Filed 4/28/17 M.U.S.E. Picture Productions Holding Corp. v. Weibach CA2/3
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
M.U.S.E. PICTURE
PRODUCTIONS HOLDING
CORP. II et al.,
Plaintiffs, Cross-Defendants,
and Respondents,
v.
ROBERT D. WEINBACH et al.,
Defendants, CrossComplainants,
and Appellants.
B261146
(Los Angeles County
Super. Ct. No. SC101722)
APPEAL from a judgment of the Superior Court of
Los Angeles County, Linda K. Lefkowitz, Judge. Affirmed.
James & Stewart LLP, Becky S. James and Jessica W.
Rosen, for Defendants, Cross-Complainants, and Appellants.
Clark L. McCutchen, for Plaintiffs, Cross-Defendants, and
Respondents.
_______________________________________
2
INTRODUCTION
In 1997, defendants and cross-complainants Robert D.
Weinbach and Cyclone Productions Inc. (Cyclone) entered into
a settlement agreement (1997 settlement agreement) with
plaintiffs and cross-defendants M.U.S.E. Picture Productions
Holding Corporation II, Muse Productions, Inc., and Chris
Hanley, the President of Muse Productions, Inc., (collectively,
Muse) to develop a film based on the novel “The Killer Inside Me”
(novel) and a screenplay written by Weinbach. In early 2009,
after failing to produce a film with Weinbach and Cyclone, Muse
sold its rights to the novel to cross-defendant Windwings
Productions, LLC (Windwings), who in turn sold its rights to the
novel to cross-defendant Kim Productions LLC (Kim); Kim
released a film based on the novel in 2010 that did not use any
portion of Weinbach’s screenplay.1
Shortly after selling its rights to Windwings, Muse sued
Weinbach and Cyclone for, among other claims, intentional
misrepresentation and declaratory relief, alleging that during the
negotiation of the 1997 settlement agreement, Weinbach and
Cyclone had misrepresented the nature of their rights to produce
a film based on the novel. Weinbach and Cyclone filed a crosscomplaint,
alleging Muse breached the 1997 settlement
agreement through its involvement in Kim’s production of the
2010 film. The trial court granted summary judgment on the
cross-complaint in Muse’s favor, finding the 1997 settlement
agreement was voidable and subject to rescission due to
a mistake of fact stemming from Weinbach’s and Cyclone’s

1 Windwings and Kim are not parties to this appeal.
3
misrepresentations of the nature of their rights to produce a film
based on the novel. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
1. Weinbach and Cyclone try to produce a film based on
the novel
Jim Thompson wrote the novel “The Killer Inside Me,” first
published in 1952. In 1968, Thompson sold most of his rights to
the novel, including film production rights, to Warner Bros.-
Seven Arts, Inc. (Warner Bros.). Specifically, he assigned to
Warner Bros. “all rights of every kind and nature whatsoever in
and to” the novel except the publication and republication rights
of the paperback and hardcover versions. Two years later,
Warner Bros. sold all of its rights to the novel to Greenway
Productions, Inc. (Greenway).
In July 1974, Greenway assigned all of its rights to the
novel to Cyclone, a film production and distribution company
owned and operated by Weinbach. Around the same time,
Weinbach wrote a screenplay based on the novel.
In August 1974, Cyclone sold all of its rights to the novel to
J.S. Company, Inc. (1974 agreement). Cyclone guaranteed that it
was the “sole and exclusive owner of all right, title and interest in
and to” the novel and the screenplay. Simultaneously, Cyclone
and Weinbach executed a separate agreement entitled
“Assignment of All Rights,” assigning to J.S. Company “the
entire, worldwide, absolute, unqualified, sole and exclusive
common law rights, copyrights, and all literary, publication,
novelization, dramatization, performing, mechanical
reproduction, radio, television and motion picture rights” to
Weinbach’s screenplay.
4
On the same day it executed the assignment to
J.S. Company, Cyclone entered into a memorandum of agreement
with Tekim, Ltd. (Tekim), an affiliate of J.S. Company, through
which Tekim agreed to produce a film based on Weinbach’s
screenplay of “The Killer Inside Me.” The agreement provided
that Weinbach would direct and help produce the film.
After beginning principal photography for the film, Tekim
fired Weinbach and hired a new director and producer. In
November 1974, Weinbach and Cyclone sued Tekim, and that
same month, Tekim filed a separate lawsuit against Weinbach
and Cyclone. Meanwhile, Tekim released a film entitled “The
Killer Inside Me” in 1975 (1975 film).
In 1976, Weinbach, Cyclone, Tekim, J.S. Company, and
other related parties, reached a settlement agreement, through
which Tekim conveyed to Cyclone certain rights to produce
a remake of the 1975 film (1976 settlement agreement).
