Chapter 19 OPTIONS

JurisdictionNew York

Chapter Nineteen

Options

I. Option Contracts May Not Be Judicially Altered

An option contract is an agreement to hold an offer open; it confers upon the optionee the right to purchase at a later date,3172 for consideration paid.3173 Option contracts, like any other agreement, are subject to basic contract interpretation principles.3174 An option grants to the holder the power to compel the owner of property to sell it whether the owner is willing to part with ownership or not.3175 Once the optionee gives notice of his or her intent to exercise the option in accordance with the agreement, the unilateral option agreement ripens into a fully enforceable bilateral contract,3176 and the option thus ceases to exist.3177 When such a bilateral contract is created, the assignor cannot relieve himself of all obligations under the contract absent a release or novation.3178 The offer is irrevocable during the bargained-for options period.3179 An option contract must be strictly complied with in the manner and within the time specified; it does not require specific "time-is-of-the-essence" language.3180 Strict compliance with the terms of an option contract is required; however, a party to a contract may waive strict compliance with its terms.3181

Because an option to purchase an interest in real property is in effect a conditional contract for a future conveyance of land, a contract that creates such an option is within the Statute of Frauds. This sort of an agreement constitutes the creation and grant of an interest in real property, and must be in writing to be valid under the Statute. Once the optionee gives notice of his intent to exercise the option in accordance with the agreement, the unilateral option agreement ripens into a fully enforceable bilateral contract.3182

Where an option agreement sets no explicit time limit for performance, the law will imply a reasonable time. In determining what constitutes a reasonable time, the court should consider the nature and object of the agreement, the previous conduct of the parties, the presence or absence of good faith, the experience of the parties and the possibility of prejudice or hardship to either party, and the number of days provided for performance, if specified.3183

Lape v. Lape3184 affirmed the order directing the sale of the marital residence and the equal division of the net proceeds. Pursuant to the stipulation, the plaintiff was required to refinance the home equity loan in her own name and to pay the defendant a $40,000 distributive award within 90 days of the stipulation. The stipulation further required the sale of the home, with an equal distribution of the proceeds, if the plaintiff was unable to refinance the loan despite her good-faith efforts. The plaintiff made a good-faith effort to refinance the loan but was unable to complete the refinancing within the 90-day period because of a previously unknown title problem. Thus, under the clear terms of the stipulation, the parties were required to sell the marital residence.

In DaLoia v. Burt,3185 the Appellate Division reversed the lower court's extension of the defendant's time to buy out the plaintiff's interest in the marital residence because his failure to exercise his buyout option within the time set forth in the agreement was fatal to his rights. That relief contravened the express terms of the agreement and violated the principle requiring strict compliance with the terms of an option.3186 Note, however, Karasik v. Karasik3187 held that a mere extension of a minimal amount of time to a party to remove property that had been distributed by a settlement agreement, which extension was occasioned by illness, did not impermissibly modify the agreement because no alteration was made with respect to any of the substantive property distribution.

The settlement agreement in Cahn v. Squires3188 provided that the defendant could pay the plaintiff the sum of $29,000 for her interest in the former marital residence or, if the defendant did not pay the sum by a date certain, the parties would then sell the premises and divide the net proceeds equally. The defendant failed to make the payment within the time period, and the supreme court directed the sale of the premises and equal division of the net sale proceeds. The provision directing its sale was not a liquidated damages clause but rather an alternative contract which provided the defendant with two distinct options.

The agreement in Rawlings v. Rawlings3189 provided that the plaintiff's IRA had a stated value of $75,000, but that the assets held therein were subject to change and were expected to be revalued to approximately $45,000 to $50,000. The stipulation further provided that the plaintiff was obligated to transfer the account to the wife "[w]ithin 30 days of the execution of this agreement." However, notwithstanding repeated requests by the wife, the plaintiff failed to transfer the subject account until several years following the execution of the stipulation, by which time the IRA had become worthless. The Appellate Division held that the defendant was entitled to recover the reduction in value of the account since the time it should have been transferred.

II. Right of First Refusal

Many marital agreements commonly contain a provision regarding the right of first refusal for the purchase of the marital residence. A right of first refusal is a right to receive an offer, and the grantor's failure or refusal to extend the holder the opportunity to exercise the right constitutes a breach.3190 It is a preemptive right.3191 Unlike an option, a right of first refusal does not include an irrevocable offer that stays open for an agreed-upon period. In fact, a right of first refusal does not include any offer at the time it is given.3192 In LIN Broadcasting Corp. v. Metromedia, Inc.,3193 the Court of Appeals explained the differences between an option and a right of first refusal:

The effect of a right of first refusal, also called a preemptive right, is to bind the party who desires to sell not to sell without first giving the other party the opportunity to purchase the property at the price specified . . . Such right of first refusal differs from an option in significant respects. Unlike an option, in essence, an offer which by contract is to be kept open . . . a right of first refusal does not, at the time it is given, include an operative offer. Rather, it is a restriction on the power of one party to sell without first making an offer of purchase to the other party upon the happening of a contingency: the owner's decision to sell to a third party.
Under a right of first refusal, the only offer involved is one to be made in the future, if and when the owner reaches agreement with a third-party purchaser. Also, unlike an option, which creates in the optionee a power to compel an unwilling seller to sell at the agreed price, a right of first refusal contemplates a willing seller who desires to part with
...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT