36:
105:
1006:(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
1010:
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
985:
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
950:
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
941:
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
945:
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
937:
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.
366:
933:. 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
957:
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".
855:§ 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
371:
977:, 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.
585:
634:
759:
326:
46:
744:
3 Historically restricted in common law jurisdictions but generally accepted elsewhere; availability varies between contemporary common law jurisdictions
942:
promisor could then revoke without any remedy for the promisee. The promisor had maximum protection and the promisee had maximum risk in this scenario.
804:
1124:
1100:
1045:
852:
80:
390:
354:
383:
649:
239:
134:
966:
has established that in exercising an option, a grantee "must comply strictly with the conditions for its exercise".
797:
748:
669:
395:
911:
644:
603:
515:
1185:
1116:
451:
164:
62:
829:
and limits the promisor's power to revoke an offer". Option contracts are common in relation to property (see
1271:
Hoppe, Eva I.; Schmitz, Patrick W. (2011). "Can contracts solve the hold-up problem? Experimental evidence".
999:
864:
773:
624:
433:
283:
1315:
1235:
349:
309:
234:
210:
192:
1357:
790:
777:
766:
639:
629:
573:
197:
1011:
by Hart and Moore’s (2008) idea that an important role of contracts is to serve as reference points.
1025:
1007:
657:
494:
344:
223:
129:
124:
58:
1320:
1240:
930:
413:
304:
169:
149:
1288:
834:
699:
662:
504:
476:
442:
335:
320:
314:
288:
840:
An option contract is a type of contract that protects an offeree from an offeror's ability to
1333:
1253:
1208:
1186:"Buyer-Option Contracts Restored: Renegotiation, Inefficient Threats, and the Hold-Up Problem"
963:
556:
545:
266:
215:
206:
187:
144:
859:. Courts will generally try to find consideration if there are any grounds for doing so. See
1325:
1280:
1245:
1200:
1104:
970:
579:
466:
461:
423:
418:
261:
244:
921:), in many countries an option must be registered in order to be binding on a third party.
1003:
995:
582:(also implied covenant of good faith and fair dealing or duty to negotiate in good faith)
471:
201:
178:
1141:
Benson, Bruce L. (2006). "Do
Holdout Problems Justify Compulsory Right-of-Way Purchase".
1086:
1068:
1058:"Examples and Explanations for Contracts, 7e", Brian Blum, 2017 p. 104 . Wolters Kluwer.
1120:
974:
776:, and Canadian jurisprudence in both Québec and the common law provinces pertaining to
717:
608:
539:
524:
272:
119:
1351:
918:
860:
848:
508:
256:
229:
159:
1292:
712:
707:
694:
485:
139:
104:
856:
550:
456:
361:
278:
17:
825:, is defined as "a promise which meets the requirements for the formation of a
1329:
1284:
1020:
907:
868:
841:
752:
735:
154:
1337:
1257:
1212:
1249:
703:
378:
851:
for the option contract is required as it is still a form of contract, cf.
1204:
954:
884:
872:
826:
533:
428:
251:
96:
499:
994:
In economics, option contracts play an important role in the field of
951:
consideration is provided by the promisee's beginning of performance.
1306:
Hart, Oliver; Moore, John (2008). "Contracts as
Reference Points*".
1143:
Street Smart: Competition, Entrepreneurship, and the Future of Roads
1226:
Tirole, Jean (1999). "Incomplete
Contracts: Where do We Stand?".
895:) and the person who has the benefit of the option is called the
969:
It has been hypothesized that option contracts could help allow
914:
and must be exercised within the time limits prescribed by law.
689:
1002:(1995, p. 90) has shown that option contracts can mitigate the
906:
Because options amount to dispositions of future property, in
679:
29:
45:
deal primarily with the United States and do not represent a
1127:(Civil Division), delivered 5 November 1973, quoting from
1073:
Cornell
University Law School, Legal Information Institute
769:
both in Québec and in the country's common law provinces
1107:
of the option contract's application to this situation.
54:
925:
Application of option contract in unilateral contracts
1131:, 1966 2 Queens Bench, 130, accessed 8 September 2023
772:
7 Specific to civil law jurisdictions, the
American
917:In relation to certain types of asset (principally
929:The option contract provides an important role in
867:(UCC) has eliminated a need for consideration for
586:Contract A and Contract B in Canadian contract law
1069:"Uniform Commercial Code - § 2-205. Firm Offers"
960:Cook v. Coldwell Banker/Frank Laiben Realty Co.