Specifically, Paragraph 3(g) of the agreement provided: “To the
full extent that Tekim has such rights, (and Tekim agrees that it
has not disposed of any rights acquired by Cyclone) Tekim hereby
grants to Cyclone all rights and licenses necessary to produce,
distribute and otherwise exploit for its own account a remake of
the motion picture ‘The Killer Inside Me’ based upon the literary
material acquired by Cyclone . . . as distinguished from any
literary material acquired by Tekim separate and apart from that
obtained under the agreement with Cyclone, following
termination of the existing distribution agreement, as amended,
with National General Pictures Corporation if the said motion
picture is released under said distribution agreement with such
company, and if not, then following seven (7) years if a third
party or Tekim distributes the said motion picture, such seven (7)
5
year period to commence as of the date of first general release of
said motion picture or one year after execution of this Agreement,
whichever is earlier.”
In 1977, Jim Thompson died, and all of the domestic rights
to the novel reverted to his estate by operation of law. In 1981,
Thompson’s widow renewed the copyright to the novel and
reassigned to Warner Bros. the same rights to the novel
Thompson had assigned to the company in 1958.
In June 1991, counsel for Weinbach and Cyclone sent
a letter to Warner Bros. claiming that Cyclone was the exclusive
owner of all rights, title, and interest to the novel and Weinbach’s
screenplay based on the novel. The letter claimed that Cyclone’s
rights were derived from “various underlying agreements with
Jim Thompson, Warner Brothers, National General, Tekim, Inc.,
J.S. Productions, and Greenway Productions.” In July 1991,
counsel for Weinbach and Cyclone sent another letter to Warner
Bros., again claiming Cyclone was the exclusive owner of all film
rights to the novel.
In November 1993, Warner Bros. transferred its rights to
the novel back to Thompson’s heirs. However, the company
retained a right of first refusal to distribute any future film based
on the novel. In 1994, Thompson’s heirs sold Muse an option to
purchase the film and television rights to the novel.
2. Weinbach and Cyclone sue Warner Bros. and Muse in
1995
In June 1995, Weinbach and Cyclone sued Warner Bros.
and Muse for, among other claims, breach of contract, conversion,
and unjust enrichment. Weinbach and Cyclone alleged Warner
Bros. and Muse had misappropriated, and interfered with,
Cyclone’s rights to produce and release a remake of the 1975 film
6
within the United States; they did not raise any claims
concerning the extent of Cyclone’s rights to release a remake of
the film outside the United States. Nevertheless, in their
complaint, Weinbach and Cyclone asserted Cyclone was the sole
and exclusive owner of the “worldwide” rights to produce
a remake of the 1975 film. They claimed those rights derived
from the 1976 settlement agreement with Tekim, but they did not
reference the 1974 agreement through which they had sold all of
Cyclone’s rights to the novel to J.S. Company.
In 1996, the trial court dismissed Weinbach and Cyclone’s
lawsuit and entered judgment in favor of Warner Bros. and Muse
after finding Cyclone owned no domestic rights to the novel. The
Court of Appeal later affirmed the court’s judgment. Muse then
sued Weinbach and Cyclone for malicious prosecution.
3. The 1997 settlement agreement
In May 1997, Weinbach, Cyclone, and Muse entered into
a settlement agreement, through which the parties agreed to
establish a joint venture to produce a film based on the novel,
using Weinbach’s screenplay, and to contribute all of their
respective rights to the novel to the joint venture. The parties
also agreed to work in good faith to obtain financing to produce
a film version of the novel, and to dismiss their pending lawsuits
against each other should they obtain a full commitment for
financing. According to Hanley, Muse’s president, Muse entered
into the 1997 settlement agreement because the company
believed Cyclone exclusively owned the international film and
television rights to the novel.
In 2009, after the joint venture between Weinbach,
Cyclone, and Muse failed to produce a motion picture, Windwings
began acquiring the rights to produce a remake of the 1975 film.
7
In January 2009, J.S. Company and Tekim quitclaimed all of
their rights to the novel to Windwings. Thompson’s heirs then
sold to Windwings an option to purchase all domestic film rights
to the novel, which Windwings eventually exercised. Muse also
assigned to Windwings all of its rights to a screenplay based on
the novel. Windwings then granted a nonexclusive right to
produce a motion picture based on the novel to Kim, who released
a remake of the 1975 film in 2010.
4. The underlying litigation
In early February 2009, Muse first discovered the existence
of the 1974 agreement between Weinbach, Cyclone, and
J.S. Company through which Cyclone divested all of its rights to
the novel. According to Muse, Weinbach never mentioned or
produced the 1974 agreement before the parties executed the
1997 settlement agreement.
