Prince’s Briefcase: Wood v. Lucy, Lady Duff Gordon (Trujillo Contracts)


Professor Elizabeth Trujillo Contracts: Illusory Promises

Here is a case from my contracts course which explains the concept of exclusive dealings and implied duties. In this case, well-renowned 20th century fashion designer lost a lawsuit for not following her own 50-50 promise to an employee.

Case Name, Citation Number, Author
Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917)

prince's briefcase (princesdailyjournal)Procedural History
Plaintiff (Wood) sued Lucy, Lad Duff-Gordon for contract breach. Defendant denied contract breached and said that contract lacked elements of a legal contract–Wood never promised anything. Trial court denied Lady Duff-Gordon’s motion for a judgment on the pleadings. the intermediate appellate court reversed on the grounds that the contract lacked mutuality because Wood never promised to do anything. Wood appealed the dismissal of the complaint.

Courtesy of http://www.lawnix.com/cases/wood-lucy.html

Facts
–Lady Duff Survivor of the Titanic and famous 20th century clothing designer.
–She has designer stores in NYC & Paris; Set fashion early 20th century;
–Wood had contracted an agreement with Lucy to exclusively endorse clothing with Lucy’s name and to market her fashion designs–In exchange, Lucy would get 50% of the profits
–Lucy then gave her endorsements to products without Woods’ knowledge
–Wood sues for contract breach.
–Lucy agues there were no essential elements of a legal contract! There was no written contract; it lacked mutuality; and he didn’t commit to do anything therefore no bargain for exchange.

Issue
Is there an implied duty of “best efforts” in an exclusive contract, when its not written?

Holding
Yes because there was an incentive that he had an implied duty; her duty was to give exclusive rights to the plaintiff to market her clothing.

Rule
Requirements contracts have an implied obligation of good faith and fair dealings; exclusive dealings contracts have implied term to use reasonable efforts to fulfill duties.

Reasoning
–Hon. Cardozo: it implied that the contract required wood to use “reasonable efforts to market Lucy’s name and designs
–The law has out-grown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal
–When you have exclusive contract you have BEST EFFORTS DUTY
–Deal was one of exclusivity which naturally meant there was incentive for Wood to use reasonable efforts to generate profit for both parties.

Disposition
Reversed

Notes
UCC §2-306(2) “Best Efforts” agreement for exclusive dealings in the kind of goods concerned imposes an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale

Prince’s Takeaway
Say what you mean and mean what you say. In every exclusive dealings, either on paper or in oral, implied duty of good faith AND best efforts are imposed.

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Prince’s Briefcase: Eastern Air Lines, Inc. v. Gulf Oil Corp. (Trujillo Contracts)


Professor Elizabeth Trujillo Contracts: Illusory Promises

Here is a case from my Contracts course which explains the concept of Requirements Contracts. In this case, an oil embargo crisis does not excuse a party from fulfilling their agreed specific performance.

Case Name, Citation Number, Author
Eastern Air Lines, Inc. v. Gulf Oil Corp., 415 F. Supp. 429 (1975)

Procedural History
Plaintiff obtained a temporary injunction and sued for specific performance of the contract. Defendant argued that the contract was invalid.

prince's briefcase (princesdailyjournal)Facts
–Plaintiff and Defendant had agreement for the sale of aviation fuel (spanning decades).
–In 1974 Defendant approached Plaintiff to raise the price of their agreement (OPEC raised prices during the oil embargo) or their supply would be shut off because agreement was not profitable any more.
–Plaintiff then obtained a temporary injunction and sued for specific performance of the contract.
–Defendant argued that the contract was invalid because: 1) It lacked mutuality of obligation, and 2) Plaintiff breached the contract by practicing “fuel freighting” whereby a plane bought more than it needed from the lowest price gas station, and then only “topped off” at the higher priced station. Courtesy of www.lawschoolcasebriefs.net

Issue
Is the requirements contracts binding? (Go to Notes for Definition of Requirements Contract)

Holding
Yes because a requirements contract is binding. Both parties agreed on a price and output amount of aviation fuel, which was all done in good faith.

