Case Title: Steiner v. Thexton

Citation: 48 Cal. 4th 411

Docket Number: S164928

State: california

Court: California Supreme Court

Date: 2010-03-18T00:00:00Z

Document:
1 
Filed 3/18/10 
 
 
 
IN THE SUPREME COURT OF CALIFORNIA 
 
 
 
MARTIN A. STEINER, 
) 
 
 
) 
 
Plaintiff and Appellant, 
) 
 
 
) 
S164928 
 
v. 
) 
 
 
) 
Ct.App. 3 C054605 
PAUL THEXTON, as Trustee, etc., 
) 
 
 
) 
Sacramento County 
 
Defendant and Respondent; 
) 
Super. Ct. No. 04AS04230 
 
 
) 
SIDDIQUI FAMILY PARTNERSHIP, 
) 
 
 
) 
 
Intervener and Appellant. 
) 
 
 
____________________________________) 
 
 
 
Plaintiff Martin A. Steiner, and his partial assignee, intervener Siddiqui 
Family Partnership (hereafter collectively referred to as plaintiffs), seek specific 
performance of a sales agreement with defendant property owner Paul Thexton.  
Based on language granting Steiner “absolute and sole discretion” to terminate the 
transaction, the Court of Appeal construed the agreement as an option and further 
concluded the option was revocable because it was unsupported by consideration.  
The Court of Appeal also rejected plaintiffs‟ claim that promissory estoppel 
required the agreement‟s enforcement.  The court therefore upheld the trial court‟s 
refusal to order specific performance of the agreement.   
 
We agree the agreement was an option; however, we conclude sufficient 
consideration existed to render the option irrevocable.  We accordingly reverse the 
2 
Court of Appeal‟s judgment and remand the action for further proceedings.  In 
light of our conclusion, we need not reach the promissory estoppel issue. 
I.  FACTUAL AND PROCEDURAL BACKGROUND 
In 2003, Steiner, a real estate developer, was interested in purchasing and 
developing several residences on a 10-acre portion of Thexton‟s 12.29-acre parcel 
of land.1  County approvals for a parcel split and development permits were 
required.  Thexton had previously rejected an offer from a different party for 
$750,000 because that party wanted Thexton to obtain the required approval and 
permits.  The written agreement between Steiner and Thexton, prepared by 
Steiner, provided for Thexton to sell the 10-acre parcel for $500,000 by September 
2006 if Steiner decided to purchase the property after pursuing, at his own 
expense, the county approvals and permits.  Paragraph 7 of the “Contingencies” 
section of the agreement provided Steiner was not obliged to do anything and 
could cancel the transaction at any time at his “absolute and sole discretion . . . .”2 
                                              
1  
The factual and procedural history is largely taken from the Court of 
Appeal‟s opinion. 
2  
The agreement was titled “REAL ESTATE PURCHASE CONTRACT” 
and stated in part: 
 
“Martin A. Steiner and/or Assignee, hereinafter called „Buyer,‟ offers to 
pay to FAS Family Trust, Paul Thexton, hereinafter called „Seller,‟ the purchase 
price of Five Hundred Thousand Dollars ($ 500,000.00) for 10 acres of a 12.29 
acre property situated in the County of Sacramento . . . hereinafter called 
„Property‟ . . . . 
 
“TERMS OF SALE: 
“1.  Upon the Seller‟s acceptance escrow shall be opened and $1,000 . . . 
shall be deposited by Buyer, applicable toward purchase price. 
“2. During the escrow term, Seller shall allow Buyer an investigation 
period to determine the financial feasibility of obtaining a parcel split for 
development of the Property.  Buyer shall have no direct financial obligation to 
Seller during this investigation period as Buyer will be expending sums on various 
 
(Footnote continued on next page.) 
3 
                                                                                                                                      
 
 
(Footnote continued from previous page.) 
 