887:. The person granting the option is called the
741:2 Specific to civil and mixed law jurisdictions
962:, 967 S.W.2d 654 (Mo. App. 1998). Case law in
798:
43:The examples and perspective in this article
8:
883:An option is the right to convey a piece of
1193:Journal of Law, Economics, and Organization
910:countries they are normally subject to the
778:contractual and pre-contractual negotiation
805:
791:
92:
1319:
1239:
1171:Firms, contracts, and financial structure
81:Learn how and when to remove this message
1121:Holwell Securities v Hughes EWCA Civ 5
1037:
973:to be constructed without resorting to
725:
677:
616:
595:
565:
523:
484:
441:
405:
334:
296:
177:
111:
95:
574:Duty of honest contractual performance
1155:John D. Calamari, Joseph M. Perillo,
844:their offer to engage in a contract.
762:of International Commercial Contracts
7:
751:and other civil codes based on the
1184:Lyon, T. P.; Rasmusen, E. (2004).
25:
1125:England and Wales Court of Appeal
1101:Restatement (Second) of Contracts
1046:Restatement (Second) of Contracts
853:Restatement (Second) of Contracts
830:
576:(or doctrine of abuse of rights)
391:Enforcement of foreign judgments
355:Hague Choice of Court Convention
103:
34:
875:in some limited circumstances.
1308:Quarterly Journal of Economics
384:Singapore Mediation Convention
1:
758:5 Explicitly rejected by the
525:Quasi-contractual obligations
1273:Games and Economic Behavior
986:which the option pertains.
57:, discuss the issue on the
27:Type of contractual promise
1374:
863:for more information. The
396:Hague Judgments Convention
1330:10.1162/qjec.2008.123.1.1
1285:10.1016/j.geb.2010.12.002
912:rule against perpetuities
747:4 Specific to the German
452:Anticipatory repudiation
202:unequal bargaining power
1250:10.1111/1468-0262.00052
865:Uniform Commercial Code
774:Uniform Commercial Code
749:Bürgerliches Gesetzbuch
434:Third-party beneficiary
406:Rights of third parties
284:Accord and satisfaction
899:(or more usually, the
891:(or more usually, the
847:Under the common law,
505:Liquidated, stipulated
350:Forum selection clause
235:Frustration of purpose
1169:Hart, Oliver (1995).
767:Canadian contract law
135:Abstraction principle
1157:The Law of Contracts
1026:Offer and acceptance
1008:incomplete contracts
931:unilateral contracts
596:Related areas of law
495:Specific performance
345:Choice of law clause
310:Contract of adhesion
224:Culpa in contrahendo
130:Meeting of the minds
125:Offer and acceptance
63:create a new article
55:improve this article
1205:10.1093/jleo/ewh027
835:professional sports
760:UNIDROIT Principles
534:Promissory estoppel
414:Privity of contract
367:New York Convention
327:UNIDROIT Principles
170:Collateral contract
165:Implication-in-fact
150:Invitation to treat
1173:. Clarendon Press.
580:Duty of good faith
477:Fundamental breach
443:Breach of contract
372:UNCITRAL Model Law
336:Dispute resolution
321:Contra proferentem
315:Integration clause
289:Exculpatory clause
998:. In particular,
971:free market roads
964:England and Wales
815:
814:
658:England and Wales
566:Duties of parties
557:Negotiorum gestio
546:Unjust enrichment
267:Statute of frauds
216:Unconscionability
188:Misrepresentation
145:Mirror image rule
91:
90:
83:
65:, as appropriate.
16:(Redirected from
1365:
1342:
1341:
1323:
1303:
1297:
1296:
1268:
1262:
1261:
1243:
1223:
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1216:
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1181:
1175:
1174:
1166:
1160:
1153:
1147:
1146:
1138:
1132:
1114:
1108:
1105:black letter law
1097:
1091:
1090:
1083:
1077:
1076:
1065:
1059:
1056:
1050:
1042:
807:
800:
793:
635:China (mainland)
604:Conflict of laws
467:Efficient breach
462:Exclusion clause
262:Illusory promise
245:Impracticability
107:
93:
86:
79:
75:
72:
66:
38:
37:
30:
21:
18:Option agreement
1373:
1372:
1368:
1367:
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1346:
1345:
1321:10.1.1.486.3894
1305:
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1300:
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1269:
1265:
1241:10.1.1.465.9450
1225:
1224:
1220:
1188:
1183:
1182:
1178:
1168:
1167:
1163:
1159:(1998), p. 707.
