Court Opinion

ID: 3051666
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:36:55.205795+00
Date Added: 2024-06-11T09:46:34.572479
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

WARNER BROTHERS INTERNATIONAL          
TELEVISION DISTRIBUTION, a division
of TIME WARNER ENTERTAINMENT               No. 05-55374
COMPANY, L.P.,
                 Plaintiff-Appellee,        D.C. No.
                                           CV-02-09326-
                v.                            MMM
GOLDEN CHANNELS & CO.,
              Defendant-Appellant.
                                       

WARNER BROTHERS INTERNATIONAL          
TELEVISION DISTRIBUTION, a division
                                           No. 05-55421
of TIME WARNER ENTERTAINMENT
COMPANY, L.P.,                               D.C. No.
                Plaintiff-Appellant,      CV-02-09326-
                                              MMM
                v.
                                            OPINION
GOLDEN CHANNELS & CO.,
               Defendant-Appellee.
                                       
       Appeal from the United States District Court
          for the Central District of California
      Margaret M. Morrow, District Judge, Presiding

                 Argued and Submitted
            May 7, 2007—Pasadena, California

                    Filed April 15, 2008

     Before: John T. Noonan, Andrew J. Kleinfeld, and
              Richard A. Paez, Circuit Judges.

                            3971
3972   WARNER BROTHERS INT’L v. GOLDEN CHANNELS
             Opinion by Judge Kleinfeld
         WARNER BROTHERS INT’L v. GOLDEN CHANNELS        3975

                         COUNSEL

David M. Rice, Carroll, Burdick & McDonough, LLP, San
Francisco, California, for the appellant.

Frederic D. Cohen, Horvitz & Levy, LLP, Encino, California,
for the appellee.

                         OPINION

KLEINFELD, Circuit Judge:

  This is a breach of contract case, involving breach of an
agreement between a cable television broadcaster and a com-
pany licensing programming.

                            Facts

  This is an appeal from a judgment following a bench trial.
We take the facts from the findings and exhibits except as
otherwise explained.

   Starting in 1990, Warner Brothers licensed television pro-
gramming to Golden Channels, a cable television company in
Israel. Golden was associated with two other cable television
companies, and the three together, as Israel Cable Program-
ming Ltd., coordinated their operations. For almost a decade,
Warner and Golden made agreements lasting about one year.
None of those are at issue. This case arises out of a contract
made in 1999.
3976      WARNER BROTHERS INT’L v. GOLDEN CHANNELS
   The Israeli television market changed in January 1999,
when the government licensed a satellite television broad-
caster. Satellite television subjected Golden to competition
and opened up different possibilities, positive and negative,
for Warner.

   Warner and Golden accordingly changed their arrange-
ment. Instead of year to year agreements, they made a con-
tract for 30 months. Under the new agreement, Golden had
less power to pick and choose programs, and had to buy at
least the minimum amounts specified in the contract of vari-
ous types of programs, both new and popular shows, and old
reruns. The contract commenced December 1, 1999 and
ended May 31, 2002. Golden was obligated to spend $5 mil-
lion the first year, $5.5 million the second year, and $3 mil-
lion the last six months.

   During the contract term, to May 31, 2002, Golden was
obligated to provide “an irrevocable unconditional draw down
letter of credit,” for at least $5 million, the form of which was
specified in an addendum. A letter of credit creates “an abso-
lute, independent obligation and payment must be made upon
presentation of the proper documents regardless of any dis-
pute between the buyer and seller concerning their agreement.”1
Like a Travelers Check (which is a letter of credit), it enables
international business to be done safely and securely because
the vendor need only rely on the financial strength of the issu-
ing bank, and not on the financial strength and willingness to
pay of the vendee.2

