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Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors.
Plaintiff Applied Equipment Corporation (Applied) entered into a subcontract with defendant Litton Saudi Arabia Limited (Litton), which was involved in a general contract to provide military equipment to Saudi Arabia. Applied agreed to procure certain equipment from defendant Varian Associates Inc. (Varian) and, with Litton’s approval, issued a purchase order for the equipment. Litton subsequently decided to obtain some of the equipment directly from Varian, thereby reducing the corporation's commission under the subcontract. The corporation sued Litton and Varian for breach of contract (the subcontract and purchase order, respectively) and tortious interference, including conspiracy to interfere, with those contracts. After a jury trial, the trial court entered judgment in favor of plaintiff against both defendants for contract damages for breach of, and tort damages for conspiracy to interfere with, the contracts. Punitive damages were also assessed Litton. The Court of Appeal affirmed the contract awards, but it reversed the tort judgments for inconsistency in the jury's verdicts. However, it rejected Varian’s argument that Varian could not, as a matter of law, be liable for conspiring to interfere with its own contract. Varian sought review.
Can a contracting party be held liable in tort for conspiracy to interfere with its own contract?
The Supreme Court reversed the judgment of the Court of Appeal and remanded the matter with instructions to direct further proceedings in the trial court. The court held that the manufacturer could not be liable for conspiring to interfere with its own contract. The fundamental differences between contract and tort are obscured by the imposition of tort liability on a contracting party for conspiracy to interfere with the contract. Whether or not a stranger to the contract induces its breach, the essential character of a contracting party's conduct remains the same, i.e., an unjustified failure or refusal to perform. In economic terms, the impact is identical: the plaintiff has lost the benefit of the bargain and is entitled to recover compensation in the form of contract damages. In ethical terms, the mere entry of a stranger onto the scene does not render the contracting party's breach more socially or morally reprehensible. Further, imposing tort damages would thwart the legal policy of limiting contract damages to those reasonably foreseeable by the parties.