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OPTION CONTRACT

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RESTATEMENT (SECOND) OF CONTRACTS

THE RESTATEMENT (SECOND) OF CONTRACTS

copyright by the American Law Institute (1981)

 

45. OPTION CONTRACT CREATED BY PART PERFORMANCE OR TENDER

(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.

(2) The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

Comments:

a. Offer limited to acceptance by performance only. This Section is limited to cases where the offer does not invite a promissory acceptance. Such an offer has often been referred to as an "offer for a unilateral contract." Typical illustrations are found in offers of rewards or prizes and in non-commercial arrangements among relatives and friends....

d. Beginning to perform. If the invited performance takes time, the invitation to perform necessarily includes an invitation to begin performance. In most such cases the beginning of performance carries with it an express or implied promise to complete performance. See 62. In the less common case where the offer does not contemplate or invite a promise by the offeree, the beginning of performance nevertheless completes the manifestation of mutual assent and furnishes consideration for an option contract.

e. Completion of performance. Where part performance or tender by the offeree creates an option contract, the offeree is not bound to complete performance. The offeror alone is bound, but his duty of performance is conditional on completion of the offeree's performance. If the offeree abandons performance, the offeror's duty to perform never arises....

f. Preparations for performance. What is begun or tendered must be part of the actual performance invited in order to preclude revocation under this Section. Beginning preparations, though they may be essential to carrying out the contract or to accepting the offer, is not enough. Preparations to perform may, however, constitute justifiable reliance sufficient to make the offeror's promise binding under 87(2).

In many cases what is invited depends on what is a reasonable mode of acceptance....The distinction between preparing for performance and beginning performance in such cases may turn on many factors: the extent to which the offeree's conduct is clearly referable to the offer, the definite and substantial character of that conduct, and the extent to which it is of actual or prospective benefit to the offeror rather than the offeree, as well as the terms of the communications between the parties, their prior course of dealing, and any relevant usages of trade.

 

87. OPTION CONTRACT

(1) An offer is binding as an option contract if it

(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or

(b) is made irrevocable by statute.

(2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

Comment:

e. Reliance. Subsection (2) states the application of 90 to reliance on an unaccepted offer,

with qualifications which would not be appropriate in some other types of cases covered by 90. It

is important chiefly in cases of reliance that is not part performance. If the beginning of performance

is a reasonable mode of acceptance, it makes the offer fully enforceable under 45 or 62; if not, the

offeror commonly has no reason to expect part performance before acceptance. But circumstances

may be such that the offeree must undergo substantial expense, or undertake substantial

commitments, or forego alternatives, in order to put himself in a position to accept by either promise

or performance.... But the reliance must be substantial as well as foreseeable.

Full-scale enforcement of the offered contract is not necessarily appropriate in such cases.

Restitution of benefits conferred may be enough, or partial or full reimbursement of losses may be

proper. Various factors may influence the remedy: the formality of the offer, its commercial or social

context, the extent to which the offeree's reliance was understood to be at his own risk, the relative

competence and the bargaining position of the parties, the degree of fault on the part of the offeror,

the ease and certainty of proof of particular items of damage and the likelihood that unprovable

RESTATEMENT (SECOND) OF CONTRACTS

  p. 18

damages have been suffered.