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District Court of Appeal, First District, Division 2, California.

Peter O. MATTEI, Plaintiff and Appellant, v. Amelia F. HOPPER, Defendant and Respondent.*

Civ. No. 17880.

Decided: June 05, 1958

Jay R. Martin, William F. Sharon, Oak land, for appellant. Carlson, Collins, Gordon & Bold, John L. Garaventa, Martinez, for respondent.

This appeal presents the question whether a contract for sale of real estate is illusory and lacking in mutuality because it contains the clause ‘Subject to Coldwell, Banker and Company obtaining leases satisfactory to the purchaser.’ The agreement is in the form of a deposit receipt. Plaintiff buyer deposited $1,000 of the total price of $57,500. Before the time for payment of the balance, defendant seller notified buyer that she would not sell. Plaintiff brought this action for damages, and appeals from judgment entered for defendant after trial without jury.

The deposit receipt provides that 120 days ‘are allowed the purchaser to examine the title and consummate the purchase’ and that at the expiration of that period the balance of the purchase price ‘is due and payable.’ The clause relating to obtaining of leases is contained in a separate and concluding paragraph, and does not specify whether it is the existence or the performance of the agreement which is ‘subject to’ the obtaining of such satisfactory leases. The evidence shows that appellant buyer planned to construct a shopping center upon this and adjoining land, and that he desired 120 days to arrange for leasing to store operators of space in the buildings to be constructed.

Seller suggests that the agreement requires notice from seller to buyer of the securing of leases, and that until such notice there is no binding agreement, but merely a continuing offer which can be withdrawn at will. We do not agree. Nowhere does the agreement mention any such notice, nor can the document fairly be construed as making the existence of an agreement dependent upon the securing of leases. Rather, the parties bound themselves, one to pay and one to accept, a fixed price 120 days from date of the agreement, performance being subject to ‘obtaining leases satisfactory to the purchaser.’

The real question is whether the requirement that the leases be ‘satisfactory to the purchaser’ renders appellant's obligation illusory. One who agrees to perform only if it pleases him to do so is not bound to perform at all. Central Oil Co. of Los Angeles v. Southern Refining Co., 154 Cal. 165, 97 P. 177. Such an agreement will not supply consideration for another's promise. If appellant's promise amounts to no more than this, there is no mutuality and thus no contract. Lawrence Block Co. v. Palston, 123 Cal.App.2d 300, 266 P.2d 856; Pruitt v. Fontana, 143 Cal.App.2d 675, 300 P.2d 371.

But the courts have long recognized that agreements to perform to the satisfaction of another are not of this type. Such promises fall into two classes, those involving matters of fancy, taste or judgment, and those concerning operative fitness or mechanical utility. In the first class of cases, our courts have held that the obligor's determination that he is not satisfied, if made in good faith, is a defense to an action upon his promise. Tiffany v. Pacific Sewer Pipe Co., 180 Cal. 700, 182 P. 428, 6 A.L.R. 1493; Hall v. Webb, 66 Cal.App. 416, 226 P. 403; Schuyler v. Pantages, 54 Cal.App. 83, 201 P. 137. These decisions do not expressly discuss the issue of mutuality, but implicit in them is the holding that the promisor's obligation to exercise his judgment in good faith is an adequate consideration to support the promise of the other party. See Van Demark v. California Home Extension Ass'n, 43 Cal.App. 685, 185 P. 866, holding the purchaser of land could rescind his purchase, long after it was made, under a provision that the seller would buy back the land if buyer were dissatisfied. Where the condition calls for satisfaction as to commercial value, operative fitness or mechanical utility, dissatisfaction cannot be claimed arbitrarily, unreasonably or capriciously (Collins v. Vickter Manor, Inc., 47 Cal.2d 875, 306 P.2d 783), and the standard of the reasonable man is resorted to in determining whether satisfaction has been given (Melton v. Story, 113 Cal.App. 609, 298 P. 1032; Thomas Haverty Co. v. Jones, 185 Cal. 285, 295, 197 P. 105).

It may be that the factors involved in determining what are satisfactory leases are too many and varied to permit application of the standard of the reasonable man, although expert testimony might establish a measure for determining reasonable satisfaction. If such a standard can be applied, there is no question that the promise of the buyer has substance, and affords adequate consideration. If such a standard is not applicable, the buyer is obligated to exercise an honest judgment, and this, too, is an adequate consideration for the counterpromise to convey. See 3 Williston on Contracts (Rev. ed.) 1943. ‘It is only where the option reserved to the promisor is unlimited that his promise becomes illusory and incapable of forming part of a legal obligation.’ 1 Williston on Contracts (3rd ed.) 143. We are not concerned with the measure of damages in an action by seller against buyer. Here the buyer asserts his satisfaction with the leases obtained, and seeks damages for the seller's refusal to perform.

Respondent seller relies upon Lawrence Block Co. v. Palston, supra, 123 Cal.App.2d 300, 266 P.2d 856, and Pruitt v. Fontana, supra, 143 Cal.App.2d 675, 300 P.2d 371, 377. But in each the language dealing with illusory contracts was unnecessary to the decision. In Lawrence Block, plaintiff was a real estate broker seeking a commission, his right to which depended upon the existence of a binding agreement between buyer and defendant seller. The seller had not accepted buyer's offer as written, but had added other conditions. Lacking acceptance of the offer, there was no contract of sale, and thus no support for plaintiff broker's claim of commission. This ground alone supports the result there reached. In Pruitt, the written agreement provided that the land was taken subject to easements ‘to be approved by the buyers.’ In fact, buyers refused to accept some of the easements of record, and the parties entered into a new and different oral agreement. The decision held that defendant seller was estopped to assert the statute of frauds as a defense, and reversed a judgment of dismissal entered after sustaining of demurrers. Also, neither of these agreements required that performance be ‘satisfactory’ to the buyer, and there is authority that the absence of such language takes an agreement out of the class of ‘satisfaction’ contracts. Sloan v. Stearns, 137 Cal.App.2d 289, 296, 290 P.2d 382.

A more basic distinction is found in the fact that in both Lawrence Block and Pruitt the agreement could be construed as vesting an untrammelled option in one party. In the case at bar, as already stated, the agreement must be construed as requiring the buyer to exercise his judgment in good faith. Also, since buyer cannot prevent performance of the condition by his own conduct (Sloan v. Stearns, supra, 137 Cal.App.2d 289, 295, 290 P.2d 382), it follows that he impliedly obligated himself to see that leases were in fact sought by the broker. In view of these obligations, reasonably to be implied from the language of this deposit receipt, there clearly is no unlimited option in buyer to refuse performance on his part, and thus his agreement is not merely illusory. It follows that there is mutuality of obligation and that the contract is enforceable.

However, the action cannot be disposed of on this appeal. Because of the trial court's conclusion that the contract was unenforceable, there are no findings upon performance by plaintiff or excuse for non-performance. Also, the issue of damages is undetermined.

Judgment reversed, and case remanded for further trial.

DRAPER, Justice.

KAUFMAN, P. J., and DOOLING, J., concur.