Wyler Summit Partnership v. Turner Broadcasting System, Inc.
98 Cal. Daily Op. Serv. 823, 135 F.3d 658, 98 Daily Journal DAR 1102 (1998)
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Rule of Law:
Under California law, a party to a contract may unilaterally waive a provision if that provision was included in the contract solely for that party's benefit. The determination of whether a provision was for one party's sole benefit is a question of fact based on the parties' intent at the time of contracting.
Facts:
- In 1958, director William Wyler entered into a contract with MGM to direct the film 'Ben Hur'.
- The contract provided Wyler with a percentage of the film's gross receipts as part of his compensation.
- At Wyler's request to manage his income tax liability, the contract included an 'installment payment provision' capping these percentage payments at $50,000 per year.
- The film became extraordinarily successful, leading to millions of dollars in percentage compensation being earned but deferred due to the annual payment cap.
- As of the lawsuit, MGM's successor, Turner, held approximately $1.5 million in deferred compensation for Wyler's successor, the Wyler Summit Partnership.
- Wyler Summit notified Turner that it wished to waive the installment payment provision and receive the accumulated compensation in a lump sum.
- Turner refused to honor the waiver and continued to limit payments to $50,000 per year.
Procedural Posture:
- Wyler Summit Partnership sued Turner Broadcasting System, Inc. in the U.S. District Court for the Northern District of California for breach of contract and other claims.
- Turner filed a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).
- The district court (trial court) granted Turner's motion and dismissed all of Wyler Summit's claims.
- Wyler Summit, as appellant, appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit, with Turner as the appellee.
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Issue:
Does a party state a valid claim for breach of contract by alleging that the other party refused to honor a unilateral waiver of a contractual payment provision, where the waiving party claims the provision was included in the contract solely for its own benefit?
Opinions:
Majority - Stagg, Senior District Judge
Yes. A party states a valid claim for breach of contract when it alleges the other party refused to honor a waiver of a contract provision that was inserted solely for the waiving party's benefit. Under California's long-standing waiver doctrine, a party is free to waive a condition placed in a contract solely for its benefit. The district court erred by dismissing the claim because the question of whether the installment payment provision was originally included in the 1958 contract solely for Wyler's benefit is a question of fact that cannot be resolved on a motion to dismiss. The court must accept as true the plaintiff's allegation that the provision was for Wyler's sole benefit; the fact that Turner now incidentally benefits by retaining the funds is not determinative of the parties' original intent.
Dissenting - Tashima, Circuit Judge
No. Wyler Summit failed to state a claim because the installment payment provision, as a matter of law, is not solely for its benefit and therefore cannot be unilaterally waived. The dissent argues that the interpretation of an unambiguous contract is a question of law, and it is objectively clear from the contract's text that a provision limiting payments benefits the debtor (Turner) by allowing it to retain and use the funds. Furthermore, the majority misapplies the waiver doctrine, which should not be used to materially alter a core term of the agreed-upon exchange, such as the payment schedule. Waiver is a defensive 'shield,' not an offensive 'sword' to impose new, more burdensome duties on the non-waiving party.
Analysis:
This decision reinforces that the applicability of the 'sole benefit' waiver doctrine is a fact-intensive inquiry focused on the parties' original intent at the time of contracting, not the present-day effects of the provision. By characterizing the issue as a question of fact, the court prevents defendants from securing early dismissals simply by pointing to an incidental or after-the-fact benefit. The ruling empowers plaintiffs who can plausibly allege that a now-burdensome provision was originally intended for their benefit alone, forcing the dispute to be resolved with extrinsic evidence at a later stage of litigation. This highlights the tension between interpreting a contract based on its plain text versus its historical context and purpose.
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