California First-Year Law Students' Exam (Baby Bar) — MCContractsMedium
A homeowner contracts with a construction company to build a new addition for $100,000. The contract specifies that the final payment of $20,000 is due "upon satisfactory completion of the work, as determined by the homeowner." After the construction is finished, the homeowner expresses dissatisfaction with the aesthetic appearance of a custom-built cabinet, even though it meets all industry standards for quality and functionality. The homeowner refuses to make the final payment. In a jurisdiction that applies an objective standard for satisfaction clauses, what is the likely outcome?
- AThe homeowner is justified in withholding payment because the contract explicitly grants them the discretion to determine satisfaction.
- BThe construction company is entitled to the final payment because a reasonable person would be satisfied with the work, meeting industry standards.
- CThe homeowner must pay for the work, but the construction company must remedy the aesthetic issues to the homeowner's subjective satisfaction.
- DThe contract is unenforceable due to the illusory nature of the satisfaction clause, lacking mutuality of obligation.
Show answer & explanationAnswer & explanation
Correct answer: B. The construction company is entitled to the final payment because a reasonable person would be satisfied with the work, meeting industry standards.
When a contract includes a satisfaction clause that is not personal in nature (like construction), courts typically apply an objective standard. If a reasonable person would be satisfied, payment is due, irrespective of the homeowner's subjective aesthetic preferences.
Why the other options are wrong
- A. This would be true under a subjective standard, but not an objective one where the work is not personal.
- C. The construction company is generally not required to meet subjective aesthetic desires if the work meets objective standards, especially for a final payment under an objective satisfaction clause.
- D. Satisfaction clauses are generally enforceable, especially with an objective standard, and do not typically render a contract illusory.
Objective Satisfaction Clause
A contract provision where performance must satisfy one party, but the standard for satisfaction is what a reasonable person would deem satisfactory, rather than the party's personal feelings.
- Applied when performance is commercial or mechanical in nature.
- Protects against arbitrary refusal of payment or acceptance.
- Differs from subjective satisfaction, which applies to matters of personal taste.
Memory trick: Satisfy the reasonable judge, or just the picky client?