Contemporary Mission, Inc. v. Famous Music Corporation

557 F.2d 918 (2nd Cir. 1977)

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Nature of the Case

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Facts

P is a nonprofit charitable corporation. It is composed of a small group of Roman Catholic priests who write, produce and publish musical compositions and recordings. P owned all of the rights to a rock opera entitled VIRGIN. D is a Delaware corporation and is a wholly-owned subsidiary of the Gulf + Western Corporation, and was engaged in the business of producing musical recordings for distribution throughout the United States. D's president, Tony Martell, is generally regarded in the recording industry as the individual primarily responsible for the successful distribution of the well-known rock operas TOMMY and JESUS CHRIST SUPER*. Martell thought he had found, in VIRGIN, another TOMMY or JESUS CHRIST SUPER*. P and D executed the so-called 'VIRGIN Recording Agreement' (VIRGIN). D agreed to pay a royalty to P in return for the master tape recording of VIRGIN and the exclusive right to manufacture and sell records made from the master. D had an obligation to select and appoint, within the first year of the agreement, at least one person to personally oversee the nationwide promotion of the sale of records, to maintain contact with P and to submit weekly reports to P; the obligation to spend, within the first year of the agreement, no less than $50,000 on the promotion of records; and the obligation to release, within the first two years of the agreement, at least four separate single records from VIRGIN. The agreement also contained a non-assignability clause which is set out in the margin. The Agreement was not assignable by D, except in the voluntary sale of D's entire business in which the present work is used, or in connection with a merger between D and another business organization, or to a majority-owned subsidiary or division of D engaged in the same business as D, all conditioned upon the execution and delivery to P of an agreement whereby the assignee agrees to be bound by the obligations of this Agreement. P and D entered into a distribution contract which dealt with musical compositions other than VIRGIN. This was called the 'Crunch agreement.' D got the exclusive right to distribute P's records in the United States. D agreed to start a new record label named 'Crunch,' and a number of records were to be released under it annually. P agreed to deliver ten long-playing records and fifteen single records during the first year of the contract. D was to use its 'reasonable efforts' to promote and distribute the records. A breach by either party would not be deemed material unless the non-breaching party first gave written notice to the defaulting party and the defaulting party failed to cure the breach within thirty days. The notice was to specify the nature of the alleged material breach. The contract prohibited assignment by P, but it contained no provision relating to D's right to assign. On July 31, 1974, D was sold to ABC Records, Inc. (ABC). P met with ABC's lawyers and was told that ABC was not going to have any relationship with P. P sent a letter pursuant to paragraph 15 of the Crunch agreement notifying D that it had 'materially breached Paragraph 12 and others. This lawsuit followed. P claimed that D had failed to adequately promote the VIRGIN and Crunch recordings prior to the sale to ABC, D breached both the VIRGIN and Crunch agreements when it sold the record division to ABC, and D breached an oral agreement to reimburse P for its promotional expenses. D appealed a damages award to P.