  Golden maintained the letter of credit as required, with its
bank. The form was a commitment from the bank that the
beneficiary, Warner, could draw funds up to $5 million, once
or in multiple drafts, by presenting sight drafts to the bank,
  1
    First Empire Bank-New York v. FDIC, 572 F.2d 1361, 1366 (9th Cir.
1978); see also Murphy v. FDIC, 38 F.3d 1490, 1501 (9th Cir. 1994).
  2
    Murphy, 38 F.3d at 1501.
           WARNER BROTHERS INT’L v. GOLDEN CHANNELS           3977
which had a branch in Los Angeles. The sight drafts were in
the form, “[p]ay on sight to the order of Warner Bros. Interna-
tional Television Distribution . . . the sum of $___,” to be
signed by an authorized signatory for Warner. The letter of
credit was to expire in one year, but would be automatically
extended at each one year anniversary unless terminated with
at least 60 days notice. The letter issued by the bank ran from
July to July, with notice of cancellation to be given in May.
As a practical matter, this means that $5 million of Golden’s
credit line at the bank was tied up so long as the letter of
credit remained in effect, and Warner could in substance write
checks on an account of $5 million.

  Another part of the 1999 contract was that Warner could
“at its sole discretion” extend the term for a second 30 month
period, so that it would end November 30, 2004 instead of
May 31, 2002, by giving notice by September 1, 2001. If
Warner extended the term, Golden was obligated to pay War-
ner a $500,000 extension option fee, and “minimum spend”
amounts of $3 million for the first 6 months, then $7 million
and $7.5 million respectively for the subsequent two years.

   But in the 1999 contract, Warner and Golden expressly did
not agree to maintain the letter of credit in place during the
extension. Instead, they agreed that the $5 million letter of
credit would be in place during the initial term “only.” The
closest they got to any agreement regarding security for a sub-
sequent term was that they would “discuss” it. Here is the text
of the entire paragraph regarding the letter of credit if Warner
chose to exercise its option to extend the contract for a second
term:

    13.7    The Letter of Credit referred to in clause 13.8
            above shall be in place from 19 July 1999 to
            31 May 2002 only. If Licensor [Warner]
            intends to exercise the Extension Option
            under clause 14.1 Licensee [Golden] agrees to
            discuss with Licensor appropriate security to
3978      WARNER BROTHERS INT’L v. GOLDEN CHANNELS
            be given in respect of License Fees due in
            years 3B – 5.

   Golden’s business began to suffer during the initial term,
perhaps because of the new competition from satellite televi-
sion. Golden nevertheless continued to maintain the letter of
credit in place, so Warner was fully secured regardless of
Golden’s declining financial strength.

   In June 2001, Warner exercised its option to extend the
term of the license agreement through November 30, 2004.
Subsequently, in August of 2001, Golden told Warner it could
not pay the quarterly licensing fee due on September 1, 2001.
In September, Golden asked Warner to renegotiate the agree-
ment, principally to lower licensing fees. Warner could, of
course, have refused, but it didn’t. The contract provided that
Warner could “at its sole discretion” suspend delivery of pro-
grams, terminate the agreement, or both, if Golden missed a
payment, and Golden did pay less than it owed. But Warner
did not find it in its interest to exercise its right to terminate
at that time. Instead, Warner agreed to continue to supply pro-
gramming for a lower fee than it had agreed upon, while the
parties negotiated, reserving its right to demand the full
amounts required under the contract if negotiations were not
successful.

   Negotiations trundled along, over email, letter exchanges,
and in meetings, even though the parties had not agreed to
appropriate security for an extension and had not agreed on
much of anything else. In October, the parties discussed what
to do about the letter of credit if the term was extended. The
parties were still performing under the initial term of the con-
tract, although the second term would begin June 1 pursuant
to Warner’s exercise of its option to extend the previous June.

