Law Talk

Sam K. Abdulaziz & Kenneth S. Grossbart
Attorney at Law

Martin Steiner was a real estate developer who wanted to buy and develop several residences on a ten-acre portion of property owned by Paul Thexton. In 2003, Steiner and Thexton entered into an agreement in which Thexton would sell a ten-acre portion of the property to Steiner for $500,000.00. Steiner would have until September of 2006 (a three year window) to decide if he wanted to close the deal. The sale was also contingent on obtaining approvals from the county and other agencies.

The agreement also stated that Steiner was not obligated to do anything and could abandon the effort as long as notice was given to Thexton. By October of 2004, Thexton decided he no longer wanted to sell the property. Steiner filed a lawsuit seeking specific performance of the contract.

Thexton argued that the contract was an option unsupported by consideration. The court stated that the contract was an unenforceable option to buy the property, and became void for lack of consideration (meaning that no one was paying for the property). The trial court agreed with Thexton and entered judgment in favor of him finding that he received no money or other benefit for his grant of the option. This was affirmed by the Court of Appeal which stated that an option is transformed into a contract or purchase and sale where there is an unconditional unqualified acceptance by one or the other. However, according to the trial court and the Court of Appeal, in order for an option to be enforceable, in any contract, it must have consideration. The agreement did not require Steiner to do anything accept assume expenses for county approvals and permits.

The court found that the contract was nothing more than a continuing offer to sell which could be revoked at any time. This decision allowed Thexton to revoke his agreement.

Steiner then appealed to the California Surpeme Court which found that if a property owner binds himself to sell on specific terms and allows the other party to choose whether the purchase will be made within a fixed time, an option contract is created. The offer to sell is withdrawn upon the lapse of the fixed time period. Here, Thexton agreed to hold the offer open for three years and give Steiner the ability to terminate the contract during that time period if the approvals and permits were not received. This became an option agreement. An option contract is irrevocable if sufficient consideration is present.

According to the Supreme Court, sufficient consideration exists if Steiner confirmed to have benefitted or suffered prejudice that was bargained for. Here, Steiner incurred costs in seeking county approvals and confirmed a benefit by undertaking this process instead of Thexton. Steiner’s part performance of the bargain for promise constituted sufficient consideration to render the option irrevocable.
The Supreme Court sent the case back down to the lower court to decide on the promissory estoppel issue but reversed the lower courts decision on the issue of the option agreement.