Option Contract
Berryman v. Kmoch
221 Kan. 304 (1977).
Berryman is the plaintiff. Won in trial court. Kmoch appealed.
Question
Should this option contract be enforceable?
Rules
An option contract must be supported by consideration to be binding.
Holding
There was no consideration, this was not binding. Judgment affirmed.
Facts
Plaintiff was prepping to sell some land and made an offer to defendant. Defendant prepped an option contract and the plaintiff signed it. There was a value of $10 for consideration that was never paid. The plaintiff later called the defendant saying that he wanted out of the option contract. Later, when the defendant went to purchase the land, he found that it had already been sold. He wrote to the plaintiff seeking relief and the plaintiff filed a court motion to declare the option as null and void.
The trial court said that there was no consideration. Thus, the contract was null and void.
Analysis
The court here agrees with the trial court. This was not a promissory estoppel because he knew that consideration had to be paid but did not do so.
Thus, this is also not a good option contract. This is because an option contract without consideration is merely a continued offer that can be revoked at any time before acceptance is made.
Here, there was a lack of consideration because the defendant had not paid the $10 as stated as consideration and the services he prepped to purchase the land was not to the benefit of the plaintiff. Therefore, consideration is lacking and the option contract could be revoked.
Because the plaintiff expressed his desire to revoke the option, and the defendant received adequate notice through the bank (when he tried to purchase the land), the offer had been previously revoked and is not enforceable.
Takeaway
Option contracts can be enforced but make sure that there is consideration!
Additional Notes
Two places where option contracts are listed in the Restatements:
§25 Option contract – meets the elements of a contract and limits the promisor’s power to revoke an offer.
§87(1) Option contract – Needs to be in writing and signed by the offeror, there needs to be purported consideration and proposes an exchange on fair terms within a reasonable time. This is when an option contract is separate from another contract. But how do we determine what’s fair and reasonable? This is fact bound, meaning it depends on the fact of the case.
Should a person’s pre-acceptance conduct have on the offeror’s power to withdraw the offer?
This is remedial, never go into an offer with this in mind.
Case Notes from Lecture
The order of things here is important. The defendant wanted to purchase the land after he had known that it would have been sold. In other words, he wants damages
There is no option contract because there was no consideration. He did not pay the $10 and he did not conduct services intended to benefit the option provider. He did not do those services out of a bargain or requirement to do so.
Offeree’s Reliance on an Unaccepted Offer as Limitation on Revocability
James Baird Co. v. Gimbel Bros., Inc.
64 F.2d 344 (2d Cir. 1933).
James Baird Co. is a contractor and Gimbel Bros. is a supplier. Contractor (plaintiff) lost in trial court.
Question
Was the reliance on the offer good enough to enforce the contract?
Rules
“Unless there are circumstances to take it out of the ordinary doctrine, since the offer was withdrawn before it was accepted, the acceptance was too late.”
Holding
Ordinary contract. Judgment affirmed.
Facts
The contractor was preparing a bid to send to the city in hopes to becoming the general contractor for the project. Before doing so, he reached out to several suppliers for a bid on linoleum. The supplier had bid 50% lower than what they were supposed to do. They sent this miscalculation to several contractors including the one contractor gets a bid based on the mistaken number. Realizing the mistake, the contractor called and said that the mistake was made and removed his bid. Afterwards, the plaintiff gave notice that they accepted the defendant’s bid.
Analysis
There was no acceptance prior to the notice to withdraw the offer (even though the contractors bid had already been sent for review). What should have been done is the contractor withdraw their bid or accept the bid of the supplier. The action of putting forth the new bid was not enough.
Additionally, there was no doctrine of promissory estoppel because there was no consideration.
Takeaway
This could have been avoided by the contractor saying “I accept” before the supplier had said “I withdraw”.
Additional Notes
The reasonable implication of the defendant’s bid was that it was irrevocable if the plaintiff uses it.
Uses section 87(1)
Drennan v. Star Paving Co.
51 Cal. 2d 409 (1958).
Drennan is the general contractor (plaintiff). Won in trial court.
Question
Was his actions sufficient to show reliance on a promise to make this an enforceable contract?
