The opinion of the court was delivered by: POLLACK
This is an action to recover sums paid to the defendant as advances under a contract for the publication of up to four books to be written by defendant. Defendant has counter-claimed, alleging a breach of the contract in bad faith. The case was tried to the Bench on November 27 and 28, 1978.
Jurisdiction of this action is based on the diversity of citizenship of the parties. 28 U.S.C. § 1332. The plaintiff, Random House, Inc., is a New York corporation, and the defendant, Herbert Gold, is a citizen and resident of California.
In 1970, Random House and Gold entered into an agreement dated September 17, 1970, which called for the publication of four literary works to be written by Gold with an option to cancel the fourth book. The contract was drawn on a printed form customarily used for arrangements pertaining to a single book. The form was adapted by Random House to cover the proposed books involved herein.
Prior to the execution of the 1970 agreement, Random House had published several other works by Gold, including two books published pursuant to a 1965 contract. The latter two books were quite successful, and Gold received advances and royalties from them in excess of $ 100,000.
The 1970 agreement provided for the payment of advances of $ 150,000, payable to Gold in ten equal annual installments. The advances were against and on account of all moneys accruing to Gold under the agreement. The contract required Gold to submit manuscripts for the works "in content and form satisfactory to the publisher" and in accordance with a delivery schedule set forth therein.
The 1970 contract also provided that Gold had the right to terminate the agreement with respect to a fourth work if he had earned $ 150,000 or more from the publication of works # 1, 2 and 3. Gold also gave Random House an option to publish any other books he wrote during the term of the contract as well as the first book thereafter.
Gold wrote and delivered the first two works and Random House accepted and published them. In January 1973, Random House paid Gold the fourth installment of the agreed advances, making a total of $ 60,000 thereon to that date. As of December 1973, Gold's royalties on the two published works totaled $ 9,304.71.
On July 30, 1973, James Brown, Gold's literary agent, delivered the manuscript of the third work, a novel entitled Swiftie the Magician. James Silberman, the editor-in-chief at Random House, read the manuscript and also asked another fiction editor, Joe Fox, to read it. Silberman also asked his staff to check on the financial results of the Gold contract. His secretary reported to him that Random House had paid a total of $ 60,000 and that the two published books had earned a total of $ 11,579.35, as of March 31, 1973.
Fox reported to Silberman on August 23, 1973. He admitted he was not a fan of Gold's work, and criticized the manuscript as shallow and badly designed. In considering whether Random House should agree to publish the book, Fox asked whether Random House was behind financially on the contract with Gold.
On September 11, 1973, Silberman sent some of Fox's comments to Gold, with a covering letter stating that he was "uneasy" about the manuscript. Gold went to work on a revision of the manuscript.
On December 20, 1973, just ten days before another installment of the agreed advances would have fallen due and after being assured by Random House's attorneys that in their opinion Gold would have to repay about $ 50,000 if the contract were terminated, Silberman wrote to Brown, stating that the manuscript was unsatisfactory in form and content and that Random House was terminating the agreement pursuant to Paragraph 2 thereof. Silberman testified that he decided to reject the book after reading a second, revised manuscript. He did not give the second manuscript to Fox or to anyone else to read. He could not remember exactly why he thought that the work was not a good book, and he did not keep a written memorandum of his criticisms, but said that they were the same as those in the Fox memo. Silberman admitted that he was conscious of the financial circumstances of the Gold contract at the time he decided to reject the book.
On January 2, 1974, Silberman and Brown spoke over the telephone about the third work by Gold. Silberman offered to renegotiate the terms of the Gold contract, and told Brown that the manuscript for the third work would be acceptable to Random House on different terms.
After the rejection by Random House, Brown offered the Gold manuscript for Swiftie the Magician to McGraw-Hill, which accepted the work for publication ...