Case: Humble oil & Refining Co. v Westside Investment Corp ((1968) pp.

370-375

Parties: Plaintiff - Humble + Mann (petitioner, 3rd party plaintiff)

Defendant - Westside

Procedural History: Humble filed suit againt Westside asking for specific
performance on a written option and contract for the sale of real estate. Mann,
real estate agent, (3rd party plaintiff) filed a plea in intervention, asking for
$1260 from Westside, for brokerage charges. All 3 parties filed motion for summary
judgment. Court granted Westside's motion, but denied the others. Court of civil
appeals affirmed that decision. On appeal again in Texas Supreme Court.

Facts: On Apr. 5, Westside (seller) and Humble (buyer) entered into an written
contract where Westside agreed to sell property to Humble with consideration the
payment of $35k, and there was consideration for the option contract $50 paid
(consideration given for the option contract so that Westside could not retract
the offer until after the time stipulated in the contract). Contract said Humble
could accept by giving notice by June 4th, 9pm, and paying $1750 within 10 days
after acceptance. On May 2, Humble sent letter to Westside, accepting the offer,
provided that the seller install utility lines to the property before the date of
closing. Then, on May 14th, Humble sent a letter to Westside, accepting Westside's
original offer as it was, and stating that "the exercise of said option is not
qualified" and Westside can disregard the amendment proposed in their May 2nd
letter. Humble then paid the $1750 in the time period asked for in the contract,
to an escrow agent that had been designated for this transaction.

Issue: Whether Humble's May 2nd letter, proposing an amendment to the option
contract was a rejection of the option contract, thereby terminating the buyer
power of acceptance.

Holding: Reversed the lower court's summary judgment in favor of defendant,

Westside. Court says Humble is entitled to specific performance. Mann's claim is
remanded due to an issue of fact.

Reasoning: Court says the May 2nd letter did not terminate the option contract.
Westside had an obligation, in consideration for the $50 paid, to keep the option
contract open for a specified time. Although during this time Humble had the
right to either accept or reject the offer, thereby ending the transaction, they
were not barred from negotiating the contract, since it was a separate offer from
the option contract.

RULE: Restatement § 37: "The power of acceptance under an option contract is not
terminated by rejection or counter-offer, by revocation, or by death or incapacity
of the offeror, unless the requirements are met for the discharge of a contractual
duty.

Notes

James on Option Contracts § 838 (p. 372) "A qualified or conditional acceptance is
a rejection of the offer first made because the original negotiations are dropped
and negotiations for a new and different contract begun."
"An option is a contract, the negotiations for the making of which are concluded
by the execution and delivery of the option. The minds of the parties have met in
agreement, the distinctive feature of which is that the optionor, for a
consideration, binds himself to keep the option open for election by the optionee,
for and during the time stipulated, or implied by law. Under an option, the act
necessary to raise a binding promise to sell, is not, therefore, an acceptance of
the offer, but rather the performance of the condition of the option contract. If
this is true, then the rule peculiar to offers to the effect that a conditional
acceptance is, in itself, in every case, a rejection of the offer, is not
applicable to an option contract, supported by a consideration and fixing a time
limit for election"

Restatement § 25: "An option contract is a promise which meets the requirements
for the formation of a contract and limits the promisor's power to revoke an
offer."

Restatement § 87 (1) (a): "An offer is binding as an option contract if it (a) is

in writing and signed by the offeror, recites a purported consideration for the
making of the offer, and proposes an exchange on fair terms within a reasonable
time…"

UCC 2-205 ***Merchants are specifically defined in the UCC. There is a specific
legal definition of merchant, make sure you know this.

The modification was to the contract for sale of the property, not to the option
contract.

Generally, a counter-offer or conditional acceptance kills the offer.

Option contracts include a price and time period.

Example: stock options - exercise price of the option, and the time you have to
exercise

• Option contracts can fail for indefiniteness.

○ But usually you have the include an exercise price and time frame for when
the option expires
○ If you don’t have these, then there is indefiniteness, and wont guarantee
that the option, as drafted, can be enforced