, 723 (separate cone, and dis. opns. of Broussard, J., Kaufman, J., and Mosk, J.).) Unfortunately, the preoccupation of California courts with limiting the potentially enormous scope of this tort has diverted attention away from the useful task of identifying specific practices employed by contracting parties that merit the imposition of tort remedies. Other jurisdictions not so preoccupied have made greater progress in developing a common law of tortious breach of contract. While the cases are not easily amenable to classification, they appear to fit into two broad categories.
*110The first category focuses on tortious means used by one contracting party to coerce or deceive another party into foregoing its contractual rights. For example, in Advanced Medical v. Arden Medical Systems (3d Cir. 1992) 955 F.2d 188, Advanced Medical, Inc. (Advanced), a distributor of medical products, entered into an agreement with a manufacturer of a high-technology blood analysis device, whereby the former was designated as the latter’s exclusive distributor for the mid-Atlantic region. The manufacturing company was eventually acquired by Johnson & Johnson, which disapproved of the exclusive distributorship. Instead of merely breaching the agreement, Johnson & Johnson used a variety of questionable tactics to “drive Advanced out of the contract,” including marketing competing products not made available to Advanced, and withholding its support services. (Id. at pp. 190-191.) The court, applying Pennsylvania law, held that in addition to a breach of contract, there was sufficient evidence to submit the question of punitive damages to a jury on a theory of Johnson & Johnson’s “tortious interference” with its own contract. (Id. at pp. 201-202.) (See also Adam’s v. Crater Well Drilling, Inc. (1976) 276 Ore. 789 [556 P.2d 679, 681] [punitive damages justified when contracting party uses threat of prosecution to obtain more than is owed under the contract]; John A. Henry & Co., Ltd. v. T.G. & Y Stores Co. (10th Cir. 1991) 941 F.2d 1068, 1072-1073 [punitive damages allowed under Oklahoma law when commercial tenant attempts to compel landlord to release it from its lease by fabricating defects in the landlord’s maintenance and sending letters complaining of such defects to the landlord’s lender, thereby disparaging the former’s reputation]; Jones v. Abriani (1976)169 Ind.App. 556 [350 N.E.2d 635, 649] [punitive damages upheld when defendant mobile home salesman threatened to forfeit plaintiffs’ down payment if plaintiffs did not accept delivery of a home with numerous defects and then reneged on promise to repair these defects].) One commentator provides another example of this kind of tortious breach derived from a case that was originally a companion to Seaman’s: a major motion picture studio threatens to blacklist an actor appearing in one of its productions if he does not forfeit his contractual right to a prominent billing. (Ashley, Bad Faith Actions: Liability and Damages (1994) § 11.04, p. 6.)
The use of tortious means to breach a contract can also entail the use of deception by one of the contracting parties for the purpose of causing the other party to forego its contractual rights. In Motley, Green & Co. v. Detroit Steel & Spring Co. (C.C.S.D.N.Y. 1908) 161 Fed. 389, for example, the plaintiff was an exclusive sales agent within a given territory for the defendant, an automobile parts company. The defendant allegedly made a sham sale to another company for the sole purpose of extricating itself from the contract with the plaintiff. The court concluded that it was tortious for the defendant, in addition to breaching the contract, “to invite a third party to *111unite with him and aid him in breaking the contract in such a way as possibly to escape liability in an action for nonperformance.” (Id. at p. 397.) The court compared the case to one cited in a tort treatise of a plaintiff who was an “ ‘actor, . . . engaged to perform in the character of Hamlet, . . . and that the defendants and others maliciously conspired together to prevent the plaintiff from so performing, and from exercising his profession in the theater, and in pursuance of the conspiracy hired and procured divers persons to go to the theater and hoot the plaintiff, and the persons so hired, did. . . (Ibid:2 see also Houston Cable TV v. Inwood W. Civic Ass’n (Tex.App. 1992) 839 S.W.2d 497, 504 [punitive damages upheld when cable company terminates contract to pay homeowners associations a percentage of revenue in exchange for rights of way to the association members’ property by falsely informing the associations that a new federal law forbids them from making such payments].)
