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Daily Development for Friday, September 3, 1999

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

Thanks for Howard Lax of the Michigan Bar for this one.

OPTIONS; CONSIDERATION: Agreement by optionee to provide survey that will establish lots so that optionee can elect for partial purchase is sufficient consideration to render option binding.

Suck v. Sullivan, LC No. 95001498 CH (Mich. App. 8/27/99)

The option agreement, which was entered into by an unrepresented elderly woman (who died during the course of these proceedings) and a lawyer provided under the paragraph labelled "consideration" that optionee would retain a life estate in the cottage and surrounding property. The court held that such an agreement cannot form consideration for the option itself, since it simply identifies the property interest being sold under the option.

Nevertheless, in another paragraph, the contract provided that optionee would have a survey prepared marking out certain subdivided lots on the property. Optionor would pay for the survey when and if the contract closed. The inference drawn by the court was that optionee was obligated to pay for the survey during the option period, and would not be reimbursed unless and until he exercised the option. This obligation, in the view of the court, constituted sufficient consideration to make the option binding.

The court also spent considerable time discussing the question of whether the lawyer had a duty to advise the optionor that she should obtain a lawyer. The option contract was admittedly somewhat vague on important particulars of the life estate and provided for the sale of property worth over $800,000 for a price of around $560,000. Nevertheless, the court noted that the optionee was quite aware that the lawyer was representing his own interests, and not operating as her lawyer, and this was the only information the lawyer had any obligation to convey. Although the Michigan rules of ethics require that a lawyer must advice an unrepresented party to seek legal adivce, the rule applies only when a lawyer is representing another party,

Comment: The case is useful because it serves as some support for the argument that a optionee (or a purchaser, for that matter), provides sufficient consideration when it agrees to make certain expenditures in connection with preparation for carrying out the agreement, even if it has a complete "out" and no obligation to perform the agreement itself.

Many lawyers are faced with the situation where a client does not really wish to be bound to go ahead or to commit any funds irrevocably to a purchase, but would like the opportunity to "pin down" a price and then spend some time evaluating the opportunity. This case supports the notion that as long as the purchaser is willing to commit to the evaluation process itself, and that such process arguably will have some value to the optionor or seller, there is sufficient consideration.

Here, the court held that the survey was of benefit to the optionor, but the real benefit was to facilitate the purchase by optionee, as it identified eight lots that the optionee could acquire. Further, the survey was not identified by the parteis themselves as consideration, although they included a paragraph describing the consideration for the agreement. Nevertheless, the court concluded that the optionor intended to receive a benefit from the survey and consequently it did serve as consideration in the end the only consideration for the option that was valid. For a recent case in which an option was held unenforceable for lack of consideration, see Firstline Corporation v. ValdostaLowndes County Industrial Authority, 511 S.E.2d 538 (Ga. App. 1999),. reported under this heading.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 16, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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