Options Contract and Firm Offers - Exception to Consideration Requirement
When are Options and Firm Offers sufficient Consideration for an Enforceable Contract?
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Other Exceptions to Consideration Requirement
There are two very broad, common exceptions to the requirement that a contract be supported by consideration.
What is an Option Contract?
An option contract is an agreement between parties that allows one party a specific period of time to purchase a particular asset at a given price.
- Example: Mark believes that the price of Apple, Inc., stock is going to rise. He purchases an option contract from Tom that allows him to purchase the Apple stock at the current price at any time within the next 30 days. Tom believes that the price is going to go down, so he is happy to sell the option to Mark.
What is a Firm Offer?
The UCC recognizes the enforceability of a promise to keep open (not retract or cancel) the offer to purchase or sell a good for a specific period of time.
- Example: Agnes offers to sell a piece of equipment to Maria. She states that the offer is good for 30 days. Agnes and Maria now have an enforceable agreement for the next 30 days, despite the absence of consideration in the agreement to keep the offer open.