A second type of tortious intentional breach has been found when the consequences of the breach are especially injurious to the party suffering the breach, and the breaching party intentionally or knowingly inflicts such injury. Cases of this type have generally occurred outside the commercial context, involving manifestly unequal contracting parties and contracts concerning matters of vital personal significance, in which great mental anguish or personal hardship are the probable result of the breach. In these cases, courts have permitted substantial awards of emotional distress damages and/or punitive damages, both as a means of providing extra sanctions for a defendant engaging in intentionally injurious activities against vulnerable parties, and as a way of fully compensating plaintiffs for types of injury that are neither readily amendable to mitigation nor generally recoverable as contract damages. For example, in K Mart Corp. v. Ponsock (1987) 103 Nev. 39 [732 P.2d 1364, 1370], disapproved on other grounds by Ingersoll-Rand Co. v. McClendon (1990) 498 U.S. 133,137 [112 L.Ed.2d 474, 482-483, 111 *112S.Ct. 478], the Nevada Supreme Court allowed a $50,000 award of punitive damages to stand when an employer discharged a long-term employee on a fabricated charge for the purpose of defeating the latter’s contractual entitlement to retirement benefits. (See also Ainsworth v. Franklin Cty. Cheese Corp. (1991) 156 Vt. 325 [592 A.2d 871, 871, 874-875] [punitive damages permitted when a defendant/employer discharged on pretext of good cause the plaintiff/employee in order to extricate itself from the obligation to pay severance benefits].)
In other cases of this type, an intentional breach of a warranty of habitability by a landlord or building contractor has given rise to substantial emotional distress or punitive damages awards. For example, Missouri courts recognize that a wrongful eviction will sound in tort as well as contract. (Ladeas v. Carter (Mo.App.1992) 845 S.W.2d 45, 52; see also Emden v. Vitz (1948) 88 Cal.App.2d 313, 318-319 [198 P.2d 696] [wrongful eviction accompanied by verbal abuse sounds in tort]; Hilder v. St. Peter (1984) 144 Vt. 150 [478 A.2d 202, 210] [punitive damages permitted against a landlord who, “after receiving notice of a defect, fails to repair the facility that is essential to the health and safety of his or her tenant”]; B & M Homes, Inc. v. Hogan (Ala. 1979) 376 So.2d 667, 671-672 [7 A.L.R.4th 1162] [substantial emotional distress damages award against contractor who refused to repair construction defects leading to great personal discomfort]; Ducote v. Arnold (La.Ct.App. 1982) 416 So.2d 180, 183-185 [damages for mental anguish permitted for breach of home remodeling contract].) The New Mexico Supreme Court, in Romero v. Mervyn’s (1989) 109 N.M. 249 [784 P.2d 992, 999-1001], citing Seaman’s with approval, upheld a punitive damage award against a department store, which had entered into an oral agreement to pay the medical expenses of a customer accidentally injured on its premises, and then reneged on its agreement.
The principle that certain contractual interests of vulnerable parties deserve greater protection than ordinary contract damages would otherwise provide has led our Legislature to authorize special sanctions for various types of intentional breaches. For example, one who is the victim of an intentional breach of warranty of consumer goods may recover twice the amount of actual damages (Civ. Code, § 1794, subd. (c)) and treble damages may be awarded to a retail seller who is injured by “willful or repeated” warranty violations (id., § 1794.1, subd. (a)). Labor Code section 206 provides for treble damages for the willful failure to pay wages after the Labor Commissioner determines the wages are owing. But the fact that the Legislature has acted in some instances to afford these special protections does not mean that it has preempted the courts from exercising their traditional role of fashioning appropriate tort remedies for various kinds of intentionally injurious conduct.
*113In sum, the above cited cases show that an intentional breach of contract may be found to be tortious when the breaching party exhibits an extreme disregard for the contractual rights of the other party, either knowingly harming the vital interests of a promisee so as to create substantial mental distress or personal hardship, or else employing coercion or dishonesty to cause the promisee to forego its contractual rights. These cases illustrate the recognition by a number of jurisdictions that an intentional breach of contract outside the insurance context, and not accompanied by any conventional tortious behavior such as promissory fraud, may nonetheless be deemed tortious when accompanied by these kinds of aggravating circumstances.
