25:
94:
995:(an underinvestment problem that occurs when the exact level of investment cannot be contractually specified). However, there is a debate in contract theory whether option contracts are still useful when the contractual parties cannot rule out future renegotiations. As has been pointed out by Tirole (1999), this debate is at the center of the discussions about the foundations of the
999:
theory. In a laboratory experiment, Hoppe and
Schmitz (2011) have confirmed that non-renegotiable option contracts can indeed solve the hold-up problem. Moreover, it turns out that option contracts are still useful even when renegotiation cannot be ruled out. The latter observation can be explained
974:
It is a general principle of contract law that an offer cannot be assigned by the recipient of the offer to another party. However, an option contract can be sold (unless it provides otherwise), allowing the buyer of the option to step into the shoes of the original offeree and accept the offer to
939:
to revoke the offer and the promisee impliedly promises to furnish complete performance, but as the name suggests, the promisee still retains the "option" of not completing performance. The consideration for this option contract is discussed in comment d of the above cited section. Basically, the
930:
A problem arose with unilateral contracts because of the late formation of the contract. With classical unilateral contracts, a promisor can revoke his offer for the contract at any point prior to the promisee's complete performance. So, if a promisee provides 99% of the performance sought, the
934:
The modern view of how option contracts apply now provides some security to the promisee in the above scenario. Essentially, once a promisee begins performance, an option contract is implicitly created between the promisor and the promisee. The promisor impliedly promises
926:
performed. This was because the consideration for the contract was the performance of the promisee. Once the promisee performed completely, consideration was satisfied and a contract was formed and only the promisor was bound to his promise.
922:. In unilateral contracts, the promisor seeks acceptance by performance from the promisee. In this scenario, the classical contract view was that a contract was not formed until the performance that the promisor seeks was
946:
differs from jurisdiction to jurisdiction, but an option contract can either be implicitly created instantaneously at the beginning of performance (the
Restatement view) or after some "substantial performance".
844:§ 87(1). Typically, an offeree can provide consideration for the option contract by paying money for the contract or by providing value in some other form such as by rendering other performance or
355:
966:, as the road company could make option contracts with many landowners, and eventually consummate the purchase of parcels comprising the contiguous route needed to build the road.
360:
628:
733:
3 Historically restricted in common law jurisdictions but generally accepted elsewhere; availability varies between contemporary common law jurisdictions
931:
promisor could then revoke without any remedy for the promisee. The promisor had maximum protection and the promisee had maximum risk in this scenario.
574:
623:
748:
315:
35:
562:
793:
766:
1113:
1089:
1034:
955:
has established that in exercising an option, a grantee "must comply strictly with the conditions for its exercise".
841:
69:
379:
343:
1174:
372:
818:
and limits the promisor's power to revoke an offer". Option contracts are common in relation to property (see
1260:
Hoppe, Eva I.; Schmitz, Patrick W. (2011). "Can contracts solve the hold-up problem? Experimental evidence".
638:
228:
123:
786:
658:
384:
1000:
by Hart and Moore’s (2008) idea that an important role of contracts is to serve as reference points.
737:
900:
633:
592:
504:
1309:
1229:
1105:
440:
153:
51:
988:
853:
762:
613:
422:
272:
1304:
1224:
829:
An option contract is a type of contract that protects an offeree from an offeror's ability to
338:
298:
223:
199:
181:
1175:"Buyer-Option Contracts Restored: Renegotiation, Inefficient Threats, and the Hold-Up Problem"
1346:
848:. Courts will generally try to find consideration if there are any grounds for doing so. See
779:
755:
618:
186:
1014:
996:
910:), in many countries an option must be registered in order to be binding on a third party.
646:
483:
333:
212:
118:
113:
47:
571:(also implied covenant of good faith and fair dealing or duty to negotiate in good faith)
8:
1130:
Benson, Bruce L. (2006). "Do
Holdout Problems Justify Compulsory Right-of-Way Purchase".
