Also known as: option contracts · options contract
Written by attorneys · grounded in primary & secondary sources — see below
A contract by which an offeror promises to keep an offer open for a specified period. The promise is supported by consideration or another validating device such as a signed writing reciting consideration or part performance of a unilateral offer.
Orion Motors paid Metro Components a stated option fee in a signed writing that promised the supply offer would remain open for six months. Two months later Metro tried to revoke because of material shortages. Orion sent written acceptance anyway. The paid option kept the power of acceptance alive so the revocation had no effect and a binding supply contract formed.
View Vehicle offered Bay Auto a rebate if Bay Auto completed safety upgrades on fifty vehicles and invited acceptance only by that performance. Bay Auto ordered parts and finished upgrades on forty vehicles. View Vehicle then tried to revoke. The beginning of the invited performance formed an option contract that prevented revocation.
Select any source to read its text and confirm it supports the definition.
Olivia Owens paid consideration for a written option to buy land from Orlando Okafor that remained open for thirty days. On the final day she mailed her acceptance. Okafor received the letter after the period expired. Because the acceptance under an option contract is effective only when received, the option lapsed and no contract formed.
Frontier Outlet signed a letter offering to buy dresses from Barbara and recited a fifty-dollar reservation fee as consideration for keeping the offer open until the end of the season. Barbara mailed the fee before any revocation. The signed writing reciting consideration created a binding option contract that prevented revocation even though the fee arrived after the attempted withdrawal.
Broz held an option contract to purchase a cellular license from Mackinac at a fixed price. After PriCellular acquired control of Cellular Information Systems, Broz exercised the option for his own company. The option contract gave Broz an irrevocable right that survived the change in corporate control and allowed him to complete the purchase on the original terms.
Insiders at Texas Gulf Sulphur acquired call options on company stock before public disclosure of a major mineral discovery. The options gave them the irrevocable right to buy shares at a fixed price within the contract period. When the news became public the value of the options rose sharply and the insiders exercised them for substantial gains.
No. The power of acceptance under an option contract survives rejection, counter-offer, revocation, or death of the offeror unless a contractual duty has been discharged.
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An option contract arises when the offeree tenders or begins the invited performance. The offeror then cannot revoke, but the duty to perform remains conditional on completion or tender of the full performance.
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No. Acceptance under an option contract is effective only when received by the offeror. The offeree bears the risk of loss or delay because the option has been purchased for a fixed period.
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An offer is binding as an option contract if it is in a signed writing that recites purported consideration and proposes an exchange on fair terms within a reasonable time, or if it is made irrevocable by statute.
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Yes. The fact that a right is created by an option contract does not prevent its assignment before the condition occurs.
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…| | | | | April 16 (app. 10:20 A.M.) | Coates (for family trusts) | 2000 | 31 -31 5/8 | | | [^maj-4]: A "call" is a negotiable option contract by which the bearer has the right to buy from the writer of the contract a certain number of shares of a particular stock at a fixed price on or before a certain agreed-upon…