Contracts II, Pages 857–867

Hutton v. Monograms Plus, Inc.

Court of Appeals of Ohio, 1992
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Facts:

Plaintiff purchased a franchise from defendant for $25,000. An addendum provided that if plaintiff was "unable . . . to obtain financing suitable to him" within ninety days, he would be entitled to a refund of the $25,000 fee.

Plaintiff then obtained a $26,000 loan secured by a mortgage on his house, and sought to buy or lease a monogramming machine. He also told defendant that he could get more funding from his father-in-law if needed. Defendant's circular said that the monogramming machine could be leased for $520 per month or purchased for $21,000, but defendant's representative, Totty, told plaintiff that it would be $751 per month and a $24,751 down payment. Defendant found this disadvantageous and so rejected this financing and so requested financing from Trinity, who rejected him. He then applied to Society Bank, who also rejected him. Plaintiff then wrote to defendant's president, requesting a refund of the $25,000, and sued when this request was denied. Defendant counterclaimed alleging that plaintiff had breached the agreement.

Procedural History:

Plaintiff moved for summary judgment, which the trial court granted, finding the language to clearly and unambiguously mean it to be refundable if plaintiff could not find financing suitable to him.

Issue:

Did plaintiff have "suitable financing?"

Defendant's Arguments:

  • The language of the addendum was ambiguous as it did not say whether "suitable to him" meant "suitable as determined by Hutton," "suitable for Hutton," or "suitable for Hutton's needs."

  • Genuine issues of material fact exist as to whether plaintiff was unable to locate financing suitable to him.

Rule:

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 861, Paragraph 2–3

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. Although application of a subjective standard to a satisfaction clause would seem to give the obligor virtually unlimited latitude to avoid his duty of performance, such is not the case. In these situations, courts impose the limitation that the obligor act in good faith.

See:

R2C § 228

Reasoning:

  • The addendum did not say that plaintiff's judgment was to be "sole, exclusive, or final" or that there was a "good faith" limitation on his judgment. Nor is there evidence that applying an objective standard would be impracticable. The commercial nature alone dictated that plaintiff's satisfaction had to be measured objectively. Nothing unique implicated a subjective assessment.

    Even if it were to be assessed subjectively, plaintiff had to show evidence that was dissatisfied in good faith, so summary judgment should not have been granted regardless.

  • It is not clear that only visiting two other institutions for financing is enough when defendant arranged them. It is also disputed about plaintiff's ability to acquire financing from his father-in-law.

Rule/Holding:

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 865, Paragraph 2

[I]n the absence of express language to the contrary, or evidence of impracticability of application, an objective standard governs satisfaction clauses in contracts which involve commercial and financial matters. . . . [T]he trial court improperly applied a subjective standard in assessing Hutton's satisfaction.

Holding:

A genuine issue of material fact existed. Reversed and remanded.

Concurring Opinion:

Fain: Many other variables need to be considered when determining whether financing is suitable. The diverse implications of the possible financing packages makes it impractical to apply an objective test. However, reasonable minds could still reach different conclusions about whether plaintiff acted in good faith, so reversing and remanding is the proper action to take.