professional services needed to reach the financial feasibility determination.  
Buyer hereby warranties that all fees shall be paid for said professional services by 
Buyer and neither the Seller nor the Property will in any way be obligated or 
indebted for said services.  [¶] . . . [¶] 
“5. Buyer will pay for the required civil engineering and surveying for the 
entire parcel map.  Any agency requirements of Seller‟s remaining 2.29 acre 
parcel will be paid by Seller.  Any agency requirements for planning, development 
or entitlement of the 10 acre parcel will be paid by Buyer.  [¶] . . . [¶] 
“10. If any condition herein stated has not been eliminated or satisfied 
within the time limits and pursuant to the provisions herein, or if, prior to close of 
escrow, Seller is unable or unwilling to remove any exceptions to the title objected 
to, and Buyer is unwilling to take title subject thereto, then this Contract shall at 
the end of the applicable time period, become null and void.  [¶] . . . [¶] 
“17. Buyer hereby agrees to purchase the above described Property for the 
price upon the terms and conditions herein expressed. . . . [¶] . . . [¶] 
“CONTINGENCIES: 
“The Buyer shall have from date of acceptance until the closing of escrow 
to satisfy or waive the items listed herein below:  
“1. Seller is aware that Buyer plans to subdivide, apply for planning 
entitlements and develop 10 acres from the existing parcel and agrees to 
cooperate, as needed, with Buyer as Buyer attempts to obtain the necessary 
permits and authorizations from the various local jurisdictions. 
“2. Buyer at his sole option and expense will conduct all necessary 
investigations, engineering, architectural and economic feasibility studies as 
outlined earlier in this Contract.  
“3. Both Buyer and Seller understand that Buyer could have substantial 
investment during this development period. 
“4. Buyer shall hereby indemnify and hold Seller harmless for any acts, 
errors or omissions of Buyer or Buyer‟s agents; and Buyer and Buyer‟s agent 
hereby agree that, upon the performance of any test, they will leave the Property in 
the condition it was in prior to those tests. 
“5. By acceptance of this offer, the Seller has granted Buyer and/or Buyer‟s 
agents, the right to enter upon subject Property for the purpose of conducting said 
tests and investigations. 
 
(Footnote continued on next page.) 
4 
After Steiner and Thexton signed the agreement on September 4, 2003,3 
Steiner began pursuing the necessary county approvals and, together with his 
partial assignee Siddiqui, ultimately spent thousands of dollars.4  In May and 
August 2004, Thexton cooperated with Steiner‟s efforts by signing, among other 
things, an application to the county planning department for a tentative parcel 
map.  In October 2004, however, Thexton asked the title company to cancel 
escrow and told Steiner he no longer wanted to sell the property.  Steiner 
                                                                                                                                      
 
 
(Footnote continued from previous page.) 
 
“6. Buyer shall indemnify and hold Seller harmless for any costs associated 
with Buyer‟s investigations.  In the event that this contract is terminated prior to 
the close of escrow, Buyer shall deliver to Seller the originals or copies of all 
information, reports, tests, [etc.] 
“7. It is the intent of Buyer that the time period from execution of this 
contract until the closing of escrow is the time that will be needed in order to be 
successful in developing this project.  It is expressly understood that the Buyer 
may, at its absolute and sole discretion during this period, elect not to continue in 
this transaction and this purchase contract will become null and void. 
“CLOSE OF ESCROW: 
“Upon successful completion of subdividing the 10 acres from the existing 
parcel, Buyer will pay Seller the balance of the purchase price to escrow and close 
immediately.  
“Buyer will move expeditiously with the parcel split.  It is anticipated it 
will take one to three years, due to existing governmental requirements.  
“Buyer will give quarterly reports to Seller as to progress of the parcel split.  
“If parcel split is not completed by September 1, 2006 this real estate 
purchase contract will be cancelled.” 
3  
In January 2004, the parties executed an addendum allowing Steiner to 
purchase up to 10.17 (instead of 10) acres and eliminating several requirements 
the original agreement had imposed on Steiner. 
4  
Plaintiffs alleged (and the Court of Appeal assumed without deciding) that 
they had spent $60,000 on efforts to obtain the parcel split. 
5 
nevertheless proceeded with the final hearing of the parcel review committee and 
apparently obtained approval for a tentative map.  Steiner opposed cancelling 
escrow and filed suit seeking specific performance of the agreement.  In his 
answer, Thexton asserted various defenses, including that the agreement 
constituted an option unsupported by consideration.5 
Following a bench trial, the trial court entered judgment in favor of 
Thexton.  It concluded the agreement was unenforceable against Thexton “because 
it is, in effect, an option that is not supported by any consideration.”  First, it 
pointed out that the agreement bound Thexton to sell the property to Steiner for 
$500,000 for a period of up to three years while Steiner retained “ „absolute and 
sole discretion‟ ” to cancel the transaction.  “The unilateral nature of this 
agreement,” the trial court explained, “is the classic feature of an option.” 
Second, in concluding, “[b]ased on the evidence and the language of the 
contract itself, . . . that the option was not supported by consideration,” the trial 
court noted no money was paid to Thexton for his grant of the option to purchase 
the property, nor did he receive any other benefit or thing of value in exchange for 
the option.6  The trial court rejected plaintiffs‟ claim that the agreement obligated 
them to expeditiously proceed with the parcel split and that their work and 
expenses constituted sufficient consideration for the option.  The trial court 
reasoned that the adequacy of consideration is measured as of the time a contract 
is entered into and pointed out the agreement did not bind plaintiffs to do 
anything; rather, it gave them the power to terminate the transaction at any time.  
                                              
