Caseflicks

Court of Appeals for the Seventh Circuit • 1983

Morin Building Products Company, Inc. v. Baystone Construction, Inc.

717 F.2d 413 | 1983 U.S. App. LEXIS 16842

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Takeaway

In short, a satisfaction clause in a commercial construction contract is ordinarily objective when quality can be assessed by external standards; broad form-language about approval will not lightly give an owner unlimited power to reject utilitarian work on aesthetic grounds.

Background

General Motors hired Baystone Construction to build an addition to a Chevrolet plant in Muncie, Indiana. Baystone subcontracted with Morin Building Products to supply and erect aluminum exterior walls. The specifications called for unpainted, mill-finish aluminum with a stucco-embossed texture matching the existing metal siding.

Morin installed the walls, but General Motors' representative rejected them because, in bright sunlight and from an acute angle, the siding appeared uneven or striped rather than perfectly uniform. Baystone removed Morin's work, hired another subcontractor, and refused to pay Morin the remaining $23,000 due under the subcontract. Morin sued and obtained a jury verdict for the unpaid balance.

On appeal, Baystone challenged the jury instruction stating that, despite contractual language making the owner's approval final, satisfaction in a commercial-building contract is judged objectively: whether a reasonable owner should have been satisfied. The record contained substantial evidence that the rejection was unreasonable, including trade evidence that mill-finish aluminum commonly varies in appearance and may not be uniformly finished.

Issues

Issue #1

Whether Indiana law measures satisfaction under this commercial construction contract by the owner's actual subjective satisfaction or by whether a reasonable owner would have been satisfied.

Holding

Indiana's objective reasonable-person standard governs when the promised performance involves commercial quality, functional fitness, or mechanical utility and can practicably be judged by objective criteria.

Reasoning

The court recognized two approaches to satisfaction clauses. Under the minority approach, a buyer may reject performance for any reason so long as the buyer is genuinely dissatisfied and acts in good faith. The majority approach, reflected in Restatement (Second) of Contracts § 228 and adopted by Indiana precedent, prefers an objective standard whenever it is practicable to determine whether a reasonable person in the buyer's position would be satisfied.

The distinction does not rest on protecting a weaker contracting party or on hostility to freedom of contract. Rather, it seeks to approximate the bargain the parties likely would have made had they anticipated the dispute. A reasonable-performance term ordinarily reflects what parties would intend when performance can be evaluated by outside standards; a subjective good-faith standard is more appropriate when no such standards exist.

Accordingly, courts generally apply objective reasonableness to commercial quality, operative fitness, and mechanical utility, because knowledgeable third parties can assess those matters. They use subjective good faith when the promised performance turns on personal taste, aesthetics, or fancy—such as a commissioned portrait—because the purchaser seeks something that pleases that purchaser personally rather than something a court or jury can independently evaluate.

Issue #2

Whether the contract's references to the owner's final approval, 'artistic effect,' and strict authority over acceptability gave General Motors an unfettered subjective right to reject Morin's mill-finish factory siding.

Holding

No. In context, the clauses did not clearly make Morin's right to payment depend on General Motors' private aesthetic taste; the jury was properly instructed to decide whether the siding reasonably met the contract's matching and commercial-quality requirements.

Reasoning

Although Morin's work was criticized for its appearance, the court concluded that this was not the kind of intensely personal aesthetic judgment that calls for subjective satisfaction. The siding enclosed a factory, where function and cost predominated over beauty. The use of unpainted mill-finish aluminum further suggested that perfect visual uniformity was not the central object of the bargain, since mill-finish material ordinarily varies from sheet to sheet and even within a single sheet.

The uniformity question was capable of objective evaluation. The jury could determine whether Morin's siding was sufficiently uniform to match the existing siding and to provide commercially satisfactory quality. This made a reasonable-person inquiry practicable even though the dispute concerned appearance.

The contractual language did not compel a different result. The reference to 'artistic effect' appeared in a general form contract and was limited by the phrase 'if within the terms of the Contract Documents,' suggesting that it applied only where artistic effect was actually part of the project. Similarly, the clause placing acceptability with the owner was qualified by a requirement that work and materials be 'first class in every respect.'

The court found the form provisions ambiguous when applied to mill-finish aluminum walls on a utilitarian factory. It was unlikely that Morin would silently have accepted the substantial and perhaps impossible risk that General Motors could demand perfect matching at its own aesthetic whim. If General Motors truly wanted a uniform surface, it could have specified painted siding or paid for the added assurance. Deferring in part to the experienced Indiana district judge's view of state law, the court affirmed the instruction and the judgment for Morin.