On February 13, 2009, Muse sued Weinbach and Cyclone,
claiming they had misrepresented the nature and extent of
Cyclone’s international film and television rights to the novel at
the time the parties executed the 1997 settlement agreement.2
Muse also claimed that Weinbach and Cyclone refused to
cooperate in the joint venture created by the settlement
agreement and interfered with Muse’s efforts to produce
a remake of the 1975 film based on the novel. Among other

2 Muse alleged the following claims against Weinbach and
Cyclone: (1) declaratory relief; (2) intentional misrepresentation;
(3) negligent misrepresentation; (4) intentional interference with
prospective business advantage; (5) intentional infliction of emotional
distress; (6) breach of contract; (7) breach of fiduciary duty; (8) slander
of title; and (9) malicious prosecution.
8
things, Muse sought declaratory relief determining the nature
and extent of Cyclone’s international film and television rights to
the novel. Specifically, Muse sought a declaration that Cyclone
“only [has] a non-exclusive ownership interest to limited and
specified international motion picture and television rights to the
Novel.”
Weinbach and Cyclone filed a cross-complaint naming
Muse, Windwings, and Kim as cross-defendants. In November
2009, Weinbach and Cyclone filed the operative first-amended
cross-complaint alleging breach of the 1997 settlement agreement
and several tort claims arising out of Muse’s sale of its rights to
the screenplay based on the novel and Kim’s acquisition of the
rights to produce a remake of the 1975 film. Weinbach and
Cyclone also sought a declaration that “Cyclone holds the sole
and exclusive rights to produce a remake of [‘The Killer Inside
Me’] in all territories outside the United States.”3
In early 2010, the parties filed cross-motions for summary
judgment or summary adjudication. The court denied both
motions, finding a triable issue of material fact existed as to the
extent of Cyclone’s film rights to the novel.

3 Weinbach and Cyclone alleged the following claims in their firstamended
cross-complaint: (1) breach of contract (against Muse);
(2) breach of the covenant of good faith and fair dealing (against Muse);
(3) breach of fiduciary duty (against Muse); (4) conversion (against all
cross-defendants); (5) unjust enrichment (against Muse);
(6) concealment (against Muse); (7) declaratory relief (against all
cross-defendants); (8) preliminary and permanent injunctive relief
(against all cross-defendants); (9) intentional interference with
contractual relations (against Windwings and Kim); (10) unjust
enrichment (against Windwings); and (11) unjust enrichment (against
Kim).
9
In July 2010, the court bifurcated the parties’ claims, first
conducting a hearing to determine whether Muse’s claim for
declaratory relief should be tried before a jury. At that
proceeding, the parties presented, among other evidence, the
testimony of four expert witnesses who testified about the nature
and extent of the rights granted to Cyclone through the
1976 settlement agreement with J.S. Company and Tekim. The
court concluded that because the extrinsic evidence needed to
interpret the 1976 settlement agreement was not in conflict,
there was no factual issue concerning the nature and extent of
Cyclone’s rights to the novel stemming from that agreement for
the jury to decide.
On August 9, 2010, the court issued a written ruling in
favor of Muse on its declaratory relief claim, finding that under
the 1976 settlement agreement, Cyclone received only a “nonexclusive
right for one remake of [‘The Killer Inside Me’], using
Weinbach-authored literary material expressly described in ¶3(g)
of the Agreement.” The court continued the trial on the parties’
remaining claims to August 2011.4
In April 2011, Muse, Windwings, and Kim filed a second
motion for summary judgment or summary adjudication
regarding Weinbach and Cyclone’s first amended crosscomplaint.
The cross-defendants sought to dismiss Weinbach and
Cyclone’s cross-suit on the grounds that the 1997 settlement
agreement was voidable and subject to rescission due to
a material mistake of fact existing at the time the agreement was

4 On October 7, 2010, Weinbach and Cyclone filed in this Court
a petition for writ of mandate challenging the trial court’s August 9,
2010 ruling, which we denied on November 3, 2010.
10
executed concerning the nature and extent of Cyclone’s
international film and television rights to the novel. Specifically,
the cross-defendants argued Muse entered into the agreement
with the belief that Cyclone owned the sole and exclusive
international film and television rights to the novel, and that
Muse would not have entered the agreement had it known that
Weinbach and Cyclone owned only a non-exclusive right to
produce a single remake of the 1975 film using the screenplay
written by Weinbach.
On August 5, 2011, the court granted summary judgment
in favor of Muse, Windwings, and Kim. The court found that no
triable issue existed as to whether Muse, Weinbach, and Cyclone
operated under a mistake of fact as to the nature and extent of
Cyclone’s international film and television rights to the novel at
the time the parties executed the 1997 settlement agreement,
and that Muse would not have entered into the agreement had it
been aware of the true nature of Cyclone’s rights. The court
concluded that the 1997 settlement agreement was voidable and
subject to rescission based on this mistake of fact. Since all of
Weinbach’s and Cyclone’s claims in the first-amended crosscomplaint
relied on the enforceability of the 1997 settlement
agreement, the court found that none of the claims had merit.
