Western Hills, Oregon, Ltd. v. Pfau
508 P.2d 201 (1973)
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Rule of Law:
A party whose contractual obligation is conditional on their personal satisfaction must make a good faith effort to fulfill the condition. This duty is breached, and performance is not excused, if the party's claimed dissatisfaction is based on circumstances that were known and anticipated at the time of contracting.
Facts:
- Western Hills, Oregon, Ltd. owned approximately 286 acres of land which it agreed to sell to a joint venture of purchasers that included Pfau.
- On March 6, 1970, the parties executed a written agreement for the purchase of the property.
- The agreement contained a clause stating that the closing was 'subject to ability of purchasers to negotiate with City of McMinnville as to a planned development satisfactory to both' parties.
- At the time of contracting, the purchasers knew that city sewers were not available to the property, and a clause making the sale contingent on sewer development had been deleted from the final agreement.
- The purchasers made preliminary proposals to the city's Planning Commission, which reacted favorably to the plans.
- Despite the favorable reaction, the purchasers abandoned their efforts to secure approval for the development plan.
- The purchasers cited the high cost of installing a private sewage system, a known expense, as the reason for abandoning the project and refusing to complete the purchase.
- In September 1970, Pfau informed Western Hills that the purchasers would not proceed with the purchase.
Procedural Posture:
- Plaintiff, Western Hills, Oregon, Ltd., filed a suit in a state trial court seeking specific performance of a real property purchase agreement against the defendants, Pfau and other joint venturers.
- The trial court found in favor of the plaintiff and entered a decree compelling specific performance.
- The defendants appealed the trial court's decision to the Supreme Court of Oregon.
- On appeal, the defendants are the appellants and Western Hills is the appellee.
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Issue:
Does a purchaser's dissatisfaction with a planned development, based on the known expense of providing a required utility, excuse their performance under a contract clause making the sale conditional on obtaining a 'satisfactory' planned development?
Opinions:
Majority - McAllister, j.
No. A purchaser's dissatisfaction with a planned development, based on the known expense of providing a required utility, does not excuse their performance under a contract clause making the sale conditional on obtaining a 'satisfactory' planned development. The agreement imposed an implied duty on the purchasers to make a reasonable and good faith effort to obtain the city's approval for a development plan. The satisfaction clause, which requires the exercise of personal judgment, is subject to a standard of good faith; the dissatisfaction must be genuine and relate to the subject of the condition, not general dissatisfaction with the bargain. A party cannot base a claim of dissatisfaction on circumstances that were known or anticipated at the time of contracting. Here, the purchasers were aware of the lack of city sewers and the resulting expense when they signed the agreement. Therefore, they were not justified in abandoning their efforts and cannot rely on the nonoccurrence of the condition to excuse their performance.
Analysis:
This case clarifies the scope of the implied duty of good faith and fair dealing in the context of subjective satisfaction clauses. It establishes that such clauses are not an unrestricted option to cancel a contract; the dissatisfaction must be genuine and cannot be based on factors the party knowingly accepted when entering the agreement. This decision limits a party's ability to use a satisfaction clause as a pretext for avoiding performance due to 'buyer's remorse' or a change in financial circumstances. The ruling reinforces contractual stability by requiring parties to make a sincere effort to fulfill conditions precedent, even when they are subjective in nature.
