FAILURE TO PUBLISH PROVISIONS IN BOOK CONTRACTS
IVAN HOFFMAN, B.A., J.D.
Book publishing contracts often contain provisions giving the publisher the right to elect not to publish a book. Contracts should cover the specifics in terms of how and under what circumstances such right can be exercised and what rights and remedies are available to the author in that event. The failure to thoroughly address these issues in the agreement can lead to disputes and, in the worst case scenario, expensive litigation.
A recent case coming out of the Ninth Circuit brings these issues into sharp focus. In Chodos vs. West Publishing Company, Inc., this was the situation: the plaintiff entered into what the Court describes as “a standard industry agreement” for the publication of a book dealing with the law of fiduciary duty. Read “Standard Contracts.”
The terms of that agreement apparently provided that the publisher could elect not to publish the manuscript if it found the manuscript “unacceptable” in form and content or that the author failed to cure a failure of performance. There was no advance paid to the author and the author was to receive a royalty based on 15% of the gross revenues from sales of the work. Read “Royalty Calculations in Book Contracts” for issues related to royalties.
The author worked for several years writing the manuscript, during which time the publisher was sold and new management made a decision that the work no longer had the marketing potential as originally believed and notified the author that it was not going to publish the work for those reasons. There was no claim made that the manuscript was unacceptable as to form or content nor that the author failed to cure. The litigation followed.
The Contract Interpretation
The plaintiff sought relief on 2 alternative theories. The first theory was that the agreement was “illusory” in that it gave the publisher an unlimited right to terminate and thus was not supported by “consideration” and thus was unenforceable. The second theory was that the contract was valid but that the publisher breached the agreement.
The Court analyzed the legal concept of “good faith and fair dealing.” This is a legal notion, accepted in many states, that all contracts are to be read and interpreted as including the implied idea that the parties will act in good faith and with fair dealing toward each other. What this implication means is that when interpreting a contract, the “limitations” imposed on a party to act in good faith and with fair dealing can overcome any “unrestricted” right to terminate or do other contractual acts in an arbitrary manner. In other words, even without expressly stating the principle, if a party has to act in good faith and with fair dealing, then by being required to do so, it creates a “consideration” that will support the contract and that the contract is not “illusory.” Without such an implied obligation, then a party may be deemed to have the unrestricted right to act in an agreement, in this case to terminate and such unilateral and unrestricted right makes the contract “illusory” and thus unenforceable.
The Court held that because of this implied covenant of good faith and fair dealing, that the agreement was not illusory in that the publisher was obligated to make its determination not to publish on the basis of the said covenant. The publisher could not act arbitrarily.
The Court then found that the contract was valid but that the publisher breached the same because its decision to terminate was not based on the express and limited bases for exercising that right as stated in the agreement (“unacceptable as to form and content” or “failure to cure”) but on the basis of marketing reasons. .
The publisher argued that such a right to terminate for marketing reasons was implied within the indicated provisions and that as long as the publisher acted in good faith in making that determination, the publisher could terminate for those reasons. However, the Court held that the express and limited reasons for electing not to publish, i.e. that the manuscript was “unacceptable” in form and content or failure to cure, limited the publisher’s rights and that these express provisions did not allow for the broader argument advanced by the publisher.
Having determined that the publisher was in breach, given that the contract was silent about what amount, if anything at all, the author could recover from such breach and given that there were no sales upon which to base the royalties to the author, how much could the author recover? When a particular provision calls for the performance of one party, if that party does not perform the contract should also provide for “what happens now?”
Since the Court decided that no measure of damages could be determined within the 4 corners of the agreement (royalties were far too speculative in this instance and as such did not constitute a “liquidated debt”), the Court ruled that the author could recover an amount dependent upon the value of the time and effort the author put into writing the book. The Court remanded the case to the trial court to determine how that amount was to be calculated.
In deal making, it is in all parties’ interests to thoroughly negotiate and draft agreements reflective of the complexity of the relationship.
© 2002 Ivan Hoffman. All Rights Reserved.