Opinion ID: 2976398
Heading Depth: 2
Heading Rank: 2

Heading: Illusory Promises

Text: “[A] contract is illusory only when by its terms the promisor retains an unlimited right to determine the nature or extent of his performance; the unlimited right, in effect, destroys his promise and thus makes it merely illusory.” Century 21 Am. Landmark, Inc. v. McIntyre, 427 N.E.2d 534, 536-37 (Ohio Ct. App. 1980) (citing 1 Williston on Contracts 140, § 43 (3 Ed.1957)). See also Andreoli v. Brown, 299 N.E.2d 905, 906 (Ohio Ct. App. 1972) (“An apparent promise which according to the terms makes performance optional with the promisor . . . is in fact no promise” -5- No. 07-3785 Source Assoc. Inc. v. Valero Energy Corp. (quoting Restatement of Contracts §2 cmt. b (1925)). In other words, “[a] party who states, ‘I promise to render a future performance, if I want to when the time arrives’ has made no promise at all.” Kreller Group, Inc. v. WFS Fin., Inc., 798 N.E.2d 1179, 1186 (Ohio Ct. App. 2003) (citing Asmus v. Pacific Bell, 999 P.2d 71 (Cal. 2000)). In the present case, the district court concluded that because the letter agreement “imposes no obligation on Source to make any efforts to actually market or sell Valero [Energy’s] products,” Source’s promise is illusory and “could not operate as consideration for a return promise.” Source Assoc., 2007 WL 1235997, at . In other words, the court reasoned that Source retained an “unlimited right to determine the nature or extent of its performance” and, therefore, basically promised nothing. Id. The court also noted that Valero Energy made no promise to make any products available to Source for sale to Crystal, lending further support to the court’s holding that the promises were illusory. Id. The court, however, did not take into account Ohio’s principle that “a contractual provision which gives a party the exclusive right to market a product on behalf of another imposes upon that party a duty to employ reasonable efforts to generate sales of the product.” Illinois Controls, Inc. v. Langham, 639 N.E.2d 771, 779 (Ohio 1994). See also Ohio Jur. Contracts § 57 (“A party who is given an exclusive agency to sell a product impliedly promises to use reasonable efforts to market the product, because the goal of the enterprise can be achieved only if such efforts are exerted. Such an implied promise is neither illusory nor too indefinite to be enforced.”). In Illinois Controls, the Ohio Supreme Court concluded that although the agreement between an inventor-investor and a marketing company that agreed to market the inventor-investor’s -6- No. 07-3785 Source Assoc. Inc. v. Valero Energy Corp. equipment did not expressly set forth the marketing obligation, the marketing company had the “obligation to exert reasonable efforts to market” the equipment. 639 N.E.2d at 778. The court relied on the seminal “reasonable efforts” case, Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214 (N.Y. 1917), which held that even if a writing contains no express obligation to promise the sales of a product, where the agreement is “instinct with an obligation,” a good-faith promise to use reasonable efforts to promote the product is properly implied. “The promise to perform such an undertaking is neither illusory nor indefinite.” Illinois Controls, 639 N.E.2d at 778. Thus, in the instant matter, although the letter agreement did not explicitly impose “an obligation on Source to make any efforts to actually market or sell Valero [Energy’s] products,” Source Assoc., 2007 WL 1235997, at , Ohio case law provides the standard: “best efforts” or “reasonable efforts.” Similarly, although the letter agreement does not expressly impose an obligation on Valero Energy to make any products available to Source for sale to Crystal, the “best efforts” standard applies. Therefore, the promise is not illusory: Source promised to use its best efforts to market and sell the products to Crystal, and Valero Energy promised to use its best efforts to make the product available exclusively to Source for sale to Crystal. Further, as in Wood and Illinois Controls, the fact that the agreement is an exclusive grant is significant: Valero Energy could never achieve success in the Crystal market unless it sold its goods to Source and Source, in turn, used reasonable efforts to sell them to Crystal. “Without an implied promise, the transaction cannot have such business efficacy as both parties must have intended that . . . it should have.” Wood, 118 N.E. at 214-15. We conclude that the cases relied upon by the district court, Stinger Indus. v. HillRom Co., 23 F. App’x 472 (2001) (per curiam) and Big Cola Corp. v. World Bottling Co., 134 F.2d -7- No. 07-3785 Source Assoc. Inc. v. Valero Energy Corp. 718 (6th Cir. 1943), are inapplicable as neither interprets Ohio law. We conclude that legally sufficient consideration exists in the letter agreement and that Valero Energy is not clearly entitled to judgment with respect to Source’s breach of contract claim at this stage in the proceedings. In addition, because the district court dismissed the remaining claims (for specific performance and breach of the implied covenant of good faith and fair dealing) on the basis that they could not exist in the absence of an enforceable contract, we reverse and remand the district court’s judgment in its entirety.