*482 OPINION
We are asked to decide whether a purchaser who persuaded an owner to sell him property, on which there was a grazing lease terminable upon sale, unlawfully interfered with the contractual rights of the lessee of that property. The trial court determined, on summary judgment, that there was no evidence that the purchaser had acted wrongfully and granted him judgment. We affirm.
I.
Bar J Bar Cattle Company, Inc., owned by the Flake family, operates a ranch in northern Arizona comprising both patented and leased land. On the eastern edge of the ranch, Bar J Bar had for many years leased Section 17 from New Mexico and Arizona Land Company (New Mexico). Silver Creek flows through the east half of Section 17, providing “live water” to Bar J Bar’s cattle grazing in that part of the ranch. Because of high bluffs along much of its length, Silver Creek is accessible to cattle only at a point in the east half of Section 17 where Six Mile Trail crosses the creek.
In 1976, New Mexico notified all its lessees that it intended to sell as much of its Arizona land as possible. The letter advised that “[rjequests to purchase made by current lessees will be given first consideration, but this is no assurance of, nor does it imply a right of first refusal.”
Bar J Bar’s lease from New Mexico, renewed in 1980, reserved to the lessor the right to sell the land and cancel the lease on 30 days notice.
Malcolm Pace, who occupies an adjoining ranch to the east, had some years ago sought unsuccessfully to sublease Section 17 from Bar J Bar. In 1982, he began negotiating with Elizabeth Bedewi, vice president of New Mexico, to purchase the east half of Section 17. Upon signing the contract of sale, New Mexico gave notice of *483 cancellation of the lease to Bar J Bar. Rolf Flake, Bar J Bar’s president, immediately protested that as the lessee, Bar J Bar had an implied right of first refusal.
When New Mexico rejected this claim, Bar J Bar sued New Mexico and Pace, alleging that Pace had fraudulently induced the sale and that New Mexico had breached the lease.
On summary judgment, the trial court held that no right of first refusal was implied in the lease. It also found no evidence that Pace had acted improperly to cause a breach of the lease or wrongfully interfered with Bar J Bar’s business relationships. The court reserved for trial only Bar J Bar’s claim that New Mexico had breached its covenant of good faith and fair dealing.
The trial court entered judgment in favor of Pace pursuant to rule 54(b), Arizona Rules of Civil Procedure, and Bar J Bar appeals from that judgment. Pace cross-appeals, claiming that the trial court erred in denying his application for attorney’s fees under A.R.S. § 12-341.01.
II.
The question presented on this appeal is whether there was a genuine issue of fact as to whether Pace acted improperly in persuading New Mexico to sell him part of Section 17. On review of the granting of summary judgment, we must take the evidence and all reasonable inferences in the light most favorable to the party against whom the judgment was entered. We may sustain the decision below only if there are no genuine issues of relevant fact and under the law the moving party was entitled to judgment.
Antwerp Diamond Exch. v. Better Business Bureau,
The elements of the tort of intentional interference with contract are settled in Arizona. They are: (1) the existence of a valid contractual relationship; (2) knowledge of the relationship on the part of the interferor; (3) intentional interference inducing or causing a breach; (4) resultant damage to the party whose relationship has been disrupted; and (5) improper action on the part of the defendant.
Snow v. Western Sav. & Loan Ass’n,
The evidence before the trial court established without doubt the existence of four of these five elements. Pace, knowing that Bar J Bar was the lessee of the property, successfully negotiated to buy the property and thereby caused New Mexico to exercise its right to cancel the lease. The cancellation clearly damaged Bar J Bar’s interest.
While the formulation of the test set out in
Wagenseller
speaks of a breach of contract, the weight of authority holds that it is a tort to
improperly
cause the cancellation, rather than a breach, of a terminable contract.
Prosser & Keeton, Torts
§ 129 at 988 nn. 99, 1 (5th ed. 1984);
Restatement (Second) of Torts
§ 766 comment g (1977). As the United States Supreme Court once noted, a contract that is at the will of one of the parties is not necessarily terminable at the will of a third person.
Truax v. Raich,
The somewhat amorphous standard of liability in these cases, improper action on the part of the defendant, must be applied with discrimination, particularly where the conduct in question takes place in the context of competitive business activities. The need for caution is doubly required where the effect of the actor’s interference is only to cause the cancellation of a terminable contract. In the case before us, two ranchers sought control, either by lease or purchase, of grazing land through which life-giving water flows. Nothing in the evi *484 dence suggests that Pace had any reason to believe that he was persuading New Mexico to violate Bar J Bar’s rights by breaching the lease. 1 Under circumstances like these, courts must take care that in their desire to protect the reasonable expectations of parties to contracts, they do not impose undesirable restrictions on freedom of competition. See generally, Dobbs, Tortious Interference With Contractual Relationships, 34 Ark.L.Rev. 335, 344-63 (1980); Restatement (Second) of Torts § 768 comment b (1977).