   Here is where the findings of fact and the evidence we can
find in the record diverge. The trial judge found that Warner
was adamant that it would not negotiate unless the letter of
         WARNER BROTHERS INT’L v. GOLDEN CHANNELS           3979
credit was kept in place. But all we can find in the evidence
is that Warner was adamant that any modified contract they
negotiated would have to keep the letter of credit in place.
Warner’s negotiator testified that he said “the only basis on
which Warner would contemplate renegotiating the deal
would be in the circumstances that we would not review the
letter of credit and it would remain in situ throughout not just
the five-year term per the agreement but also any extended
term as a result of the negotiation.” Warner sent an email con-
firming what had been said at the meeting. One of Warner’s
points in the confirming email was that it was “absolutely crit-
ical” that “the [letter of credit] remains in situ throughout the
term of the deal with the final year being a draw-down on that
[letter of credit].” We deal with this possible discrepancy
between the evidence and the findings of fact below, in the
analysis.

   Golden did not immediately say whether it would accept
this proposal, though it spoke to it some months later. Warner
continued negotiations, even though it had no agreement that
the letter of credit would remain in place during the extension
term.

   The contract had the usual clause limiting changes to
changes put in writing and agreed to by both parties: “[t]he
terms of this Agreement may be altered only by written agree-
ment of the parties’ properly authorised representatives.”
There was no such written agreement to alter the terms,
regarding the letter of credit running through May 31, 2002
“only” or anything else.

   Negotiations continued through 2002, even though no writ-
ten agreement had been made regarding appropriate security.
Basically, Golden wanted lower fees, and Warner wanted to
sell more programming and not risk losing viewers by a
change in who broadcast its programs. Throughout the negoti-
ations, Warner suggested that there might be some give on
3980     WARNER BROTHERS INT’L v. GOLDEN CHANNELS
price, but was adamant that the $5 million letter of credit
would have to remain in place during any new deal.

   While these negotiations were going on, Golden allowed
the bank to renew the letter of credit in May of 2002, so the
letter of credit secured Warner through July 2003. This date
ran over a year beyond what Golden promised to provide in
the 1999 contract they had signed. Thus Golden caused War-
ner to remain secure as negotiations proceeded.

   In August of 2002, Golden responded to Warner’s demand
made for the last several months that the $5 million letter of
credit remain in place during the second 30 month period.
Golden told Warner that it would maintain the letter of credit
through the extension term only after the completion of a
merger that it was engaged in with two other cable television
companies, and only for a reduced amount based upon what
would be a reduced price:

    Cable companies will be able to provide [a Letter of
    Credit] for movies and series contracts only after the
    completion of the merger between them. . . . The
    amount of the [Letter of Credit] will be reduced
    according to the new contract prices.

Despite this explicit rejection of the requirement on which
Warner had been adamant, Warner continued to negotiate,
though Warner evinced no give on its demand for a full $5
million of security by letter of credit.

   Things came to a head in November, a few months into the
second term. Warner’s negotiator in London emailed War-
ner’s executive in Los Angeles that Golden had “blinked” and
“realises we are prepared to play hardball.” The parties nego-
tiated in London with no success and scheduled a conference
call for November 19. Meanwhile, Warner issued a notice of
default pursuant to the terms of the contract on November 15,
2002. This notice was the “hardball.” The contract provided
             WARNER BROTHERS INT’L v. GOLDEN CHANNELS             3981
for default for either of two reasons, failure to maintain the
letter of credit in place until May 31, 2002 “only,” or unpaid
fees:

      19.2    In the event that:

              19.2.4   a letter of credit complying with the
                       terms of clause 13.4 is not delivered
                       by the due date under this Agreement
                       and Licensor gives Licensee written
                       notice that such letter of credit has
                       not been delivered and further the
                       letter of credit is not delivered within
                       fourteen (14) days after the date of
                       such written notice;

              19.2.2   the Initial Fee, Extension Option Fee
                       or any License Fee instalment is not
                       paid on the due date under this
                       Agreement and Licensor gives
                       Licensee written notice that payment
                       must be made and further the pay-
                       ment is not made within fourteen
                       (14) days after the date of such writ-
                       ten notice

              then Licensor shall (in each case) be entitled
              (at its sole discretion) to either suspend deliv-
              ery of the Programs pending compliance and/
              or terminate this Agreement.3

