MindGames, Inc. v. Western Publishing Co.

United States Court of Appeals for the Seventh Circuit · 2000 · Contracts

Contractsbreach of contractlost profitslost royaltiesreasonable certaintyspeculative damagesnew business rulecondition precedent

Facts

MindGames licensed its adult board game, "Clever Endeavor," to Western under a contract requiring Western to pay a 15 percent royalty on games sold. The contract lasted through January 31, 1993, and gave Western a contractual right to renew if it paid at least $1.5 million in royalties or otherwise before then, with later renewals requiring a $300,000 annual fee. Western paid only $600,000 during the first year, sales later declined sharply, yet the parties continued dealing through January 31, 1994 without Western making the payment required to exercise the contractual renewal option. MindGames sued for the unpaid renewal-related amounts and about $40 million in lost royalties, alleging Western failed to perform promotional obligations under the contract.

Issue

Whether MindGames was entitled to recover renewal fees when Western continued the relationship without satisfying the contract's renewal-payment condition, and whether MindGames could recover claimed lost royalties for Western's alleged failure to promote the game. Also, in resolving the damages question under Arkansas law, whether a categorical "new business" rule barred recovery or whether the claim failed because the proof of lost royalties was too speculative.

Rule

A contractual right conditioned on the occurrence of a specified event is not enforceable unless the condition occurs, unless noncompliance is excused by agreement or operation of law. In federal court applying state law, the court must predict how the state's highest court would decide the issue and need not follow an old state precedent if the best prediction is that the state court would not. Under Arkansas law as predicted by the Seventh Circuit here, lost profits or royalties are not barred simply because the claimant or venture is "new"; instead, such damages are recoverable only if proved with reasonable certainty and not based on excessive speculation.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Denver, Armitage Audio licensed a catalog of meditation tracks to Silver Peak Media for two years. The contract gave Silver Peak the option to renew for one additional year only if, before the initial term expired, it paid Armitage $400,000 in minimum royalties, but after the deadline passed the parties informally kept working together for four months without that payment.

If Armitage sues for the $400,000 renewal payment, what is the most likely result?

Explanation. Under the majority's rule, a contractual right that is conditional does not become enforceable unless the condition occurs, unless excuse applies. Here, the renewal fee was tied to the licensee's exercise of a contractual option to renew, and the specified payment never occurred. Mere continuation of the relationship after expiration suggests the parties were operating under a new arrangement, not that the original conditional renewal right was exercised. (Derived from MindGames, Inc. v. Western Publishing Co. (2000).)