Converse v. Fong - 159 Cal. App. 3d 86, 205 Cal. Rptr. 242 (1984)

Rule:

A party whose performance is subject to a satisfaction clause is under an implied duty to use good faith and diligence in performing. Because of the duty to act in good faith, a party's promise is not illusory; rather it furnishes good consideration for the parties' agreement. Also, mutuality of remedy is no longer strictly required under California law. If otherwise equitable, specific performance may be refused only if there is not sufficient assurance that the defendant will receive the performance promised to her. 

Facts:

In January 1978, defendant Helen Fong offered to sell the family home to plaintiffs George and Marie Converse. An agreement was reached with plaintiffs' obligation to pay that was conditioned on their approval of inspection reports. Defendant's recluse son, who lived in the home, made a rare appearance. He came forward with a loan to help his mother pay debts which would relieve or eliminate the principal reason for defendant's sale. Defendant attempted to rescind the agreement and returned plaintiffs' deposit. Plaintiffs sued for specific performance. At trial, defendant asserted that at the time of the rescission, plaintiffs had not completed the conditions and she could freely rescind in good faith, that the contract was unenforceable since it imposed no legal obligation on the plaintiffs to perform because their performance was contingent upon their approval of the inspection, and that there was no mutuality of remedy existed. The trial court denied the complaint after finding that no mutuality of remedy existed between the parties since defendant could not compel plaintiffs to perform and that defendant validly rescinded the contract prior to plaintiffs' performance. On appeal, plaintiffs contend that California law did not require mutuality of remedy, that in any event, there was a mutuality of remedy between the parties, that there was no valid reason existed for defendant's rescission of the contract, lastly, the trial court abused its discretion in refusing to award specific performance. Plaintiff then challenged the judgment.

Issue:

Did the trial court correctly deny the specific action performance?

Answer:

No.

Conclusion:

The court held that the contract was binding and enforceable because the parties were mutually obligated to perform even though plaintiffs' obligation to pay was upon a condition. The court ruled that plaintiffs were under an implied duty of good faith and diligence in performing this duty. The court held that plaintiffs met the condition, thus the contract did not terminate by its own terms. The court further held that defendant was not permitted to unilaterally rescind the otherwise binding agreement because her financial condition changed. Moreover, the court held that mutuality of remedy was not strictly required for specific performance and that specific performance could only be refused if there was no sufficient assurance that defendant would receive the performance promised her. Thus, the court remanded the matter for the trial court to determine whether specific performance was the appropriate remedy.