In this post, we conclude our review of Part I of “Framing Contract Law” with Victor Goldberg’s expert analysis of Wood v. Lucy, one of the most famous “consideration” cases ever decided. The facts of this great case are as follows: Lucy (the principal) was a fashion designer, while Wood (the agent) was a promoter. The parties entered into a one-year exclusive agreement in which the agent had the exclusive right to promote Lucy’s brand and place her fashion lines in retail outlets, subject to Lucy’s approval. In exchange, the principal (Lucy) agreed to pay the agent 50% of the revenue generated from the agent’s efforts. But there’s the legal rub: the agent did not promise to expend any actual effort in promoting Lucy’s brand or placing her fashion lines. So, was this an illusory contract, one lacking in mutuality? This was the argument that Lucy’s lawyers would make when she wanted to back out of the agreement later.
Indeed, it turns out that Lucy was able to promote her brand without any help from Wood. In fact, she was able to negotiate a deal directly with Sears, Roebuck & Co., the largest retailer in the world at that time, and place her fashion line in the Sears catalogue without Wood’s help. When Wood found out that he was cut out of the Sears deal, he sued Lucy to enforce their contract and receive his share of the revenues generated from the Sears catalogue. That’s, of course, when Lucy argued lack of mutuality … This case went up to the highest court in New York, which decided to enforce the Wood-Lucy agreement. Writing for the court, Judge Cardozo rejected Lucy’s argument and concluded that the Wood’s promise to place Lucy’s fashion lines was not illusory. Why not? Because Wood also made an implied promise (i.e., a promise nowhere to be found in the agreement itself) to use his “best efforts” in promoting Lucy’s brand!
For his part, Professor Goldberg is highly critical of Judge Cardozo’s reasoning for two reasons. One is linguistic, since the meaning of “best efforts” is too vague. Does “best” only mean “reasonable” or does it mean something more? The other reason is economic. Maybe the parties had no need for a best efforts clause in the first place because the economic structure of Wood-Lucy agreement itself provided Wood sufficient incentive to promote Lucy’s brand. After all, Wood would not receive any compensation unless he was able to promote Lucy’s fashion line. In other words, Goldberg would have enforced the contract as is, without resorting to the legal fiction of “best efforts.” (Once again, we find ourselves in complete agreement with Prof Goldberg. If a court really wants to find “consideration” here, then the economic structure of the contract itself should provide sufficient “consideration” to satisfy the mutuality requirement of the common law. Otherwise, if the parties had really wanted a “best efforts” clause, they should have put one into their agreement!)