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Contracts · Implied obligation of good faith · Case brief

Wood v. Lucy, Lady Duff-Gordon

222 N.Y. 88 · New York Court of Appeals · 1917
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Facts

Lady Duff-Gordon, a well-known fashion designer, gave Wood the exclusive right to market her designs, place her endorsements on others' designs, and license use of her name. In return, Wood agreed to account for and split profits and revenues with her. After Lady Duff-Gordon independently placed her endorsement on products without Wood's involvement, Wood sued for breach of the exclusive agreement. She argued the contract was unenforceable for lack of consideration because Wood had made no express promise to do anything.

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Issue

Can an exclusive marketing agreement be enforceable when one party's promise to use reasonable efforts is not stated expressly in the contract?

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Rule

A promise may be implied from the whole writing and the circumstances when that implication is necessary to give the contract business efficacy. In an exclusive dealing arrangement, the grant of exclusivity can imply a promise by the exclusive agent to use reasonable efforts to market the subject matter, supplying consideration.

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Holding

Yes. The contract was supported by consideration because Wood's promise to use reasonable efforts to market Lady Duff-Gordon's designs and endorsements was implied from the agreement.

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Reasoning

Justice Cardozo explained that although Wood did not expressly promise to place endorsements or market designs, the contract as a whole assumed he would do so. The exclusivity he received was worthless unless he made efforts to generate profits, from which both parties would benefit. His duties to account monthly and divide profits reinforced that the parties expected active performance, not an illusory option to do nothing. Therefore, the contract contained an implied promise sufficient to make it binding.

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Significance

The case is a foundational contracts decision on implied promises, consideration, and exclusive dealing. It rejects overly formalistic readings that would invalidate agreements where the parties' intent to be bound is evident from the structure of the bargain. It is closely related to the modern treatment of exclusive dealing in Uniform Commercial Code § 2-306(2) and to the doctrine against illusory promises reflected in cases such as Mattei v. Hopper, 51 Cal. 2d 119 (1958).

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