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Keywords

contractbreach of contracttortdamagesliabilityappealcorporationpiracy
contractbreach of contracttortdefendantdamagesliabilityappealcorporationpiracy

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Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 869 P.2d 454, 28 Cal.Rptr.2d 475, 62 USLW 2636

Facts

Applied Equipment Corporation entered into a subcontract with Litton Saudi Arabia Limited to supply spare parts for a military defense system. After Litton's finance department criticized the markup on a specific order, Litton renegotiated the purchase order directly with Varian Associates Inc., resulting in a reduced commission for Applied. Applied then sued both Litton and Varian for breach of contract and tortious interference, claiming damages for lost profits and markup.

Applied Equipment Corporation (Applied) entered into a subcontract with defendant Litton Saudi Arabia Limited (Litton) calling for Applied to procure and supply to Litton spare parts that Litton needed to perform Litton's general contract to provide a military defense communication and control system to the Kingdom of Saudi Arabia.

Issue

Can a contracting party be held liable in tort for conspiracy to interfere with its own contract?

Can a contracting party be held liable in tort for conspiracy to interfere with its own contract?

Rule

A party to a contract cannot be held liable for conspiracy to interfere with that contract, as the tort duty not to interfere falls only on outsiders to the contract.

A party to contract may not be held liable for conspiracy to interfere with contract.

Analysis

The court analyzed the legal principles surrounding conspiracy and interference with contracts, concluding that a contracting party does not owe a tort duty to refrain from interfering with its own contract. The court emphasized that the imposition of tort liability on a contracting party for conspiracy would blur the lines between contract and tort law, undermining established legal principles.

Our review leads us to reject the rule of Wise because: (1) it illogically expands the doctrine of civil conspiracy by imposing tort liability for an alleged wrong—interference with a contract—that the purported tortfeasor is legally incapable of committing; and (2) it obliterates vital and established distinctions between contract and tort theories of liability by effectively allowing the recovery of tort damages for an ordinary breach of contract.

Conclusion

The Supreme Court reversed the Court of Appeal's judgment, ruling that a party to a contract cannot be held liable for conspiracy to interfere with that contract.

Judgment of Court of Appeal reversed and case remanded with instructions.

Who won?

Applied Equipment Corporation prevailed in the case because the Supreme Court ruled in its favor, clarifying that a contracting party cannot be liable for conspiracy to interfere with its own contract.

Applied Equipment Corporation prevailed in the case because the Supreme Court ruled that a party to a contract cannot be held liable for conspiracy to interfere with that contract.

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