1075:
919:
402:
293:
158:
138:
43:
1057:
1047:"Examples and Explanations for Contracts, 7e", Brian Blum, 2017 p. 104 . Wolters Kluwer.
1277:
1109:
823:
765:, and Canadian jurisprudence in both Québec and the common law provinces pertaining to
688:
651:
493:
465:
431:
324:
309:
303:
277:
1322:
1242:
1197:
952:
545:
534:
255:
204:
195:
176:
133:
1314:
1281:
1269:
1234:
1189:
1093:
959:
568:
455:
450:
412:
407:
250:
233:
992:
984:
460:
190:
167:
963:
814:, is defined as "a promise which meets the requirements for the formation of a
706:
597:
528:
513:
261:
108:
1318:
1273:
1340:
1326:
1246:
1201:
907:
849:
837:
497:
245:
218:
148:
1238:
240:
840:
for the option contract is required as it is still a form of contract, cf.
701:
696:
683:
474:
128:
1193:
913:
845:
539:
445:
350:
267:
1009:
896:
857:
830:
741:
724:
143:
983:
In economics, option contracts play an important role in the field of
940:
consideration is provided by the promisee's beginning of performance.
692:
367:
93:
1295:
Hart, Oliver; Moore, John (2008). "Contracts as
Reference Points*".
1132:
Street Smart: Competition, Entrepreneurship, and the Future of Roads
943:
873:
861:
815:
522:
417:
85:
1215:
Tirole, Jean (1999). "Incomplete
Contracts: Where do We Stand?".
884:) and the person who has the benefit of the option is called the
488:
958:
It has been hypothesized that option contracts could help allow
903:
and must be exercised within the time limits prescribed by law.
991:(1995, p. 90) has shown that option contracts can mitigate the
895:
Because options amount to dispositions of future property, in
34:
deal primarily with the United States and do not represent a
678:
1116:(Civil Division), delivered 5 November 1973, quoting from
1062:
Cornell
University Law School, Legal Information Institute
668:
758:
both in Québec and in the country's common law provinces
1096:
of the option contract's application to this situation.
914:
Application of option contract in unilateral contracts
1120:, 1966 2 Queens Bench, 130, accessed 8 September 2023
761:
7 Specific to civil law jurisdictions, the
American
906:In relation to certain types of asset (principally
918:The option contract provides an important role in
856:(UCC) has eliminated a need for consideration for
575:Contract A and Contract B in Canadian contract law
1338:
1129:
1058:"Uniform Commercial Code - § 2-205. Firm Offers"
949:Cook v. Coldwell Banker/Frank Laiben Realty Co.
876:. The person granting the option is called the
730:2 Specific to civil and mixed law jurisdictions
951:, 967 S.W.2d 654 (Mo. App. 1998). Case law in
787:
32:The examples and perspective in this article
1259:
1172:
872:An option is the right to convey a piece of
1182:Journal of Law, Economics, and Organization
899:countries they are normally subject to the
767:contractual and pre-contractual negotiation
794:
780:
1308:
1294:
1228:
1160:Firms, contracts, and financial structure
70:Learn how and when to remove this message
1110:Holwell Securities v Hughes EWCA Civ 5
962:to be constructed without resorting to
1339:
1214:
563:Duty of honest contractual performance
1144:John D. Calamari, Joseph M. Perillo,
833:their offer to engage in a contract.
751:of International Commercial Contracts
1157:
18:
740:and other civil codes based on the
13:
1173:Lyon, T. P.; Rasmusen, E. (2004).
978:
14:
1358:
1114:England and Wales Court of Appeal
1090:Restatement (Second) of Contracts
1035:Restatement (Second) of Contracts
842:Restatement (Second) of Contracts
819:
969:
565:(or doctrine of abuse of rights)
380:Enforcement of foreign judgments
344:Hague Choice of Court Convention
92:
23:
1288:
1253:
1208:
1166:
867:
864:in some limited circumstances.
1297:Quarterly Journal of Economics
1151:
1138:
1123:
1099:
1082:
1068:
1050:
1041:
1027:
373:Singapore Mediation Convention
1:
1020:
747:5 Explicitly rejected by the
514:Quasi-contractual obligations
7:
1262:Games and Economic Behavior
1003:
975:which the option pertains.
