California First-Year Law Students' Exam (Baby Bar) — MCContractsMedium
A software developer signs a contract with a client to create a custom application for $10,000. The contract specifies that the final payment is due "upon satisfactory completion of the project, as determined by the client." After the developer delivers the application, the client states that it is not satisfactory and refuses to pay, despite the application meeting all technical specifications outlined in the contract. What is the likely outcome if the developer sues for payment?
- AThe developer will win if the client's dissatisfaction is found to be in bad faith.
- BThe developer will win, as the application met all objective technical specifications.
- CThe developer will lose, unless they can prove the client's refusal to pay is due to financial difficulties.
- DThe developer will lose, as the client has absolute discretion in determining satisfaction.
Show answer & explanationAnswer & explanation
Correct answer: A. The developer will win if the client's dissatisfaction is found to be in bad faith.
When a contract condition is based on 'satisfaction,' courts generally apply an objective standard (reasonable person) for commercial contracts, but a subjective standard (actual satisfaction) for contracts involving personal taste or judgment. However, even with a subjective standard, the dissatisfaction must be genuine and in good faith, not arbitrary or feigned.
Why the other options are wrong
- B. While meeting technical specifications is important, the 'satisfactory completion' clause allows for subjective evaluation if personal taste is involved, but it must be in good faith.
- C. The client's financial difficulties are generally not a valid defense for non-payment under a satisfaction clause.
- D. Client's discretion is not absolute; it's limited by the requirement of good faith.
Satisfaction Clause
A contractual provision making one party's performance conditional on their satisfaction with the other party's performance. Can be objective (reasonable person) or subjective (personal taste).
- Subjective standard applies to matters of personal taste, aesthetics, or fancy.
- Objective (reasonable person) standard applies to matters of commercial utility or mechanical fitness.
- Even under a subjective standard, dissatisfaction must be genuine and in good faith.
Memory trick: Conditions are the gates that must open for the contract to proceed.