Brief Fact Summary. Plaintiff Berryman, filed a declaratory judgment action seeking to have an option contract between himself and Defendant Kmoch, declared null and void. Defendant seeks damages for Plaintiff’s failure to convey the land.
Synopsis of Rule of Law. An option contract without consideration is an offer to sell which may be withdrawn at any time before acceptance.
In order for the doctrine of promissory estoppel to be invoked as a substitute for consideration the evidence must show (1) the promise was made under such circumstances that the promisor reasonably expected the promisee to act in reliance on the promise, (2) the promisee acted as could reasonably be expected in relying on the promise, and (3) a refusal by the court to enforce the promise must be virtually to sanction the perpetration of fraud or must result in other injustice.View Full Point of Law
Issue. Can Defendant enforce the option agreement?
Can Defendant enforce the option agreement as an option contract?
Can Defendant enforce the option agreement under promissory estoppel?
Held. No. Defendant cannot enforce the option agreement under either theory
To have a valid option contract there must be consideration. Without consideration, the option agreement is merely an offer to sell. An offer to sell may be withdrawn at any time before it is accepted. In the present case, no consideration was given; therefore, Plaintiff could revoke the offer at any time prior to Defendant’s acceptance.
For promissory estoppel to substitute for consideration there must be (1) a promise made under circumstances where the promisor reasonably expects the promisee to act in reliance on the promise, (2) the promisee acts reasonably in reliance on the promise, and (3) refusing to enforce the promise would result in fraud or injustice. In the present case, Defendant drew up the option agreement and knew that no consideration had been given. Defendant was familiar with real estate contracts and knew the option agreement was not a contract for sale of the land. Therefore, Defendant is unable to show he acted reasonably in reliance on a promise by Plaintiff.
The Court also notes that the promise is not made enforceable by performance of certain acts. An option promise may be conditioned on performance of certain acts, the performance of which would substitute for consideration. However, in this case, the acts of Defendant in attempting to find a buyer for the land do not make the promise enforceable because Defendant was under no obligation to find a buyer and had made no promise to purchase the land.
Discussion. To have a valid option contract there must be consideration. Without consideration the offer to sell may be revoked at any time before it is accepted. At times it may be possible to use promissory estoppel to substitute for consideration and limit the revocability of the offer. However, for promissory estoppel to apply all of the elements must be met, including reasonability of reliance on the promise.