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VOL.21,NUMBER 45
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Contracts can imply more than what’s stated
One matter that came to me
years ago was the situation of a
songwriter who had assigned all of
his copyrights
to a music
publishing
company, only
to
discover
that in the
eight years of
the relationship, the publisher
had
done nothing
but passively
Peter A. Herbert issue licenses
on request, a
job for which
a license administrator takes 5 to 10
percent of the revenue, but for
which this publisher had taken its
50-percent share.
Of course, for a 50-percent publisher’s share, a publisher is obliged
to actively exploit the writer’s catalog, which includes actively seeking
new versions (known as “covers”)
for previously recorded compositions, distributing the compositions
in print in the form of sheet music,
and licensing the commercial
exploitation of the compositions in
foreign territories.
In eight years, the publisher had
done none of those things. In
response to a demand for return of
the copyrights to the catalog, the
publisher was quick to respond that
the contract did not expressly set
forth any specific obligations on the
publisher’s part, and therefore it
was not in breach of any express
contractual obligation.
Coincidentally, I had just
received a telephone call from
Richard Gordon, my dear friend and
former contracts professor at
Georgetown Law Center, and I related the songwriter’s conundrum.
Gordon pinpointed a 1917 New
GUEST
COLUMN
York case that provided the answer: ‘instinct with an obligation,’ imperOtis F. Wood v. Lucy, Lady Duff Gor- fectly expressed. If that is so, there is
don.
a contract.”
Lady Duff Gordon, whose perArmed with Lucy Lady Duff
sonal favor and certificate of Gordon, we were able to solve the
approval on ladies’ garments providsongwriter’s problem and recapture
ed them with enormous sales potenhis catalog; the publisher gave up
tial, granted Wood, a person with an the copyrights rather than go to
established licensing business, an
court.
exclusive agency for one year to
The principle of Lucy Lady Duff
license the use of her name for
Gordon also guided the court’s deciladies’ apparel, with the revenue to sion in B. Lewis Productions Inc. v.
be shared on a 50-50 basis.
Angelou, a 2005 case in which poet
Thereafter, there was a falling
Maya Angelou tried to terminate a
out between the two, and Lady Duff contract for a joint venture in which
Gordon declared the contract termi- Lewis would provide the capital and
nated on the ground that the agree- seek to broaden Angelou’s audience
ment between them lacked the eleby exploiting her poetry on greeting
ments of a contract – specifically, cards, stationery and calendars.
that the contract did
The
plaintiff
not expressly oblige
did, in fact, conWood to do anytribute capital and
thing.
succeeded in interJudge Benjamin
esting
Hallmark
N. Cardozo rejected
Cards in the conher position, finding
cept, resulting in the
that contracts are
latter sending a
generally “instinct
license
for
with an obligation”
Angelou’s future
that each party will
works that would
do what was cushave provided subtomarily expected of
stantial income to
it to make the enterthe enterprise.
prise achieve the
T h e r e a f t e r,
contemplated goal.
Angelou observed
In this contract, Ruling in Otis F.Wood v.Lucy, Butch Lewis’ conthe judge wrote, “It
duct at a party that
Lady Duff Gordon
is true that [Wood]
made her furious
does not promise in so many words and notified his lawyer that the conthat he will use reasonable efforts to tract was terminated on the grounds
place the defendant’s endorsements
that the agreement was ineffective
and market her designs. We think,
because it was vague, indefinite and
however, that such a promise is fair- lacked essential terms.
ly to be implied. The law has outThe court, relying on the princigrown its primitive stage of formal- ples of Lucy Lady Duff Gordon,
ism when the precise word was the ruled against Angelou. The court
sovereign talisman, and every slip
also relied on the 1917 case to hold
was fatal. It takes a broader view
that deficiencies or gaps in express
today. A promise may be lacking, contractual obligations in a contract
and yet the whole writing may be
could be filled by what has been
‘Contracts are
[an obligation]
that each party
will do what was
customarily
expected of it.’
JUDGE BENJAMIN N.
CARDOZO
more recently characterized as the
implied obligation of good faith and
fair dealing to which all parties to a
contract are subject.
“Every contract carries an
implied obligation of good faith and
fair dealing that requires each party,
consistent with the contract terms,
to act in good faith in enabling the
other to receive the contemplated
contractual benefits for which it bargained,” the court wrote.
“The covenant is breached when
a party acts in an irrational or arbitrary fashion, the effect of which is
to deprive the other contracting party of the benefits of the bargain.
Where a contract contemplates the
exercise of discretion, the covenant
includes an implied promise not to
act arbitrarily or irrationally, and
even an explicitly discretionary contract right may not be exercised in
bad faith so as to purposely frustrate
the other’s right to the contract’s
benefits.”
An implied covenant, the court
warned, “may not be construed so
broadly as to rewrite the contract or
create rights that were not included
within the contract terms.” However, it is “not merely duplicative of
express contract rights, but provides
a well-established foundation to
require the parties to a contract to
act reasonably when dealing with
each other … and to prevent unreasonable actions that defeat a contracting party’s reasonable expectations.”
Thus, the inactive music publisher could have been found guilty of
violating the implied covenant. Peter A. Herbert is a partner at
Hinckley, Allen & Snyder LLP, specializing in intellectual property and
entertainment litigation matters.