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An option contract has two elements, (1) an offer to do something, or to forbear, which does not become a contract until accepted; and (2) an agreement to leave the offer open for a specified time, or for a reasonable time. An option contract must be supported by sufficient consideration, and if not, it is merely an offer which may be withdrawn at any time prior to a tender of compliance. If a consideration of "one dollar" or some other consideration is stated but which has, in fact, not been paid, the document is merely an offer which may be withdrawn at any time prior to a tender of compliance. The document will amount only to a continuing offer which may be withdrawn by the offeror at any time before acceptance. The consideration to support an option consists of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, that is suffered or undertaken by the other; or otherwise stated, any act or promise which is of benefit to one party or disadvantage to the other.
Plaintiff Hamilton Bancshares, Inc. and the defendant individuals entered into two option contracts, one for 2,068 shares of stock and another for 2,080 shares of stock. The agreements were by similar documents that each had 80-day option periods. Each option was purportedly granted in consideration of the sum of $1 and other good and valuable consideration. After the defendants' signature, each option included a statement, whereby each defendant acknowledged that they paid earnest money that was to be applied to the purchase price of the shares. Subsequently, the defendants sent notice to the company that they were withdrawing the options. The plaintiff rejected the purported withdrawal and exercised the options. The plaintiff then commenced an action for specific performance. Defendants maintained they had the right to withdraw the option offers before exercise, and plaintiff maintained they had no such right. The circuit court granted the defendants' motion, finding that the $ 1consideration was not paid to the Plaintiff and therefore no consideration was given for the options. The Plaintiff sought review of the circuit court’s judgment, arguing that the use of the earnest money for the period of the option constituted consideration sufficient to support the options.
Under the circumstances, did the earnest money constitute consideration sufficient to support the options?
The Court noted that an option contract must be supported by sufficient consideration; and if not, it was merely an offer which may be withdrawn at any time prior to a tender of compliance. According to the Court, if a consideration of one dollar' or some other consideration but which has, in fact, not been paid, the document was merely an offer which may be withdrawn at any time prior to a tender of compliance. The consideration to support an option consisted of any act or promise which was of benefit to one party or disadvantage to the other. It was not essential that it import a certain gain or loss to either party, but was sufficient if the party in whose favor the contract was made parted with a right which he might otherwise exert. In this case, the Court held that the consideration was given for the options because the earnest money paid by the individuals constituted a legal detriment to them. Thus, the Court reversed the grant of summary judgment.