Question

1. The DiForio Motor Car Company is a small manufacturer of automobiles and sells to three distributors in the city of Peoria. The largest distributor, Hugh’s Auras, tells DiForio that it is losing money on its dealership and will quit selling the cars unless DiForio agrees to give it an exclusive contract. DiForio tells the other distributors, whose contracts were renewed from year to year, that it will no longer sell them cars at the end of the contract year. Smith Autos, one of the other dealers, protests, but DiForio refuses to resupply it. Smith Autos sues DiForio and Hugh’s. What is the result? Why?

Answer 1

Since, the contract is between Smith Autos and DiForio Motor Car Company, Hugh's is not a party to the contract. Therefore, Smith Autos cannot recover from or restrain Hugh's under contract law.

Now the question is whether Smith Autos has an actionable claim against Hugh's under the law of torts. The answer is no, as there is no legal injury caused to Smith Autos, but only financial loss. The concept of Damnum Sine Injuria applies. Damnum Sine Injuria (Damage without Injury) is when a damage suffered without breach of a legal right and such claim of damage is not valid in court of law, even if the act of the person is intentional or deliberate.

The contracts between DiForio and Smith are annual contracts, and renewed every year. In the given situation, DiForio gives notice before the current contract runs out to the other dealers that their contracts will not be renewed further.But there is no breach of the current contract on the part of DiForio. Therefore, again the claim of Smith Autos that DiForio should renew the contract, is not enforceable, as mutual, free consent is an essential element of a valid contract.

Therefore, Smith Autos is not likely to succeed in getting a court verdict in its favor.