Morin Building Products Co. v. Baystone Construction, Inc.

United States Court of Appeals for the Seventh Circuit · Contracts

Contractssatisfaction clausesobjective vs. subjective satisfactionsatisfaction clauseobjective standardreasonable persongood faithcommercial quality

Facts

General Motors hired Baystone to build an addition to a Chevrolet plant in Indiana, and Baystone subcontracted with Morin to supply and erect aluminum walls. The contract required mill-finish, stucco-embossed aluminum siding matching the finish and texture of existing metal siding, and also contained clauses making approval and acceptability rest with the owner in matters relating to artistic effect, quality, and fitness. After Morin installed the siding, General Motors' representative rejected it because in bright sunlight and from an acute angle it did not appear uniformly finished. Baystone replaced Morin's work with another subcontractor's siding, refused to pay Morin the remaining $23,000, and Morin prevailed at trial.

Issue

When a commercial construction contract contains language conditioning acceptance on the owner's satisfaction, should the owner's dissatisfaction with the appearance of factory-wall siding be judged by a subjective good-faith standard or by an objective reasonable-person standard? Also, did the contract language here clearly place Morin's right to payment at the mercy of General Motors' private aesthetic judgment?

Rule

Under Indiana law, a satisfaction clause is interpreted by an objective reasonable-person standard when the contract concerns commercial quality, operative fitness, or mechanical utility and objective evaluation is practicable. A subjective good-faith standard applies when the contract concerns personal aesthetics or fancy, but only if the contract language or circumstances show the parties intended to make the buyer's private satisfaction controlling in the respect at issue.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

North Harbor Distribution hired Cedar Peak Builders to construct a warehouse in Columbus, Ohio. Cedar Peak subcontracted with Elena Ortiz Masonry to install concrete block walls; the subcontract said payment was due only if the owner's representative found the work satisfactory, and the owner rejected the walls because tiny color variations were visible only at sunset from across the parking lot.

If Elena sues for the unpaid balance, which standard should a court most likely apply to the owner's dissatisfaction?

Explanation. The majority rule applied by the court is that satisfaction clauses are judged objectively when the contract concerns commercial quality, operative fitness, or mechanical utility and objective evaluation is practicable. A warehouse wall is closer to commercial quality than personal fancy, even though appearance is involved. The mere use of owner-satisfaction language does not automatically make private taste controlling.