Last week, we started our great journey of contracts, which for a small business owner or startup you are actually entering many of them and you may not know it. For those of you readers that have read my blog and those that have attended my seminars I will repeat it until I die or they change the law, a contract is NOT a piece of paper. It is a promise or a series promises, and because of that a contract consists of numerous components. Currently, we are discussing offer and acceptance. Two key concepts that will lead to the formation of a contract. You can kind of consider them as parents. Last week’s post was on offers, and today’s post extends that concept out (literally) by discussing options
What is an Option?
An option is an agreement that needs consideration (i.e. money or something else of value) to hold an offer open for a certain period of time. You can consider it a mini-contract. It’s purpose is to hold open an offer and some valuable consideration (such as money) is given for that exchange of time. The time component also need not necessarily be tied to a specific date in time, BUT an event. To see how this concept works follow the example:
Let’s say you are in the market to buy a shave ice store. One day you see a store being sold for $20,000 in a prime location. However, you want to see if you can negotiate to get it for a lower price or get the owner to throw in more stuff for his asking price.
You then find out there is another store on the market, but it is not in a prime location. However, you feel that if you cannot negotiate with the first shave ice store owner you could be satisfied with the second one. So you go to the second shave ice store owner and pay an option of $800.00. This option states that in the event that the second store owner receives an offer in the next two months you have the right to match that offer. This is known as right of first refusal. In this way you can negotiate with the first store owner, knowing that you have a backup plan if the negotiations fall through.
Option Payment is Not Refundable
Generally, the payment for an option is not refundable. It’s not a down payment or a deposit. The payment for an option is what you give to keep the offer open. Sometimes an offeror will apply the payment for the option to the asking price. It just depends on negotiating.
A Word on Advertisements and Offers
I know you are probably thinking that many advertisements you see are options or at the very least offers. However, this should be a refresher for those of you who have stuck with Draw the Law for this past year. Starting a business means you have to advertise, and if you are a retailer or someone similar you generate interest by creating deals in advertisements. Does that make it an offer? Like all great things in the law, is it depends. However, generally speaking, an advertisement is not held to be an offer, rather courts interpret them as “an expression of intent to see.”
Now here comes the exception because in law we love to make exceptions within exceptions. If a merchant makes a written offer to trade in goods that the merchant regularly conducts business in and in the written offer it states that it will remain open for a set amount of time the merchant will be unable to revoke the offer during the time.
Therefore, if a slipper seller says in their written offer that you can buy a box of slippers for 50% off for the next 3 weeks. He cannot 2 weeks later revoke the offer. It must stay in effect for 1 week more. The offeree need not pay anything to keep the offer open.
Looking toward Next Week
Now that we have gone through offers, we are going to talk about the other side, acceptance. So I hope you accept my offer to come back and find out more about contract law!
If you enjoyed this post be sure to “Subscribe” today!
*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.