Rule
Unprofitability alone will not excuse performance.

Reasoning
Defendant tried to argue that the agreement was not detailed enough and therefore there was not binding contract, but in a requirements contract you don’t have quantity specified; the binding standard is reasonableness and fair dealings.

Notes
–UCC §2-306 Output, Requirements (contracts) and Exclusive Dealings: (1) When there is no specified quantity by output of seller, the output must be done in good faith and reasonably. Don’t make contract illusory.
–Both parties assumed the risks.

Prince’s Takeaway
Requirements Contracts are binding.

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Prince’s Briefcase: New York Central Iron Works Co. v. United States Radiator (Trujillo Contracts)


Prof. Elizabeth Trujillo Contracts: Illusory Promises

Here is a case from my Contracts course which explains the concept of Illusory promises or in this scenario “Open or Requirements Contracts”. In this case, open contracts with no indefinite quantity of output are enforceable.

Procedural History
Defendant sought review from a judgment of the Appellate Division of the Supreme Court in the fourth judicial department (New York), which affirmed a judgment in favor of plaintiff entered upon the report of a referee.
Courtesy of www.lawschoolcasebriefs.net

Facts
In the underlying action, plaintiff sought to recover damages for the breach of a written executory contract between the parties for the sale and delivery of goods. The contract was an open one as to the quantity of goods that defendant was to deliver. When plaintiff ordered significantly more goods than usual, defendant refused to provide the additional goods. Defendant construed the contract as calling for only the usual amount of goods and not materially exceeding the quantity delivered in any one year before under a similar contract. Defendant claimed that there was a mutual mistake in framing the contract, and defendant asked that the contract be reformed in this respect. The trial court found for the plaintiff, and defendant appealed.
Courtesy of www.lawschoolcasebriefs.net

Issue
1) Can the contract be reformed to limit the quantity?
2) Is the requirements contract enforceable even though there is no specific quantity of output?

Holding
1) No
2) Yes

Rule
Both parties are bound to carry a contract in a reasonable way. The obligation of good faith and fair dealing towards each other is implied in every contract of this character.

Reasoning
–The contract was open; the amount of goods was intended to be indefinite. (UCC 2-306 Go to Notes)
–Room for re-negotiation

Notes
UCC §2-306 Output, Requirements (contracts) and Exclusive Dealings: (1) When there is no specified quantity by output of seller, the output must be done in good faith and reasonably. Don’t make contract illusory.
Defendant should have pleaded speculation by the plaintiff

Prince’s Takeaway
Requirements contracts allow a party to purchase from another, the quantity of a particular good as it requires, therefore the quantity term was intentionally left out since the purchaser cannot guess how much he would need.

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Prince’s Briefcase: Texaco, Inc. v. Pennzoil Co. (Trujillo Contracts)


Prof. Elizabeth Trujillo Contracts: Agreements to Agree

Here is a case from my Contracts class which explains the concept of Agreements to Agree. In this case an agreement between two parties is enforceable if there is extrinsic evidence (press release) which supports the parties’ intent to contract.

Case Name, Citation Number, Author
Texaco, Inc. v. Pennzoil Co. 729 S.W.2d 768 (Tex. App. 1987)

prince's briefcase (princesdailyjournal)Procedural History
Pennzoil (Plaintiff) sued Texaco (Defendant) for tortious interference with the contract. Texaco asserted that the Memorandum of Agreement was not a binding contract because it was subject to the approval of Getty’s boar of directors and would expire by its own terms if not approved. Pennzoil asserted that the contract was binding because the Memorandum had been executed by a group of parties that controlled the majority of outstanding shares in Getty. The jury returned a verdict for Pennzoil and Texaco appealed.

Facts
–Pennzoil and Getty Oil entered into a merger agreement whereby Pennzoil would acquire Getty.
–Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued a press release.
–Texaco went behind Pennzoil’s back and made an alternative offer to Getty’s board.
–Getty then repudiated its agreement with Pennzoil and accepted Texaco’s offer
–Pennzoil then sued Texaco for tortious interference.