  Warner sent Golden two communications the same day. It
sent a letter pursuant to 19.2.2 claiming an entitlement to
$2,809,790 in arrears, and demanded that Golden tender pay-
  3
    The numbers on the clauses, 19.2.2 following 19.2.4, make no sense,
and there are only two sub-parts of 19.2. The numbering oddity makes no
difference.
3982      WARNER BROTHERS INT’L v. GOLDEN CHANNELS
ment within 14 days, or else be subject to suspension of deliv-
ery of programs, termination of the contract, or both. Warner
further “reminded” Golden that in two weeks it would owe
another $2,811,961.50. Warner did not claim any breach or
default with respect to the letter of credit or mention the other
clause, 19.2.4. Warner’s letter was couched exclusively in
terms of the second termination clause, 19.2.2, for missed
payments, and not the first, 19.2.4 for failing to maintain a let-
ter of credit for $5 million.

   On the same day as the letter, Warner sent Golden an email
with quite a different tone. Warner’s email thanked Golden’s
representative for flying to London to negotiate, stated that
Warner would not immediately draw down the letter of credit,
and explained the simultaneous letter by saying that it had
merely “set the 14 day clock running” by issuing the breach
notice. “Obviously we hope that we will have successfully
concluded negotiations prior to the end of this period and as
such no further action would be required on this.” By now it
had been clear for several months that Golden did not propose
to maintain a $5 million letter of credit during the extension
term, and Warner proposed to insist on it.

   At this point, Golden faced termination in December, had
not agreed with Warner upon new terms, and had a letter of
credit that would be outstanding until the following July. The
contract had obligated Golden to keep a letter of credit in
place until May 31 2002 “only,” the bank ran the letters of
credit from July to July, and by not cancelling with the bank
while negotiations were going on, Golden had allowed the let-
ter of credit to run until July 2003. Golden proposed to pay
and be done with it.

   Golden responded to the letter and email on November 26,
characterizing Warner’s notice of default as a decision by
Warner to “unilaterally and without good faith [ ] terminate
the negotiations . . . .” Golden also noted a number of points
it had made that Warner had not responded to, questions it
         WARNER BROTHERS INT’L v. GOLDEN CHANNELS            3983
had not answered, and claims unexplained by Warner. Golden
also disputed the calculation by a few hundred thousand dol-
lars and proposed to pay Warner by its calculation,
$5,083,301, not Warner’s for $5,621,751. The difference,
$538,450, constitutes 89 hours of rerun programming that
Warner had not yet delivered to Golden because Golden had
not yet told Warner which titles it wanted. Golden immedi-
ately paid the $83,301 cash that it calculated it owed on top
of the $5 million secured by the letter of credit. Golden then
requested the return of the letter of credit. Golden wrote,

    According to section 13.7 of the Agreement, the
    [Letter of Credit] shall be in place until 31 May 2002
    only. Based on the assumption that the Amendment
    shall be executed, we have prolonged the period of
    the [Letter of Credit] delivered to Warner. Since (as
    mentioned in your letter of November 15, 2002)
    Warner has decided that no such Amendment shall
    be executed and pursuant to section 13.7 of the
    Agreement, we hereby request Warner to return the
    [Letter of Credit] to us immediately.

