Lucy Lady Duff Gordon v. Wood

Appellate Division of the Supreme Court of New York · Contracts

Contractsconsiderationmutualitylack of mutualityconsiderationillusory promiseexclusive rightsenforceability

Facts

The parties entered into a written agreement reciting that the defendant's name and approval of fashion articles had monetary value and that the plaintiff had a business organization suited to placing such endorsements. The agreement gave the plaintiff the exclusive right to place endorsements approved under the contract and the exclusive right to sell or license certain articles created by the defendant. The plaintiff was to collect profits and revenues, keep what remained after expenses, and pay the defendant one-half with monthly accountings; he was also to procure and protect patents, copyrights, and trademarks as he deemed necessary. The complaint alleged that the defendant breached by placing endorsements on articles without the plaintiff's consent and for consideration, thereby depriving him of the exclusive right and related profits.

Issue

Did the complaint state a cause of action on the written agreement, or was the agreement unenforceable because it lacked mutuality and consideration? More specifically, did the plaintiff undertake any enforceable obligation under the contract?

Rule

A contract lacks mutuality and consideration, and is therefore void, when one party's promised performance depends entirely on acts that party has not agreed to perform, so that the other party cannot compel any performance and there can never be a breach by that party.

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In Chicago, Naomi Velez signed a written agreement giving Harborline Promotions the exclusive right to secure endorsements for her jewelry designs for two years. Harborline agreed to collect any revenues it obtained, keep its expenses from its share, and remit half of any net revenues to Naomi each month, but the agreement did not require Harborline to seek any endorsements at all.

Naomi later signs an endorsement deal on her own with a retailer in Miami. If Harborline sues for breach of the exclusivity provision, what is the strongest argument against enforcement of the agreement?

Explanation. The majority rule is that a contract is void for lack of mutuality and consideration when one party's performance depends entirely on acts that party never agreed to undertake. Here, Harborline promised only to collect and distribute revenues if it chose to secure endorsements, but it never bound itself to seek any. Because Naomi could not compel Harborline to do anything and there could never be a breach by Harborline for inaction, the exclusivity grant is unsupported by enforceable consideration. (Derived from Lucy Lady Duff Gordon v. Wood (n.d.).)