Case: Parties


Humble oil & Refining Co. v Westside Investment Corp ((1968) pp. 370-375 Plaintiff - Humble + Mann (petitioner, 3rd party plaintiff) Defendant - Westside

Procedural History: Humble filed suit againt Westside asking for specific performance on a written option and contract for the sale of real estate. Mann, real estate agent, (3rd party plaintiff) filed a plea in intervention, asking for $1260 from Westside, for brokerage charges. All 3 parties filed motion for summary judgment. Court granted Westside's motion, but denied the others. Court of civil appeals affirmed that decision. On appeal again in Texas Supreme Court. Facts: On Apr. 5, Westside (seller) and Humble (buyer) entered into an written contract where Westside agreed to sell property to Humble with consideration the payment of $35k, and there was consideration for the option contract $50 paid (consideration given for the option contract so that Westside could not retract the offer until after the time stipulated in the contract). Contract said Humble could accept by giving notice by June 4th, 9pm, and paying $1750 within 10 days after acceptance. On May 2, Humble sent letter to Westside, accepting the offer, provided that the seller install utility lines to the property before the date of closing. Then, on May 14th, Humble sent a letter to Westside, accepting Westside's original offer as it was, and stating that "the exercise of said option is not qualified" and Westside can disregard the amendment proposed in their May 2nd letter. Humble then paid the $1750 in the time period asked for in the contract, to an escrow agent that had been designated for this transaction. Issue: Whether Humble's May 2nd letter, proposing an amendment to the option contract was a rejection of the option contract, thereby terminating the buyer power of acceptance. Holding: Reversed the lower court's summary judgment in favor of defendant, Westside. Court says Humble is entitled to specific performance. Mann's claim is remanded due to an issue of fact. Reasoning: Court says the May 2nd letter did not terminate the option contract. Westside had an obligation, in consideration for the $50 paid, to keep the option contract open for a specified time. Although during this time Humble had the right to either accept or reject the offer, thereby ending the transaction, they were not barred from negotiating the contract, since it was a separate offer from the option contract. RULE: Restatement § 37: "The power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty. Notes James on Option Contracts § 838 (p. 372) "A qualified or conditional acceptance is a rejection of the offer first made because the original negotiations are dropped and negotiations for a new and different contract begun." "An option is a contract, the negotiations for the making of which are concluded by the execution and delivery of the option. The minds of the parties have met in agreement, the distinctive feature of which is that the optionor, for a consideration, binds himself to keep the option open for election by the optionee, for and during the time stipulated, or implied by law. Under an option, the act necessary to raise a binding promise to sell, is not, therefore, an acceptance of

the offer, but rather the performance of the condition of the option contract. If this is true, then the rule peculiar to offers to the effect that a conditional acceptance is, in itself, in every case, a rejection of the offer, is not applicable to an option contract, supported by a consideration and fixing a time limit for election" Restatement § 25: "An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer." Restatement § 87 (1) (a): "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…" UCC 2-205 ***Merchants are specifically defined in the UCC. legal definition of merchant, make sure you know this. There is a specific

The modification was to the contract for sale of the property, not to the option contract. Generally, a counter-offer or conditional acceptance kills the offer. Option contracts include a price and time period. Example: stock options - exercise price of the option, and the time you have to exercise • Option contracts can fail for indefiniteness. ○ But usually you have the include an exercise price and time frame for when the option expires ○ If you don’t have these, then there is indefiniteness, and wont guarantee that the option, as drafted, can be enforced