Issue
–Was the Memorandum of Agreement enforceable even though it was not an executed contract?

Holding
Yes because the Memorandum of Agreement and the press release showed substantial evidence that Pennzoil and Getty were bound to the approval of their board of directors.

Rule
Parties must have reasonably negotiated ascertainable terms so that each party knows what it is supposed to do. The contract must be reasonably definite so a court can recognize breach. The terms of the agreement found by the jury are supported by the evidence.

Reasoning
There was substantial evidence (the Press Release and Memorandum of Agreement) that would help a reasonable jury find for the plaintiff (Pennzoil)

Notes
Restatements §204. Supplying An Omitted Essential Term (Using evidence to interpret the terms of contract): When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

Prince’s Takeaway
Extrinsic evidence such as a press release and memorandum of agreement can make agreement between two parties enforceable–even if the memorandum is not an unexecuted contract.

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Prince’s Briefcase: Sun Printing & Publishing v. Remington Paper & Power Co. (Trujillo Contracts)


Trujillo Contracts: Agreements to Agree

Here is a case from my Contracts class which explains the concept of Open Agreements, which are agreements that have no fixated time or price. In other words, an agreement that has no set time or price, but both parties are still bargaining for exchange, is not an agreement at all.

Case Name, Citation Number, Author
Sun Printing & Publishing Association v. Remington Paper & Power Co., Inc., 139 N.E. 470 (N.Y. 1923)

prince's briefcase (princesdailyjournal)Procedural History
Plaintiff motioned for a judgment on the pleadings in a breach of contract action. The motion was denied but reversed on appeal. The Defendant then appealed the order from the Appellate Division of the Supreme Court in the First Judicial Department.

Facts
–Plaintiff agreed to purchase 1000 tons of paper/month from Defendant.
–The price was set for Sept, Oct, Nov, and Dec,
–The balance of the agreement was that both parties would agree upon a price that would be no higher than the Canadian Export Paper Company charge for large customers,
–Prior to the expiration of the set terms the Defendant gave notice that the contract was imperfect and disclaimed future obligation to deliver,
–Plaintiff demanded delivery at the price set by Canadian Export Paper Company

Issue
Is the defendant bound to follow its future obligation to deliver under the open agreements

Holding
No because price and time terms were not met or agreed upon.

Rule
If intent cannot be assessed at all, there is a presumption that there is no intent to contract at all, or at least there is no actual agreement and therefore no mutual assent—no contract.

Reasoning
–Since the agreement on time was not met so is the agreement on price.
–Dissenting opinion from Judge Crane: Using the fair dealings standard the contract is valid, there was enough for the court to fill the gaps with course of dealings, course of performance, and usage of trade and courts shouldn’t allow the seller to avoid very clear contractual obligations

Disposition
The Defendant’s appeal on the plaintiff’s motion for judgment on the pleadings is reversed on the grounds that the Defendant was not bound under contract where agreement as to price and time terms not reached.

Notes
UCC 2-305 Open price term: agree to renegotiate. UCC APPLIES WHEN THERE IS A SALE OF GOODS AND/OR SERVICES.
(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.

Restatements §34 Certainty and choice of terms; Crane opinions: part-performance and course of dealing can be used as gap fillers
(1) The terms of a contract may be reasonably certain even though it empowers one or both parties to make a selection of terms in the course of performance.
(2) Part Performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed.
(3) Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed.

Prince’s Takeaways
If two people have not agreed on set price it is considered open, therefore you agree to renegotiate on the price at anytime you wish. So have a price and date set before you contract with someone.

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Prince’s Briefcase: Weinberg v. Edelstein (Trujillo Contracts)


Trujillo Contracts: Vague Terms

Here is a case from my Contracts class which explains the concept of Vague Terms. And in this case, it tells the tale of the first “Dressgate” scandal: “What is a dress?!”

A matching skirt and blouse? Or a one piece garment?

Case Name, Citation Number, Author
Weinberg v. Edelstein, 110 N.Y. Supp. 2D 806 (1952)

prince's briefcase (princesdailyjournal)Procedural History
The plaintiff brought an action for an injunction (a “stop” warrant) to enforce a restrictive covenant in his lease against the defendant.

