Wood v.

Lucy, Lady Duff-Gordon

(Distributor) v. (Fashion Designer)
222 N.Y. 88, 118 N.E. 214 (1917)
COURT IMPLIES DUTY TO MAKE REASONABLE EFFORTS IN AN EXCLUSIVE
DEALING ARRANGEMENT
INSTANT FACTS A famous fashion designer attempts to invalidate an exclusive-dealing
arrangement by arguing that the supplier never made any promise to market her goods.

BLACK LETTER RULE Exclusive dealing arrangements impose an obligation by the seller to
use his best efforts to distribute and market goods.
PROCEDURAL BASIS Appeal from order reversing denial of demurrer to complaint for breach
of contract.
FACTS Lucy, Lady Duff-Gordon (D) was a famous fashion designer. In order to profit from her
fame, Lucy (D) employed Wood (P). Wood (P) was granted the exclusive right to endorse
products using Lucys (D) famous name for one year. In return, Wood (P) agreed to split the
profits with Lucy (D). Wood (P) sued for breach of contract after he discovered that Lucy (D)
had endorsed products without his knowledge and without splitting the profits. Lucy (D)
demurred on the ground that a valid contract never existed between the parties. In granting the
demurrer and dismissing the complaint, the Appellate division found that the contract lacked
mutuality, as Wood (P) never promised to do anything. Wood (P) appeals. ISSUE May a court
imply a promise to make reasonable efforts in an exclusive-dealing arrangement?
DECISION AND RATIONALE (Cardozo, J.) Yes. A court may imply a promise to make
reasonable efforts in an exclusive- dealing arrangement. Indeed, Wood (P) never expressly
promised to use reasonable efforts to endorse Lucys (D) products or to market her designs.
However, such a promise may be fairly implied by the court. Lucy (D) gave an exclusive
privilege to Wood (P), and his acceptance of the exclusive agency was an assumption of its
duties. To hold otherwise would be to undermine the purpose of the agreement. Lucys (D) sole
compensation for the grant of exclusive agency was to receive one-half of all profits. He agreed
to account monthly for all moneys received, and to take out the necessary patents, copyrights,
and trademarks. Unless Wood (P) gave some reasonable effort, Lucy (D) could never get
anything. In line with the intention of the parties, we determine that Wood (P) made an implied
promise, and thus that the contract was not lacking in mutuality of obligation. Reversed.
Analysis: One of the fundamental bases of contract law is that the parties should be free to
establish the terms of the contract. Ordinarily a court will not interfere and create implied
promises or duties. For this reason, the holding of the Court of Appeals of New York in this
opinion is open to some criticism. Obligations should be created voluntarily by contracting
parties, not imposed by courts.

Ricketts v. Scothorn
(Grandfather) v. (Granddaughter)

57 Neb. 51, 77 N.W. 365 (1898)

COURT ADOPTS PROMISSORY ESTOPPEL AS ALTERNATIVE TO BARGAINED-FOR
EXCHANGE
INSTANT FACTS A woman who quit work in reliance on her grandfathers promise to support
her sues when the executor of her grandfathers estate fails to pay.
BLACK LETTER RULE Where a person changes position in detrimental reliance on a promise,
the promisor may be estopped from later denying the promise.
PROCEDURAL BASIS Appeal from judgment for damages based on equitable estoppel.
FACTS John C. Ricketts (D) executed a promissory note by which he promised to pay his
granddaughter, Katie Scothorn (P), $2000 per year at 6% interest on demand. After Ricketts (D)
died, Scothorn (P) sued his estate in order to recover payment on the note. Scothorn (P) alleged
that the consideration for this note was that Scothorn (P) should surrender her employment and
cease to work for a living, just like the rest of Ricketts (D) grandchildren. Scothorn (P) also
argued that Ricketts (D) was equitably estopped from denying to pay the note, since the note was
given to induce her to abandon her occupation, and since she did give up her employment in
reliance on the note. Scothorn (P) remained unemployed for more than a year after receiving the
note, but she eventually went back to work with the consent of Ricketts (D). Ricketts (D) died
approximately two years later, having paid only one years interest on the note. The trial court
granted judgment for Scothorn (P), and Ricketts (D) executor appeals.
ISSUE Where a person intends to cause, and does indeed cause, another to change position in
reliance on a promise, can that person be estopped from denying the promise?
DECISION AND RATIONALE (Sullivan, J.) Yes. Where a person intends to cause, and does
indeed cause, another to change position in reliance on a promise, that person can be estopped
from denying the promise. We find that the note was not given in consideration of Scothorn (P)
pursuing any particular line of conduct. Scothorn never promised to do, or refrain from doing,
anything. Nevertheless, the doctrine of equitable estoppel, or estoppel in pals, precludes Ricketts
(D) from alleging that the note in controversy is lacking one of the essential elements of a valid
contract. Ricketts (D) gave Scothorn (P) the note with the intent that she, like his other
grandchildren, not work any longer. Thus, Ricketts (D) induced Scothorn (P) to alter her position
to her detriment on the faith that the note would be paid on demand. It would be grossly
inequitable to permit Ricketts (D) to resist payment on the ground that the promise was given
without consideration. Affirmed.

Restatement (Second) of Contracts 90 (1981)

(1) A promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promisee or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise.
The remedy granted for breach may be limited as justice requires.

Restatement (Second) of Contracts 139 (1981)

(2) In determining whether injustice can be avoided only by enforcement of the promise, the
following circumstances are significant:

(a) the availability and adequacy of other remedies, particularly cancellation and
restitution;

(b) the definite and substantial character of the action or forbearance in relation to the
remedy sought;

(c) the extent to which the action or forbearance corroborates evidence of the making and
terms of the promise, or the making and terms are otherwise established by clear and
convincing evidence;

(d) the reasonableness of the action or forbearance;

(e) the extent to which the action or forbearance was foreseeable by the promisor.

Restatement (Second) of Contracts 344 (1981)

Judicial remedies under the rules stated in this Restatement serve to protect one or more of
the following interests of a promisee:

(a) his expectation interest, which is his interest in having the benefit of his bargain
by being put in as good a position as he would have been in had the contract been
performed,

(b) his reliance interest, which is his interest in being reimbursed for loss caused by
reliance on the contract by being put in as good a position as he would have been in had the
contract not been made, or

(c) his restitution interest, which is his interest in having restored to him any benefit
that he has conferred on the other party.