5  
Siddiqui, with leave of court, intervened based on Steiner‟s partial 
assignment of his rights. 
6  
The agreement required Steiner to pay $1,000 into an escrow account, but 
the trial court concluded the payment did not constitute consideration.  
6 
Finally, the trial court rejected plaintiffs‟ claim that, in the absence of 
consideration for the option, their efforts merited applying the doctrine of 
promissory estoppel.  The Court of Appeal affirmed for the reasons given by the 
trial court and we granted review. 
II.  DISCUSSION 
We consider whether the agreement was an option and, if so, whether the 
option was irrevocable because it was supported by sufficient consideration.  We 
conclude, for the following reasons, that the agreement is an irrevocable option.7   
 
A.  The Sales Agreement Constitutes an Option 
 
Plaintiffs contend the Court of Appeal erred when it concluded the sales 
agreement constituted an option.  We disagree.  We begin by briefly setting forth 
the established law concerning what constitutes an option. 
 
As this court explained long ago, “When by the terms of an agreement the 
owner of property binds himself to sell on specified terms, and leaves it 
discretionary with the other party to the contract whether he will or will not buy, it 
constitutes simply an optional contract.”  (Johnson v. Clark (1917) 174 Cal. 582, 
586.)  Thus, an option to purchase property is “a unilateral agreement.  The 
optionor offers to sell the subject property at a specified price or upon specified 
terms and agrees, in view of the payment received, that he will hold the offer open 
for the fixed time.  Upon the lapse of that time the matter is completely ended and 
the offer is withdrawn.  If the offer be accepted upon the terms and in the time 
specified, then a bilateral contract arises which may become the subject of a suit to 
                                              
7  
The interpretation of the agreement is subject to de novo review.  (Parsons 
v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866.)  We review the trial 
court‟s conclusion that no consideration supported the option under the substantial 
evidence test.  (Bard v. Kent (1942) 19 Cal.2d 449, 452; see Crocker National 
Bank v. City and County of San Francisco (1989) 49 Cal.3d 881, 888.) 
7 
compel specific performance, if performance by either party thereafter be 
refused.”  (Auslen v. Johnson (1953) 118 Cal.App.2d 319, 321-322.)   
 
In the present case, although the agreement was titled “REAL ESTATE 
PURCHASE CONTRACT,” the label is not dispositive.  Rather, we look through 
the agreement‟s form to its substance.  (Mahoney v. San Francisco (1927) 201 
Cal. 248, 258.)  Viewing the substance, we conclude, as did the trial court, that the 
agreement between Steiner and Thexton contained “the classic feature[s] of an 
option.”  First, the agreement obliged Thexton to hold open an offer to sell the 
parcel at a fixed price for three years.  (Ante, at p. 2, fn. 2 [close of escrow 
provisions].)  Second, Steiner had the power to accept the offer by satisfying or 
waiving the contingencies and paying the balance of the purchase price; however, 
because of the escape clause, Steiner was not obligated to do anything.  The 
relevant term provided “It is expressly understood that [Steiner] may, at [his] 
absolute and sole discretion during this period, elect not to continue in this 
transaction and this purchase contract will become null and void.”  (Ibid. 
[contingencies provision 7], italics added.) 
 
