Contractssatisfaction clauseillusory promisemutuality of obligationconsiderationgood faithdeposit receiptreal estate contract
Facts
Plaintiff, a real estate developer, agreed in a written deposit receipt to buy defendant's property for $57,500 and deposited $1,000 with the real estate agent. The agreement gave plaintiff 120 days to examine title and consummate the purchase, and stated: "Subject to Coldwell Banker & Company obtaining leases satisfactory to the purchaser." Plaintiff wanted this clause and period so he could secure satisfactory leases for a planned shopping center before becoming finally obligated to pay the balance and take title. Before the 120 days expired and while plaintiff was securing leases, defendant notified plaintiff she would not sell under the deposit receipt; plaintiff later informed defendant that satisfactory leases had been obtained and offered to pay the balance, but defendant did not tender a deed.
Issue
Did the clause making plaintiff's performance subject to obtaining leases satisfactory to him render the agreement illusory or lacking in mutuality of obligation, so that no enforceable contract existed? Also, did that clause prevent formation of a contract unless plaintiff gave further notice that satisfactory leases had been obtained?
Rule
A contract is not illusory or lacking in mutuality merely because one party's performance is conditioned on that party's satisfaction. Where satisfaction depends on commercial value, quality, operative fitness, or mechanical utility, a reasonable-person standard applies; where it depends on fancy, taste, or judgment, the promisor's dissatisfaction is judged by good faith, and the duty to exercise that judgment honestly supplies adequate consideration.
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Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case
One of 10 multiple-choice questions for this case. Pick an answer to see why.
In Phoenix, Nora Vega signed a written agreement to buy a parcel from Liam Porter for a mixed-use project. The agreement required a $5,000 deposit, gave Nora 90 days to close, and stated, "Subject to buyer obtaining tenant commitments satisfactory to buyer." Forty days later, before the 90-day period expired, Liam announced he would not sell, arguing no contract existed unless Nora later notified him that the commitments were satisfactory.
Which is the strongest analysis?
Explanation. The majority treated a signed agreement containing a satisfaction clause as an existing contract unless the writing requires further notice or acceptance. A clause making performance "subject to" the buyer obtaining satisfactory leases was read as a condition on the buyer's duty to perform, not as a condition to contract formation. Because the hypothetical likewise contains no requirement of later notice, the better view is that a contract arose on signing, with the buyer holding the power to terminate if satisfactory commitments were not obtained in good faith.