   In a letter a few days later, Golden proposed that an escrow
agent be used to collect the money from Golden and the letter
of credit from Warner and exchange them so that Warner
would get the full $5,083,301. The record does not show why
Golden preferred to exchange the letter of credit for $5 mil-
lion cash, so we do not know whether it had something to do
with Golden’s ongoing merger, bank fees (the bank charged
Golden $50,000 a year as a fee for keeping the letter of credit
in place), not burdening its line of credit during subsequent
months, or some other reason. The escrow arrangement would
give Warner $5 million cash in exchange for the $5 million
letter of credit. The record also does not show why Warner
would not be indifferent between the two forms of payment,
$5 million by sight draft on the letter of credit, or $5 million
cash.
3984     WARNER BROTHERS INT’L v. GOLDEN CHANNELS
   Warner concluded that more negotiations would be fruit-
less, so on December 9, 2002 it told Golden that it was termi-
nating the contract, stating that Golden “materially breached
the License Agreement by failing to pay license fees when
due.” That day it also drew down the entire $5,000,000 on the
letter of credit and sued Golden to collect money claimed on
top of the $5,000,000. Golden responded by issuing its own
termination letter on January 31, 2003. “Among other things,”
Golden asserted that Warner materially breached the License
Agreement by “wrongfully drawing upon the letter of credit”
and by “improperly declaring [Golden] to be in default.” Gol-
den said that it was “entitled to continue [to] broadcast the
inventory of programs already paid for through April 20,
2004.” Golden then counterclaimed in Warner’s suit.

   The case was tried to the bench. There is no finding of fact
explaining why Warner insisted on drawing down the letter of
credit instead of taking the identical amount in cash through
an escrow, or why Golden insisted on return of the letter of
credit in exchange for the identical amount of cash through an
escrow. In its conclusions of law, the district court concluded
that whether Golden had breached depended on whether its
demand for return of the letter of credit constituted a demand
for return of security, which would be proper under California
law, or a tender subject to a condition Warner was not obli-
gated to satisfy, which would not be a valid tender of perfor-
mance under Civil Code § 1504. The district court did not
find an inadequacy of the amount of Golden’s tender, even
though it varied from Warner’s demand because of the dis-
puted charge for some reruns.

   The court concluded that the tender was improperly condi-
tioned on return of the letter of credit, on the theory that Gol-
den was equitably estopped from denying that it had given the
letter of credit as security at least through May 2003. The the-
ory for the estoppel was that Golden’s renewal of the letter of
credit in May 2002 had misled Warner into continuing negoti-
ations, because Golden knew of Warner’s adamant insistence
         WARNER BROTHERS INT’L v. GOLDEN CHANNELS           3985
that the letter of credit had to remain in place through the sec-
ond term of the contract (November 2004). Golden’s silence,
when it renewed the letter of credit, was the misleading act,
causing Warner to believe that Golden had agreed that this
should be the amount of security for the second term.

   The court concluded that Golden’s November 26, 2002
offer was not proper, not because the amount was inadequate,
but because it was “subject to conditions [that Warner] is not
obligated to satisfy.” The “condition” was the return of the
letter of credit. Thus the November 26, 2002 offer was con-
sidered a “conditional” offer, which “does not constitute per-
formance under Cal. Civ. Code § 1504.” Under this approach,
Warner had not breached.

   In the alternative, based on much the same reasoning, the
court also concluded that Golden entered into an implied-in-
fact contract with Warner that “the appropriate security to be
given” for at least some of the extended contract term would
be the $5,000,000 letter of credit.

   As for damages, the court concluded that Warner was enti-
tled to both past amounts due and future “benefit of the bar-
gain” damages for future sales to Golden, to November 2004.
The court found that Golden acted in “bad faith” and made an
anticipatory repudiation of the contract when it conditioned
payment of the $5 million to Warner on return of the letter of
credit. The court awarded Warner damages of $19,315,960.

                           Analysis

I.   Breach

   Golden argues that it did not breach the contract by
demanding return of the letter of credit. The district court con-
cluded that when Golden let the letter of credit renew past the
date in the 1999 contract to cover the next year, knowing that
Warner refused to negotiate unless the letter of credit
3986      WARNER BROTHERS INT’L v. GOLDEN CHANNELS
remained in effect, Golden implied an agreement to keep it in
effect through the second term of the contract, and was estop-
ped from denying that it had agreed to keep the letter of credit
in effect.