Moreover, it appears that the term‟s broad and express language permitted 
Steiner to terminate the agreement even if all contingencies had been satisfied — 
indeed, Steiner testified at trial that the term gave him the power to terminate the 
agreement at any time for any reason, including if he had found a better deal.  For 
that reason we reject the notion, advanced by Steiner and various amici curiae, that 
the agreement should instead be construed as a bilateral contract subject to a 
contingency.  It is true, as amicus curiae California Association of Realtors 
explains, that a common form of real estate contract binds both parties at the 
outset (rendering the transaction a bilateral contract) while including a 
contingency, such as a loan or inspection contingency, that allows one or both 
parties to withdraw should the contingency fail.  However, withdrawal from such a 
8 
contract is permitted only if the contingency fails.  By contrast, the agreement here 
placed no such constraint on Steiner.  Rather, it limited Thexton’s ability to 
withdraw, but explicitly allowed Steiner to terminate at any time for any reason.8  
Even had the agreement obligated Steiner, as he contends, to move expeditiously 
to remove the contingencies, we would nonetheless conclude that the “absolute 
and sole” right to withdraw he enjoyed means the agreement is an option. 
 
We briefly address a number of plaintiffs‟ other arguments, finding none 
persuasive.  First, plaintiffs argue that in the event of ambiguity, California law 
presumes a contract to be bilateral rather than an option.  (Perry v. Berryman 
(1949) 95 Cal.App.2d 159.)  But no ambiguity exists here.  The agreement plainly 
gave him “absolute and sole discretion” to cancel the transaction.  Second, in 
contending the agreement did not unilaterally bind Thexton, plaintiffs assert 
“nothing in the Contract required Thexton to keep his Property off the market for 
any defined period of time.”  Not so.  The agreement explicitly obligated Thexton 
to hold open the offer for up to three years.9  
 
Third, plaintiffs contend the agreement obliged them to act expeditiously.  
Even if true, it is irrelevant to whether the agreement constituted an option.  
Steiner‟s unfettered power to withdraw at any time for any reason overrode any 
other obligations.  Fourth, plaintiffs argue the Court of Appeal should have applied 
the implied covenant of good faith and fair dealing to narrow the escape clause to 
give Steiner only a limited power to terminate the agreement.  We disagree.  While 
this court has held that all contracts impose a duty of good faith and fair dealing 
                                              
8  
Thus, bilateral contracts subject to a contingency, which are widely used in 
real estate transactions, are not affected by our holding.   
9  
Indeed, plaintiffs contradict themselves, later arguing “nothing in the 
Contract suggests that Thexton reserved the right to revoke, withdraw, or 
terminate his promise to sell the Property to Steiner . . . .” 
9 
and that the covenant particularly applies when “one party is invested with a 
discretionary power affecting the rights of another” (Carma Developers (Cal.), 
Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 372), it has 
also noted the implied covenant does not trump an agreement‟s express language 
(id. at p. 374).  “ „The general rule [regarding the covenant of good faith] is plainly 
subject to the exception that the parties may, by express provisions of the contract, 
grant the right to engage in the very acts and conduct which would otherwise have 
been forbidden by an implied covenant of good faith and fair dealing.‟ ”  (Ibid.)  
Given the broad and express language of the escape clause, Steiner‟s power to 
withdraw was not constrained by the implied covenant of good faith and fair 
dealing.   
In light of the foregoing reasons, we conclude the Court of Appeal correctly 
construed the so-called “purchase contract” as an option.  We next consider 
whether the option was irrevocable.   
B.  Sufficient Consideration Rendered the Option Irrevocable  
 