On September 2, 2011, the court entered a judgment
dismissing Weinbach’s and Cyclone’s first-amended crosscomplaint
with prejudice and dismissing Windwings and Kim
from the litigation. Meanwhile, Muse’s lawsuit against Weinbach
and Cyclone remained active.
On October 6, 2011, Weinbach and Cyclone appealed the
trial court’s September 2, 2011 judgment, as to Windwings and
Kim, challenging the court’s summary judgment ruling that
11
Cyclone owned only a non-exclusive right to make a single
remake of the 1975 film. In a non-published opinion filed on
March 6, 2013, this Division affirmed the court’s judgment in
favor of Windwings and Kim. (See Weinbach v. Windwings
Productions, LLC (March 6, 2013, B236490).)
On November 4, 2014, Muse filed a request for voluntary
dismissal of its complaint against Weinbach and Cyclone. That
same day, the trial court entered an order dismissing Muse’s
complaint. On February 7, 2017, the court entered a judgment
dismissing the entire lawsuit.
5
DISCUSSION
Weinbach and Cyclone claim the trial court erred in
granting summary judgment because the 1997 settlement
agreement cannot be rescinded. Specifically, they argue the
parties did not operate under a mistake of fact concerning the
nature of Cyclone’s rights to produce a film based on the novel
when they executed the 1997 settlement agreement. In the
alternative, Weinbach and Cyclone contend a triable issue of fact
exists as to whether Muse assumed the risk that Cyclone’s rights
to the novel were not as extensive as Weinbach and Cyclone had
claimed leading up to the execution of the settlement agreement.
As we will explain below, the court properly granted summary

5 Weinbach and Cyclone filed their appeal after the court issued
its order granting summary judgment, but before the court entered
judgment dismissing Muse’s first-amended complaint. We treat
Weinbach and Cyclone’s premature notice of appeal as being filed
immediately after the court entered judgment on February 7, 2017.
(Darling, Hall & Rae v. Kritt (1999) 75 Cal.App.4th 1148, 1154.)
12
judgment and dismissed Weinbach and Cyclone’s crosscomplaint.
1. Standard of Review
On appeal from a grant of summary judgment, we review
the record and the ruling of the trial court de novo. (Guz v.
Bechtel National, Inc. (2000) 24 Cal.4th 317, 334 (Guz).) We
consider all the evidence presented by the parties in connection
with the motion, except that which was properly excluded, and all
uncontradicted inferences that the evidence reasonably supports.
(Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476.) However,
“[w]e do not resolve conflicts in the evidence as if we were sitting
as the trier of fact. [Citation.] Instead, we draw all reasonable
inferences from the evidence in the light most favorable to the
party opposing summary judgment. [Citation.]” (Nadaf-Rahrov
v. Neiman Marcus Group, Inc. (2008) 166 Cal.App.4th 952, 961.)
A grant of summary judgment is proper if the evidence
shows there is no triable issue as to any material fact and the
moving party is entitled to judgment as a matter of law. (Code
Civ. Proc., § 437c, subd. (c); see also Guz, supra, 24 Cal.4th at
p. 334.) “There is a triable issue of material fact if, and only if,
the evidence would allow a reasonable trier of fact to find the
underlying fact in favor of the party opposing the motion in
accordance with the applicable standard of proof.” (Aguilar v.
Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850, fn. omitted.)
2. Relevant law concerning mistake in the formation of
a contract
“A contract may . . . be rescinded if the consent of the
rescinding party was given by mistake. (Civ. Code, § 1689,
subd. (b)(1).) The party attempting to void the contract as
a result of mistake [of fact] must also show that it would suffer
13
material harm if the agreement were enforced, though that need
not be a pecuniary loss.” (Habitat Trust for Wildlife, Inc. v. City
of Rancho Cucamonga (2009) 175 Cal.App.4th 1306, 1332–1333
(Habitat).) A “[m]istake of fact is a mistake, not caused by the
neglect of a legal duty on the part of the person making the
mistake, and consisting in: [¶] 1. An unconscious ignorance or
forgetfulness of a fact past or present, material to the contract;
or, [¶] 2. Belief in the present existence of a thing material to the
contract, which does not exist, or in the past existence of such
a thing, which has not existed.” (Civ. Code, § 1577.)
To warrant rescinding a contract, the mistake of fact must
concern present facts (i.e., facts existing at the time the
agreement was executed) or past facts. (Paramount Petroleum
Corp. v. Superior Court (2014) 227 Cal.App.4th 226, 245
(Paramount Petroleum).) “[T]here is no authority for rescission
based on a mistake regarding future events. [Citation.]” (Ibid,
italics in original.) A mistake concerning future events is an
error in judgment, which does not constitute grounds for
rescinding a contract. (See Mosher v. Mayacamas Corp. (1989)
215 Cal.App.3d 1, 6 (Mosher) [an “ ‘error in judgment’ ” about the
occurrence of future events does not constitute grounds for
rescinding an agreement].) “In determining whether a mistake is
a mistake of fact or an error in judgment, ‘[i]t is the facts
surrounding the mistake, not the label, i.e., “mistake of fact” or
“mistake of judgment,” which should control.’ [Citation.]”
