## Facts

- Filmline agreed to produce the motion picture “Cross Country,” with interim financing from Yellowbill and distribution/purchase obligations undertaken by United Artists (UA) under a February 11, 1982 letter agreement, as amended.
- The agreement set a collaborative screenplay-development process: UA could provide comments on drafts, and Filmline would rewrite in accordance with UA’s suggested changes until both were satisfied with the final screenplay used for production.
- UA’s obligation to purchase/distribute was conditioned on the picture being produced in strict conformity with the approved screenplay and storyboard, subject to minor production-necessitated changes.
- UA reviewed screenplay drafts in spring 1982 and requested revisions; Filmline incorporated some, but not all, requested changes.
- On May 11, 1982, UA’s agent reviewed the screenplay that would be used for filming; principal photography began the same day.
- During production, UA personnel remained involved, including presence on set, additional comments, and assurances indicating the production was proceeding acceptably.
- On June 24, 1982—two days before filming was complete—UA sent a notice purporting to terminate/repudiate the agreement, asserting unacceptable variation from an approved screenplay.
- The agreement required that, upon an alleged breach, UA provide notice and a 30-day opportunity to cure; UA’s June 24 notice did not provide a cure period.
- Filmline and Yellowbill obtained another distributor; the picture performed poorly, and they sued UA for breach based on wrongful termination.
- After a bench trial, the district court found UA’s screenplay-variance rationale was pretextual and that UA waived any pre-filming termination right by delay and participation; it awarded $2,189,889 in damages plus $869,900 in prejudgment interest.

## Issues

1. Whether UA’s June 24, 1982 termination was effective under the agreement and New York law given the contract’s notice-and-cure requirement.
2. Whether UA waived any right to reject or terminate on screenplay-variance grounds by continuing to participate in production with knowledge of the alleged deviations.
3. Whether the evidence supported the district court’s finding that UA’s stated reason for termination was pretextual and inconsistent with the duty of good faith and fair dealing.
4. Whether the damages and prejudgment interest awards were permissible and adequately supported under New York contract-damages standards.

## Decision

- The Second Circuit affirmed the judgment for Filmline and Yellowbill.
- UA’s June 24 termination was ineffective because it did not comply with the contract’s 30-day notice-and-cure procedure, and therefore constituted a repudiation/breach.
- UA waived any claimed right to terminate on screenplay grounds by failing to act promptly and by participating in the production until near completion.
- The district court’s finding that UA’s asserted screenplay rationale was a pretext to avoid its financial commitment was not clearly erroneous.
- The damages and prejudgment interest awards were affirmed as consistent with New York law and supported by the trial record.

## Legal Principles

- When a contract requires notice and an opportunity to cure before termination, a party generally must comply with that procedure; an attempted immediate termination without the cure period is ineffective and may constitute breach.
- Under New York law, contractual rights may be waived by conduct inconsistent with an intent to enforce them, including continued performance or active participation despite knowledge of the purported nonconformity.
- A party’s credibility-based factual justifications for termination may be rejected as pretextual; appellate review of such findings is deferential.
- Contract damages under New York law aim to place the nonbreaching party in the position it would have occupied absent breach, subject to proof requirements such as foreseeability and reasonable certainty; prejudgment interest may be awarded on contract damages.

## Conclusion

The court held UA liable for breach because its last-minute repudiation failed to follow the agreement’s cure procedure and because its conduct during production waived objections it later asserted; the damages and prejudgment interest awards were upheld.


Filmline (Cross-Country) Prods., Inc. v. United Artists Corp., 865 F.2d 513 (2d Cir. 1989)