   In light of the findings of fact and the words of the contract
the parties signed, the conclusions of law (which are not
reviewed under the highly deferential “clearly erroneous” stan-
dard)4 are problematic. First, these were sophisticated parties
on both sides. Second, Warner exercised its option to extend
the contract for a second term before the letter of credit was
renewed, so it could not have relied on the later renewal for
its decision to extend. Third, the contract could not have said
more clearly that the letter of credit was agreed upon to May
2002 “only” and that any changes would have to be in writ-
ing. Fourth, when Golden subsequently suggested that the
security during the second term would have to be lower, War-
ner plainly rejected this proposal, but just as plainly, Warner
did not claim that Golden had already agreed to the $5 million
letter of credit through the second term. Fifth, Warner never
said that it would not negotiate without the letter of credit in
place, just that having the letter of credit for $5 million in
place would be a sine qua non for agreement on whatever
reduced price and other terms it might agree to for the exten-
sion period.

   Golden’s theory would be stronger had it sent a reservation
of rights letter in May 2002 when it renewed the letter of
credit, telling Warner “we do not agree to maintain this letter
of credit for any fixed duration and may withdraw it at any
time if negotiations do not satisfactorily conclude.” Warner’s
theory would be stronger if it had sent a letter in response to
Golden’s proposal for a reduced amount of security saying
“we construed your renewal of the letter of credit in May as
an agreement to maintain it through the second term, and
  4
   Bank of New York v. Fremont Gen. Corp., 514 F.3d 1008, 1014 (9th
Cir. 2008).
           WARNER BROTHERS INT’L v. GOLDEN CHANNELS                   3987
would not have continued negotiations had we not been mis-
led.”

   There are no such reservations of rights or claims in any
letters, emails or oral communications to which the parties
have directed our attention. All we have is a 1999 contract
agreeing to a letter of credit for $5 million through May 2002
“only,” an agreement to “discuss” security for a second term,
an exercise by Warner of its option for a second term prior to
any renewal or agreement regarding the letter of credit, plenty
of discussion, and a failure to agree.

   [1] The negotiations took place both before the first term
ended, and during the second, renewal term. The contract
Golden had signed obligated it to maintain an irrevocable let-
ter of credit to May 31, 2002 “only,” and it did what it had
promised. Addressing Warner’s extension contract, the con-
tract Golden and Warner signed agreed to “discuss . . . appro-
priate security.” They discussed it. The common sense of the
deal and the use of the word “security” means that the letter
of credit was intended by the parties as security, to secure the
cash payments Golden would be obligated to make.

   [2] California law states that if all the tendering party
demands as a condition of its tender is return of its “security,”
as long as an agreement between the parties does not say oth-
erwise, that condition does not invalidate the tender.5 Anyone
paying off a promissory note gets the original mortgage or
deed of trust back when they pay off the note,6 just as anyone
who has pledged something tangible as security gets it back
when they pay the secured obligation.7 That is why someone
who pawns a violin gets it back from the pawnshop when they
pay the loan the pawnshop extended to them. The letter of
  5
    Cal. Com. Code § 9102 et seq.
  6
    Berry v. Bank of Bakersfield, 177 Cal. 206 (1918); Bell v. Bank of Cal.,
153 Cal. 234 (1908).
  7
    See People v. MacArthur, 142 Cal. App. 4th 275, 281 (2006).
3988      WARNER BROTHERS INT’L v. GOLDEN CHANNELS
credit was worth more than the usual pawned violin, but the
principle is the same. The findings and briefs, as explained
above, leave us in the dark about why Golden wanted the let-
ter of credit back in exchange for cash, and about why Warner
wanted to draw down the letter of credit instead of taking
cash, but we do not need to know, because the letter of credit
was nothing but security that was in effect to May 31, 2002
“only.”