46:, discuss the issue on the
16:Type of contractual promise
10:
1363:
852:for more information. The
385:Hague Judgments Convention
1319:10.1162/qjec.2008.123.1.1
1274:10.1016/j.geb.2010.12.002
901:rule against perpetuities
736:4 Specific to the German
441:Anticipatory repudiation
191:unequal bargaining power
1239:10.1111/1468-0262.00052
854:Uniform Commercial Code
763:Uniform Commercial Code
738:Bürgerliches Gesetzbuch
423:Third-party beneficiary
395:Rights of third parties
273:Accord and satisfaction
888:(or more usually, the
880:(or more usually, the
836:Under the common law,
494:Liquidated, stipulated
339:Forum selection clause
224:Frustration of purpose
1158:Hart, Oliver (1995).
756:Canadian contract law
124:Abstraction principle
1146:The Law of Contracts
1015:Offer and acceptance
997:incomplete contracts
920:unilateral contracts
585:Related areas of law
484:Specific performance
334:Choice of law clause
299:Contract of adhesion
213:Culpa in contrahendo
119:Meeting of the minds
114:Offer and acceptance
52:create a new article
44:improve this article
1194:10.1093/jleo/ewh027
824:professional sports
749:UNIDROIT Principles
523:Promissory estoppel
403:Privity of contract
356:New York Convention
316:UNIDROIT Principles
159:Collateral contract
154:Implication-in-fact
139:Invitation to treat
1162:. Clarendon Press.
569:Duty of good faith
466:Fundamental breach
432:Breach of contract
361:UNCITRAL Model Law
325:Dispute resolution
310:Contra proferentem
304:Integration clause
278:Exculpatory clause
987:. In particular,
960:free market roads
953:England and Wales
804:
803:
647:England and Wales
555:Duties of parties
546:Negotiorum gestio
535:Unjust enrichment
256:Statute of frauds
205:Unconscionability
177:Misrepresentation
134:Mirror image rule
80:
79:
72:
54:, as appropriate.
1354:
1331:
1330:
1312:
1292:
1286:
1285:
1257:
1251:
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1232:
1212:
1206:
1205:
1179:
1170:
1164:
1163:
1155:
1149:
1142:
1136:
1135:
1127:
1121:
1103:
1097:
1094:black letter law
1086:
1080:
1079:
1072:
1066:
1065:
1054:
1048:
1045:
1039:
1031:
796:
789:
782:
624:China (mainland)
593:Conflict of laws
456:Efficient breach
451:Exclusion clause
251:Illusory promise
234:Impracticability
96:
82:
81:
75:
68:
64:
61:
55:
27:
26:
19:
1362:
1361:
1357:
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1310:10.1.1.486.3894
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1258:
1254:
1230:10.1.1.465.9450
1213:
1209:
1177:
1171:
1167:
1156:
1152:
1148:(1998), p. 707.
1143:
1139:
1128:
1124:
1118:Hare v. Nicholl
1104:
1100:
1087:
1083:
1074:
1073:
1069:
1056:
1055:
1051:
1046:
1042:
1032:
1028:
1023:
1006:
993:hold-up problem
985:contract theory
981:
979:Contract theory
972:
916:
870:
808:option contract
800:
771:
643:United Kingdom
606:By jurisdiction
76:
65:
59:
56:
41:
28:
24:
17:
12:
11:
5:
1360:
1350:
1349:
1333:
1332:
1287:
1268:(1): 186–199.
1252:
1223:(4): 741–781.
1207:
1188:(1): 148–169.
