## Facts

- A real estate developer agreed to buy an adjacent parcel to assemble land for a planned shopping center.
- The parties signed a written deposit receipt agreement for a $57,500 purchase price with a $1,000 deposit paid to an agent.
- The agreement allowed 120 days to examine title and consummate the purchase; the balance was due upon tender of a good and sufficient deed.
- The agreement stated the sale was “subject to [the broker] obtaining leases satisfactory to the purchaser,” allowing the buyer time to secure acceptable commercial tenants before closing.
- The buyer paid the deposit and pursued leases during the 120-day period.
- Before the period expired, the seller’s attorney notified the buyer that the seller would not sell under the agreement’s terms.
- The buyer later asserted that satisfactory leases had been obtained and offered to pay the balance, but the seller did not tender a deed.

## Issues

1. Whether the deposit receipt was merely an offer that could be accepted only when the buyer notified the seller that the leases were satisfactory.
2. Whether the “leases satisfactory to the purchaser” clause made the buyer’s promise illusory and the agreement unenforceable for lack of mutuality of obligation/consideration.

## Decision

- The court held the deposit receipt reflected a binding bilateral contract, not a continuing offer requiring separate notice of acceptance upon lease satisfaction.
- The court held the satisfaction clause did not make the buyer’s promise illusory or void for lack of mutuality because the clause carried an implied duty of good-faith judgment.
- The court reversed the judgment for the seller that had been based on the agreement being “illusory” and lacking “mutuality.”

## Legal Principles

- When consideration consists of exchanged promises, each party must assume a legal obligation; a promise is illusory if performance is left to a party’s unrestricted discretion.
- Satisfaction clauses are enforceable because the law supplies a limiting standard rather than unfettered choice.
- If satisfaction concerns commercial value, quality, fitness, or utility, satisfaction is commonly measured by an objective reasonable-person standard.
- If satisfaction concerns judgment, taste, or similar evaluative choice, satisfaction is measured by a subjective good-faith standard.
- A clause conditioning performance on a party’s satisfaction implies a duty to exercise honest judgment in good faith; that duty constitutes a binding obligation sufficient to support consideration and mutuality.

## Conclusion

The court enforced the purchase agreement, ruling that conditioning the sale on obtaining leases “satisfactory to the purchaser” imposed a good-faith obligation on the buyer and therefore did not render the contract illusory or lacking mutuality; the seller’s refusal to convey could constitute breach of a valid bilateral contract.


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