(Paramount Petroleum, supra, 227 Cal.App.4th at p. 245.)
14
3. The trial court properly granted summary judgment.
3.1. The parties operated under a mistake of fact
when they executed the 1997 settlement
agreement.
Weinbach and Cyclone contend the parties did not operate
under a mistake of fact about the nature of Cyclone’s rights to
produce a film based on the novel when they executed the 1997
settlement agreement. Instead, Weinbach and Cyclone assert,
the parties operated under a mistake of judgment about how
a court would interpret the nature of Cyclone’s rights in future
litigation, a mistake that does not warrant rescinding the
settlement agreement. We disagree.
Several cases illustrate the difference between a “mistake
of fact” that warrants rescinding a contract and an “error in
judgment” that does not warrant rescission. (See Habitat, supra,
175 Cal.App.4th at p. 1343 [mistake of fact]; Smith v. Zimbalist
(1934) 2 Cal.App.2d 324, 325-327, 332–333 (Smith) [mistake of
fact]; Mosher, supra, 215 Cal.App.3d at pp. 3-6 [error in
judgment]; Paramount Petroleum, supra, 227 Cal.App.4th at
pp. 244–249 [error in judgment].) As our discussion of these
cases demonstrates, the mistake that Muse, Weinbach, and
Cyclone operated under when they executed the 1997 settlement
agreement was one of fact that warrants rescinding the
agreement.
The first two cases, Smith and Habitat, demonstrate what
constitutes a mistake of fact that warrants rescinding a contract.
In Smith, a famous violinist contracted to purchase two violins
from a seller. Both the violinist and the seller believed one of the
violins to be “Stradivarius” and the other a “Guarnerius.”
(Smith, supra, 2 Cal.App.2d at pp. 325-326.) The violinist later
15
discovered the violins were not genuine and stopped making
payments to the seller. (Id. at p. 326.) The seller sued for breach
of contract. (Id. at p. 327.) The trial court excused the violinist’s
performance, finding that at the time the parties entered the
purchase agreement, both the violinist and the seller were
mistaken about the genuineness of the violins, a fact that existed,
but was not known to the parties, at the time they executed the
agreement. (Id. at p. 327.) The Court of Appeal affirmed the
trial court’s judgment. (Id. at pp. 327, 332–333.)
In Habitat, a developer sought to develop a residential
subdivision and produced a draft environmental impact report
(EIR) that proposed to convey an offsite tract of land to the
county to mitigate the potential loss of habitat for plants and
animals at the development’s site. (Habitat, supra,
175 Cal.App.4th at p. 1312.) An environmental advocacy group
intended to oppose the development because it found the EIR’s
mitigation provision to be insufficient. (Ibid.) The developer and
the advocacy group reached an agreement through which the
advocacy group agreed not to oppose the development if the
developer transferred the offsite tract to the advocacy group
rather than the county. (Id. at pp. 1312–1313.) The final EIR
provided that the developer must convey the mitigation land to
the county or “ ‘other qualified conservation entity approved by
the City.’ ” (Ibid.) The developer then executed a separate
contract with the advocacy group to convey the offsite tract to the
group, and the parties sought to have the city approve the group
as a “qualified conservation entity.” (Ibid. ) After the advocacy
group failed to obtain city approval as a “qualified conservation
entity,” it sued the developer for breach of contract for failing to
convey the tract. (Id. at p. 1315.) As a defense to the group’s
16
lawsuit, the developer sought to rescind the contract on the basis
of mutual mistake. (Id. at p. 1317.) The trial court granted
summary judgment in the developer’s favor, and the Court of
Appeal affirmed the judgment. (Id. at p. 1319.)
The Court of Appeal concluded the parties had operated
under a mistake of fact about the qualifications of the advocacy
group at the time they executed the contract. (Habitat, supra,
175 Cal.App.4th at p. 1343.) The court explained it was apparent
from the facts that the parties assumed the advocacy group
would be approved by the city as a “qualified conservation
entity,” even though the contract did not expressly state as much.
(Id. at p. 1334.) Although the advocacy group argued the parties
had made an error in judgment about whether the city would
approve the group in the future, the court concluded the facts
showed that both parties were mistaken “as to the present fact
that [the group] would qualify.” (Id. at p. 1343.) Accordingly, the
contract was subject to rescission due to the parties’ mistake of
fact at the time they entered the agreement. (Ibid.)
