A Primer on Commercial Torts
In addition to contract disputes, which we discussed in our first blog entry [click here], there are other common types of business disputes called commercial torts. Though there are many different types of torts (personal injury being a frequently known one), commercial torts can be thought of as improper conduct committed by or against a business that causes harm to another business. Common types of commercial torts are fraud, breach of fiduciary duty and unfair competition.
A fraud is a purposeful deception done in order to obtain an unfair or unlawful gain. The essential characteristic of fraud is the intent to deceive. In the business context, this may include a misrepresentation of a material fact which was relied upon and caused harm. For example, in determining whether to purchase a business, operating expenses are a material component which would factor into the decision-making process. If the seller of a business told you, the buyer, purposefully inaccurate information about those operating expenses with the intent that you rely on that information, and you actually did rely on that information in deciding to purchase the business (and then suffered harm as a result), you would likely have a cause of action for fraud. However, if that seller provided you with inaccurate information about the operating expenses not knowing it was inaccurate, or the information you were provided was not a factor in your decision to purchase the business, you would be unlikely to prevail on a fraud claim.
A breach of fiduciary duty involves a fiduciary (one charged with acting in another party’s best interest) taking action which is not in that other party’s best interests. In the business context, this may include a corporation’s officers engaging in insider trading and breaching their fiduciary duty to their shareholders.
Unfair competition generally involves dishonest or fraudulent rivalry in business, of which there are many types. Tortious interference is one type of unfair competition. It may occur when a third party intentionally prevents a company from establishing a business relationship (known as “interference with prospective business advantage”) or when a third party convinces an individual or company to breach its contract with another company or prevents a company from fulfilling its contractual obligations to another company (known as “interference with contractual relations”). Intellectual Property infringement is another type of unfair competition. It may occur when one company infringes on another company’s intellectual property rights, such as its trademarks, copyrights, and patents.