What You'll Learn

  • Revocability baseline
  • Common-law option contracts
  • Beginning performance
  • UCC firm offers
  • Reliance and indirect revocation

Educational information only; not legal advice. This article is a general study aid and should be checked against current authority and course materials.

1. Common-Law Option Contract

An option contract is a separate bargain in which the offeror promises to keep the underlying offer open and the offeree gives consideration for that promise. The offeree is effectively buying time.

Key Takeaway

The underlying offer concerns the ultimate transaction. The option contract concerns the promise not to revoke. Analyze consideration for the option separately from consideration for the eventual contract. Because the option protects reliance on continued availability, the outlines treat exercise of the option as effective upon receipt, not ordinary mailbox-rule dispatch, unless the governing terms provide otherwise.

2. Beginning Performance of a Unilateral Offer

Restatement §45 creates an option contract when the offeree begins the invited performance. The offeror must allow a reasonable opportunity to complete, but the offeree is not obligated to finish. Acceptance of the unilateral offer still occurs only when the requested performance is completed.

3. UCC §2-205 Firm Offers

Requirement Meaning

Merchant offeror The offeror is a merchant making an offer to buy or sell goods.

Signed writing A writing or record authenticated by the merchant.

Assurance it will be held open The writing communicates a commitment not to revoke.

Time limit Irrevocable for the stated time or a reasonable time, but no more than three months without consideration.

Offeree-supplied form The assurance term must be separately signed by the offeror.

A firm offer needs no consideration during the statutory period. If the parties want a longer irrevocable period, ordinary option-contract consideration can support the additional time.

4. Reliance May Also Restrict Revocation

The outlines recognize promissory estoppel as a possible reason to prevent revocation when the offeror should reasonably expect reliance, the offeree reasonably changes position, and enforcement is necessary to avoid injustice. Keep the analysis distinct: reliance does not automatically create acceptance, but it may make revocation ineffective.

5. Direct and Indirect Revocation

Direct revocation must be communicated before acceptance. Under Restatement §43, the offeree’s power of acceptance also ends when the offeror takes definite action inconsistent with the proposed contract and the offeree receives reliable information of that action. A rumor is weaker than a trustworthy report of a completed sale.

Doctrine Consideration? Maximum automatic period When acceptance/exercise is effective

Common-law option Yes. As agreed. Ordinarily upon receipt within the option period.

UCC firm offer No, if §2-205 is satisfied. Three months without consideration. Apply the offer and governing acceptance rules.

Unilateral beginning performance Performance beginning creates the option by law. Reasonable time to complete. Underlying offer accepted upon completed performance.

Key Takeaway

A merchant signs a letter offering 500 chairs and promises to keep the offer open for six months. No consideration is paid. The firm-offer rule can protect no more than three months; the remaining period needs option consideration or another doctrine. If the buyer mails acceptance near the deadline, check whether the offer requires receipt.

Common Mistake

Do not assume “I promise to keep this open” is irrevocable at common law. Do not forget the merchant, signed-writing, assurance, and three-month limits of §2-205. Do not apply the mailbox rule automatically to an option exercise.

Primary Authorities

  • ● Restatement (Second) of Contracts § 43 and § 45.

  • ● U.C.C. § 2-205.

  • ● Promissory-estoppel principles under Restatement (Second) § 90.

Exam-ready conclusion

Revocability is the default. Irrevocability requires a common-law option, UCC firm offer, beginning performance of a unilateral offer, or a reliance-based doctrine. Identify the source and its exact limits.