The next two cases, Paramount Petroleum and Mosher,
demonstrate what constitutes an error in judgment about the
occurrence of future events that does not warrant rescinding
a contract. In Paramount Petroleum, a roofing shingle
manufacturer (buyer) entered into a multi-year requirement
contract with a petroleum provider (seller) for asphalt coating to
be used in the production of the buyer’s shingles. (Id. at
pp. 229-231.) The contract provided that only two types of crude
oil—Alaskan North Slope or Oriente—could be used in the
asphalt coating. (Id. at p. 230.) Because the costs of the
ingredients for asphalt coating fluctuate over time, the contract
provided that the buyer could choose between two methods to
17
calculate the price of the coating provided by the seller each
month: one method was based on the average price of asphalt
coating the month prior, and the other method was based on the
prior month’s average daily closing price for West Texas
Intermediate (WTI) crude oil. (Ibid.) The parties tied the cost of
crude oil to WTI instead of Oriente or North Alaskan Slope
because WTI’s price had closely tracked Oriente’s in the past and
there was more data available to determine WTI’s price on
a monthly basis than Oriente or North Alaskan Slope. (Id. at
pp. 233–234.) The contract expressly provided pricing protections
for the buyer, but it did not contain any similar protections for
the seller. (Id. at p. 231.)
Several years after the parties began operating under the
contract, the price of WTI crude dropped dramatically compared
to the price of Oriente crude, which the seller had been using to
make the buyer’s asphalt coating, thereby resulting in
substantial losses for the seller. (Paramount Petroleum, supra,
227 Cal.App.4th at pp. 231–232.) After the parties failed to agree
on a new pricing index or type of crude oil to use in the buyer’s
asphalt coating, the seller terminated its performance under the
contract and stopped selling coating to the buyer. (Id. at p. 232.)
The buyer sued the seller for breach of contract.
(Paramount Petroleum, supra, 227 Cal.App.4th at pp. 232–233.)
The seller raised the affirmative defense of mistake of fact,
claiming the requirement contract was voidable and subject to
rescission based on the parties’ mistake of fact concerning the
future price of WTI crude oil at the time they executed the
contract. (Id. at p. 233.) The buyer moved for summary
adjudication concerning only the issues of the seller’s liability
under the contract and the seller’s affirmative defenses to
18
enforcement of the contract. (Id. at p. 233.) The court granted
summary adjudication in the buyer’s favor, finding the seller
breached the contract and that the contract was not subject to
rescission because the parties had made an error in judgment, as
opposed to a mistake of fact, with respect to predicting the price
of WTI crude when they executed the agreement. (Id. at p. 237.)
On appeal, this Division affirmed the trial court’s ruling.
(Paramount Petroleum, supra, 227 Cal.App.4th at pp. 244–249.)
We reasoned that, at the time the parties executed the
requirement contract, they were not mistaken about the current
value of WTI crude oil. (Id. at p. 246.) Rather, they made
a mistake in judgment about whether the price of WTI crude oil
would continue to track the price of Oriente crude oil. (Ibid.)
Had the parties intended to protect against future fluctuations
that could render the price of WTI crude oil a poor indicator for
the price of Oriente, they could have included such a provision in
the agreement. (Ibid.) Instead, the evidence showed the seller
was aware that the price between the two crude oils could
fluctuate over time but failed to put in the agreement any
protections against such fluctuations. (Id. at pp. 246, 248–249.)
The fact that the pricing system became unfavorable to the seller
was a product of the parties’ error in judgment in predicting
future price trends for WTI crude oil, and not a mistake about
any fact or condition that existed when the contract was
executed. (Ibid.) Accordingly, the contract could not be
rescinded. (Ibid.)
In Mosher, the buyer and the seller had jointly owned
properties in Lake Tahoe until the buyer agreed to purchase the
seller’s interest in the properties. (Mosher, supra,
215 Cal.App.3d at p. 3.) After the parties executed the purchase
19
agreement and the buyer had begun paying the purchase price,
a change in federal tax law eliminated the tax benefits of owning
a secondary residence, which severely reduced the value of the
purchased properties. (Id. at pp. 3–4.) As a result of the change
in federal tax law, the buyer stopped paying the purchase price
for the properties, and the seller sued for breach of contract.
(Ibid.) The seller obtained summary judgment and the appellate
court affirmed, rejecting the buyer's defense of mutual mistake.
(Ibid.)
The court rejected the buyer’s claim that the parties’ gross
overvaluation of the properties in the purchase agreement was
a mistake of fact because there was no evidence that, at the time
the agreement was executed, the parties had mistakenly
overstated the properties’ value. (Mosher, supra, 215 Cal.App.3d
at pp. 5–6.) Instead, the buyer’s claim was premised on the
argument that the properties’ valuation was rendered mistaken
by events that occurred after the purchase agreement was
executed—i.e., the adverse federal tax law that was enacted
several years after the parties executed the agreement. (Id. at
p. 5.) The court explained, “Absent evidence that the existence of
a future contingency (e.g., continuation of tax benefits) is an
assumption of the contract . . . , the defense of mistake of fact
must be premised on past or present facts about which the
parties are ignorant or mistaken. There was no evidence
presented to the trial court that the valuation of the properties
proposed by appellant itself in 1982 was erroneous in light of
facts then or previously in existence.” (Ibid.)