Facts
–Plaintiff (Weinberg): Dress Retailer
–Defendant (Edelstein): Skirt Retailer
–Both Retailers operated in the same building and each of their leases contained covenants restricting what they could sell.
–The plaintiff’s 5 year-lease gave him the right to sell ladies dresses, coats, and suits,
–The defendant began a lease and started to sell (among other things) matching “skirts and blouses.”
–The plaintiff then said that the defendant violated the agreement by selling matching skirts and blouses as dresses which only the plaintiff had exclusive right to sell dresses in the building
–The plaintiff then sues the defendant

Issue
Is a matching “skirt and blouse” a dress?

Holding
No because the language used in the covenant did not require the skirt retailer to ignore the almost universal trends in the sportswear industry, even though it resembled the dress retailer.

Reasoning
–a matched skirt and blouse garment, although identical with a two-piece dress of the same material, did not come within the same restriction in the covenant
–The industry had a long-established division between houses which manufactured dresses, and sports wear which manufactured skirts and blouses
–If the restrictive covenant had not used the generic and ambiguous term of “dress” and clearly forbade the sale of “blouse and skirt combinations” the conclusion would have been different

Rule
Unless otherwise specified, technical terms will be given the meaning granted within the industry because those working within the industry know or should know the industry standard (Restatement §202(3)) (Go to notes)

Disposition
Injunction denied

Notes
Restatements 202(3): Unless a different intention is manifested, (a) where language has a generally prevailing meaning, it is interpreted in accordance with that meaning; (b) technical terms and words of art are given their technical meaning when used in a transaction within their technical field.

Prince’s Takeaway:
Weinberg wanted to eliminate the competition by imposing an injunction against Edelstein from selling matching skirt and blouses.

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Prince’s Briefcase: Oswald v. Allen (Trujillo Contracts)


Contracts: What is an enforceable contract?

Here is a case from my Contracts class which teaches the concept of an enforceable contract–and how two parties must have the same (mutual) understanding to the terms in the contract.

Case Name, Citation Number, Author
Oswald v. Allen, US Court of Appeals 417 F.2d 43 (1969)

prince's briefcaseProcedural History
Plaintiff (Oswald) appealed an order from the trial court, which entered judgment in favor of the Defendant (Allen). Plaintiff believed that the contract was for the sale of coins existed in the Defendant’s coin collection.

Facts
–Allen is a coin seller of a particular Swiss coin collection.
–Oswald a coin collector negotiated for the purchase of Swiss Coins in Allen’s coin collection.
–Both met up and negotiated for the sale and purchase of Swiss coins. A contract was allegedly formed, which Oswald had a translator with him, for his language barrier, to interpret the terms of the contract.
–Oswald agreed to purchase “Swiss coins” while Allen agreed to sell ONE set of Swiss coins in his Swiss coin collection–not “Swiss coins”
–Allen refused to sell “Swiss coins” and Oswald sued thereafter
–Trial court entered judgment in favor of Allen (the Defendant)

Issue
Was there a (enforceable) contract?

Holding
No

Rule
When any of the terms used to express an agreement is ambivalent, and the parties understood them differently, there cannot be a contract, unless one of them should have been aware of the others understanding. Raffles v. Wichelhaus.

Reasoning
–“no basis for choosing between conflicting understandings” US Court of Appeals
–Restatements 201(2)(3): Go to Notes

Disposition
–Affirmed

Notes
Restatements 201(2): Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them, if at the time the agreement was made
(a)That party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or
(b)that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party
(3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result maybe a failure of mutual assent.

Prince’s Takeaway
There must be mutual assent to make a contract enforceable, meaning both parties need to understand the same meaning of any term in a contract. I believe that since Oswald had to use a translator to negotiate the purchase and sale the Swiss coins, he was unable to ascertain Allen’s meaning of what “Swiss Coins” actually meant to him–which was the set and not the coins.

