California Real Estate Salesperson Exam Practice - Question 73

Question

Which of the following statements is true with respect to an option?

Selections

A. Valid without consideration

B. Valid if the consideration is exactly $10 but is not delivered

C. Valid if consideration is delivered even if it is less than $10

D. Not valid if the delivered consideration is less than $10 

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Answer: C

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5 Keys Summary

• An option is a form of contract and must include sufficient consideration to be legally binding and enforceable.

• The law has a very low requirement for the amount of consideration needed to make an option valid; an option can be given for a nominal sum, such as 5 cents or one dollar.

• Because adequacy of consideration is not generally required to make a contract enforceable, an option is valid if consideration is delivered, even if the amount is minimal, such as less than $10.

• For the option to be binding, some consideration must, in fact, pass from the optionee (buyer) to the optionor (seller); a mere recital of consideration is insufficient.

• If valid consideration is delivered, the option contract grants the optionee the right, but not the obligation, to purchase the property upon specified terms within a specified time.

Explanations

An option is a type of contract that grants a party the right, but not the obligation, to lease or purchase a property under specified terms within a defined period. Like all valid contracts, an option requires consideration to be legally binding. Consideration is something of value exchanged between parties to induce them to enter into a contract.

While consideration is essential, the law does not require a high amount for an option to be valid; a very small amount, such as "5 cents," can be sufficient as long as it is actual consideration. Therefore, an option is valid if consideration, no matter how minimal, has been delivered or provided.

Concepts Definitions

• Option: A contract that provides one party (the optionee) the right, but not the obligation, to lease or purchase a property under specified terms within a particular timeframe.
• Consideration: Something of value (such as money, services, or a promise) exchanged between parties to make a contract legally binding and enforceable. Without consideration, a contract is generally not valid.
• Optionor: The party who grants the option, typically the property owner.
• Optionee: The party who receives and holds the option rights.
• Contract Validity: The state of a contract being legally binding and enforceable, requiring essential elements such as competent parties, mutual consent, a legal purpose, and consideration.