As to whether the parties intended to make the validity of
the purchase agreement dependent on the existence of future tax
benefits, the court found there was no evidence to support such
20
a theory. (Mosher, supra, 215 Cal.App.3d at pp. 5–6.) The court
explained that the buyer “chose to enter into the subject contract
knowing that tax benefits were a major aspect of the value of the
properties and presumably knowing that the availability of such
benefits could be affected by future legislation, yet it made no
provision with respect to tax matters in the contract which its
own chief executive officer prepared.” (Id. at p. 6.)
In this case, the evidence is undisputed that the parties
operated under a mistake of fact, and not a mistake of judgment,
when they executed the 1997 settlement agreement. Specifically,
the parties believed Weinbach and Cyclone exclusively owned
the rights to produce and release a remake of the 1975 film
outside of the United States. Importantly, there is no evidence
that the parties anticipated that Cyclone’s rights could be
determined to be less extensive on some future date after they
executed the settlement agreement.
Before Weinbach and Cyclone sued Warner Bros. and Muse
in 1995, they sent Warner Bros. at least two letters asserting
that Cyclone was the exclusive owner of the film rights to the
novel, as well as the rights to produce a remake of the 1975 film
using Weinbach’s screenplay. Muse learned of these letters
during that lawsuit, before the 1997 settlement agreement was
executed. In addition, throughout their lawsuit against Warner
Bros. and Muse, Weinbach and Cyclone repeatedly claimed that
they were the exclusive owners of the rights to produce a remake
of the film outside of the United States. In their complaint, they
alleged that “Cyclone and Weinbach own all rights in all
territories to a remake of the Film subject only to the wrongful
claims of [Warner Bros. and Muse] to the remake rights in the
United States.” Weinbach and Cyclone maintained this position
21
throughout that lawsuit, when Weinbach filed a declaration
opposing summary judgment, in which he claimed, “Cyclone and
I own the rights necessary to produce and exploit a remake of the
Film in all territories outside the [United States].” As Chris
Hanley, Muse’s president, testified in support of Muse’s summary
judgment motion, Muse believed, based on these representations,
that Cyclone exclusively owned the rights to release a remake of
the 1975 film outside of the United States.
The materiality of the parties’ belief in the exclusive nature
of Cyclone’s rights is clear from the purpose of the 1997
settlement agreement. At the time they entered into the
agreement, both parties wanted to produce and release a film
based on the novel. Muse owned an option that would have
enabled it to produce and release the film within the United
States, but it believed that Weinbach and Cyclone owned the
rights necessary to release the film outside of the United States.
Therefore, had the facts been as Muse believed at the time it
entered the settlement agreement, it would have been necessary
for the company to secure an agreement with Weinbach and
Cyclone, since Cyclone would have been the only entity who could
have authorized the film to be released internationally.
Conversely, Muse would not have had any reason to enter into
the settlement agreement had it been aware of the true nature of
Cyclone’s rights, since Weinbach and Cyclone could not have
blocked any effort by Muse to produce and release a film based on
the novel outside of the United States. For the same reason,
Muse would suffer harm if the settlement agreement were to
remain enforceable. That is, the agreement could prevent Muse
from engaging in potentially profitable conduct that it otherwise
would have been entitled to engage in—i.e., the sale of its
22
interests in the novel or the production of a film based on the
novel.
3.2. Muse did not assume the risk that Cyclone’s
rights to the novel were less extensive than the
parties believed when they executed the 1997
settlement agreement.
Weinbach and Cyclone next contend the court erred in
finding the 1997 settlement agreement was voidable and subject
to rescission because Muse assumed any risk that Cyclone’s
rights to release a film based on the novel were not as extensive
as Weinbach and Cyclone had claimed. Specifically, Weinbach
and Cyclone argue that because Muse was aware of the
1976 settlement agreement between Weinbach, Cyclone, and
Tekim before the parties executed the 1997 settlement
agreement, Muse should also have been aware that Cyclone may
not have had “exclusive” rights to produce an international
remake of the 1975 film. At the very least, Weinbach and
Cyclone contend, a triable issue of fact exists as to whether Muse
assumed the risk that Cyclone’s rights were more limited than
Weinbach and Cyclone had claimed before the parties executed
the 1997 settlement agreement. We disagree.
Generally, a contract cannot be rescinded because of
“ ‘mistakes as to matters which the contracting parties had in
mind as possibilities and as to the existence of which they took
the risk.’ [Citation.]” (Guthrie v. Times-Mirror Co. (1975)
51 Cal.App.3d 879, 885.) In that situation, “[a] contracting party
bears the risk of a mistake . . . when the party is aware of having
only limited knowledge of the facts relating to the mistake but
treats this limited knowledge as sufficient.” (Grenall v. United of
Omaha Life Ins. Co. (2008) 165 Cal.App.4th 188, 193.)
