Editing Option contract (section)

==Application of option contract in unilateral contracts==

The option contract provides an important role in [[unilateral contract]]s. 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 ''completely'' 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.

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 promisor could then revoke without any remedy for the promisee. The promisor had maximum protection and the promisee had maximum risk in this scenario.

The modern view of how option contracts apply now provides some security to the promisee in the above scenario.<ref>See § 45 of [[Restatement (Second) of Contracts]] for the [[black letter law]] of the option contract's application to this situation.</ref> Essentially, once a promisee begins performance, an option contract is implicitly created between the promisor and the promisee. The promisor impliedly promises ''not'' 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 consideration is provided by the promisee's beginning of performance.

[[Case law]] 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". ''Cook v. Coldwell Banker/Frank Laiben Realty Co.'', 967 S.W.2d 654 (Mo. App. 1998). Case law in [[England and Wales]] has established that in exercising an option, a grantee "must comply strictly with the conditions for its exercise".<ref>[[Frederick Lawton (judge)|Lawton, LJ]], [https://www.bailii.org/ew/cases/EWCA/Civ/1973/5.html Holwell Securities v Hughes <nowiki>[</nowiki>1973<nowiki>]</nowiki> EWCA Civ 5], [[England and Wales Court of Appeal]] (Civil Division), delivered 5 November 1973, quoting from ''Hare v. Nicholl'', 1966 2 Queens Bench, 130, accessed 8 September 2023</ref>

It has been hypothesized that option contracts could help allow [[free market road]]s to be constructed without resorting to [[eminent domain]], 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.<ref>{{cite book|title=Street Smart: Competition, Entrepreneurship, and the Future of Roads|chapter=Do Holdout Problems Justify Compulsory Right-of-Way Purchase|author=Benson, Bruce L.|year=2006|page=65}}</ref>