Business Torts: Misrepresentation, Contract Interference, and Unfair Competition
A general understanding of business torts can help you protect your bottom line.
These intentional torts are not committed against persons or property. Instead, the harm done is to intangible assets, such as economic interests or business relationships.
Fraudulent misrepresentation, known also as fraud or deceit, protects economic interests and the right to fair and honest treatment. For a fraud claim, a plaintiff must establish that the defendant intentionally misrepresented a material fact and the plaintiff relied on and was harmed by the misrepresentation. For example, if a business submits materially misleading financial statements to a bank in an attempt to secure a loan and the bank, relying on such statements, lends money to the business, the bank will have a fraud claim against the business if the business later defaults on the loan. A fraud claim may also arise from the failure to disclose a material fact if a defendant owed a duty to speak on account of a special relationship. For example, a financial advisor representing both a buyer and seller of real property may be liable for fraud if he knows that the property contains toxic chemicals and fails to tell this to the buyer.
Interference with Contractual Relations
The tort of interference with contractual relations permits a plaintiff to recover damages based upon a claim that a defendant interfered with the plaintiff's contractual relations. The elements of an intentional interference with contractual relations claim are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.
To be considered tortious, a defendant's actions must substantially exceed fair competition and free expression, such as persuading a bank not to lend a competitor any more money.
Interference with Prospective Business Advantage
The tort of interference with prospective business advantage protects economic interests that have not yet been formalized into contract. The elements of that tort are (1) an economic relationship between the plaintiff and some third person containing the probability of future economic benefit to the plaintiff, (2) defendant's knowledge of the existence of the relationship, (3) defendant's intentional acts designed to disrupt the relationship, (4) actual disruption of the relationship, and (5) damages to the plaintiff proximately caused by the acts of the defendant.
In California, the tort of unfair competition includes "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." California Business and Professions Code § 17200.