Contract clauses that make the duty of performance of one of the parties conditional upon his satisfaction are referred to as satisfaction clauses. Where the satisfaction clause requires satisfaction as to such matters as commercial value or quality, operative fitness, or mechanical utility, dissatisfaction cannot be claimed unreasonably. In these contracts, an objective standard is applied to the satisfaction clause and the test is whether the performance would satisfy a reasonable person. If, on the other hand, the satisfaction clause relates to matters involving fancy, personal taste, or judgment, then a subjective standard is applied, and the test is whether the party is actually satisfied. Under the subjective standard the promisor can avoid the contract as long as he is genuinely, albeit unreasonably, dissatisfied. Which standard applies in a transaction is a matter of the actual or constructive intent of the parties, which, in turn, is a function of the express language of the contract, or the subject matter of the contract.
A franchisee filed suit against appellant franchisor for the return of the franchisee fee. The franchisee brought a motion for summary judgment. The franchisor argued that the language of the addendum to the franchise agreement was ambiguous, and that there was a genuine issue of material fact as to the franchisee's inability to locate financing. The trial court determined that, as a matter of law, the satisfaction clause contained in the franchise agreement called for the franchisee's subjective satisfaction as to what qualified as suitable financing and granted the franchisee's motion for summary judgment. The franchisor appealed.
Did a subjective standard apply to a satisfaction clause for financing in a franchise agreement and was summary judgment available to a franchisee in an action to avoid the contract?
Although the court agreed with the trial court that the language of the addendum created no ambiguity and that the addendum contained only a general satisfaction clause, it held that the trial court improperly applied a subjective standard in assessing the franchisee's satisfaction. The court adopted the rule that in the absence of express language to the contrary, or evidence of impracticability of application, an objective standard governed satisfaction clauses in contracts that involved commercial and financial matters. The evidence failed to establish that it would have been impracticable to apply an objective standard to the addendum. The franchisee presented no evidence of impracticability. The franchise agreement was commercial in nature and pertained to matters of financial concern. Further, the court found that issues of material fact existed regarding whether the franchisee made a reasonable attempt to secure suitable financing.