West Los Angeles Institute for Cancer Research v. Mayer
United States Court of Appeals for the Ninth Circuit
366 F.2d 220 (1966)
- Written by Rich Walter, JD
Facts
Ward Mayer (plaintiff) entered into a leaseback agreement with the West Los Angeles Institute for Cancer Research (defendant). Both parties knew that Mayer could benefit from the agreement only if he received most of the leaseback payments within five years, and the Internal Revenue Service (IRS) taxed the payments as capital gains. Three years later the IRS ruled that such payments were taxable as ordinary income. The parties foresaw the possibility of such a ruling when they made their contract. However, the institute dissuaded Mayer from inserting a contingency-release clause, promising he did not need it and that it could only draw unfavorable attention from the IRS. Mayer negotiated with the IRS for the next 11 years but failed to persuade the IRS to change its policy. Within months of the talks collapsing, Mayer successfully petitioned the federal district court to release him from the contract, on the grounds that the IRS’s ruling completely frustrated the purpose for which he had entered into the leaseback agreement. The institute appealed to the Ninth Circuit. By this time, the Supreme Court had reversed the IRS’s ruling.
Rule of Law
Issue
Holding and Reasoning (Browning, J.)
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