Legal Question in Business Law in California

Re: ConI have a valid contacttractual exclusivity

Both contracts are valid. That is, the fact that the making of the second contract results in XYZ's breach of the first contract does not render the second contract, ipso facto, void.

One possible way out of the legal mess is for ABC and XYZ to rescind the second contract voluntarily, which they can do without the necessity of legal (court) action; ABC might be willing to do this in exchange for the first supplier's promise not to sue ABC for tortious interference. A simple three-party agreement could clean up the whole mess, if all the parties see where this is otherwise headed.

If this went to court and each party pleaded all the claims it might have, and raised all the defenses to which it might be entitled, (1) everyone would lose because of the expense and hassle, and (2) the court would probably award damages to the first supplier out of XYZ's pocket for breach of contract, damages to the first supplier out of ABC's pocket for tortious interference, and enforce the XYZ-ABC contract.

Also, depending upon the circumstances of the removal of the first supplier's machine by XYZ, XYZ may be liable to the first supplier for conversion of the machine. Conversion is the tort that is the civil analogue of theft; kind of an aggravated trespass. The damages could be the full value of the machine removed, even if it were eventually returned to the first supplier.

Re: ConI have a valid contacttractual exclusivity

I agree with Mr. Whipple's answer, but I want to clarify one point.

Parties to a contract are allowed to breach it; they simply must make the other parties whole for any losses the breach might cause. Thus the law will not invalidate a party's decision simply because it conflicts with her duties under a contract.

Here, XYZ breached its contract with you by working with ABC, but that fact does not make its contract with ABC invalid. If XYZ stops working with ABC and resumes working exclusively with you, then it will breach the agreement with ABC. XYZ is in a no-win situation, but it put itself there by forming two contracts which created conflicting obligations.

Mr. Whipple is correct that a negotiated settlement would be the best way out, but that will only work if all three parties can agree on its terms. If there is a lot of money at stake, the negotiations may fail and the parties will have to turn to the courts. Since XYZ is sure to lose in court, it needs to recognize this fact now and be willing to pay you and your competitor a large enough settlement to satisfy each of you.

Re: ConI have a valid contacttractual exclusivity

Any party may breach a contract at any time, subject, of course to a damages or specific performance claim. The liquor store is going to be liable to at least one of you. Currently, he is in breach of your agreement, which gives you a right to sue. And, if he breaches the other agreement, he will liable to the other party. The liquor store is in a catch 22. At this time, you have a lot of leverage. Perhaps it would be better to negotiate a cash settlement. Otherwise, you could try to bring a case for specific performance, requiring the liquor store to comply with your exclusive agreement. Give us a call to discuss this. The call if free. We have represented other ATM suppliers in the past.