1154:
1150:
1140:
1139:
1135:
1129:Hare v. Nicholl
1115:
1111:
1098:
1094:
1085:
1084:
1080:
1067:
1066:
1062:
1057:
1053:
1043:
1039:
1034:
1017:
1004:hold-up problem
996:contract theory
992:
990:Contract theory
983:
927:
881:
819:option contract
811:
782:
654:United Kingdom
617:By jurisdiction
87:
76:
70:
67:
52:
39:
35:
28:
23:
22:
15:
12:
11:
5:
1371:
1369:
1361:
1360:
1350:
1349:
1344:
1343:
1298:
1279:(1): 186–199.
1263:
1234:(4): 741–781.
1218:
1199:(1): 148–169.
1176:
1161:
1148:
1133:
1109:
1092:
1078:
1060:
1051:
1036:
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1033:
1030:
1029:
1028:
1023:
1016:
1013:
991:
988:
982:
979:
975:eminent domain
926:
923:
880:
877:
813:
812:
810:
809:
802:
795:
787:
784:
783:
781:
780:
770:
765:6 Specific to
763:
756:
745:
742:
739:
734:1 Specific to
731:
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727:
723:
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697:
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609:Commercial law
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540:Quantum meruit
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305:Parol evidence
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297:Interpretation
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276:
273:Non est factum
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89:
88:
49:of the subject
47:worldwide view
42:
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33:
26:
24:
14:
13:
10:
9:
6:
4:
3:
2:
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1149:
1145:. p. 65.
1144:
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1024:
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1009:
1005:
1001:
997:
989:
987:
981:Assignability
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978:
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967:
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952:
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870:
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862:
861:consideration
858:
854:
850:
849:consideration
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738:jurisdictions
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719:
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670:United States
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542:
541:
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532:
531:
530:
529:
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517:
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510:
509:penal damages
506:
503:
502:
501:
500:Money damages
498:
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280:
279:Unclean hands
277:
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258:
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253:
250:
246:
243:
241:
240:Impossibility
238:
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230:Force majeure
228:
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217:
214:
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211:public policy
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160:Consideration
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71:December 2014
64:
60:
56:
50:
48:
41:
32:
31:
19:
1358:Contract law
1311:
1307:
1301:
1276:
1272:
1266:
1231:
1228:Econometrica
1227:
1221:
1196:
1192:
1179:
1170:
1164:
1156:
1151:
1142:
1136:
1128:
1112:
1099:See § 45 of
1095:
1081:
1072:
1063:
1054:
1044:
1040:
993:
984:
968:
959:
953:
947:
944:
940:
934:
928:
916:
905:
900:
896:
892:
888:
882:
879:Introduction
846:
839:
822:
821:, or simply
818:
816:
713:Criminal law
695:Property law
650:Saudi Arabia
555:
538:
319:
271:
222:
140:Posting rule
97:Contract law
77:
68:
44:
1314:(1): 1–48.
1049:§ 25 (1981)
1000:Oliver Hart
901:beneficiary
869:firm offers
857:forbearance
551:Restitution
362:Arbitration
1117:Lawton, LJ
1087:"Optionor"
1032:References
1021:Firm offer
935:completely
908:common law
753:pandectist
736:common law
516:Rescission
424:Delegation
419:Assignment
207:Illegality
155:Firm offer
1338:0033-5533
1316:CiteSeerX
1258:1468-0262
1236:CiteSeerX
1213:8756-6222
873:merchants
833:) and in
755:tradition
625:Australia
472:Deviation
379:Mediation
112:Formation
59:talk page
1352:Category
1103:for the
1015:See also
955:Case law
897:optionee
889:optionor
885:property
871:between
827:contract
718:Evidence
690:Tort law
663:Scotland
486:Remedies
429:Novation
252:Hardship
179:Defences
120:Capacity
53:You may
1293:7430522
893:grantor
708:estates
640:Ireland
257:Set-off
198:Threats
193:Mistake
1336:
1318:
1291:
1256:
1238:
1211:
842:revoke
823:option
706:, and
704:trusts
678:Other
630:Canada
1289:S2CID
1189:(PDF)
831:below
726:Notes
700:Wills
682:areas
645:India
507:, or
457:Cover
61:, or
1334:ISSN
1254:ISSN
1209:ISSN
919:land
209:and
200:and
1326:doi
1312:123
1281:doi
1246:doi
1201:doi
948:not
903:).
817:An
680:law
1354::
1332:.
1324:.
1310:.
1287:.
1277:73
1275:.
1252:.
1244:.
1232:67
1230:.
1207:.
1197:20
1195:.
1191:.
1123:,
1119:,
1071:.
837:.
702:,
1340:.
1328::
1295:.
1283::
1260:.
1248::
1215:.
1203::
1089:.
1075:.
806:e
799:t
792:v
84:)
78:(
73:)
69:(
51:.
20:)
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