Rules
Uses §90 and §45 instead of §87(1)
In other words, focuses on promisor estoppel instead of options.
Holding
There was reliance on a promise and thus an enforceable contract was formed.
Facts
Similar facts as the case above. Contractor prepping their bid, receiving bids from subcontractors. Receives a mistaken bid but accepts before they withdraw.
Analysis
This contract could have been revoked at any time prior to acceptance. However, when the “plaintiff used the defendant’s offer in computing his own bid, he bound himself to perform in reliance on defendant’s terms.” In other words, because the contractor bound his bid to the numbers the defendant gave him, he was in reliance of a promise. Therefore, the defendant would be bound to following through because acceptance had already been made on the promise (though actions).
Takeaway
Be smart. §87 and §90 are designed to be remedial. If things were done properly, the above actions would not have needed to be taken. There would have been no doubt that a promise had been made, accepted, or revoked. Be clear in your verbal and written intentions or else your actions will shape what happens.
Additional Notes
They used §90 instead of section 87
Pop’s Cones, Inc. v. Resorts International Hotel, Inc.
307 N.J. Super. 461 (1998).
Pop’s is the plaintiff, lost in trial court and appealed. Relied on Promissory Estoppel in § 90.
Question
Is the plaintiff entitled to damages incurred from moving from their current location at the advisement of the defendant?
Rule
Promissory estoppel requires:
- Clear and definite promise
- Expectation that the promisee will rely on the promise
- Promisee relies on the promise
- Detriment from reliance
This will be enforced to avoid injustice.
Holding
There was a detriment from reliance, it would be injustice not to enforce. Reversed.
Facts
The plaintiff runs a franchise of an ice cream shop. They talked to the defendant who owns several property about a possible move from their current lease to the one by the defendant. These discussions proved to be initially promising but continued for some time. Eventually, the plaintiff informed the defendant that it would need to have an answer by a certain date so they could inform their current landlord whether they would move out. In response, the plaintiff was informed that a decision was nearly complete, that the plaintiff should pack up the store in their current location, and prepare to move. Following this advice, the plaintiff packed up the store, did not renew the lease, and utilized a temporary storage facility. Unfortunately, the deal fell apart and the plaintiff did not acquire a new location until the following year.
Thus, the plaintiff is suing for damages incurred for losing their current space in making the move. It is important to realize that they are not seeking damages for lost profit that would have occurred had they moved into the defendant’s space.
Analysis
The plaintiff reasonably relied on the assurances of the defendant that a deal was nearly complete and that he should move from his current location.
The previous rule was that there needed to be a lot of emphasis on the clear and present promise. Here, we are missing a clear and present promise because the terms of the agreement were not fully negotiated. However, the plaintiff is not seeking damages from a breach of the negotiations, instead he is seeking damages from reliance on those negotiations. Thus, the court puts more emphasis on the avoidance of injustice part of promissory estoppel.
They conclude that ultimately, this should be a question for the jury. Since the trial court awarded summary judgment, this is revered and remanded for further proceedings.
Takeaway
Two big takeaways:
- The plaintiff sought reliance damages instead of expected damages. Reliance damages are usually fewer but easier to prove and more courts go for reliance damages.
- The lowering of the “clear and present promise” standard to rely mostly on the injustice of the reliance on that promise.
Additional Notes
We’re going to rely on promissory estoppel as a remedial option under § 90.
He was made a promise, relied on the promise, and faced a detriment (lost his location, had to pay for storage, opened late, etc.)
Because of this, the court says that this resulted in injustice and he should be protected from that injustice.
Never plan on using this, but it could be useful if necessary.
Statutes limiting revocability
UCC §2-205 an offer is revokable unless a merchant gives assurance, in writing with terms, that it will be held open for a reasonable time, even without consideration (because deals occur in real life without consideration). However, this is not to exceed a period of three months unless there is an extension drafted.
When might a situation arise when there is no consideration but the revocability is limited? Consider remodeling a home and you go to Lowe’s for supplies. But some supplies are out of stock while others were in stock. However, you want to purchase everything together. Under §2-205, you could say, “I want thing 1 and 2 together” at this price once it becomes available.
Why does this only apply to merchants?
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
