## Facts

- David Merrick acquired motion picture and television rights to the novel *Blood and Money* and negotiated with CBS to produce a television mini-series.
- On August 1, 1977, CBS and Merrick executed a Rights Agreement and a Production Agreement.
- The Rights Agreement required CBS to pay $1,250,000 for television rights, with part paid at execution and the balance due in installments tied to production milestones; if photography did not commence by August 1, 1979, the agreement would terminate, CBS would pay the remaining balance, and rights would revert to Merrick.
- The Production Agreement required CBS to pay Merrick an additional $250,000 to produce the show, with consultation on the selection of key creative personnel.
- Merrick selected William Friedkin as director and Gerald Green as screenwriter; CBS paid them $750,000.
- Merrick knew Friedkin and Green were not immediately available and did not inform them of the August 1, 1979 photography deadline or arrange additional writing resources to complete a shooting script on time.
- Photography did not begin by August 1, 1979 because the screenplay was unfinished.
- After the deadline, CBS met with Merrick’s agents about budget and scheduling; Merrick then asserted that rights had reverted to him due to the missed deadline.
- CBS sued seeking rescission and monetary recovery; Merrick counterclaimed for breach of contract.

## Issues

1. Whether Merrick materially breached the Rights and Production Agreements by conduct that caused the failure to commence photography by the contractual deadline.
2. Whether rescission based on Merrick’s breach entitled CBS to restitution of amounts paid directly to Merrick and his agent.
3. Whether, after rescission, CBS could also recover reliance damages for payments to the director and screenwriter made in preparation for performance.

## Decision

- The Ninth Circuit affirmed the finding that Merrick materially breached the contracts.
- The court affirmed the award of restitution to CBS for amounts paid to Merrick and his agent.
- The court reversed the denial of CBS’s reliance damages for payments to the director and screenwriter and remanded for entry of judgment including those amounts.
- The court affirmed the denial of relief to Merrick on his counterclaim.

## Legal Principles

- Under California law, a party that rescinds a contract for the other party’s material breach may recover restitution to restore the status quo, including return of amounts conferred on the breaching party.
- Rescission does not bar recovery of reliance damages for reasonable expenditures made in performance or preparation for performance when caused by the breaching party’s wrongful conduct.
- Reliance recovery must avoid double recovery; where the contract is undone and the claimant received no contractual benefit, restitution plus reliance may be awarded to compensate losses caused by the breach.
- Appellate review of the trial court’s factual findings supporting breach is deferential; findings are upheld unless clearly erroneous.

## Conclusion

The Ninth Circuit held that Merrick’s material breach justified rescission and required return of amounts CBS paid to Merrick and his agent, and it further held that California remedies permit additional recovery of CBS’s reasonable reliance expenditures for the director and screenwriter that were incurred because of the contract and rendered wasted by Merrick’s breach.


CBS, Inc. v. Merrick, 716 F.2d 1292 (9th Cir. 1983)