Mattei v Hopper

PROC:

buyer sues seller; trial; no jury; trial crt sez no K; appeal; appl crt sez yes K

FACTS:

developer to buy land; deposit receipt w/ "satisfaction" clause; seller renegs; dev sues

ISSUE:

does "satisfaction clause" make promise illusory?

HOLD:

satisfaction clause does not invalidate consideration; conflicting cases over-ruled

REAS:

Def argues that deposit receipt not contract

--misreads satsifaction clause as necessary condition to be met for contract to be valid

--case law supports satsifaction clauses - rely on "good faith" ((buyer is constrained to use good faith = he has to really really be unsatisfied in order to invoke his satisfaction clause))

--even subjective satisfaction clauses can be ok

--language of 2 new cases conflicts, they argue unrestricted disgression for buyer in satisf cluases

--over-ruled, court stays with standard of good faith that buyer must meet in order to get out of K under his satisfaction clause

Class Notes:

Seller ---promise to sell--->>    <<promise to buyBuyer

In real estate contracts:

normally time passes between deal and title transfer

time for buyer to change mind

get building inspected

see if title is ok (liens)]

find the money to actually buy it

Satisfaction clauses therefore an industry standard.

mitigate buyer's risk (would be bad to buy property that turned out to worthless)

real estate contracts tend to have many conditions that favoer the buyer b/c buyer is taking a lot of risk

REMEBER-- contracts are risk-shifting devices

tend to be

BILATERAL CONTRACTS - ((promise for promise, binding upon signing, if any party breaks promise, there be breach!))

but with EXPRESS CONDITIONS (like satisfaction clause to protect buyer)

Common Law Note: Conditions often have to do with timing

FOR EXAMPLE Common Law will assume that in a contract where money is promised on one side and service is promised on the other side,

unless there is some express condition (IN CONTRACT) then law will assume an IMPLIED CONDITION, that service must be rendered first, then money must be paid

If no service and no payment, no contract, no problem??? ASK SOKOLOW??

SImilarly, court finds an IMPLIED CONDITION in this contract.

The buyer's promise is NOT ILLUSORY, because it is implied that he must be "unsatsified" in good faith before he can back out. So he isn't free to take off whenever he feels like it

What is "good faith"??

court debates subjective standard (what does this one guy think is satisfactory?) and objective standard (what would a reasonable person think is satisfactory)

COurt seems to think this would be subjective

Sokolow disagrees, thinks objective (ie, tenants satisfactory if have paid rent in past, good credit, not mafia, etc)

Court never actually holds for either standard, says implied condition of good faith, whatever standard, is good enough to save contract

Sokolow says court is dong something weird. It is finding an implied condition that would theoretically protect the seller from evil buyer who would pull out just because they felt like it

BUT ACUTALLY, because the implied condition allows court to find consideration and say that buyer's promise is not illusory, it is actually protecting the buyer from an evil seller who wants to raise his price

in order for contracts like this to have commercial efficacy, buyer is gonna want to lock down the deal beore he goes hunting for tenants

WHAT is really happening is that court is saving satisfaction clauses, which are an industry standard b/c they make real estate dealing work.

court doesn't want litigation of contracts after the fact just because rising market or some other factor makes someone think they could have gotten better deal

REMEMBER - in rising market, seller will breach (maybe efficiently(

in falling market, buyer will breach

STANDARDS::

objective standard of good faith --> judged by what a reasonable person would believe

obvious best for stuff with clear commercial value, especially if market to provide price points

numbers -- court sez - quantities, operable fitness, mechanical utility

subjective standard: was THIS person satisfied in THIS case

hypo: seller paints cubist portrait of daughter for non cubist dude

buyer says, I am not satisfied. That doesn't look like my daughter. I hate you and your stupid modernist school of "painting"

buyer wants out under satisfaction clause --> probably gonna need subjective standard

Sokolow talks a lot about how court spends a long time debating what standard to use, leans toward subj, but doesn't need to pick one for its holding

so all that debate is just dictum.

in the future, however, may need to be determined which standard.

ASK SOKOLOW: who has the burden of proving a subjective standard of good faith

alleger of bad faith??

REMEMBER: real property follows common law of contracts, not UCC