With this in mind, I next reconsider the Seaman’s case.
II.
In Seaman’s, supra, 36 Cal.3d 752, Seaman’s Direct Buying Service, Inc. (Seaman’s), a dealer in ship supplies in the City of Eureka, sought to establish a marine fuel dealership in the new marina that the city was planning to build with federal funds. Seaman’s negotiated with the Mobil Oil Company and Standard Oil Company of California (Standard) for a supply contract that would enable it to establish the dealership. The city required such a contractual commitment before it would allow Seaman’s to lease a significant part of the new marina. Seaman’s signed a tentative 10-year Chevron Marine dealer agreement with Standard. As part of the agreement, Standard consented to provide Seaman’s with a fuel discount as well as a loan to construct the new fueling facility, amortized over the life of the agreement. Shortly thereafter, Seaman’s entered into the lease it had sought from the city. (Id. at pp. 759-760.)
Soon after, the 1973 oil embargo changed conditions, and a federal program mandating allocations among existing petroleum customers went into effect. Standard claimed it could not supply fuel to Seaman’s because of the federal program, and claimed it was willing to help Seaman’s obtain the necessary variance from federal regulation. Seaman’s successfully obtained a supply order from the federal government, but Standard appealed, thereupon revealing that it was in fact antagonistic to Seaman’s interests. Standard’s federal appeal was successful, but was later reversed, and the court directed Standard to fulfill supply obligations to Seaman’s “upon the filing of a copy of a court decree that a valid contract existed between the parties under state law.” Seaman’s asked Standard to stipulate to the existence of a contract, but Standard’s reply was, “See you in court.” Seaman’s testified that if Standard had cooperated, Seaman’s could have borrowed funds to *114remain in business until 1976 when the new marina opened. Instead, Seaman’s discontinued operations in early 1975. Seaman’s sued and received a large compensatory and punitive damages award. (Seaman’s, supra, 36 Cal.3d at pp. 760-762.)
In considering the validity of the punitive damages award against Standard for breach of the covenant of good faith and fair dealing, we acknowledged that the case differed from the insurance cases, in which a special relationship between the insurer and the insured existed, and in which the breach of the good faith covenant may give rise to a tort action. We stated: “When we move from such special relationships to consideration of the tort remedy in the context of the ordinary commercial contract, we move into largely uncharted and potentially dangerous waters. Here, parties of roughly equal bargaining power are free to shape the contours of their agreement and to include provisions for attorney fees and liquidated damages in the event of breach. ... In such contracts, it may be difficult to distinguish between breach of the covenant and breach of contract, and there is the risk that interjecting tort remedies will intrude upon the expectations of the parties.” (Seaman’s, supra, 36 Cal.3d at p. 769.)
We then stated that we did not need to decide the claim raised by Seaman’s that the breach of the good faith covenant in ordinary commercial contracts gave rise to tort liability. Instead, “[i]t is sufficient to recognize that a party to a contract may incur tort remedies when, in addition to breaching the contract, it seeks to shield itself from liability by denying, in bad faith and without probable cause, that the contract exists.” (Seaman’s, supra, 36 Cal.3d at p. 769.) We cited the holding of Adams v. Crater Well Drilling, Inc., supra, 556 P.2d 679, 681, that one who coerces another party to pay more than is due under the terms of the contract through the threat of a lawsuit made “ 1 “without probable cause and with no belief in the existence of the cause of action.” ’ ” (36 Cal.3d at p. 769.) We concluded that “[tjhere is little difference, in principle, between a contracting party obtaining excess payment in such manner, and a contracting party seeking to avoid all liability on a meritorious contract claim by adopting a ‘stonewall’ position (‘see you in court’) without probable cause and with no belief in the existence of a defense. Such conduct goes beyond the mere breach of contract. It offends accepted notions of business ethics.” (Seaman’s, supra, 36 Cal.3d at pp. 769-770.)
