Opinion ID: 2610199
Heading Depth: 1
Heading Rank: 1

Heading: There was sufficient consideration for the option agreement.

Text: Defendants contend that by the terms of the option agreement the sum of $5,000, although referred to as option consideration, was not to be forfeited upon failure to exercise the option, but was to be applied to the purchase price as an advance down payment upon exercise of the option and otherwise was to be returned to plaintiff. Thus, it is contended that the option is invalid under Aspinwall Executrix v. Ryan et al., 190 Or. 530, 226 P.2d 814 (1951), which held that an option which fails to state an independent consideration for its execution, as opposed to an advance down payment results in nothing more than an offer which may be revoked at any time for failure of consideration. In Aspinwall, however, the option agreement specifically provided that the $100 paid by the optionee was to be credited on the purchase price as a part payment and did not refer to it as option consideration, as in this case. To the same effect, see Friendly v. Elwert, 57 Or. 599, 601, 105 P. 404, 111 P. 690, 112 P. 1085 (1911), and Mossie v. Cyrus, 61 Or. 17, 19, 119 P. 485, 119 P. 624 (1912). Plaintiff, on the other hand, relies upon Kingsley v. Kressly, 60 Or. 167, 111 P. 385, 118 P. 678 (1911). In that case we held that even though the money paid for the option was, by the terms of the option agreement, to constitute a part of the purchase price upon exercise of the option, nevertheless, if that money was to be retained by the optionor if the option was not exercised, so as to be plaintiff's money in either case, the option agreement was supported by sufficient consideration. In Kinglsey, however, the option agreement specifically provided that the $2,000 was to be retained by the optionor until balance of $18,000 was paid. The option agreement in this case does not expressly provide, as in the Kingsley option, that the payment by plaintiff was to be retained by defendant if the option was not exercised by plaintiff. On the other hand, this agreement, contrary to the Aspinwall option, did specifically refer to that payment as option consideration. James on Option Contracts (1916) 139, § 322, after referring to cases involving option agreements which specifically provide that the payment made by the optionee should be retained by the optionor if the purchase was not completed, goes on to state that: So, also, where there was an option reciting the receipt of $10 as a deposit and providing for the payment of the balance of $560 on delivery of the deed, although there was no express stipulation forfeiting the deposit to the optionor in the event of the failure of the optionee to elect. [Citing cases]. James goes on to state (at 150-52, § 331) that while a recital of consideration in a contract not under seal is not conclusive, parol evidence is admissible either to show want of any consideration or what the real consideration is and that the burden is on the party challenging it to prove want of consideration. [7] Much to the same effect, the more modern text of 1A Corbin on Contracts (1963) 499, § 263, states that:    Frequently, an option to buy land is given in consideration of a sum of money that is to be regarded as a part of the total purchase price in case the option holder later elects to buy. Whether or not it is to be so regarded is a question of interpretation of the words of the option giver. Sometimes those words are not very clear on the point.   . Corbin goes on to state (at p. 539, § 266) that: An option to buy or sell is frequently given as a part of a larger contract with other purposes; and a consideration sufficient to make the option binding and irrevocable may be found in the consideration that the optionee gives in that larger contract.   . And (at p. 603, § 274) it is stated that: There are many cases in which an offer to buy or to sell on stated terms has been made and it cannot readily be determined whether or not the other party has made, either expressly or by implication, a return promise to sell or to buy. The problem is almost wholly one of interpretation.   . To much the same effect, it was held by this court in Olympia Bottling Works v. Olympia Brewing Co., 56 Or. 87, at 91, 107 P. 969, at 970 (1910), that the option agreement in that case must be construed with the entire contract. See also Bogard v. Barhan, 56 Or. 269, at 276, 108 P. 214 (1910), and Johnson v. Homestead-Iron Dyke Mines Co., 98 Or. 318, 329, 193 P. 1036 (1920). Applying these rules of law to the facts of this case it is important to note that this option agreement was not an isolated transaction. Instead, it was one part of a two-part transaction involving both the purchase of the three acre parcel from Henry, as well as purchase of the two acre parcel from defendants so as to reunite them in the original five acre parcel. Plaintiff was not interested in purchasing either parcel separately. Indeed, plaintiff, in reliance on the option agreement, incurred the detriment of completing the purchase of the three acre parcel and obviously intended to proceed with purchase of the two acre parcel. The only reason she did not do so at that time was to make possible a tax benefit to defendants which required that the purchase of the two acre parcel not be completed until January 1, 1969. Conversely, defendants were interested both in getting a stronger purchaser for the three acre parcel, as well as in selling the two acre parcel, which obviously would be sold at best advantage to the purchaser of the three acre parcel. Thus, defendants, as a part of the entire transaction, of which the option was a part, derived the benefit of having plaintiff take over the purchase of the three acre parcel and, again, defendants' only reason to defer completion of the sale of the two acre parcel to plaintiff was to gain a tax advantage that would not otherwise accrue to them. In addition, as testified by the real estate broker who conceived of the entire arrangement and prepared the option agreement, defendants were to have the benefit of the use of the $5,000 in 1968, although that payment would not be taxable to them until the option was exercised in 1969. Under these circumstances, and considering the reference in the option agreement to the payment of $5,000 as option consideration to Patrick T. O'Callaghan et ux, we hold that defendants failed to sustain their burden to prove that there was a want or failure of consideration and that, on the contrary, there was adequate consideration for the option agreement so as to make it a binding option contract for a period of 30 months, subject to exercise by plaintiff upon completion of the purchase at any time after January 1, 1969.