Tortious Interference and the Law of Contract: The Case for Specific Performance Revisited

By Varadarajan, Deepa | The Yale Law Journal, December 2001 | Go to article overview

Tortious Interference and the Law of Contract: The Case for Specific Performance Revisited


Varadarajan, Deepa, The Yale Law Journal


I. INTRODUCTION

What is the role of contract law in remedying breach? The question of the appropriate legal remedy, specific performance versus money damages, has provided adequate fodder for three decades of debate in the law and economics discourse. In the legal discipline at large, the topic has spurred centuries of debate, as illustrated by Oliver Wendell Holmes's famous line: "The only universal consequence of a legally binding promise is, that the law makes the promisor pay damages if the promised event does not come to pass." (1) Holmes's approach to contractual remedy would evolve during the latter half of the twentieth century into the "efficient breach" theory, which advocates the remedy of expectation damages upon breach in order to encourage the promisor's breach where the resulting profits to the promisor exceed the loss to the promisee. (2) Although this favorite doctrine of law and economics scholars more or less describes the norm in Anglo-American contract law, in which damages are routinely available and specific performance rarely granted, it has met and continues to meet with criticism on a variety of grounds. (3)

Alan Schwartz, in his seminal article, The Case for Specific Performance, (4) argues for the routine availability of the specific-performance remedy in the event of breach. His argument centers around two main points. First, he claims that the damages remedy is often undercompensatory. Second, he refutes the claim that making specific performance routinely available will result in efficiency losses or interfere with the liberty interest of promisors.

Schwartz's arguments have the potential to shed light on another, closely related cause of action: the tort of interference with contract and business relations. Consider the following scenario: A enters into a contract with B, and a third party, C, who has knowledge of the existing contract, induces breach and receives more or less the same performance that the original promisee would have received. In such a case, the tort of interference allows the promisee to recover damages from a third-party inducer, often in addition to an award of damages from the promisor under a breach-of-contract claim. This has puzzled proponents of efficient-breach theory because it does in the three-party context what is rarely done in the two-party context under contract law: It protects the promisee's contractual right with a property rule. (5) In fact, the inducement tort "implements even broader protection than Promisee's property-rule remedy [i.e., specific performance] against Promisor, for it consists of rights that run in favor of Promisee against the world." (6) Reconciling this legal remedy with the theory of efficient breach, which encourages the Pareto superior transfer of goods to those who value them most, has proven exceedingly difficult for even its staunchest defenders. Although some legal scholars have addressed this inconsistency by questioning the very legitimacy of the tort of interference with contract, others have tried to resolve the inconsistency in a variety of ways. (7)

In Part II of this Note, I provide an overview of Schwartz's arguments in favor of the routine availability of specific performance. In Part III, I briefly address the historical development of the interference tort, focusing specifically on the inducement context. The tort's origins and evolution shed light on its close relationship with the availability and adequacy of contract remedies. In Part IV, I present the attempts of various scholars to explain what appear to be the analogous efficiency objectives of the interference tort and contract law, and offer criticisms particular to each framework. Ultimately, the only convincing arguments, as a positive matter, rest on a conception of the interference tort as filling in the gaps of contract law, where traditional remedies are inadequate. But if this is the case, then would it not be more coherent to restructure the system of remedy under contract rather than create this remedy through the back door of tort? …

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