Seaman’s was correct, in my view, in refusing to rely on the general breach of the covenant of good faith and fair dealing as a justification for imposing tort remedies, and instead seeking to identify specific practices used by Standard that violated “accepted notions of business ethics.” Seaman’s wisely recognized that courts do not have to choose between the *115wholesale transformation of a breach of the implied good faith covenant into a tort and the complete refusal to recognize a cause of action for tortious breach of contract. In retrospect, however, Seaman’s holding appears to be both overly broad and overly narrow. It was overly narrow because, as numerous authorities cited by the majority point out, there is no logical reason to distinguish between the tort of “bad faith denial of the existence of a contract” and “bad faith denial of liability under a contract.” The former is but a subspecies of the latter. Both forms of bad faith are equally reprehensible on the defendant’s part and equally injurious to plaintiff.
Seaman’s was overly broad because, for a number of reasons, it appears to have been unwise to impose tort liability for all breaches that involve bad faith denial of a contract or liability under the contract. Although the bad faith denial of contractual liability may be ethically inexcusable, we should hesitate to categorically impose tort liability on such activity for fear it may overly deter legitimate activities that we wish to permit or encourage. Specifically, the bad faith denial of the existence of a contract consists of two actions on the defendant’s part that do not, taken individually, give rise to tort liability: First, the defendant intentionally breaches its contract. As discussed above, because of our notions of efficient breach and the freedom of the marketplace, we have generally not considered an intentional breach tortious.
Second, the defendant asserts a bad faith defense to liability under the contract—or, more precisely, threatens to assert such a defense We have consistently refused to recognize a tort of “malicious defense” that would be equivalent to that of malicious prosecution. The refusal to recognize such a tort “protect[s] the right of a defendant, involuntarily haled into court, to conduct a vigorous defense.” (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 52 [118 Cal.Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878].) Instead, the Legislature has fashioned a more limited punishment to fit the “crime” of bad faith defense to a civil action: the awarding of attorney fees and other reasonable expenses incurred by a party to litigation as the result of another’s bad faith actions “that are frivolous or solely intended to cause unnecessary delay.” (Code Civ. Proc., § 128.5, subd. (a).) So too, the proper remedy to deter intentional breaches that are combined with bad faith denials of liability is to consistently award attorney fees to the plaintiffs as a sanction. (See Putz & Klippen, supra, 21 U.S.F. L.Rev. at pp. 493-495). But if a bad faith defense is not a tortious act, then the threat of such defense, as occurred in Seaman’s, also cannot be considered tortious.
Seaman’s was nonetheless correctly decided, in my view, on narrower grounds than bad faith denial of the contract’s existence. As discussed *116above, a number of cases allow tort damages for an intentional breach which the breaching party knows will probably result in significant emotional distress or personal hardship. In the commercial sphere, we do not as a rule permit such recovery for personal distress—the frustrations that attend breached contracts, unreliable suppliers, and the like are part of the realities of commerce. Society expects the business enterprise to go to the marketplace to seek substitutes to mitigate its losses, and to seek contract damages for those losses that cannot be mitigated. But there are some commercial cases in which the harm intentionally inflicted on an enterprise cannot be mitigated, and in which ordinary contract damages are insufficient compensation. Seaman’s is such a case. In Seaman’s, because of the unusual combination of market forces and government regulation set in motion by the 1973 oil embargo, Standard’s conduct had a significance beyond the ordinary breach: its practical effect was to shut Seaman’s out of the oil market entirely, forcing it out of business. In other words, Standard intentionally breached its" contract with Seaman’s with the knowledge that the breach would result in Seaman’s demise. Having thus breached its contract with blithe disregard for the severe and, under these rare circumstances, unmitigatable injury it caused Seaman’s, Standard was justly subject to tort damages.
