Humble Oil & Refining Co. v. Westside Investment Corp.
428 S.W.2d 92 (1968)
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Rule of Law:
A counteroffer or a request for new terms made by an option holder does not terminate a binding option contract that is supported by consideration. The option holder retains the power to accept the original terms of the option until the option period expires.
Facts:
- On April 5, 1963, Westside Investment Corporation granted Humble Oil & Refining Company a written, irrevocable option to purchase several lots of land for $35,000.
- The option was supported by a $50 consideration payment and was exercisable at any time before 9:00 p.m. on June 4, 1963.
- Exercising the option required Humble to give notice and pay $1,750 in earnest money within ten days of the notice.
- On May 2, 1963, Humble sent a letter stating it was exercising the option but also proposing an amendment that would require Westside to extend utility lines to the property before closing.
- Westside did not agree to the proposed amendment.
- On May 14, 1963, well within the option period, Humble sent a second letter explicitly stating that its exercise of the option was unqualified and that Westside should disregard the previously proposed amendment.
- On the same day, May 14, 1963, Humble paid the required $1,750 in earnest money to the designated escrow agent.
- Westside refused to convey the property, contending that Humble's May 2nd letter had terminated the option contract.
Procedural Posture:
- Humble Oil & Refining Company (petitioner) sued Westside Investment Corporation (respondent) in district court, seeking specific performance of the option contract.
- Marvin H. Mann (petitioner), a realtor, intervened to sue Westside for a brokerage commission.
- All three parties filed motions for summary judgment.
- The trial court granted Westside's motion for summary judgment and denied the motions from Humble and Mann.
- Humble and Mann (appellants) appealed to the Court of Civil Appeals of Texas (an intermediate appellate court).
- The Court of Civil Appeals affirmed the trial court's judgment in favor of Westside (appellee).
- Humble and Mann (petitioners) appealed to the Supreme Court of Texas (the state's highest court) for review.
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Issue:
Does a communication from an option holder that proposes an amendment to the underlying contract of sale, made during the option period, constitute a rejection that terminates an irrevocable option contract supported by consideration?
Opinions:
Majority - Justice Smith
No. A communication from an option holder proposing new terms does not terminate an irrevocable option contract supported by consideration. An option contract is a completed, independent contract that binds the optionor to keep an offer open for a specified period. Unlike a mere revocable offer, which is terminated by a counteroffer, an option holder's right to accept is protected for the duration of the option period. Humble's May 2nd letter was an attempt to negotiate the terms of the future contract of sale, not a rejection of the existing option contract itself. Humble did not surrender its right to accept the option and validly exercised it with its unqualified acceptance and payment on May 14th.
Analysis:
This decision solidifies the special legal status of option contracts, distinguishing them from ordinary revocable offers. It establishes that the common law 'mirror image rule' and the principle that a counteroffer terminates an offer do not apply to irrevocable options supported by consideration. This protects the optionee's bargained-for right to consider an offer for a fixed period without the risk of forfeiture due to attempts at further negotiation. The ruling provides commercial certainty and flexibility for parties who pay for the security of an option while conducting due diligence or exploring modifications to the underlying deal.
