Unit 2: Empty Bag

Unit 2: Empty Bag 

“One-Sided Promises … Empty Bags?”
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  • Unit 2: Empty Bag > One-Sided Promises > Intro
  • Unit 2: Empty Bag > Empty Bags? > Wood v. Lucy, Lady Duff-Gordon

Unit 2: Empty Bag > One-Sided Promises > Intro

  • You sell lumber at wholesale to all kinds of local fix-it places, lumber yards, that kind of thing.
  • Let’s say they are a chain, like Lowe’s or Home Depot, which is a chain of lumber yards, a great big chain of lumber yards.
  • I sell lumber to small contractors, homeowners and so on, all over the state.
  • I’m a very good customer and you’re a small lumber mill.
  • So what D’s the lumber yard says to you is I want to be sure that I will have enough lumber to supply my customers during the next year and I want to be sure that the price stays stable.
  • Whenever I ask for lumber, you’re going to sell it to me at $2.50 for an 8 foot two by four.
  • What is it that I, the great big chain of lumber yards, has agreed to, and what is it that you the little lumber mill has agreed to? You, the little lumber mill, has agreed that whenever I put in an order for let’s say 5,000 8 foot two by four sticks, you will sell them to me and $2.50 a stick.
  • What have I, the lumber yard chain, agreed to in this scenario? I haven’t agreed to anything.
  • If I don’t want any lumber during the year, I don’t have to put in any orders.
  • If the price of lumber goes down to $2, I can order it from other mills that are willing to sell it to me at $2. So, whereas you have bound yourself to sell to me whatever I want at $2.50, what I bound myself to? To order lumber from you if I want to at $2.50 a stick.
  • That means if you the little lumber mill decides well, I can sell my lumber now the price has gone up at $2.80, I’m not going to sell it to this big guy for less.

Unit 2: Empty Bag > Empty Bags? > Wood v. Lucy, Lady Duff-Gordon

  • It’s just the kind of house you want, and it’s going for $300,000.
  • So what do you do? You now give the owner for the house $200, saying, for this $200, I want an option to buy your house at the asking price of $300,000, and I want that to be open till the end of the week.
  • I don’t know whether it’s a profitable deal or not.
  • Why? Because the owner has gotten $200 for a few days, and you’ve gotten the right to buy the house, at least until the end of the week, at $300,000, particularly if he says, and if you do buy it at the end of the week, I’ll mark the $200 off the purchase price.
  • There’s a famous case which I want to tell you about.
  • It’s the famous case of Wood against Lucy, Lady Duff-Gordon.
  • For Cosmo Duff-Gordon, there was no question of women and children first.
  • So she made a deal with a guy called Wood, also a fairly colorful character from a fairly colorful family.
  • What Wood does is he’s an agent for people like Lucy.
  • He agreed to be the agent for Lucy, Lady Duff-Gordon brand of clothes- shoes, hats, umbrellas, and so on.
  • The deal was that Lucy would give Wood the exclusive right to commercialize her brand in the United States in return for which Lucy would get all the advantages of the commercialization, the sales, and Wood would pick up a reasonable percentage commission on anything that he sold.
  • She’d given him the exclusive, and he would get a commission for anything he was able to sell.
  • So it stood for a while, until Lucy heard of Sears Roebuck and the Sears catalog.
  • Sears catalogs go to thousands and thousands of people.
  • And here she was dealing with Sears, not paying him anything.
  • The trouble was, what commitment had Wood made? Wasn’t he just like the lumber yard? I’ll sell your brand if I want to, and I won’t if I don’t want to.
  • Lucy, have to promise not to deal with anyone else.
  • It’s an arrangement that people make, and it could avoid a deadweight loss.
  • Here’s what the court said when Wood sued Lucy.
  • Lucy seemed to have committed herself to give him the exclusive, and he committed himself to do nothing.
  • She promised him the exclusive, and he promised to make the best efforts to commercialize her name.
  • It’s implicit in the arrangement, because, after all, it would be an act of bad faith- bad faith- for him, on one hand, to get Lucy to promise him an exclusive, and on the other hand, to be entirely free to do nothing, just to sit on it and tie her up without tying himself up.
  • What we will do as a court, we will assume that there is what is called good faith on both sides.
  • Remember, that wasn’t too much of a stretch, because Wood had made efforts, and he had sold some of her stuff.
  • Her good faith spelled out in the contract, which she broke; his good faith not spelled out, not written down anywhere, but implicit- that’s the big word- implicit in the transaction.
  • Well, what do you think? Was Wood’s good faith implicit in the transaction? “.

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