April Enterprises, Inc. v. KTTV

• Court: California Court of Appeals
• Writing for the Court: JOHNSON; SCHAUER, P.J., and THOMPSON
• Citation: 195 Cal.Rptr. 421,147 Cal.App.3d 805
• Decision Date: 05 October 1983
• Parties: APRIL ENTERPRISES, INC., Plaintiff and Appellant, v. KTTV and Metromedia, Inc., Defendants and Respondents. Civ. 66885.

Page 421

195 Cal.Rptr. 421 147 Cal.App.3d 805 APRIL ENTERPRISES, INC., Plaintiff and Appellant,
v.
KTTV and Metromedia, Inc., Defendants and Respondents. Civ. 66885. Court of Appeal, Second District, Division 7, California. Oct. 5, 1983.
As Modified on Denial of Rehearing Nov. 2, 1983.
Hearing Denied Dec. 22, 1983.

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[147 Cal.App.3d 813] Hurley & Grassini and Ronald Wrinkle, North Hollywood, for plaintiff and appellant.

Gibson, Dunn & Crutcher and Dean Stern, Los Angeles, for defendants and respondents.

JOHNSON, Associate Justice.

The plaintiff, April Enterprises, ("April") appeals from a judgment dismissing its complaint without leave to amend. Three issues are presented on appeal: first, whether plaintiff has pleaded a cause of action for breach of the implied covenant of fair dealing in a contract; next, whether plaintiff has pleaded a cause of action for breach of fiduciary duty of a joint venturer; and, finally, whether either cause of action is barred by applicable statutes of limitations. We hold, first, appellant's complaint sufficiently alleges both causes of action; and, secondly, the statute of limitations was tolled on both causes of action until appellant reasonably could have discovered the injury at issue.

FACTUAL AND PROCEDURAL BACKGROUND ¹

In 1965 appellant entered into a written contract with respondents, KTTV and Metromedia,

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Inc., ("Metromedia/KTTV") for production of the "Winchell-Mahoney Time" television show (hereinafter referred to as "the show.") The contract set forth the rights of the parties with respect to the show's production and syndication. Under section 4 of the agreement respondents [147 Cal.App.3d 814] owned all of the video tapes of the show. Section 17, dealing with future syndication, provided that both parties had the right to initiate syndication of the show with third parties and that each party was to receive 50% of the net profits from any resulting syndication. Subsection C of section 17 provided respondents could erase the video tape of each show six months after its original broadcast.

In 1968 respondents sent appellant a new contract which, if accepted, would implement the syndication clause of the 1965 contract by conferring upon respondents the exclusive right to initiate syndication for a limited period of time. Appellant signed the contract and returned it to respondents.

The new 1968 contract altered the rights of the parties in several respects. With respect to respondents, they no longer had the right to erase the video tapes of the show. They had the exclusive right to initiate syndication but that exclusivity was limited to the time in which the contract remained in effect. It follows that under the new agreement appellant could not initiate syndication at all. ² Also, appellant's compensation was changed: the 1968 contract provided that appellant would be paid 20% of the syndication revenue, rather than the 50% compensation appellant was to receive under the earlier agreement.

The 1968 contract provided for automatic termination in five years, or earlier if the shows were not broadcast for a certain period of time.

April alleges that some time in 1969 it attempted to negotiate syndication agreements with various third parties and in that connection offered to purchase the video tapes of the show from respondents. We assume these negotiations were entered even though April had no right to initiate syndication while the 1968 contract remained in effect.

Between November of 1969 and March of 1970, presumably in response to April's efforts to purchase the tapes, respondents wrote two letters to appellant offering to buy the exclusive rights to broadcast and license the show for another two years on terms different from those in the 1968 contract. In the second of the two letters, dated March 31, 1970, respondents also warned appellant the video tapes would be erased unless appellant accepted respondents' new terms. There is no record of any response by appellant to these letters.

Appellant alleges that in 1976 it discovered the video tapes had actually been erased at some unknown date. Shortly after this discovery, appellant [147 Cal.App.3d 815] filed suit. The first amended complaint set forth three causes of action: breach of contract; breach of fiduciary duty of a joint venturer; and intentional interference with prospective advantage. Appellant is no longer pursuing the third cause of action.

Respondents demurred on two grounds: (1) the complaint failed to state a cause of action for breach of fiduciary duty or for breach of contract; and (2) both causes of action were barred by the statute of limitations. The demurrer was overruled.

At trial respondents moved for a judgment on the pleadings on basically the same grounds as the demurrer. This motion initially was denied. After rejecting appellant's proposed second amended complaint, however, the court reversed itself and granted the motion as well as respondents' motion for a judgment of nonsuit after appellant's opening statement.

