Contracts Mattei v. Hopper

Mattei v. Hopper, 51 Cal. 2d 119, 330 P.2d 625 (Cal. 1958).

Facts: Mattei (P), a real estate developer, sought to purchase property owned by Hopper (D) for a new shopping center. After lengthy negotiations Mattei accepted Hopper’s offer to sell for $57,500. Under the agreement Mattei was required to deposit $1,000 with the real estate agent and had 120 days to examine the title and consummate the purchase, at which time the balance of the purchase price was due. The agreement also contained a personal satisfaction clause whereby Mattei was excused from performance if he was unable to arrange satisfactory leases of space in the shopping center.

Before the 120 days had elapsed, Hopper’s attorney notified Mattei that she would not sell her land under the terms of the agreement. Hopper refused to complete the transaction and Mattei sued for breach of contract. The trial court entered judgment for Hopper and Mattei appealed.

Issues: 1) Does a personal satisfaction clause necessarily render a contract illusory or void for lack of consideration or mutuality? 2) If a party does not assume a legal duty in making a promise, is the agreement binding as a bilateral contract? 3) Where a contract consists of an exchange of promises, must the promises be mutual in obligation?

Holding and Rule: 1) No. A personal satisfaction clause does not necessarily render a contract illusory or void it for lack of consideration or mutuality. 2) No. If a party is not assuming a legal duty in making a promise, the agreement is not binding as a bilateral contract. 3) Yes. When the parties attempt to make a contract where promises are exchanged as the consideration, the promises must be mutual in obligation.

An agreement that lacks mutuality of obligation lacks consideration and is unenforceable. Mutuality of obligation exists when both parties have assumed some legal obligation. If the agreement leaves one party free to perform or to withdraw from the agreement at his own unrestricted pleasure, the promise is illusory and lacks consideration.

Satisfaction clauses are divided into two primary categories that are treated differently by the courts:

1) 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. The standard of a reasonable person is used in determining whether satisfaction has been received.

2) In contracts where the issue of satisfaction involves fancy, taste, or judgment, the promissor’s good faith determination that he is not satisfied is a defense to breach of contract. The requirement to act in good faith prevents constitutes consideration and the contract is enforceable. The party is not released from the agreement merely because he has become dissatisfied with the contract itself. He must have a genuine, good faith dissatisfaction with the performance.

This case falls into the second category because 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. The contract was neither illusory nor lacking in mutuality of obligation.

Disposition: Reversed.

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