Sometimes the court will in a sense add a term to the agreement that was implied. There are two ways terms can be implied: implied-in-fact and implied-in-law. Implied in fact refers to the specific facts of a contract as the court tries to discern the intent of the parties. Implied in law refers to the statutes or common law that creates terms the parties are obligated to follow. The distinction can vary and the difference between the two con sometimes become confusing.
Wood v. Lucy, Lady Duff-Gordon
118 N.E. 214 (N.Y. Ct. App. 1917).
Lady Duff-Gordon won in the appellate court and Wood appealed.
Question
Wast there a contract?
Rule
The nature of an agency implies that there is consideration.
Holding
Reversed.
Facts
Lady Duff-Gordon is a fashion designer who’s stamp of approval increases sales. As a result, she is often paid for her approval. She hired an agency to manage this process, offered them exclusive rights in return for her taking half of any earnings. However, she continued to approve and sell without the knowledge of the agency. As a result, they sued for a breach of exclusive rights.
Analysis
Lady Duff-Gordon argues that there was no consideration because amongst all the terms, there was nothing that said the other party was bound to perform. The court disagreed saying that consideration was implied in the duties they were expected to do. They were expected to pay half of the profits; for the Lady to get her profit, it was expected that they would work. Additionally, they were to render a monthly accounting of their profits, again indicating that work was to be done.
As a result, it is implied that consideration is present and the term is accepted.
Additional Notes
Implied in fact terms are those where the court says the parties would have done if they were not too lazy to incorporate them. Implied in law are those that the court imposes.
These two parties contracted for exclusive rights. However, Sears offered the Lady a better deal and she wanted to break of the agreement with the plaintiffs immediately. Unfortunately for her, she was bound by this contract with Wood for a year. So, she claimed that there was no contract because Wood was not obligated to do anything.
In other words, this was an illusionary contract. So, does this imply an effort to perform?
What should have been included was a “best-effort clause.” So, absent these terms, do we include them anyways? Yes, it doesn’t guarantee profits, but it does mean that the plaintiff has to try.
This principle is outlined in UCC 2-306(2). If there is a lawful, exclusive agreement, then it is a responsibility of the seller to supply the goods and the responsibility of the buyer to promote the sale. Although the UCC was not in effect at this time, it applies now as long as it is in goods.
Leibel v. Raynor Manufacturing Co.
571 S.W.2d 640 (Ky. Ct. App. 1978).
Plaintiff lost in trial court and appealed.
Question
Did the trial court error is saying that there was no need to give notice of termination, because it wasn’t an express term of the contract?
Rule
There must be reasonable notice to terminate an ongoing oral agreement.
Holding
There was no reasonable notice, reversed and remanded.
Facts
The plaintiff and defendant deal in garage doors, one sells and the other installs. The defendant made an oral agreement with the plaintiff that the plaintiff would be the only supplier of garage doors in the area. This relationship continued until sales declined and the defendant had to move to another supplier. He told the plaintiff of the ending relationship and the new relationship with the new supplier.
The plaintiff sued because he did not receive adequate notice of the termination (having expended a lot of capital to make the business work).
Analysis
This is a dealership agreement where the parties deal in goods. As a result, the UCC applies. The UCC says that when an agreement does not have an expiration date, it can be terminated at anytime. However, there must be reasonable written notice to ensure the good faith of the terminating party. Because there was only actual oral notice provided, this was not sufficient to reach the “reasonable” standard.
This is an example of an implied term designated by the UCC. The UCC required notice even though no notice was in the contract. As a result, the term was implied and added to the parties agreement. This can be thought of as “gap-filling” what was missing.
Additional Notes
This was an exclusive distributor agreement. The plaintiff (leibal) supplied the garage doors while the defendant (Raynor) installed them. The plaintiff had spent a lot of up front capital to be in the business. Unfortunately, sales of the doors went down and the defendant terminated the agreement.
The court determined that reasonable notice was not provided. Reasonable changes from case to case. In this instance, it should be enough time for the plaintiff to recover the costs of inventory.
UCC 2-309(2) – Can be terminated at any time. (3) – But reasonable notice is required. Comment 8 – Reasonable notice gives the other party reasonable time to find a substitute arrangement.
The UCC applies here because this is an agreement for the distribution of a good, garage doors, as its primary purpose.
The big takeaway from the case is that the UCC can add a term to the deal. This can be avoided if the attorneys add in a term that says the UCC won’t apply to the term in question.
Gap fillers are justified to be fair and efficient.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