DISCUSSION

We consider first the standard of appellate review applicable where motions for judgment on the pleadings and judgment of nonsuit on the opening statement

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have been granted. It is well settled that review of a judgment on the pleadings is confined to the face of the pleading under attack and all facts alleged in the pleading must be accepted as true. (Sullivan v. County of Los Angeles (1974) 12 Cal.3d 710, 714 fn. 3, 117 Cal.Rptr. 241, 527 P.2d 865; Baillargeon v. Department of Water and Power (1977) 69 Cal.App.3d 670, 675-676, 138 Cal.Rptr. 338.) Similarly, review of a judgment of nonsuit on the opening statement accepts as proved all of the facts alleged in the opening statement and "must indulge in all favorable inferences reasonably arising from those facts." (Smith v. Roach (1975) 53 Cal.App.3d 893, 897, 126 Cal.Rptr. 29 citing Cole v. State of California (1970) 11 Cal.App.3d 671, 674, 90 Cal.Rptr. 74; Timmsen v. Forest E. Olson, Inc. (1970) 6 Cal.App.3d 860, 867-868, 86 Cal.Rptr. 359.)

In its First Amended Complaint appellant alleges breach of the 1965 contract only. In counsel's opening statement, however, reference is made to both the 1965 and the 1968 agreements. ³ Thus, for purposes of reviewing the order granting judgment on the pleadings we consider only the earlier agreement and accept all matters pleaded as true. (Sullivan v. County of Los Angeles, supra, 12 Cal.3d 710, 714 fn. 3, 117 Cal.Rptr. 241, 527 P.2d 865.) For purposes of reviewing the judgment of nonsuit, however, we consider both agreements, accept as true all facts stated in counsel's opening statement, and draw all reasonable inferences[147 Cal.App.3d 816] in favor of appellant. (Smith v. Roach, supra, 53 Cal.App.3d 893, 897-898, 126 Cal.Rptr. 29.)

I. APPELLANT HAS STATED A CAUSE OF ACTION FOR BREACH OF IMPLIED COVENANT OF FAIR DEALING.

A. Judgment on the Pleadings.

Appellant contends respondents' erasure of the tapes constituted a breach of the implied covenant of fair dealing in a contract. By erasing the tapes, according to appellant, respondents interfered with appellant's right under the terms of the 1965 contract to profit from future syndication of the show. Respondents counter by pointing out the 1965 agreement contained an express clause giving them the right to erase the tapes. Accordingly, the general rule should apply that where an unambiguous contract contains an express covenant a court may not imply a covenant which would override it. (Witt v. Union Oil Co. of Calif. (1979) 99 Cal.App.3d 435, 441, 160 Cal.Rptr. 285.)

The traditional rule, as respondents suggest, is to the effect a covenant of fair dealing will not be implied to vary the terms of an unambiguous contract. In the case of a contradictory and ambiguous contract, however, the implied covenant may be applied to aid in construction. (Milstien v. Security Pac. Nat. Bank (1972) 27 Cal.App.3d 482, 487, 103 Cal.Rptr. 16.)

Moreover, it is implied in law that a party to a contract will not do anything which would deprive the other party of the benefits of the contract. "This implied covenant not only imposes upon each contracting party the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own, but also the duty to do everything that the contract presupposes that he will do to accomplish its purpose." (Harm v. Frasher (1960) 181 Cal.App.2d 405, 417, 5 Cal.Rptr. 367; Vale v. Union Bank (1979) 88 Cal.App.3d 330, 336, 151 Cal.Rptr. 784; 1 Witkin, Summary § 576, p. 493.)

Here, we find the terms of the 1965 contract to be inherently contradictory. Uncertainty arises when subsection (C) of the syndication clause is read together with the preceding subsections. Taken literally, the contract would allow respondents to erase a video tape either at the same time appellant was negotiating a syndication agreement, or after such an agreement had been reached. Obviously it would be senseless for appellant to negotiate syndication if

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it could not be assured availability of the tapes.

[147 Cal.App.3d 817] These conflicting terms of the 1965 contract can be reconciled by construing the erasure clause to be limited by the implied covenant of fair dealing. As so qualified respondents' right to erase the tapes would be limited to the situation where future syndication was not feasible. This limitation insures that appellant is not deprived of the rights to future syndication, bargained for under the contract.

Although at trial extrinsic evidence may explain the apparent contradictions between these terms in some way which favors an absolute unqualified right to erase the tapes, at this stage of the proceedings our review is limited to the complaint and the language of the contract. Accordingly, we hold appellant has stated a cause of action for breach of implied covenant of fair dealing based on the 1965...