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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All content is the property of Prince’s Daily Journal LLC, any use of distribution without express written permission is strictly prohibited. Copyright (c) 2013 All Rights Reserved

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.

All content is the property of Prince’s Daily Journal LLC, any use of distribution without express written permission is strictly prohibited. Copyright (c) 2013 All Rights Reserved