Omni Group, Inc. v. Seattle-First National Bank
32 Wn. App. 22, 645 P.2d 727 (1982)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A contractual promise conditioned on the promisor's satisfaction is not illusory if the promisor's determination of satisfaction is subject to a requirement of good faith. This implied duty to act in good faith constitutes sufficient consideration to support a binding contract.
Facts:
- In December 1977, John B. Clark and his wife listed their 59-acre property for sale with Royal Realty Company.
- In May 1978, Omni Group, Inc. signed an earnest money agreement to purchase the property.
- The agreement included a clause making the transaction conditional on Omni receiving an engineer's and architect's feasibility report that was "satisfactory to purchaser."
- The Clarks signed the agreement but privately instructed their brokers to obtain additional terms from Omni, which the brokers failed to communicate.
- On June 2, an Omni employee informed the Clarks that Omni was waiving the feasibility study requirement and wished to proceed with the purchase.
- During the June 2 meeting, the Clarks' additional, uncommunicated terms were discussed, and Omni later agreed to them in writing on June 8.
- After consulting with an attorney, the Clarks refused to proceed with the sale, claiming the agreement was unenforceable.
Procedural Posture:
- Omni Group, Inc. sued John B. Clark in a trial court, seeking specific performance of the earnest money agreement.
- The trial court entered a judgment in favor of Clark, ruling that the agreement was unenforceable because Omni's promise was illusory.
- Omni Group, Inc. (appellant) appealed the trial court's judgment to the Court of Appeals of Washington. John B. Clark is the appellee.
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 provision in an earnest money agreement that conditions a buyer's duty to purchase on receiving an engineer's and architect's report that is "satisfactory to purchaser" render the buyer's promise illusory and the contract unenforceable for lack of consideration?
Opinions:
Majority - James, J.
No, a provision conditioning a buyer's performance on receiving a satisfactory report does not render the promise illusory. A promise that is dependent upon a condition is not necessarily illusory, as long as the condition does not render the promise so limited as to be meaningless. Here, the condition that the feasibility report be 'satisfactory' to Omni is not a matter of unfettered discretion. The court, citing Mattei v. Hopper, held that satisfaction clauses involving matters of judgment, taste, or fancy require the promisor to exercise their judgment in good faith. This implied duty to act in good faith is an adequate consideration to support the contract. Omni could not cancel the contract for any reason; it could only do so based on a good-faith dissatisfaction with the feasibility report. Therefore, Omni's promise was not illusory, and the earnest money agreement was supported by consideration and is enforceable.
Analysis:
This decision reinforces the principle that courts will often imply a covenant of good faith and fair dealing to save a contract from being deemed illusory. By holding that a subjective 'satisfaction' clause is constrained by a good faith requirement, the court provides legal certainty to common commercial and real estate practices. This precedent ensures that a party cannot use such a condition as a pretext to escape a contractual obligation due to a mere change of heart. The ruling solidifies the modern contractual view that mutuality of obligation does not require that each party's promises be identical or coextensive, but that each promise represents a genuine legal detriment.