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Prince’s Briefcase: How Not To Pay Off Your Student Loans (Johnson v. Otterbein University)


Here is a case which a handwritten letter, promising to pay off your student loans, is not a legal consideration to enforce a promise

prince's breifcaseThis case comes from my Contracts class where we are studying the “Doctrine of Consideration.” Below is my case brief which thousands of law students use to help us understand the cases and root out the “issue.”

Case Name, Author, Citation
Johnson v. Otterbein University, Supreme Court of Ohio, 41 Ohio 527 (1885)


Procedural Posture

The defendant (Otterbein University) sues the appellant or plaintiff (Johnson) for failure to fulfill his promise stated in a note sent by the plaintiff. The note was a student repayment loan, and that the defendant alleged that it was without consideration and was denied in the reply. The court entered judgment in favor of the defendant and a motion for a new trial was overruled. The Plaintiff then preceded to appeal in efforts to reverse judgment of the trial court.

Facts.
The case is about the validity of the note, sent by Johnson to Otterbein University in what appears to be a Student Repayment Loan, and whether it should be a valid consideration to enforce his promise:

“$100
Westerville, Ohio, May 6, 1869
Three years after the date, I promise to pay to the trustees of Otterbein University of Ohio, or their agents, one hundred dollars, with interest, at the rate of no per cent., to be used exclusively to liquidate the present, that is, February (1869) indebtedness of said University. Should this donation ever be used for any other purpose than herein specified, the trustees of said University shall be held bound to refund said sum of money to the donor.
–John Johnson”

This note was signed and delivered to Spangler, an agent of Otterbein University, along with similar notes promising to pay $100 to the University in 3 years to help pay off the current University debt. These notes and others were accepted as a fund with which to liquidate his debt. The trustees of Otterbein (the defendant) then sued Johnson in December 1875 claiming that his 1869 note was not paid.

Issue
Prince: Does Johnson’s promise (in the form of a note(s)), that brings benefit to him or detriment to Otterbein University, constitute as a legal consideration?
Legal interpretation: Whether a valid consideration was given in a promise to pay money as a gift?

Holding
No; The court says that the creation of the fund (from the notes he sent) with which to pay the university’s indebtedness was not a consideration for the promise.

Reasoning
*Court: An executory contract “to give” is without consideration, and a promise to pay money as a gift may be revoked at any time before payment
Court: The trustees’ acceptance of the writing containing the direction to apply the fund did not give rise to a case of mutual promise (Prince: a mutual promise which both parties agreed to at the same time.

Prince’s Reasoning
A simple IOU note, or sticky notes, in the form of a letter saying “I promise to pay back my loan” in a fixed time frame is not a legal consideration to enforce a promise from the person who is making the promise (promissor)
**FOLLOW UP FROM CLASS: The fact is Johnson will be paying off his student loan debt regardless of any intervening factors. So his notes don’t count for anything. There is no benefit for Johnson or detriment to Otterbein. And Otterbein did not give a promise in an exchange for Johnson’s Promise. This is not a Bargain; more of a gratuitous promise

Rule
Court: A note to repay a student loan should be in the form of a promissory note. And any other forms should have an implicit duty to apply its proceeds to proper corporate objects that would rise upon acceptance. A promissory note is a valid consideration

Disposition
Judgment of Trial Court is reversed favoring the Plaintiff (instead of the Defendant)

Prince’s Takeaways

  • Know what is a legal consideration to enforce a promise
  • Don’t write a letter to your university promising to pay off your student debt in a fixed time frame. Under this case, a Promissory Note is more acceptable than a letter promising to repay your student loans. This is paying money as gift which is not a legal consideration
  • In Contracts, you will learn that reasonable people are not entirely reasonable in their words or actions when they strike deal–so we have rules to remedy “contract breaches” such as this one
  • This case was back in 1885, and a lot has changed. So don’t take it true to fact
  • Usually its the plaintiff (Johnson) that sues the defendant first. But since this decision came from the Supreme Court of Ohio, I guess the parties may have switched roles when they litigated up the state court system (In this case there is no mention that Johnson sued Otterbein first, just that he appealed)
  • $100 dollars is pretty reasonable for a student today to pay off his/her student loans!

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