23
Rescission is warranted, however, where a contracting
party is not actually aware of the mistake, but may have failed to
take sufficient steps to discover facts that would reveal the
mistake before entering the challenged contract. “It is settled
that, even in the absence of any misrepresentation, the negligent
failure of a party to know or discover facts as to which both
parties are under a mistake does not preclude rescission or
reformation because of the mistake.” (Van Meter v. Bent
Construction Co. (1956) 46 Cal.2d 588, 594 (Van Meter).) Instead,
“[t]o bar rescission, the party seeking to rescind must be guilty of
gross negligence—‘the want of even scant care or an extreme
departure from the ordinary standard of conduct.’ ” (Harris v.
Rudin, Richman & Appel (2002) 95 Cal.App.4th 1332, 1342
(Harris), fn. omitted, quoting Van Meter, supra, 46 Cal.2d at
p. 594.)
“There is even more reason for not barring a plaintiff from
equitable relief where his negligence is due in part to his reliance
in good faith upon the false representations of a defendant,
although the statements were not made with intent to deceive.
[Citations.] A defendant who misrepresents the facts and
induces the plaintiff to rely on his statements should not be
heard in an equitable action to assert that the reliance was
negligent unless plaintiff’s conduct, in the light of his intelligence
and information, is preposterous or irrational.” (Van Meter,
supra, 46 Cal.2d at p. 595.)
No triable issue of fact exists as to whether Muse assumed
the risk that Cyclone’s rights to produce a film based on the novel
were not as extensive as Weinbach and Cyclone had claimed
before the parties entered into the 1997 settlement agreement.
Specifically, there is no evidence that Muse was grossly
24
negligent, or acted in a preposterous or irrational manner, when
it did not conduct a more thorough inquiry into the nature of
Cyclone’s rights. Instead, the evidence establishes that Muse
reasonably relied on Weinbach’s and Cyclone’s claims about the
exclusive nature of Cyclone’s rights when it entered into the
1997 settlement agreement.
As discussed above, before the parties executed the
1997 settlement agreement, Weinbach and Cyclone had
repeatedly represented to Muse and Warner Bros. that Cyclone
was the exclusive owner of the rights to release a remake of the
1975 film anywhere outside of the United States. Weinbach and
Cyclone never disclaimed any of those representations or
suggested to Muse that they were uncertain about the extent of
Cyclone’s rights to release a film outside of the United States. In
his declaration filed in support of Muse’s summary judgment
motion, Hanley testified that Muse had relied on Weinbach’s and
Cyclone’s representations when it entered into the 1997
settlement agreement.
Although Muse was aware of the existence of Weinbach and
Cyclone’s 1976 settlement agreement with Tekim before entering
into the 1997 settlement agreement, its awareness of that
agreement alone does not preclude Muse from raising a mistake
of fact defense. During the parties’ litigation preceding the
1997 settlement agreement, Weinbach never disclosed to Muse
that Weinbach and Cyclone had sold to J.S. Company all of the
rights to the novel they had originally obtained in 1974. Instead,
they disclosed only the following relevant agreements: the
1974 agreement with Greenway, through which they had
obtained the rights to the novel that Thompson had originally
sold to Warner Bros., which included “all rights of every kind and
25
nature whatsoever in and to” the novel, except certain publishing
rights; and the 1976 settlement agreement with Tekim. Muse
therefore would not have been aware that Weinbach and Cyclone
had divested all of the rights obtained through the 1974
agreement with Greenway before they entered into the
1976 settlement agreement. In other words, Muse would not
have known that Weinbach and Cyclone no longer owned “all
rights of every kind and nature” to the novel, except for certain
publishing rights. Although the terms of the 1976 settlement
agreement could have given Muse reason to question whether
Weinbach and Cyclone continued to own the rights obtained
through the 1974 agreement with Greenway, Weinbach’s and
Cyclone’s repeated claims that Cyclone was the exclusive owner
of the rights to release a remake of the 1975 film outside of the
United States would have discouraged Muse from conducting
a more thorough inquiry into the true nature of Cyclone’s rights.
(See Van Meter, supra, 46 Cal.2d at p. 595.)
In sum, we conclude there is no triable issue as to whether
the parties operated under a mistake of fact about the nature of
Cyclone’s rights to produce and release a film based on the novel
outside of the United States, a mistake that was material to the
purpose of the 1997 settlement agreement and warrants
rescinding that agreement. Therefore, the trial court properly
granted summary judgment in Muse’s favor and dismissed
Weinbach and Cyclone’s first amended cross-complaint.
26
DISPOSITION
The judgment is affirmed. Respondents shall recover their
costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
LAVIN, J.
WE CONCUR:
EDMON, P. J.
ALDRICH, J.