“An option is transformed into a contract of purchase and sale when there is 
an unconditional, unqualified acceptance by the optionee of the offer in harmony 
with the terms of the option and within the time span of the option contract.  
[Citation.]”  (Erich v. Granoff (1980) 109 Cal.App.3d 920, 928.)  At the time 
Thexton terminated the agreement, plaintiffs had not unconditionally accepted the 
offer within the terms of the option.  Plaintiffs had not satisfied or waived all of 
the contingencies and deposited the balance of the purchase price into the escrow 
account.  Therefore, the option never ripened into a purchase contract.  However, 
even if an option has not yet ripened into a purchase contract, it may nonetheless 
be irrevocable for the negotiated period of time if sufficient bargained-for 
consideration is present.   
10 
“[A]n option based on consideration contemplates two separate [contracts], 
i.e., the option contract itself, which for something of value gives to the optionee 
the irrevocable right to buy under specified terms and conditions, and the 
mutually enforceable agreement to buy and sell into which the option ripens after 
it is exercised.  Manifestly, then, an irrevocable option based on consideration is a 
contract . . . .”  (Torlai v. Lee (1969) 270 Cal.App.2d 854, 858.)  Conversely, an 
option without consideration is not binding on either party until exercised (id. at 
pp. 858-859); until then, the option “ „is simply a continuing offer which may be 
revoked at any time.‟  [Citation.]”  (Thomas v. Birch (1918) 178 Cal. 483, 489.)   
 
Civil Code section 1605 defines consideration as “Any benefit conferred, or 
agreed to be conferred, upon the promisor, by any other person, to which the 
promisor is not lawfully entitled, or any prejudice suffered, or agreed to be 
suffered, by such person, other than such as he is at the time of consent lawfully 
bound to suffer, as an inducement to the promisor . . . .”  Thus, there are two 
requirements in order to find consideration.  The promisee must confer (or agree to 
confer) a benefit or must suffer (or agree to suffer) prejudice.  We emphasize 
either alone is sufficient to constitute consideration; “it is not necessary to the 
existence of a good consideration that a benefit should be conferred upon the 
promisor.  It is enough that a „prejudice be suffered or agreed to be suffered‟ by 
the promisee.  [Citation.]”  (Bacon v. Grosse (1913) 165 Cal. 481, 490-491.)   
 
It is not enough, however, to confer a benefit or suffer prejudice for there to 
be consideration.  As we held in Bard v. Kent, supra, 19 Cal.2d at page 452, the 
second requirement is that the benefit or prejudice “ „must actually be bargained 
for as the exchange for the promise.‟ ”  Put another way, the benefit or prejudice 
must have induced the promisor‟s promise.  In Bard, the property owner indicated 
she was willing to grant an extension of a lease for four years if the lessee‟s 
sublessee undertook $10,000 of improvements to the property.  The owner 
11 
suggested that the lessee have an architect draw sketches to get a cost estimate.  
The owner then granted an option to extend the lease in return for consideration of 
$10; however, the $10 was never paid to the owner and she died before the option 
was exercised.  (Id. at p. 451.)  The lessee nonetheless argued the money he spent 
for the architect‟s drawing was sufficient consideration to make the option 
irrevocable.  The trial court disagreed, concluding the owner agreed to be bound in 
exchange for the unpaid $10, not for the lessee engaging the architect.  (Id. at 
pp. 452-453.)  We affirmed, quoting the Restatement of Contracts, section 75:  
“ „The fact that the promisee relies on the promise to his injury, or the promisor 
gains some advantage therefrom, does not establish consideration without the 
element of bargain or agreed exchange.‟ ”  (Bard, at p. 452.)  In sum, in 
determining here whether sufficient consideration rendered the option to purchase 
the 10-acre parcel irrevocable, we consider whether Steiner conferred or agreed to 
confer a benefit or suffered or agreed to suffer prejudice that was bargained for in 
exchange for the option. 
 
The lower courts concluded no such consideration supported the option.  
They reasoned no money was paid for the grant of the option nor did the work 
performed and expenses incurred by plaintiffs in pursuit of a parcel split benefit 
Thexton.  Citing O’Connell v. Lampe (1929) 206 Cal. 282, 285, and Drullinger v. 
Erskine (1945) 71 Cal.App.2d 492, 495, the lower courts explained that the 
“adequacy of consideration” must be measured at the time an agreement was 
entered into.  The lower courts concluded that, at the time Steiner and Thexton 
struck their bargain, the promise to seek the parcel split was unenforceable 
because the escape clause gave plaintiffs the power to terminate the transaction at 
any time for any reason.  Thus, the lower courts held, Steiner‟s promise was 
illusory and did not constitute valid consideration.  The courts found it immaterial 
that plaintiffs had begun to perform because plaintiffs were under no actual 
12 
obligation to do so.  To the contrary, we conclude as a matter of law that plaintiffs‟ 
part performance of the bargained-for promise to seek a parcel split created 
sufficient consideration to render the option irrevocable.   
 