In sum, I would permit an action for tortious breach of contract in a commercial setting when a party intentionally breaches a contractual obligation with neither probable cause nor belief that the obligation does not exist, and when the party intends or knows that the breach will result in severe consequential damages to the other party that are not readily subject to mitigation, and such harm in fact occurs. This rule is a variant of the more general rule of tort law that, as Holmes said, “the intentional infliction of temporal damage[3] is a cause of action, which, as a matter of substantive law, . . . requires a justification if the defendant is to escape.” (Aikens v. Wisconsin (1904) 195 U.S. 194, 204 [49 L.Ed. 154, 159, 25 S.Ct. 3].) A breach should not be considered tortious if the court determines that it was justified by avoidance of some substantial, unforeseen cost on the part of the breaching party, even if such cost does not excuse that party’s nonperformance. (See 3A Corbin on Contracts (1994 Supp.) § 654E, p. 109.) Nor should a tortious breach under these circumstances be recognized if it is clear that the party suffering the harm voluntarily accepted that risk under the contract. But the intentional or knowing infliction of severe consequential damages on a business enterprise through the unjustified, bad faith *117breach of a contract is reprehensible and costly both for the party suffering the breach and for society as a whole, and is therefore appropriately sanctioned through the tort system.
III.
The present case, on the other hand, is essentially a billing dispute between two commercial entities. Belcher Oil Company claimed, apparently in bad faith and without probable cause, that it had no contractual agreement with Freeman & Mills. That is, Belcher Oil not only intentionally breached its contract, but then asserted a bad faith defense to its liability. As explained above, the solution which the Legislature has devised for this kind of transgression is the awarding of the other party’s attorney fees, and this is precisely what occurred—Freeman & Mills was awarded $212,891 in attorney fees pursuant to Code of Civil Procedure sections 128.5 and 2033, subdivision (c). To permit the award of punitive damages in addition to this sum would upset the legislative balance established in the litigation sanctions statutes and make tortious actions—intentional breach of contract and the assertion of a bad faith defense—which we have consistently held not to be tortious.
On this basis, I concur in the majority’s disposition in favor of Belcher Oil on the bad faith denial of contract cause of action.

The majority’s holding, precluding tort recovery for “noninsurance contract breach” should not be misinterpreted. We have found that the breach of the covenant of good faith and fair dealing by an insurer against an insured will sound in tort, due to the “special relationship” between the two parties. (See Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal..3d 809, 820 [169 Cal.Rptr. 691, 620 P.2d 141].) In Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654 [254 Cal.Rptr. 211, 765 P.2d 373] (Foley), while this court declined to find a similar “special relationship” in the employment context, it also explicitly did not decide the question whether such a relationship could be found elsewhere. (Id. at pp. 687-688.) As the majority recognize, the present case does not concern parties involved in an allegedly special relationship; Freeman & Mills, Inc., admits that no such special relationship existed. Therefore, the majority’s holding should not be taken as deciding a question not before this court, and left open by Foley, whether there are relationships between contracting parties outside the insurance field which may give rise to tort remedies for breach of the covenant of good faith and fair dealing.

I recognize that this court has recently held that a party cannot be liable in tort for interfering with its own contract. (Applied Equipment Corp., supra, 7 Cal.4th 503 [but see p. 521, dis. opn. of Mosk, J.].) Even if it is conceded, however, that Applied Equipment Corp. is generally correct that a party who “interferes” with its own contract does no more than breach the contract, and should not be held liable in tort, the rule appears to me not to apply to the exceptional case when the promisor not only acts in concert with a third party, but does so in an attempt to deceive the promisee as to the promisor’s liability. In these cases, the material wrongdoing is not the conspiracy per se, but the deceitful conduct and the fraudulent design. Although it may be argued that “the mere entry of a stranger onto the scene does not render the contracting party’s breach more socially or morally reprehensible” (id. at p. 517), the use of the third party for a scheme of deception to conceal the promisor’s liability does in fact introduce an additional element of moral culpability. Moreover, in economic terms, if the efficiency promoted by contract law turns on the promisee being able to receive contract damages for a breach, then one who engages in such a conspiracy undermines this efficiency by not only denying liability, but actively conspiring to conceal it.

Standard’s breach “intentionally” inflicted harm on Seaman’s in the sense in which the term “intentional” is commonly used in tort law, i.e., extending “not only to having in the mind a purpose (or desire) to bring about given consequences but also having in mind a belief (or knowledge) that given consequences are substantially certain to result from the act.” (Prosser & Keeton on Torts, supra, Intentional Interference With the Person, p. 34, fn. omitted, italics added.)