51 Cal. 2d 119
-The developer planned to construct a shopping center adjacent to the landowner’s property.
-After unsuccessful negotiations, the landowner submitted an offer, which the developer accepted. -The parties’ signed a deposit receipt form, requiring purchase within 120 days subject to obtaining leases satisfactory to the developer.
-The developer paid the deposit.
-Prior to the purchase date, the developer was notified the landowner would not sell the property.
(1) the language conditioning the developer’s performance on the obtaining of satisfactory leases was a “satisfaction” clause, (2) a valid contract arose between the parties, (3) the deposit receipt was not illusory or lacking in mutuality of obligation because it contained a “satisfaction” clause, (4) the standard for evaluating the developer’s satisfaction was that he exercise his judgment in good faith, (5) the standard of the reasonable person did not apply where the performance involved a matter dependent on judgment, and (6) any cases departing from the established rules employing the criterion of good faith in upholding “satisfaction” clauses dependent on the exercise of judgment were disapproved.
-Plaintiff developer sought review of a judgment from the Superior Court of Contra Costa County (California), which concluded that an agreement between the developer and defendant landowner requiring the landowner to convey her real property to the developer was illusory and lacking in mutuality.
-While contracts making the duty of performance of one of the parties conditional upon his satisfaction seem to give him wide latitude in avoiding any obligation and thus present serious consideration problems, such “satisfaction” clauses are given effect. They are divided into two primary categories and are accorded different treatment on that basis.
-First, in those contracts where the condition calls for satisfaction as to commercial value or quality, operative fitness, or mechanical utility, dissatisfaction cannot be claimed arbitrarily, unreasonably, or capriciously, and the standard of a reasonable person is used in determining whether satisfaction was received.
-An agreement in which the promise of one party is conditioned on his own or the other party’s satisfaction is generally considered as requiring a performance which shall be satisfactory to him in the exercise of an honest judgment. Such contracts are almost universally upheld.
-A promise conditional upon the promisor’s satisfaction is not illusory since it means more than that validity of the performance is to depend on the arbitrary choice of the promisor.
-His expression of dissatisfaction is not conclusive. That may show only that he has become dissatisfied with the contract; he must be dissatisfied with the performance, as a performance of the contract, and his dissatisfaction must be genuine.
The court reversed the judgment.