   [3] The district court’s theory that Golden was estopped
from denying that it had agreed to extend the irrevocable let-
ter of credit “at least through May 2003” errs, because estop-
pel requires reasonable reliance on a misleading
communication upon which the victim was intended to rely.8
We are unable to see how there could be reasonable reliance
on the unmade promise to extend the letter of credit, in the
face of contract language limiting it to May 2002 “only,” a
clause saying any changes had to be in writing, and no com-
munication suggesting that Golden intended Warner to think
it had agreed on keeping the $5 million letter of credit in place
or that Warner thought Golden had so implied. There was no
misleading communication. If Warner wanted to know what
Golden meant to communicate, or if it meant to communicate
anything by allowing renewal of the letter of credit, it could
have asked. One is reminded of Metternich’s remark upon
learning of Talleyrand’s death, “I wonder what he meant by
that?”9

   The district court’s other theory for breach was that the par-
ties created an implied contract that would maintain an irrevo-
cable letter of credit through the end of the second term,
November 2004. The basis for this theory was Golden’s
knowledge of Warner’s adamant insistence that this would
  8
    Robinson v. Fair Employment & Hous. Comm’n, 2 Cal. 4th 226, 244-45
(1992); City of Long Beach v. Mansell, 3 Cal. 3d 462, 489 (1970).
  9
    Nigel Rees, Brewer’s Famous Quotations 452 (Weidenfeld & Nicolson
2006).
          WARNER BROTHERS INT’L v. GOLDEN CHANNELS           3989
have to be agreed upon for the extension term. The district
court in its conclusions of law described Warner’s position as
a “condition Warner placed on the renegotiation,” but as
explained above, the evidence and findings of fact support
only a conclusion that Warner would not modify other terms
unless the full $5 million letter of credit was maintained, not
that it would not negotiate unless the letter of credit was first
agreed to. Warner cannot possibly have meant, as the district
court appears to conclude, “there will be no second term and
no discussion about a second term unless you agree to keep
the $5 million letter of credit in place.” The reason why this
could not have been a condition for negotiation or extension
is that Warner exercised its option to extend when all it had
was a promise to keep the letter in place to the end of the first
term “only,” and to “discuss . . . appropriate security” for the
renewal term. Warner renewed in 2001 and took its chances
on whether the agreed to discussion would be fruitful.

   [4] Mutual assent is essential to an implied contract, the
distinction from an express contract being merely that the
promise is implied by conduct rather than expressed in words.10
The district court correctly pointed out that section 13.7 of the
contract, the letter of credit section, did not say that any sub-
sequent agreement would have to be memorialized in writing,
but section 21.2 says “the terms of this agreement,” which
includes section 13.7, may be altered only by written agree-
ment. Therefore, contrary to the district court’s conclusion,
the words of the express contract, requiring that modifications
be in writing and that the letter of credit extend to May 2002
“only,” and the course of negotiations, do not permit an impli-
cation that Golden at any time agreed to keep the $5 million
letter of credit in place through November 2004.

   [5] Thus we are unable to conclude that Golden breached
its contract, under the 1999 written contract, a contract by
  10
   Chandler v. Roach, 156 Cal. App. 2d 435, 440-441 (1957); Silva v.
Providence Hospital of Oakland, 14 Cal. 2d 762, 773 (1939).
3990      WARNER BROTHERS INT’L v. GOLDEN CHANNELS
implication, or because of estoppel when it demanded return
of its $5 million letter of credit in exchange for $5 million in
cash.

   But that is not the end of the case. Warner had exercised
its option to extend the contract through November 2004.
That was the basis for the district court’s award of damages
for all the money Warner would have made had the contract
been performed until November 2004. The parties carried out
their promise to “discuss” what might be “appropriate securi-
ty” for the renewal term. They never agreed on an “appropri-
ate security.”

