🤔
Contracts • Contract Formation
K#022
Legal Definition
An option contract, under common law and UCC, is an offer that cannot be revoked. It is created when the offeror has made an offer and: (1) promised not to revoke, (2) in exchange for consideration. A rejection of an offer in an option contract scenario does not terminate the offer, unless the offeror has detrimentally relied on the rejection.
Plain English Explanation
You can pay money to force someone to hold an offer open. In other words, you are buying extra time to decide if you want to accept an offer while obligating the person making the offer to keep the offer open and wait on you.
Hypothetical
Hypo 1: Bob is selling his car for $1,000. Sam is interested in buying it, but first he needs to talk to his wife and make sure he can afford to buy it. Sam also knows that $1,000 is a great deal, and Amy is interested in purchasing the car as well. Bob tells Sam, "If you give me $5 right now, I will give you 7 days to decide if you want to buy the car." Sam gives Bob $5. Result: Sam has purchased an option contract with Bob that gives him 7 days to decide, during which time Bob may not make or accept any other offers for the car. Note that if 3 days later, Sam calls Bob and says, "Will you take $900 for it?" this would usually be a counter offer, which would terminate the original offer -- but since this is an option contract, Sam would still have 4 more days to accept the original offer for $1,000. The only exception to this rule is if Bob detrimentally relies on the rejection, which would be something to argue for or against on the exam.
Visual Aids
Related Concepts
Are offers assignable?
Are pre-existing duties valid consideration?
Can partial payment of a debt be consideration for release of that debt?
How can an offeree reject an offer?
How do courts assess the adequacy of consideration?
How may an offer be revoked?
Though offers can generally be freely revoked, what are the 4 exceptions?
Under battle of the forms, what happens to additional or different terms in an acceptance when at least one of the parties is a non-merchant?
Under battle of the forms, what happens to additional terms in an acceptance between two merchants?
Under battle of the forms, what happens to different terms in an acceptance between two merchants?
What are consideration substitutes?
What are illusory promises and how do they affect a contract?
What are requirement and output contracts?
What are the methods of terminating an offer?
What are the requirements of an offer?
What are the UCC Gap Fillers?
What is acceptance?
What is a contract?
What is a merchant's firm offer?
What is consideration?
What is detrimental reliance?
What is promissory estoppel?
What is required to form a valid, binding contract?
What is the effect of a conditional acceptance on an offer?
What is the effect of a contract that contains vague or ambiguous terms?
What is the effect of a contract that is missing price terms?
What is the effect of a contract that is missing quantity terms?
What is the effect of a counteroffer on an offer?
What is the effect of a lapse of time on an offer?
What is the effect of an offeree beginning to perform in response to an offer?
What is the effect of a seller sending non-conforming goods?
What is the effect of including additional or different terms to an offer?
What is the effect of part performance of a unilateral contract?
What is the effect of the death of a party prior to acceptance of an offer?
What is the Mailbox Rule and when does it apply?
When are advertisements valid offers?
When are price quotes valid offers?
When is past or moral consideration valid?
Who controls the method of acceptance, and what are the typical ways that an offer is accepted?
