Random House, Inc. v. Gold
464 F.Supp. 1306, 1979 U.S. Dist. LEXIS 14424 (1979)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A publisher's rejection of a manuscript under a 'satisfactory to the publisher' clause is valid if made in good faith, which may include considering commercial viability; however, multi-book contracts with installment advances are often divisible, meaning advances for accepted and published works are not repayable upon partial termination for an unsatisfactory manuscript, and future advances attributable to the published works may remain due.
Facts:
- In 1970, Random House and Herbert Gold entered into an agreement for the publication of up to four literary works, providing for $150,000 in advances payable to Gold in ten equal annual installments.
- The contract required Gold to submit manuscripts "in content and form satisfactory to the publisher" and included provisions for Gold to repay unearned advances for "undelivered works."
- Gold wrote and delivered the first two works, which Random House accepted and published.
- By January 1973, Random House had paid Gold $60,000 in advances, but Gold's royalties on the two published works totaled only $9,304.71.
- On July 30, 1973, Gold's literary agent delivered the manuscript for the third work, a novel titled Swiftie the Magician, to Random House.
- Random House's editor-in-chief, James Silberman, reviewed the manuscript, received a critical report from another editor, Joe Fox, and was informed of the financial deficit of Gold's contract.
- On December 20, 1973, just ten days before another advance installment was due, Silberman informed Gold's agent that the third manuscript was unsatisfactory and Random House was terminating the agreement for the third and fourth works.
- Silberman admitted that he was conscious of the financial circumstances of the Gold contract at the time he decided to reject the book, and later offered to accept the manuscript on different terms.
- After Random House's rejection, Gold's agent offered Swiftie the Magician to McGraw-Hill, which accepted it for publication and paid Gold a $10,000 advance.
Procedural Posture:
- Random House, Inc. sued Herbert Gold in the U.S. District Court for the Southern District of New York to recover sums paid as advances under a contract for the publication of books.
- Herbert Gold counter-claimed, alleging a breach of the contract in bad faith by Random House.
- The case was tried to the Bench (a judge without a jury) on November 27 and 28, 1978.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a publisher act in bad faith by rejecting a manuscript based partly on financial considerations, and, in a multi-book contract, can the publisher recover all prior advances and cease all future advance payments upon such a rejection?
Opinions:
Majority - Pollack, District Judge
No, a publisher does not act in bad faith by considering financial prospects when rejecting a manuscript, but it cannot recover advances for delivered and accepted works, nor can it stop all future payments related to those works, when a multi-book contract is partially terminated for an undelivered manuscript. The Court found that Random House acted in good faith when it rejected the Swiftie the Magician manuscript. The contract provision requiring the manuscript to be "satisfactory to the publisher" allows the publisher to reject a work if it acts honestly, and considering the financial circumstances and commercial success of a book is a permissible factor in a good-faith decision. Gold failed to establish that Random House's dissatisfaction was disingenuous or based on improper motives, especially given the lack of specific contractual language precluding financial considerations. However, the Court determined that the 1970 agreement, despite being on a single-book form, effectively created four separable arrangements. Interpreting paragraphs 2 and 9, the Court found that Gold's promise to repay advances applied only to "undelivered works." Therefore, advances attributable to the first two delivered and published works were not repayable. Likewise, Random House's right to suspend advance payments upon partial termination was limited to the "undelivered works"; it remained liable for the portion of future advances attributable to the delivered and published books. Random House was entitled to recover $30,000 (advances for the 3rd and 4th works), while Gold was entitled to recover $45,000 (unpaid advances for the 1st and 2nd works), resulting in a net recovery of $15,000 for Gold.
Analysis:
This case is significant for clarifying the scope of "satisfaction clauses" in publishing contracts, particularly by affirming that a publisher's good faith rejection can legitimately incorporate financial and commercial considerations. It also provides crucial guidance on the divisibility of multi-book contracts with advance payment structures. By interpreting the contract as several distinct agreements for each book rather than an indivisible whole, the court established a precedent that protects authors from forfeiting all prior advances upon the rejection of a later manuscript, and ensures publishers cannot unilaterally cease all future payments for previously accepted works. This ruling helps balance the risks between authors and publishers, promoting fairness in contractual interpretations within the industry.
