## Facts

- Avnet, Inc. was an electronics corporation whose principal shareholders included Robert Avnet.
- Five Avnet employees received written stock option agreements in 1962 to buy shares from the Avnet family’s personal holdings.
- Four option agreements were executed for Robert Avnet by his brother, who had written authority to sign as Robert’s agent.
- The agreements allowed optionees to exercise up to 20% per year for five years, but also permitted exercise of the entire option after five years.
- About two years after the options were granted, Robert Avnet died.
- Around five years after the grant, the employees—still employed by Avnet—attempted to exercise their options; the executors of Robert Avnet’s estate refused to perform.
- The employees testified they remained employed for the five-year period in reliance on the options as part of their compensation.

## Issues

1. Whether the employees’ continued employment and reliance on the option agreements supplied sufficient consideration to make the stock options enforceable against the decedent and his estate.
2. Whether the employees’ attempt to exercise the options after five years complied with the option terms.
3. Whether execution of the options by an authorized agent bound the decedent.

## Decision

- The Court of Appeal reversed the judgment for the executors and the intervening widow on liability.
- The court held the stock options were valid and enforceable against the estate.
- The employees’ continued service in reliance on the options constituted sufficient consideration and/or performance making the options binding.
- The attempted exercise after five years was within the express contractual exercise provisions.
- The options executed by the decedent’s authorized agent were binding on the decedent and thus on his estate.
- The case was remanded for further proceedings consistent with enforceability of the options and related relief.

## Legal Principles

- A stock option granted to employees as an inducement to remain employed may be accepted by performance; continued employment in reliance on the option can constitute consideration.
- Where an option contract permits full exercise after a stated period, a timely exercise consistent with that term is effective even if incremental exercise was also available.
- Contractual obligations supported by consideration generally survive the promisor’s death and are enforceable against the estate.
- An option agreement executed by an agent acting within written authority binds the principal.

## Conclusion

The court held that written employee stock options from a shareholder’s personal holdings were enforceable against the shareholder’s estate because the employees remained employed in reliance on the options, supplying the required contractual support, and their post–five-year exercise complied with the agreements’ terms.


Newberger v. Rifkind, 28 Cal. App. 3d 1070, 104 Cal. Rptr. 663 (Ct. App. 1972)