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Keywords

contractlawsuitdamagessustainedgood faith
contractplaintiffsustainedgood faithappellant

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Third Story Music, Inc. v. Waits, 41 Cal.App.4th 798, 48 Cal.Rptr.2d 747, 96 Cal. Daily Op. Serv. 107, 96 Daily Journal D.A.R. 125

Facts

The music company, Third Story Music, Inc. (TSM), owned the rights to Tom Waits' music from 1972 to 1983 and had agreements with Warner Communications, Inc. to produce and market Waits' recordings. TSM alleged that Warner created an impediment to licensing arrangements by requiring Waits' personal approval for licensing, which Waits refused. TSM claimed this constituted a breach of the implied covenant of good faith and fair dealing, leading to their lawsuit for contract damages.

According to the complaint, Waits agreed to render his services as a recording artist and songwriter exclusively to Third Story Productions (predecessor-in-interest to plaintiff and appellant Third Story Music, Inc.) from 1972 to 1983, pursuant to written agreements dated July 1, 1972 and July 1, 1977.

Issue

Whether a promise to market music, or to refrain from doing so, at the election of the promisor is subject to the implied covenant of good faith and fair dealing where substantial consideration has been paid by the promisor.

The issue is whether a promise to market music, or to refrain from doing so, at the election of the promisor is subject to the implied covenant of good faith and fair dealing where substantial consideration has been paid by the promisor.

Rule

The implied covenant of good faith and fair dealing does not apply when a contract expressly grants one party discretion over performance, provided that the contract is supported by adequate consideration.

The implied covenant of good faith and fair dealing does not apply when a contract expressly grants one party discretion over performance, provided that the contract is supported by adequate consideration.

Analysis

The court analyzed the contractual language that allowed Warner to refrain from marketing the music at its discretion. It concluded that since substantial consideration had been paid by Warner for the rights to Waits' music, the discretion granted to Warner was not subject to the implied covenant of good faith and fair dealing. The court emphasized that the parties intended to enter into an enforceable contract, and the discretion exercised by Warner did not violate any implied duty.

The court analyzed the contractual language that allowed Warner to refrain from marketing the music at its discretion. It concluded that since substantial consideration had been paid by Warner for the rights to Waits' music, the discretion granted to Warner was not subject to the implied covenant of good faith and fair dealing.

Conclusion

The court affirmed the lower court's decision, concluding that no implied covenant of good faith existed in this case, and thus, the demurrer to TSM's complaint was properly sustained.

The court affirmed the lower court's decision, concluding that no implied covenant of good faith existed in this case, and thus, the demurrer to TSM's complaint was properly sustained.

Who won?

Warner Communications, Inc. prevailed in the case because the court found that the discretion granted to them in the contract was not subject to the implied covenant of good faith and fair dealing.

Warner Communications, Inc. prevailed in the case because the court found that the discretion granted to them in the contract was not subject to the implied covenant of good faith and fair dealing.

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