   [6] Warner never agreed to anything less than keeping the
$5 million letter of credit in place, and Golden never agreed
that it would do so. A fair reading of section 13.7 of the con-
tract is that a $5 million letter of credit was an essential term
of the contract. The parties had agreed only to “discuss” the
appropriate amount of security, but there was an implied con-
dition that Warner would not have to perform if Golden’s
payments were not secured.11 Implied conditions are those
that “are necessary to make a contract reasonable, or conform-
able to usage, are implied, in respect to matters concerning
which the contract manifests no contrary intention.”12 All past
performance by Warner was secured by a $5 million letter of
credit. This history, the mount of money at stake, and the use
of the word “appropriate,” imply that the parties contemplated
that security for payment was a “stipulation[ ] which [is] nec-
essary to make a contract reasonable” that California law
demands.13 The language in section 13.7 that Warner would
be secured by an amount that after discussion the parties
agreed was “appropriate,” implied that Warner could not be
held to an obligation to supply programming through the sec-
ond term if payment was not secured, and Golden does not
  11
Cal. Civ. Code § 1655.
  12
     Id.
  13
     Id.
           WARNER BROTHERS INT’L v. GOLDEN CHANNELS               3991
argue to the contrary. Thus, continued performance after May
31, 2002 by both parties was impliedly conditioned on the
presence of “appropriate security,” the amount and form of
which the parties had agreed to “discuss.”

   [7] After May 31, 2002, all back and forth discussions
about the “appropriate” security to be in place for the exten-
sion term were offers and counter-offers, attempting to agree
on an “appropriate security.”14 Once negotiations broke down
between Warner and Golden, and no agreement on the appro-
priate security for the extension term was made, an implied
condition of the contract failed, and with it, the contract
ended. Agreement upon and maintenance of appropriate
security for payments as they become due was an implied
condition of performance. Warner did not excuse non-
occurrence of this condition. “Unless it has been excused, the
non-occurrence of a condition discharges the duty when the
condition can no longer occur.”15 Since the parties had agreed
only to “discuss” security, and did, neither breached its prom-
ise to discuss it. Failure to agree was not a breach because an
agreement to agree is not a contract.16 Warner did not breach
by terminating its performance December 9, and neither did
Golden, because “[n]on-occurrence of a condition is not a
breach by a party unless he is under a duty that the condition
occur.”17

   Yet, to reiterate, there was no breach. Neither party had
failed to perform its obligations under the contract. Warner
supplied all products under the contract, and Golden paid for
them. Golden kept the letter of credit in place until May 31,
2002, which is all that it had promised, and after that date
  14
     See Tuso v. Green, 194 Cal. 574, 581 (1924).
  15
     Restatement (Second) of Contracts § 225(2).
  16
     Autry v. Republic Prods., 30 Cal. 2d 144, 151 (1947); Vangel v. Van-
gel, 116 Cal. App. 2d 615, 631 (1953); Townsend v. Flotill Prods., 82
Cal. App. 2d 863, 866 (1948).
  17
     Restatement (Second) of Contracts § 225(3).
3992     WARNER BROTHERS INT’L v. GOLDEN CHANNELS
both parties discussed appropriate security. Once those dis-
cussions came to an impasse, the contract ended.

   [8] Thus Warner was within its rights to terminate its own
performance, as it did on December 9, 2002. Warner did not
elect to continue supplying programming, and to bill Golden
for the unsecured amounts through the extension term. Since
the second term of the contract was already running, Warner
had been performing its duties to supply programming, and
the parties had agreed on the prices of the programming, War-
ner was entitled to get paid for the programming it had sup-
plied. The district judge did not find any inadequacy of
amount in Golden’s tender as of the time it was made, and did
not find a breach by failure to pay amounts owed as they
became due. Neither side breached, they just failed to reach
agreement on a new term, and continued performance was
conditional on agreement.

   The parties also dispute whether there was a bad faith antic-
ipatory repudiation by Golden and whether the pretrial order
gave fair notice that Warner would claim expectancy damages
based on a theory of anticipatory repudiation. We need not
reach these issues because we hold that neither party
breached.

   We accordingly REVERSE and REMAND so that the dis-
trict court can make a damages determination based on War-
ner getting paid whatever was due for the performance it had
rendered through December 9, 2002. Each party to bear its
own costs.