It is true that Steiner‟s promise to undertake the burden and expense of 
seeking a parcel split may have been illusory at the time the agreement was 
entered into, given the language of the escape clause.  However, there can be no 
dispute that plaintiffs subsequently undertook substantial steps toward obtaining 
the parcel split and incurred significant expenses doing so.10  Among other things, 
plaintiffs paid for the required civil engineering and surveying for the parcel and 
spent a number of months applying to the county planning department for a 
tentative parcel map, proceeding with the final hearing of the parcel review 
committee, and obtaining approval of the tentative map.  On this record, the only 
possible conclusion is that Steiner both conferred a bargained-for benefit on 
Thexton and suffered bargained-for prejudice unaffected by his power to cancel, 
making up for the initially illusory nature of his promise.   
 
It is undisputed that a parcel split of the 12.29 acres was necessary for 
Thexton to be able to sell a portion of his land to anyone while still retaining a 
two-acre parcel for himself to live on.  There is also no dispute that Thexton did 
not want to have to go through the process of obtaining the parcel split himself.  
Indeed, he had previously rejected an offer of $750,000 for the 10 acres ($250,000 
more than Steiner was to pay for the parcel) because that buyer wanted Thexton to 
obtain the required approval.  It is clear then that a critical part of Thexton‟s 
                                              
10  
Plaintiffs completed 75 to 90 percent of the work needed to obtain the 
parcel split and county approvals and alleged they collectively spent $60,000 in 
doing so.  We have no occasion to consider whether any act, no matter how small, 
would be sufficient part performance to make an option irrevocable. 
13 
willingness to sell was that Steiner would bear the expense, risk, and burden of 
seeking the parcel split.  Indeed, there is evidence that Thexton told Steiner it was 
important to him that any interested buyer undertake the process of obtaining the 
parcel split.  Thus, both elements of consideration were present.  First, the effort to 
obtain the parcel split clearly conferred a benefit on Thexton and constituted 
prejudice suffered by plaintiffs.11  Second, the promise to pursue the split was 
plainly bargained-for and induced Thexton to grant the option.  Accordingly, 
plaintiffs‟ part performance cured the illusory nature of their promise.12   
 
Two cases illustrate the point.  In Burgermeister Brewing Corp. v. Bowman 
(1964) 227 Cal.App.2d 274, a brewery entered into an oral contract with a 
distributor whereby the distributor would sell the brewer‟s product.  (Id. at p. 278.)  
The brewer agreed to give the distributor all the beer the distributor could sell 
using its best efforts.  Nineteen years later, after the distributor had spent 
significant time and resources selling the beer, the brewer cancelled the 
agreement.  (Id. at pp. 278-280.)  When sued, the brewer argued the contract was 
                                              
11  
As Steiner‟s counsel acknowledged at oral argument, the outcome may 
have been different had plaintiffs‟ efforts been exclusively in their own interest, 
such as only securing county approvals to develop the 10-acre parcel. 
12  
Although our conclusion is based upon plaintiffs‟ part performance of the 
promise to obtain a parcel split, we also note the agreement required Steiner to 
deposit $1,000 into escrow, which he did.  The trial court concluded the payment 
did not constitute consideration because Steiner would recover the money if he 
terminated the agreement; thus, the money did not confer a benefit on Thexton.  
However, even assuming the trial court‟s interpretation of the agreement is 
accurate, it is not clear its ultimate conclusion is correct.  As previously discussed, 
for consideration to exist it is sufficient that a promisee suffers bargained-for 
prejudice.  By placing the money in escrow, Steiner gave up use of the money for 
as much as three years.  This arguably constituted prejudice to Steiner even if he 
ultimately got the money back.  In light of our conclusion regarding plaintiffs‟ part 
performance, we need not resolve the effect of the escrow payment. 
14 
illusory, lacking mutuality; it bound the brewer to provide the beer but did not 
bind the distributor to use its best efforts.  (Id. at p. 280.)  In ruling for the 
distributor, the Court of Appeal explained that, even if the distributor had not 
promised to use its best efforts, its subsequent performance gave the brewery 
consideration not affected by the distributor‟s power to cancel and thereby made 
up for any defects in the original consideration.  (Ibid., citing 1A Corbin on 
Contracts, § 163, p. 76.) 
 
