Omni Group v. Seattle-First National Bank

Washington Court of Appeals · Contracts

Contractsillusory promiseconsiderationcondition precedentsatisfaction clausegood faithfeasibility reportspecific performance

Facts

The Clarks listed approximately 59 acres for sale through Royal Realty, and Omni signed an earnest money agreement offering $2,000 per acre. The agreement stated that the transaction was subject to Omni's receiving an engineer's and architect's feasibility report, prepared at Omni's expense, and required Omni to notify the sellers in writing within 15 days if the report was satisfactory; otherwise the transaction would be null and void. After signing, the Clarks told their brokers they wanted additional terms concerning improvements on adjacent land, but those terms were not communicated to Omni at that time. Omni later informed the Clarks it would forgo the feasibility study, agreed by letter to the Clarks' additional terms, and then the Clarks refused to proceed with the sale.

Issue

Did the earnest money agreement lack consideration because Omni's promise to purchase was illusory where its duty to buy was conditioned on obtaining a feasibility report satisfactory to itself and giving notice within 15 days? Also, could the judgment be affirmed on the theory that the brokers acted as Omni's agents so that the Clarks' undisclosed additional terms operated as a counteroffer and rejection?

Rule

A promise conditioned on the promisor's receipt of a satisfactory report or other satisfactory performance is not illusory if the condition imposes a duty of good faith and the promisor's power to cancel or terminate may be exercised only upon specified conditions. A condition precedent dependent on the promisor's satisfaction does not destroy consideration where satisfaction is constrained by good faith rather than unfettered discretion.

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

In Portland, Nora Bennett signed an agreement to buy a warehouse from Elias Romero for redevelopment. The agreement stated that the purchase was subject to Nora's receipt of a structural and zoning feasibility report, prepared at her expense, that was satisfactory to her, and that if the report was satisfactory she had to give written notice within 10 days or the deal would be void.

If Elias later argues the agreement lacked consideration from the outset because Nora could decide for herself whether the report was satisfactory, which is the strongest response?

Explanation. A promise is not illusory merely because the buyer's duty is conditioned on receiving a report satisfactory to the buyer. Under the majority rule here, a satisfaction condition does not destroy consideration because the buyer's judgment is constrained by good faith rather than unfettered discretion. The court also recognized that satisfaction may in some settings be personal or objective, but in neither case is the promise automatically illusory. (Derived from Omni Group v. Seattle-First National Bank (n.d.).)