Jim Whitney

Economics 357

Case brief: template

Case name:	Otis F. Wood, Appellant, v. Lucy, Lady Duff-Gordon, Respondent
Court:	Court of Appeals of New York
Citation; Date:	November 14, 1917, Argued December 4, 1917, Decided

PROCEDURAL HISTORY
Trial court:	Appeal court (if relevant):
Plaintiff:	Appellant:	Otis F. Wood
Defendant:	Respondent:	Lucy, Lady Duff-Gordon

Facts of the case:
Lucy Duff-Gordon is "a creator of fashions." She is able to increase sales of fashionable products. Manufacturers of dresses and like articles pay for Lucy’s certificate of approval in order to increase sales. The things which she designs, fabrics, parasols and what not, have a new value in the public mind when issued in her name. She employed Otis Wood to help her to turn her product (basically putting her name on things) into money. Otis Wood was to have the exclusive right, subject always to Lucy’s approval, to place her endorsements on the designs of others. Otis Wood was also to have the exclusive right to place her own designs on sale, or to license others to market them. In return, Lucy was to have one-half of "all profits and revenues" derived from any contracts he might make. The exclusive right was to last at least one year from April 1, 1915, and thereafter from year to year unless terminated by notice of ninety days. Otis Wood says that he kept the contract on his part, and that Lucy broke it. She placed her endorsement on fabrics, dresses and millinery without Otis Wood’s knowledge, and withheld the profits. Otis Wood sues Lucy for the damages, and the case comes here on demurrer.
Remedy sought:	Damages resulting from Lucy putting her endorsement on products without the plaintiff’s knowledge and for the withholding of profits.
Court opinion (including key issues and arguments): Both parties signed the contract of employment. Lucy insists, however, that it lacks the elements of a contract. She says that Otis Wood does not bind himself to anything. It is true that he does not promise in so many words that he will use reasonable efforts to place the defendant's endorsements and market her designs.  The court thinks, however, that such a promise is fairly to be implied. A promise may be lacking, and yet the whole writing may be "instinct with an obligation," imperfectly expressed (Scott, J., in McCall Co. v. Wright, 133 App. Div. 62; Moran v. Standard Oil Co., 211 N. Y. 187, 198). If that is so, there is a contract.
The implication of a promise here finds support in many circumstances. First, Lucy gave an exclusive privilege. She was to have no right for at least a year to place her own endorsements or market her own designs except through the agency of Otis Wood. The acceptance of the exclusive agency was an assumption of its duties.... We are not to suppose that one party was to be placed at the mercy of the other ( Hearn v. Stevens & Bro., 111 App. Div. 101, 106; Russell v. Allerton, 108 N. Y. 288). Secondly, "Otis F. Wood possesses a business organization adapted to the placing of such endorsements as the said Lucy, Lady Duff-Gordon has approved." The implication is that the plaintiff's business organization will be used for the purpose for which it is adapted. But the terms of Lucy’s compensation are even more significant. Her sole compensation for the grant of an exclusive agency is to be one-half of all the profits resulting from the plaintiff's efforts. Unless he gave his efforts, she could never get anything. Without an implied promise, the transaction cannot have such business "efficacy as both parties must have intended that at all events it should have" (Bowen, L. J., in The Moorcock, 14 P. D. 64, 68). But the contract does not stop there. The plaintiff goes on to promise that he will account monthly for all moneys received by him, and that he will take out all such patents and copyrights and trademarks as may in his judgment be necessary to protect the rights and articles affected by the agreement. It is true, of course, as the Appellate Division has said, that if Otis Wood was under no duty to try to market designs or to place certificates of endorsement, his promise to account for profits or take out copyrights would be valueless. But in determining the intention of the parties, the promise has a value. It helps to enforce the conclusion that the plaintiff had some duties. His promise to pay the defendant one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly, was a promise to use reasonable efforts to bring profits and revenues into existence....
Disposition of case:
Rule in favor of the Plaintiff

ECONOMIC ANALYSIS OF THE CASE

Wood v. Duff-Gordon deals with the issue of implicit understandings. When negotiating a contract some gaps within the agreement may be deliberate. In order to cut down negotiation costs it is more efficient for some fundamental aspects of a contract to be implied within the understanding rather than explicitly stated in words. The use of implicit understandings in contracts can lead to litigation and increased costs. However, the amount of money saved by not having to specifically word all facets of every contract outweighs the court costs that may be incurred. The two parties could have explicitly outlined every possible contractual obligation, however this would have been a painstakingly long process. Instead, it is more efficient to have a general outline of the terms and have both parties accept the terms. It is more economically efficient to assume that reasonable individuals will be able to understand implicit obligations in a contract. As both Wood and Duff-Gordon are most likely reasonable individuals, there was no reason for needlessly inflate negotiation costs. Wood was correct in his argument that Duff-Gordon did not uphold the exclusive rights set forth in the contract. Therefore, the court made the economically efficient decision in entitling Wood to damages resulting from Duff-Gordon putting her endorsement on products without the plaintiff’s knowledge and for the withholding of profits. The main issue raised in this case is the trade-off between opportunism and the cost of litigation.