In Kowal v. Day (1971) 20 Cal.App.3d 720, the plaintiff entered into an 
agreement to purchase real property from the defendant.  (Id. at p. 722.)  The 
escrow instructions required the plaintiff to give the defendant an automobile for 
the defendant‟s use and permitted the plaintiff to terminate the sale within 45 days 
after the close of escrow.  The plaintiff subsequently gave the defendant the 
automobile, however, the defendant ultimately refused to convey the property to 
the plaintiff.  In the resultant action, the trial court ruled in favor of the defendant, 
because of the plaintiff‟s unconditional and unilateral right to terminate the 
transaction.  (Id. at pp. 722-723.)  The Court of Appeal reversed, explaining that 
although consideration is typically lacking when an exchange of promises does not 
impose mutual obligations, the plaintiff‟s part performance in the form of 
transferring possession of the car created sufficient consideration transforming the 
agreement‟s termination clause into an enforceable option, even though the 
plaintiff was entitled to return of the car upon disaffirmation of the transaction.  
(Id. at pp. 724, 726.)   
 
In sum, it is true that, where consideration for an agreement consists of an 
exchange of promises, that one party‟s promise is illusory generally means there is 
no consideration.  (Mattei v. Hopper (1958) 51 Cal.2d 119, 122.)  “A corollary to 
that rule exists, however.  An agreement that is otherwise illusory may be enforced 
where the promisor has rendered at least part performance.  [Citations.]”  (Money 
15 
Store Investment Corp. v. Southern Cal. Bank (2002) 98 Cal.App.4th 722, 728-
729.)  Moreover, as this court explained in Drennan v. Star Paving Co. (1958) 51 
Cal.2d 409, 414, when an offer for a unilateral contract is made (as in the case of 
an option) “ „and part of the consideration requested in the offer is given or 
tendered by the offeree in response thereto, the offeror is bound by a contract, the 
duty of immediate performance of which is conditional on the full consideration 
being given or tendered within the time stated in the offer . . . .‟ ”13  (Italics 
added.)  Applied here, plaintiffs‟ substantial efforts and expenditures to perform 
the bargained-for promise to seek a parcel split cured the initially illusory nature 
of the promise and rendered the option irrevocable.   
 
We address two final points.  First, as noted above, the lower courts 
concluded that the adequacy of consideration is to be determined at the time an 
agreement is entered into.  However, the two cases relied upon are inapplicable  
here.  In both cases, the parties had entered into option contracts for the purchase 
of real property.  (O’Connell v. Lampe, supra, 206 Cal. at p. 282; Drullinger v. 
Erskine, supra, 71 Cal.App.2d at p. 494.)  The parties agreed upon a price for the 
properties when they entered into the option contracts; however, at the time the 
buyers exercised their options, the sellers refused to perform, contending the 
agreed-upon consideration was inadequate due to a subsequent increase in the 
properties‟ value.  (O’Connell, at p. 283; Drullinger, at pp. 494-495.)  It was in 
this context that the courts ruled in favor of the buyers, explaining that the 
adequacy of consideration is determined at the time of the agreement.  (O’Connell, 
at p. 285; Drullinger, at p. 495.)  Here, by contrast, we consider not whether the 
                                              
13  
Thus, we reject the contention made by Thexton‟s counsel at oral argument 
that part performance can never constitute consideration for an option.  (See also 
Kowal v. Day, supra, 20 Cal.App.3d at p. 726.) 
16 
agreed-upon consideration for the purchase was adequate, but whether 
consideration existed at all to support the option. 
 