In
Wagenseller,
the supreme court adopted the seven factors enumerated in
Restatement (Second) of Torts
§ 767 as the elements to be considered in determining whether a defendant’s interfering conduct was improper.
Nature of Pace’s Conduct.
To survive summary judgment, Bar J Bar had to offer evidence that Pace acted illegally or inequitably, as for example, committing fraud, duress or abusing economic power.
See generally,
Dobbs at 365-72. Arizona courts have also found unlawful interference where the defendant secured the discharge of an employee who refused to act in an arguably criminal way,
Wagenseller,
Pace’s Motive. Bar J Bar argues that Pace had an improper motive in that he was acting out of ill will toward Bar J Bar because it had earlier declined to sublease the property to him.
We reject the argument for two reasons. First, to attribute a motive of revenge or spite on this slim footing requires utter speculation. The most that one could conclude from these facts is that Pace continued to want the property. Second, even if Pace had an improper motive, that fact would not necessarily make him liable in tort. One who interferes with the contractual rights of another for a legitimate competitive reason does not become a tort-feasor simply because he may also bear ill will toward his competitor.
Ulan v. Lucas,
Interests of the Parties. Relying on the supreme court’s adoption of the factors in § 767 of the Restatement (Second) of Torts, Bar J Bar argues that its interest in retaining access to Silver Creek far outweighs Pace’s interest in acquiring more land and water. Essentially it argues that Pace doesn’t really need the water because he already has ample windmills and stock tanks.
We do not believe that in this case the court was required to balance the interests of the parties in this way. Section 767 lists several factors a court should take into account when determining whether a defendant has acted improperly. To make the entire decision turn simply on the weight of one party’s interest as compared to the other’s would be to ignore all the other elements of the calculus. Moreover, in this case the interests of both parties are legitimate and substantial. Bar J Bar had access to Silver Creek for years and wanted to keep it. Pace sought to add part of Section 17 to his own ranch as a buffer against unwanted development and as a source of flowing water. Under these circumstances, to attempt to weigh these interests against each other would involve the court in a risky and perhaps impossible task. We find nothing in this case that would justify preferring one party’s interest over the other’s. Conceivably, in a case in which the interfering party’s interest is vastly inferior to that of the injured party, a court might well infer that the interfering party had acted with some improper motive, rather than with the intent to protect a legitimate interest. Such an inference, particularly if accompanied by evidence of improper conduct or objective, might well support a finding of liability. This is quite clearly not such a case.
The Social Interests At Stake. The tort of unlawful interference with contract operates as a restraint on competition and freedom of contract. In this case, because it is asserted with respect to a contract to sell land, its effect would be to impose a restraint on New Mexico’s right to sell its land as it chose and on Pace’s right to pursue his economic interests as he viewed them. Bar J Bar could have bargained and paid for a right of first refusal. Perhaps society’s interests would have been served if it had done so, but it didn’t. In the absence of evidence that Pace acted with an improper motive or employed improper means, the trial court properly granted summary judgment.
III.
Pace has cross-appealed from the trial court’s denial of his request for attorney’s fees pursuant to A.R.S. § 12-341.01. The trial court assumed that it had discretion to award fees and exercised that discretion to deny the application.
Attorney’s fees may be awarded in any contested action “arising out of a contract.” It is apparent from the statutory language that the legislature intended to
*486
alter the so-called American rule only in those cases in which a contractual relationship is integral to the successful party’s claim or defense. In
Sparks v. Republic Nat’l Life Ins. Co.,
Similarly, in the case before us there was no contractual relationship between Bar J Bar and Pace. The duty not to interfere with the contract of another arises out of law, not contract. In fact, the tort may be committed even where the plaintiff has no contractual rights but simply the prospect of a contractual relationship. Restatement (Second) of Torts § 766B comment c.
The trial court relied on
Marcus v. Fox,
Even were we to hold that the trial court had discretion to award fees in this case, we would affirm its exercise of that discretion. Though the trial court announced its reasons for denying fees in very general terms,
cf. Associated Indem. Corp. v. Warner,
The judgment of the trial court is affirmed.
Notes
Charles E. Ares was authorized to participate in this case by the Chief Justice of the Arizona Supreme Court pursuant to Ariz. Const, art. VI, § 3 and A.R.S. §§ 12-145 to -147.
. The trial court found that New Mexico’s sale of the east half of Section 17 might constitute a breach of its covenant of good faith and fair dealing, because the loss of access to water arguably diminished the value of the rest of Bar J Bar’s lease. The court held that a competitor should not be at risk to avoid interfering with unknown covenants of fair dealing between the parties to the contract. Appellant does not pursue this issue on appeal. We are advised that the claim that New Mexico had breached a covenant of good faith and fair dealing, reserved for trial,
supra,
at 483,
. We are aware that the balancing process required by § 767 will, in some cases, present troublesome problems of predictability, and may make ascertaining a standard for future conduct difficult.
See Top Serv. Body Shop, Inc. v. Allstate Ins. Co.,