Blog contributor Otto Stockmeyer is a Cooley Law School Distinguished Professor Emeritus. This is another in his series of posts offering a fresh look at famous cases.
The majority of the court decisions filling law school casebooks are merely illustrations and variations on a few leading cases. In this series I am using three leading cases to make my point. Together they lay down fundamental rules governing the essence of contract law regarding formation, consideration, and remedies. Back-story lore casts doubt on the bona fides of one or more of the parties. But even if the principals are sullied, the principles remain important.
The formula for making a contract may be shown as O+A+C. Required is an Offer, met by an Acceptance, bound together with Consideration. Exceptions exist, but in the main to be valid a contract requires the element of consideration, the glue that holds the deal together. Historically, consideration was thought of as a quid pro quo exchange, the promise of something of value for something else of value.
The 1917 New York case of Wood v. Lucy, Lady Duff-Gordon involved Lucy, a high-priced dress designer from England. She promised Wood, a promoter, the exclusive right to market her indorsements in exchange for one-half of all revenue.
Wood caught Lucy indorsing designs on her own for Sears and sued for his share of the profit. The problem was that the parties’ written agreement contained no promise on Wood’s part, thus no consideration. Under settled doctrine, if Wood wasn’t bound, then neither was Lucy.
Writing for New York’s highest court, Justice Benjamin Cardozo ruled in Wood’s favor. He held that a promise on Wood’s behalf to market Lucy’s indorsements could be implied from the circumstances. “A promise may be lacking, and yet the whole writing may be ‘instinct [infused] with an obligation,’ imperfectly expressed.” With Wood bound by this implied promise, Lucy too was bound.
Although he died more than 80 years ago, it has been said that American law school casebooks contain more opinions by Justice Cardozo than any other judge. His biographer said of Cardozo that, “his work affected law everywhere in the common-law universe.” (Andrew Kaufman, Cardozo (1998))
Certainly that is true of Cardozo’s opinion in Lucy’s case. His holding that exclusive-dealing contracts impose implied obligations has become enshrined in the Restatement (Second) of Contracts (Sec. 77, ill. 9) and the Uniform Commercial Code (Sec. 2-306(2)). Moreover, Cardozo’s crack in the wall of consideration led to an eventual shift in consideration doctrine from the concept of giving-of-value to one of bargained-for-exchange.
Accompanied by her personal secretary, Lucy and her husband Sir Cosmo Duff-Gordon were passengers on the ill-fated Titanic when it sank on its maiden voyage in 1912. Despite the ladies-first adage, Sir Cosmo commandeered Lifeboat 1 for themselves.
With a capacity of 40, the lifeboat pulled away with only 12 people, including seven male crewmembers who failed to heed cries from people in the water after the ship sank. A British inquiry cleared Sir Cosmo of charges that he had bribed the boat crew not to row back to rescue swimmers. He claimed the payments were just a tip for their service.
Lucy leveraged her Titanic notoriety to achieve great success in opening dress shops under the name “Lucile Ltd.” in New York and Chicago. Shortly before her death in 1935, she was asked whether she had any regrets about the Titanic incident. “Regrets? I have no regrets,” she shot back. “The Titanic disaster made me and my fortune. Look at the tremendous amount of publicity it gave me.” (Walter Lord, A Night to Remember (1955))
A side-note: Research has cast doubt on Cardozo’s premise that lack of a commitment on Wood’s part was an innocent oversight. It turns out that his previous contracts contained such a clause. If Cardozo had been apprised of this evidence, would his decision have been different? Maybe not. Of judicial opinions, he wrote that, “There is an accuracy that defeats itself by the over-emphasis of details.” In plainer terms: don’t let stray facts get in the way of a good story.
Lucy’s infamy is another example that legal principles from leading cases endure despite the cases’ flawed principals.
During his teaching career, Professor Stockmeyer delighted in revealing the back-stories of cases he taught in class. Previous examples include The Adventure of the One-Dollar Diamond, Another Perspective on Dr. McGee, In Defense of Justice Morse and Confusion: Bad for Contracts, Good for Students?. Those and other blog posts are available here.
Coming up: The Three Lucys of Contract Lore, Part Three: Peevyhouse vs. Garland Coal.