Lexplug logoLexplug

Hutton v. Monograms Plus, Inc.

Ohio Court of Appeals
604 N.E.2d 200, 78 Ohio App. 3d 176 (1992)
ELI5:

Rule of Law:

In contracts involving commercial or financial matters, a satisfaction clause is governed by an objective 'reasonable person' standard, unless the contract's express language requires a subjective standard or applying an objective standard is impracticable.


Facts:

  • On August 4, 1989, David D. Hutton executed a franchise agreement with Monogram Plus, Inc. (MPI) for a $25,000 fee.
  • An addendum, drafted by Hutton, was executed on August 17, 1989, stating he was entitled to a refund if he was 'unable to obtain financing suitable to him' within ninety days.
  • Hutton secured a $26,000 loan from Star Bank for start-up costs, but still needed financing for a monogramming machine.
  • MPI's representative arranged a sixty-month lease for the machine through United Leasing Corporation with monthly payments of $751.01.
  • Hutton rejected the United Leasing offer, considering its terms substantially less advantageous than the $520 per month estimate in MPI's circular.
  • Hutton then applied for financing from Trinity Leasing, knowing he likely didn't qualify, and was rejected.
  • Hutton's subsequent loan application to Society Bank was also rejected due to insufficient collateral.
  • On January 1, 1990, Hutton requested a refund of the $25,000 franchise fee from MPI, which was denied.

Procedural Posture:

  • David D. Hutton filed a three-count complaint against Monogram Plus, Inc. (MPI) in the trial court, seeking a refund and damages.
  • MPI filed a counterclaim against Hutton, alleging breach of contract.
  • Hutton moved for summary judgment on his claim for the franchise fee refund.
  • The trial court granted Hutton's motion for summary judgment, finding that the contract addendum called for Hutton's subjective satisfaction.
  • Hutton subsequently dismissed the remaining two counts of his complaint.
  • MPI (appellant) appealed the trial court's grant of summary judgment to the intermediate court of appeals.

Locked

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does a franchise agreement addendum conditioning a refund on the franchisee's inability 'to obtain financing suitable to him' require the franchisee's subjective satisfaction, or is it governed by an objective 'reasonable person' standard?


Opinions:

Majority - Wolff, Judge

No. The clause is governed by an objective 'reasonable person' standard. The court distinguishes between two types of satisfaction clauses: those involving matters of personal taste or judgment, which are assessed subjectively (with a good faith requirement), and those involving commercial value or quality, which are assessed objectively. Because this franchise agreement is commercial in nature and pertains to financial matters, the objective standard applies. The law prefers this less arbitrary standard unless the contract language explicitly requires a subjective one (as in Ard Dr. Pepper) or if applying an objective standard is impracticable (as in Mattei). Neither exception applies here, as the contract language is not explicit and determining reasonable financing terms is not impracticable. The court also found that genuine issues of material fact exist as to whether Hutton made a good faith effort to obtain financing, specifically citing the disputed evidence regarding a potential loan from his father-in-law.


Concurring - Fain, Presiding Judge

Yes. The clause should be governed by a subjective standard. Although concurring in the judgment to reverse the summary judgment, this opinion disagrees on the applicable standard. The judge argues that determining 'suitable' financing involves numerous and varied factors (interest rates, default terms, collateral), making it impractical to apply an objective test, similar to the situation in Mattei v. Hopper. However, even under a subjective standard, the party must act in good faith. Because there was conflicting evidence about whether Hutton acted in good faith in seeking financing (specifically regarding his father-in-law as a potential source), reasonable minds could differ, and therefore summary judgment was inappropriate.



Analysis:

This decision clarifies Ohio law by formally adopting the majority view on interpreting satisfaction clauses in commercial contracts. It establishes a strong preference for the objective 'reasonable person' standard, promoting certainty and predictability in business transactions. The ruling effectively places the burden on contracting parties to use explicit language if they intend for a purely subjective standard to apply. This precedent will guide lower courts to prevent parties from using a general satisfaction clause as an unfettered escape from their contractual obligations in financial or commercial settings.

G

Gunnerbot

AI-powered case assistant

Loaded: Hutton v. Monograms Plus, Inc. (1992)

Try: "What was the holding?" or "Explain the dissent"