Second, we acknowledge that Prather v. Vasquez (1958) 162 Cal.App.2d 
198 reached a seemingly different result.  The case involved an agreement for the 
sale of property.  The escrow instructions called for the buyer to deposit money 
and a trust deed.  At the buyer‟s request, the agreement also required he pay all 
escrow costs in the event he withdrew; he explained he did not wish to buy the 
land if it could not be subdivided and he wanted to be protected from suit in that 
event.  The buyer then sought to obtain development approval, but the owners 
cancelled the agreement before the buyer deposited money into escrow.  The 
buyer argued the option was irrevocable because it was supported by valid 
consideration.  (Id. at pp. 200, 202, 204.)  In rejecting that argument, the Court of 
Appeal concluded the buyer‟s effort to seek development approval did not 
constitute consideration as it was not a bargained-for inducement for the offer of 
an option; nor did the buyer‟s obligation to pay costs if he cancelled the agreement 
provide consideration because it did not benefit the seller.  (Id. at pp. 204-205.)  
Even if Prather were correct, it is factually distinguishable.  There can be no 
dispute that Steiner‟s promise to seek the parcel split induced Thexton‟s offer of 
the option.  Moreover, the parcel split itself, unlike the development approval 
sought in Prather, was necessary to Thexton‟s ability to sell the property because 
he wanted to retain two acres of the parcel.   
 
In conclusion, we hold plaintiffs‟ part performance of their bargained-for 
promise to seek a parcel split cured the initially illusory nature of the promise and 
thereby constituted sufficient consideration to render the option irrevocable. 
17 
III.  DISPOSITION 
 
The judgment of the Court of Appeal is reversed and the case is remanded 
for further proceedings.14 
 
 
 
 
 
 
 
MORENO, J. 
WE CONCUR: GEORGE, C. J. 
 
KENNARD, J. 
 
BAXTER, J. 
 
WERDEGAR, J. 
 
CHIN, J. 
 
CORRIGAN, J. 
                                              
14 
Thexton raised a number of affirmative defenses in addition to the ones 
considered here.  Among them were that plaintiffs‟ claims are barred by various 
equitable doctrines and that their claims are barred by the applicable statute of 
limitations.  On remand, the lower courts can consider whether plaintiffs‟ claims 
survive Thexton‟s other defenses and, if so, what the appropriate remedy might be.  
Because the remedy of specific performance is equitable in nature (see, e.g., 13 
Witkin, Summary of Cal. Law (10th ed. 2005) Equity, § 24, pp. 312-314), the 
lower courts can consider whether ordering specific performance is warranted or 
whether other relief might suffice. 
 
 
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion Steiner v. Thexton 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding 
Review Granted XXX 163 Cal.App.4th 359 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S164928 
Date Filed: March 18, 2010 
__________________________________________________________________________________ 
 
Court: Superior 
County: Sacramento 
Judge: Lloyd Allan Phillips, Jr.* 
 
__________________________________________________________________________________ 
 
Attorneys for Appellant: 
 
Law Office of Robert Vaughan and Robert Vaughan for Plaintiff and Appellant. 
 
Assembly Member Dave Jones as Amicus Curiae on behalf of Plaintiff and Appellant. 
 
Law Office of Klaus J. Kolb and Klaus J. Kolb for Intervener and Appellant and for Plaintiff and 
Appellant. 
 
__________________________________________________________________________________ 
 
Attorneys for Respondent: 
 
Law Office of David L. Price and David L. Price for Defendant and Respondent. 
 
June Babiracki Barlow and Neil Kalin for California Association of Realtors as Amicus Curiae. 
 
 
 
 
 
*Retired judge of the Sacramento Superior Court, assigned by the Chief Justice pursuant to article VI, 
section 6 of the California Constitution. 
 
 
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Klaus J. Kolb 
Law Office of Klaus J. Kolb 
400 Capitol Mall, 11th Floor 
Sacramento, CA  95814 
(916) 558-6160 
 
David L. Price 
Law Office of David L. Price 
3300 Douglas Boulevard, Suite 125 
Roseville, CA  95661 
(916) 772-8600