Issue: When can a
person waive a condition in the contract?
Answer and Rule: A
contracting party may waive conditions placed in a contract soley for that
party’s benefit. “The law will not compel a man to insist upon any benefit or
advantage secured to him individually.”
But: R2K 84(1): Waiver may not operate to
materially alter the parties agreed upon exchange.
Facts: In 1958
William Wyler directed Ben Hur for
MGM. Part of his compensation was a 3% royalty that kicked in after the movie
grossed 20 million. Since the tax rate for income over $100K was 89%, he wanted
a clause saying the royalties would be paid in annual installments of 50K or
less. (However, the contract didn’t give the reason for the annual installments
since that would have Wyler in trouble with the IRS.)
Fortunately for Wyler
(or unfortunately for his heirs) the tax rate went down, the value of money
went down (50K then is worth about 300K today) and Ben Hur did extremely well.
So well in fact that when Wyler died he had 1.5 million dollars sitting in a
bank account and earning interest for MGM (now Turner).
Procedure:
Wyler’s heirs sent a letter to Turner saying that the 50K installment plan was
in fact a condition placed in the
contract solely for Wyler’s benefit. Since the heirs were willing to waive the condition, they figured Turner should send
them the million five. Turner refused.
The Wylers sued
Turner for breach of contract.
Turner filed for
dismissal under Rule 12b6.
On appeal the 9th Circuit, 1998
reversed and remanded
saying that the trial court made a few mistakes:
1) Procedurally
the trial court was supposed to accept the claims in the complaint as true;
therefore they shouldn’t worry about whether the clause benefited Wyler or
Wyler and Turner(MGM).
2) If they were
going to worry about the truth of the claim they should at least have heard
some evidence to determine whether there was a genuine issue of material fact.
Judge Tashima’s Dissent:
1) The Wyler’s
complaint doesn’t actually say “for Wyler’s sole benefit” so why should the
trial court have to assume this is true.
He also thinks that there is no need for evidence in order to determine
what anyone with common sense can see: both parties benefit.
2) R2K § 84 bars the
waiver since Turner’s loss of $90K per year in interest would “materially
alter” the exchange.
3) Usually waiver
happens when a party, who is excused from performance because of the
non-occurrence of a condition, renounces his excuse and performs anyway. But
Wyler’s performance is already complete so how can he waive anything?
So if you were lying awake at night wondering whether the Wyler’s ever got their money. The answer is “No, but they are still in the game.”
Prof. Markell sent me
a new opinion from the 9th
circuit. Apparently on remand the
Wylers presented (depositions of) parole evidence implying the annual payment
plan was not for Turner’s(MGM’s) benefit. Turner’s lawyers presented some
evidence to refute that. They also thought up a bunch of new arguments for why
the trial court should make the case go away.
The trial court agreed with Turner and granted summary judgment.
But on appeal the 9th
circuit reverses and remands again saying that the Wyler’s heirs met the burden
necessary to defeat summary judgment and their case should go to trial.
The most influential
witness is someone who was actually there.
The deposition of Leon Kaplan,
who was part of Wyler’s negotiating team in 1958, states that no one ever
discussed a benefit for Turner (MGM).
The other witnesses say conflicting things about the corporate tax climate in
1958 and entertainment industry practices of forty years ago.
The court thinks Leon
Kaplan’s deposition is good evidence.
And that the credibility of the other witnesses should be decided by a
jury. It sends the case, yet again…back to the trial court. But, it refuses to grant the Wyler’s request
for a new judge.
MGM took a fairly big risk with Ben Hur. It took six years and $15 million (most money ever spent on a movie back then) to make. Since then only one movie, Titanic, has tied Ben Hur’s record of 11 Oscars.
William Wyler started his career in Hollywood in
1927. He did quite a few Westerns then
branched out. Other films include: Mrs.
Miniver, The Little Foxes, Wuthering Heights, and Funny Girl.
Website with more info on Ben Hur: www.greatestfilms.org/benh.html