Humble Oil & Refining Co. v. Westside Investment Corp.

Supreme Court of Texas · 1968 · Contracts

ContractsOption contractsSpecific performanceoption contractbinding optioncounterofferconditional acceptancespecific performance

Facts

Westside granted Humble, for consideration, an exclusive and irrevocable option to purchase certain land for $35,000, exercisable by notice before June 4, 1963 and by payment of $1,750 earnest money at notice or within ten days thereafter. On May 2, 1963, Humble sent a letter stating it exercised the option and also proposed amending the sale contract so Westside would extend utilities to the property before closing. On May 14, 1963, Humble sent another letter stating its exercise of the option was not qualified and that Westside could disregard the proposed amendment, and Humble timely paid the earnest money to the escrow agent. Westside admitted making the option contract but argued Humble's May 2 letter rejected and terminated it.

Issue

Did Humble's May 2, 1963 letter proposing an amendment to the sale terms constitute a rejection or termination of the binding option contract, thereby preventing Humble from validly exercising the option on May 14? Also, did the summary judgment record establish Mann's entitlement to a brokerage commission as a matter of law?

Rule

When an option contract is supported by consideration and fixes a time for election, the rule that a qualified or conditional acceptance rejects an offer does not apply in the same way as it does to an ordinary revocable offer. A counteroffer or negotiation by the optionee that does not amount to rescission, abandonment, or waiver does not terminate the optionee's contractual power to exercise the option according to its terms within the specified time.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Phoenix, Nora Bennett paid Desert Mesa Holdings $200 for a written option giving her until August 31 to buy a warehouse lot for $180,000. On August 10, Nora wrote that she wanted to buy the lot and asked whether Desert Mesa would also repair the perimeter fence before closing; on August 18, she sent an unqualified notice exercising the option and deposited the required earnest money within the time stated in the option.

If Desert Mesa refuses to convey, what is the strongest argument for Nora?

Explanation. A binding option supported by consideration is an independent contract keeping the option open for the stated time. Under the majority rule here, mere negotiation or a proposal for additional sale terms does not terminate the optionee's contractual power to exercise unless the communication shows rescission, abandonment, surrender, or waiver of rights under the option. Nora's later unqualified notice and timely earnest-money deposit therefore validly exercised the option.