Facts
- A real estate developer sought to buy and develop 10 acres of a 12.29-acre parcel, a transaction requiring county approvals for a parcel split and related permits.
- The parties executed a writing labeled a “Real Estate Purchase Contract,” drafted by the buyer, setting a $500,000 purchase price and a deadline in September 2006.
- The agreement allowed the buyer to decide whether to purchase after pursuing approvals and permits at the buyer’s own expense.
- A contingency clause stated the buyer was not obliged to do anything and could cancel “at [his] absolute and sole discretion” at any time.
- The buyer (and a partial assignee) performed substantial work and incurred expenses to obtain approvals, including engineering and surveying and processing a tentative parcel map application, ultimately receiving tentative map approval.
- The seller initially cooperated (including signing applications) but later attempted to cancel and refused to convey; the buyer sued for specific performance.
Issues
- Whether the agreement was an option contract or a bilateral purchase contract.
- If the agreement was an option, whether it was supported by consideration sufficient to make it irrevocable through the stated period.
- Whether promissory estoppel would require enforcement if the option were revocable for lack of consideration (raised below, but potentially unnecessary if consideration existed).
Decision
- The court held the agreement was an option contract because it bound the seller to sell on stated terms while leaving the buyer free to buy or terminate at the buyer’s “absolute and sole discretion.”
- The court held the option was supported by sufficient consideration and therefore was irrevocable until the date specified in the agreement.
- The court reversed the judgment for the seller and remanded for further proceedings.
- Because consideration made the option enforceable, the court did not reach promissory estoppel.
Legal Principles
- An agreement that commits the owner to sell but gives the other party unilateral discretion to purchase or terminate is construed as an option, not a bilateral purchase contract.
- An option is irrevocable when supported by consideration; consideration is not limited to a separate option payment.
- Consideration may consist of the option holder’s bargained-for undertaking to perform work or incur expense (or otherwise suffer a legal detriment) that benefits the option grantor, such as pursuing governmental approvals at the option holder’s expense.
- Performance consistent with the parties’ bargain—here, undertaking the entitlement and parcel-split process—can supply the consideration that supports the option’s enforceability.
Conclusion
The court construed the parties’ writing as an option and held it was supported by consideration because the buyer undertook and performed approval-related work at his own expense for the seller’s benefit, making the option irrevocable through its stated term and requiring reversal and remand for further proceedings.