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EAK5455
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| Posted: 17 Jan 2010 at 14:52 | IP Logged
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An option contract is one in which one party gives consideration for the promise of the other party to keep the offer open.
In the scenario above, Bond and Spear have already completed the contract and agreed to exchange the car for $475. Bond did not pay Spear the $100
deposit to keep the offer open but rather paid the deposit, if anything, to show good faith and to show assurance of performance to pay the full
amount.
If Spear and Bond didn't already agree to the exchange, then they could have made a side agreement whereby Bond would pay Spear to keep the offer
to sell the car open.
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cpa0123
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| Posted: 17 Jan 2010 at 15:02 | IP Logged
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Thanks! So it means Bond's payment of $100 was not a valid consideration since there was nothing given by Spear in return for this deposit. Unless it is mentioned in the question that deposit paid was for a 'specific purpose' we can't assume that it is a valid option contract. Am i right?
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EAK5455
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| Posted: 17 Jan 2010 at 17:35 | IP Logged
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You're right, kinda. Once an offer is accepted, there
can be no option contract to keep that offer open because
it is now part of a contract.
Only when an offer has not been made or is still open and
not accepted, can there be an option contract.
It's more a matter of practicality than any sort of
commercial theory. If you go up to someone and offer
them $450 for their car and they accept, then you have an
enforceable contract. You will not then say to that
person, "I'm going to give you $100 with the hope that
you will keep this offer open for the next week". You've
already made the decision to purchase the vehicle and they've already agreed to sell their car. There's nothing to
keep open, the offer is now closed.
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cpa0123
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| Posted: 17 Jan 2010 at 18:09 | IP Logged
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Thanks a lot for the explanation!
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Topic: R5-consideration question
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