Mattei v. Hopper

Citation330 P.2d 625,51 Cal.2d 119
CourtUnited States State Supreme Court (California)
Decision Date24 October 1958
PartiesPeter O. MATTEI, Plaintiff and Appellant, v. Amelia F. HOPPER, Defendant and Respondent. S. F. 19806.

Jay R. Martin and William F. Sharon, Oakland, for appellant.

Carlson, Collins, Gordon & Bold George R. Gordon, Martinez, John L. Garaventa, Concord, and Dean Ormsby, Martinez, for respondent.

SPENCE, Justice.

Plaintiff brought this action for damages after defendant allegedly breached a contract by failing to convey her real property in accordance with the terms of a deposit receipt which the parties had executed. After a trial without a jury, the court concluded that the agreement was 'illusory' and lacking in 'mutuality.' From the judgment accordingly entered in favor of defendant, plaintiff appeals.

Plaintiff was a real estate developer. He was planning to construct a shopping center on a tract adjacent to defendant's land. For several months, a real estate agent attempted to negotiate a sale of defendant's property under terms agreeable to both parties. After several of plaintiff's proposals had been rejected by defendant because of the inadequacy of the price offered, defendant submitted an offer. Plaintiff accepted on the same day.

The parties' written agreement was evidenced on a form supplied by the real estate agent, commonly known as a deposit receipt. Under its terms, plaintiff was required to deposit $1,000 of the total purchase price of $57,500 with the real estate agent, and was given 120 days to 'examine the title and consummate the purchase.' At the expiration of that period, the balance of the price was 'due and payable upon tender of a good and sufficient deed of the property sold.' The concluding paragraph of the deposit receipt provided: 'Subject to Coldwell Banker & Company obtaining leases satisfactory to the purchaser.' This clause and the 120-day period were desired by plaintiff as a means for arranging satisfactory leases of the shopping center buildings prior to the time he was finally committed to pay the balance of the purchase price and to take title to defendant's property.

Plaintiff took the first step in complying with the agreement by turning over the $1,000 deposit to the real estate agent. While he was in the process of securing the leases and before the 120 days had elapsed, defendant's attorney notified plaintiff that defendant would not sell her land under the terms contained in the deposit receipt. Thereafter, defendant was informed that satisfactory leases had been obtained and that plaintiff had offered to pay the balance of the purchase price. Defendant failed to tender the deed as provided in the deposit receipt.

Initially, defendant's thesis that the deposit receipt constituted no more than an offer by her, which could only be accepted by plaintiff notifying her that all of the desired leases had been obtained and were satisfactory to him, must be rejected. Nowhere does the agreement mention the necessity of any such notice. Nor does the provision making he agreement 'subject to' plaintiff's securing 'satisfactory' leases necessarily constitute a condition to the existence of a contract. Rather, the whole purchase receipt and this particular clause must be read as merely making plaintiff's performance dependent on the obtaining of 'satisfactory' leases. Thus a contract arose, and plaintiff was given the power and privilege to terminate it in the event he did not obtain such leases. (See 3 Corbin, Contracts (1951), § 647, pp. 581-585.) This accords with the general view that deposit receipts are binding and enforceable contracts. (Cal.Practice Hand Book, Legal Aspects of Real Estate Transactions (1956), p. 63.)

However, the inclusion of this clause, specifying that leases 'satisfactory' to plaintiff must be secured before he would be bound to perform, raises the basic question whether the consideration supporting the contract was thereby vitiated. When the parties attempt, as here, to make a contract where promises are exchanged as the consideration, the promises must be mutual in obligation. In other words, for the contract to bind either party, both must have assumed some legal obligations. Without this mutuality of obligation, the agreement lacks consideration and no enforceable contract has been created. Shortell v. Evans-Ferguson Corp., 98 Cal.App. 650, 660-662, 277 P. 519; 1 Corbin, Contracts (1950), § 152, pp. 496-502.) Or, if one of the promises leaves a party free to perform or to withdraw from the agreement at his own unrestricted pleasure, the promise is deemed illusory and it provides no consideration. See J. C. Millett Co. v. Park & Tilford Distillers Corp., D.C.N.D.Cal., 123 F.Supp. 484, 493. 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. Ibid.

While contracts making the duty of performance of one of the parties conditional upon his satisfaction would seem to give him wide latitude in avoiding any obligation and thus present serious consideration problems, such 'satisfaction' clauses have been given effect. They have been divided into two primary categories and have been 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 (Collins v. Vickter Manor, Inc., 47 Cal.2d 875, 882-883, 306 P.2d 783), and the standard of a reasonable person is used in determining whether satisfaction has been received. Thomas Haverty Co. v. Jones, 185 Cal. 285, 296, 197 P. 105; Fielding & Shepley, Inc., v. Dow, 72 Cal.App.2d 18, 21, 163 P.2d 908; Fruit Growers' Supply Co. v. Goss, 4 Cal.App.2d 651, 654, 41 P.2d 357; Scott Co., Inc., v. Rolkin, 133 Cal.App. 209, 212, 23 P.2d 1065; Melton v. Story, 113 Cal.App. 609, 612-614, 298 P. 1032; Jones-McLaughlin, Inc., v. Kelly, 100 Cal.App. 315, 321-325, 279 P. 1076; Bruner v. Hegyi, 42 Cal.App. 97, 99, 183 P. 369. Of the Cited cases, two have expressly rejected the arguments that such clauses either rendered the contracts illusory (Collins v. Vickter Manor, Inc., supra) or deprived the promises of their mutuality of obligation. Melton v. Story, supra. The remaining cases tacitly assumed the creation of a valid contract. However, it would seem that the factors involved in determining whether a lease is satisfactory to the lessor are too numerous and varied to permit the application of a reasonable man standard as envisioned by this line of cases. Illustrative of some of the factors which would have to be considered in this case are the duration of the leases, their provisions for renewal options, if any, their covenants and restrictions, the amounts of the rentals, the financial responsibility of the lessees, and the character of the lessees' businesses.

This multiplicity of factors which must be considered in evaluating a lease shows that this case more appropriately falls within the second line of authorities dealing with 'satisfaction' clauses, being those involving fancy, taste, or judgment. Where the question is one of judgment, the promisor's determination that he is not satisfied, when made in good faith, has been held to be a defense to an action on the contract. Tiffany v. Pacific Sewer Pipe Co., 180 Cal. 700, 702-705, 182 P. 428, 6 A.L.R.1493; Brenner v. Redlick Furniture Co., 113 Cal.App. 343, 346-347, 298 P. 62; Kendis v. Cohn, 90 Cal.App. 41, 66-68, 265 P. 844; Schuyler v. Pantages, 54 Cal.App. 83, 85-87, 201 P. 137; see also Van Demark v. California Home Extension Ass'n, 43 Cal.App. 685, 687-689, 185 P. 866. Although these decisions do not expressly discuss the...

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