1165:
1150:
1137:
1122:
1098:
1081:
1067:
1049:
1040:
1025:
1024:
1022:
1019:
1018:
1017:
1012:
1005:
1002:
980:
977:
971:
968:
964:eminent domain
915:
912:
869:
866:
802:
801:
799:
798:
791:
784:
776:
773:
772:
770:
769:
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754:6 Specific to
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745:
734:
731:
728:
723:1 Specific to
720:
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598:Commercial law
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578:
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566:
557:
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552:
551:
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529:Quantum meruit
525:
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296:
294:Parol evidence
288:
287:
286:Interpretation
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262:Non est factum
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78:
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38:of the subject
36:worldwide view
31:
29:
22:
15:
9:
6:
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3:
2:
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1203:
1199:
1195:
1191:
1187:
1183:
1176:
1169:
1161:
1154:
1147:
1141:
1134:. p. 65.
1133:
1126:
1119:
1115:
1111:
1107:
1102:
1095:
1091:
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1077:
1071:
1063:
1059:
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1030:
1026:
1016:
1013:
1011:
1008:
1007:
1001:
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990:
986:
976:
970:Assignability
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965:
961:
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950:
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938:
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928:
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911:
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904:
902:
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891:
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865:
863:
859:
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851:
850:consideration
847:
843:
839:
838:consideration
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832:
827:
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821:
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813:
809:
797:
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727:jurisdictions
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659:United States
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531:
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498:penal damages
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489:Money damages
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268:Unclean hands
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229:Impossibility
227:
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219:Force majeure
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200:public policy
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149:Consideration
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60:December 2014
53:
49:
45:
39:
37:
30:
21:
20:
1347:Contract law
1300:
1296:
1290:
1265:
1261:
1255:
1220:
1217:Econometrica
1216:
1210:
1185:
1181:
1168:
1159:
1153:
1145:
1140:
1131:
1125:
1117:
1101:
1088:See § 45 of
1084:
1070:
1061:
1052:
1043:
1033:
1029:
982:
973:
957:
948:
942:
936:
933:
929:
923:
917:
905:
894:
889:
885:
881:
877:
871:
868:Introduction
835:
828:
811:
810:, or simply
807:
805:
702:Criminal law
684:Property law
639:Saudi Arabia
544:
527:
308:
260:
211:
129:Posting rule
86:Contract law
66:
57:
33:
1303:(1): 1–48.
1038:§ 25 (1981)
989:Oliver Hart
890:beneficiary
858:firm offers
846:forbearance
540:Restitution
351:Arbitration
1106:Lawton, LJ
1076:"Optionor"
1021:References
1010:Firm offer
924:completely
897:common law
742:pandectist
725:common law
505:Rescission
413:Delegation
408:Assignment
196:Illegality
144:Firm offer
1327:0033-5533
1305:CiteSeerX
1247:1468-0262
1225:CiteSeerX
1202:8756-6222
862:merchants
822:) and in
744:tradition
614:Australia
461:Deviation
368:Mediation
101:Formation
48:talk page
1341:Category
1092:for the
1004:See also
944:Case law
886:optionee
878:optionor
874:property
860:between
816:contract
707:Evidence
679:Tort law
652:Scotland
475:Remedies
418:Novation
241:Hardship
168:Defences
109:Capacity
42:You may
1282:7430522
882:grantor
697:estates
629:Ireland
246:Set-off
187:Threats
182:Mistake
1325:
1307:
1280:
1245:
1227:
1200:
831:revoke
812:option
695:, and
693:trusts
667:Other
619:Canada
1278:S2CID
1178:(PDF)
820:below
715:Notes
689:Wills
671:areas
634:India
496:, or
446:Cover
50:, or
1323:ISSN
1243:ISSN
1198:ISSN
908:land
198:and
189:and
1315:doi
1301:123
1270:doi
1235:doi
1190:doi
937:not
892:).
806:An
669:law
1343::
1321:.
1313:.
1299:.
1276:.
1266:73
1264:.
1241:.
1233:.
1221:67
1219:.
1196:.
1186:20
1184:.
1180:.
1112:,
1108:,
1060:.
826:.
691:,
1329:.
1317::
1284:.
1272::
1249:.
1237::
1204:.
1192::
1078:.
1064:.
795:e
788:t
781:v
73:)
67:(
62:)
58:(
40:.
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