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A Real Estate Sales Contract becomes an Option Enforceable Due To Performance

A developer-buyer entered an agreement with a landowner to buy 10 acres after buyer pursued county approval for subdivision. The contract contained a contingency that the buyer was not obligated to do anything and could cancel the contract at any time.

The buyer pursued the subdivision, spending money for engineering and permits, and obtained a tentative map. The seller changed his mind and refused to close, and argued that the agreement was an option and, since it was not supported by consideration, it was revocable. The California Supreme Court disagreed, finding it was both an option and supported by consideration.

The court found classic features of an option: 1st, the seller held open an offer to sell for three years; 2nd, the buyer was able to accept the offer by waiving contingencies, but was not obligated to do anything, even if all contingencies were satisfied. The court rebuked an argument that real estate contracts often have contingencies, such as loan or inspection, that allow one party to withdraw, noting that withdrawal is allowed only if the contingency fails. Here the buyer could withdraw anytime.

Next, the court found the option was supported by consideration. Consideration can be either the promisee conferring a benefit or suffering prejudice- in either case the benefit or prejudice must be actually bargained for. Here, the buyer’s part performance of the bargained-for promise to seek a lot split was sufficient consideration. The split was important to the seller, as he wanted to retain a parcel to live on, so he received a benefit, and the buyer suffered prejudice.

The key seems to have been all the efforts by the buyer to complete the subdivision. Otherwise the contract was one-sided, tying up the land for three years without paying the seller much- the court may have found this alone overreaching, and refused to enforce the contract.
Steiner v. Thexton (2010) 48 Cal 4th 411
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