Contemporary Mission, Inc. v. Famous Music Corp.

Court of Appeals for the Second Circuit
557 F.2d 918 (1977)

ELI5:

Rule of Law:

A party that delegates its contractual duties to a third party remains liable for non-performance by the delegate. When the existence of damages from a breach is certain, a plaintiff may introduce relevant statistical evidence to provide a stable foundation for a reasonable estimate of the amount of those damages, even if the creative work in question has no established history of earnings.

Facts:

Contemporary Mission, Inc. ('Contemporary'), a nonprofit corporation of Roman Catholic priests, created a rock opera titled VIRGIN.
On August 16, 1972, Contemporary entered into the 'VIRGIN Recording Agreement' with Famous Music Corporation ('Famous'), granting Famous exclusive rights to manufacture and sell records from the master tape.
The VIRGIN agreement obligated Famous to spend at least $50,000 on promotion within one year and contained a clause stating it was not assignable unless the assignee executed an agreement to be bound by its terms.
On May 8, 1973, the parties entered a second 'Crunch agreement,' granting Famous exclusive rights to distribute Contemporary's other musical compositions under a new 'Crunch' record label, for which Famous was to use its 'reasonable efforts' to promote.
The Crunch agreement contained a provision requiring the non-breaching party to give 30 days' written notice of any material breach to allow the defaulting party an opportunity to cure it.
On July 31, 1974, Famous sold its entire record division to ABC Records, Inc. ('ABC'), assigning both the VIRGIN and Crunch contracts as part of the sale.
After the sale, Famous' president told Contemporary's representative, Father O'Reilly, that he would have to look to ABC for performance of the contracts.
Shortly thereafter, a lawyer for ABC informed O'Reilly that ABC was not going to have any relationship with Contemporary.

Procedural Posture:

Contemporary Mission, Inc. sued Famous Music Corporation in the United States District Court for the Southern District of New York for breach of contract.
The case was tried before a jury, which found Famous liable for breaching both the VIRGIN and Crunch agreements.
The jury awarded Contemporary $68,773 in damages for the VIRGIN agreement and $104,751 for the Crunch agreement.
During the damages phase of the trial, the presiding judge excluded statistical evidence proffered by Contemporary to prove prospective lost royalties.
Famous Music Corporation appealed the judgment against it to the United States Court of Appeals for the Second Circuit.
Contemporary Mission, Inc. cross-appealed the trial judge's evidentiary ruling excluding its proof of prospective damages.

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Issue:

Under New York law, may a plaintiff seeking damages for lost profits on a new creative work with an unproven track record introduce statistical evidence of the performance of similar works to establish the probable amount of damages?

Opinions:

Majority - Meskill, J.

Yes. When the existence of damage is certain and only the amount is uncertain, a plaintiff may introduce relevant statistical evidence to show the probable amount of lost royalties, as long as it provides a 'stable foundation for a reasonable estimate.' The assignment of duties under the Crunch agreement did not discharge Famous's liability; when its delegate, ABC, failed to perform, Famous remained liable for the breach. The court reasoned that Famous's sale of its record division to ABC constituted a delegation of duties, not a novation. A fundamental principle of contract law is that a delegating party (delegant) is not relieved of its obligation and remains liable if the party to whom the duty was delegated (delegate) fails to perform. Therefore, Famous was liable for ABC's refusal to promote the Crunch records. Regarding the cross-appeal on damages for the VIRGIN agreement, the court held that the trial judge erred in excluding Contemporary's statistical evidence. Under New York law, once the existence of damage is established with certainty—as it was here, since the failure to promote and withdrawal of records certainly caused some lost sales—the plaintiff is not barred from recovery just because the amount is difficult to calculate. The proffered statistical analysis of songs that reached a similar chart position tended to show the probable success of Contemporary's record and was therefore relevant. Its flaws went to its weight, not its admissibility, and it should have been admitted subject to a Rule 403 balancing test.

Concurring-in-part-and-dissenting-in-part - Van Graafeiland, J.

The opinion concurs with the majority's holding on the VIRGIN agreement but dissents on the Crunch agreement and the evidentiary ruling. The dissent argues that the court should not have ignored the Crunch agreement's specific notice-of-breach clause. Contemporary's written notice was legally insufficient because it cited the wrong contractual provision and failed to specify the actual breach (ABC's non-performance), thus depriving Famous of its bargained-for right to cure. The verdict on the Crunch agreement should be reversed. Furthermore, the trial judge did not abuse his discretion in excluding the statistical evidence. The proffered data was misleading because it omitted crucial variables like artist reputation and record company resources, and its admission would have confused the jury rather than enlightening it. There was no error in the evidentiary ruling, and therefore no need for a remand.

Analysis:

This case is significant for clarifying two key contract principles, especially within the entertainment industry. First, it strongly reaffirms the bedrock rule that delegation of duties is not a 'get out of jail free' card; the original obligor remains ultimately responsible for performance. Second, and more importantly, it liberalizes the standard for proving prospective damages for new artistic ventures. By allowing statistical projections as a 'stable foundation' for estimating lost profits, the court created a path for creators of new works to recover damages that were previously considered too speculative, shifting the burden of uncertainty caused by a breach onto the breaching party.

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