51 Cal.2d 119
SYNOPSIS: 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.
-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.
The court held that:
(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.
-For the contract to bind either part, both must have assumed some legal obligations. Without this mutuality of obligation, the agreement lacks consideration and no enforceable contract exists.
-Whether these problems are couched in terms of mutuality of obligation or the illusory nature of a promise, the underlying issue is the same--consideration.
-dissatisfaction cannot be claimed arbitrarily, unreasonably, or capriciously...and the standard of the reasonable person is used in determining whether satisfaction has been received.
(fancy, taste, or judgement)
-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.
-Contract not illusory nor lacking in mutuality of obligation because the parties inserted a provision in their contract making Pl.’s performance dependent on his satisfaction with the leases to be obtained by him.
OUTCOME: The court reversed the judgment.
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