This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
A contract may contain an express provision that one or either party may terminate such contract at his option. Pull effect is given to such provisions, and the exercise of such option operates as a discharge of the contract.1 Until such option is exercised the contract is binding upon both parties,2 if the remaining provisions of the contract are such that a sufficient consideration exists.8 If a reasonable time is required for exercising such option,4 such as a period of thirty days,5 sufficient consideration exists. If such option can not be exercised until after the lapse of a reasonable period of time,6 such as an option to be exercised by giving six months' notice after the expiration of eighteen months,7 sufficient consideration exists. If such option may be exercised arbitrarily at any time, the contract is without consideration,1 and the adversary party may end the contract at will.9
3 Anse La Butte Oil & Mineral Co. v. Babb, 122 La. 415, 47 So. 754. 1See Sec. 2618 et seq.
2 Taylor v. Brewer, 1 Maule & S. 200.
3 Butler v. Winona Mill Co., 28 Minn. 205, 41 Am. Rep. 277, 9 N. W. 697.
Contra, Bryant v. Flight, 2 H. & H. 84.
4 Howe v. Kenyon, 4 Wash. 677, 30 Pac. 1058.
5 Union Pacific Ry. v. Anderson, 11 Colo. 293, 18 Pac. 24.
6 Blaine v. Knapp, 140 Mo. 241, 41 S. W. 787.
7 Van Arman v. Byington, 38 Ill. 443.
8 Van Arman v. Byington, 38 Ill. 443.
1 England. Parker v. Ibbetson, 4 C. B. (N.S.) 346 (option to terminate due to trade custom).
United States. Louisiana, etc., Ry. v. Board of Levee District, 87 Fed. 594, 31 C. C. A. 121; Capital Fertilizer Co. v. Ashcraft-Wilkinson Co., - Ala. -, 79 So. 484.
The exercise of such an option is not a breach of the contract,10 unless the contract shows that upon the exercise of such option, compensation for injury arising therefrom is to be made.11 If a contract provides in effect for termination at the will of either party, by mutual agreement for compensation if possible, and if not, for compensation to be determined by arbitrators, the failure to make compensation in either way upon the exercise of such option gives rise to a cause of action for damages.12
Illinois. Thayer v. Allison, 109 Ill. 180.
Indiana. Over v. Byram Foundry Co., 37 Ind. App. 452, 117 Am. St. Rep. 327, 77 N. E. 302.
Kansas. Emerson-Brantingham Co. v. Lyons, 102 Kan. 733, 172 Pac. 513.
Michigan. Holton v. Monarch Motor Car Co., 202 Mich. 271, 168 N. W. 539.
Nebraska. Morrisey v. Broomal, 37 Neb. 766, 56 N. W. 383.
New Jersey. Fritz v. Pennsylvania Fire Ins. Co., 85 N. J. L. 171, 50 L. R. A. (N.S.) 35, 88 Atl. 1005 (obiter).
New York. McCuIlough's Lead Co. v. Strong, 56 N. Y. 660.
North Carolina. Booth v. Ratcliffe, 107 N. Car. 6, 12 S. E. 112.
Oregon. Foster v. Henderson, 29 Or. 210, 45 Pac. 899.
Wisconsin. Pierce v. Signor, 131. Wis. 621, 111 N. W. 699.
2 United States. Kenny v. Knight, 119 Fed. 475.
Alabama. McIntyre Lumber & Export Co. v. Jackson Lumber Co., 165 Ala. 268, 138 Am. St. Rep. 66, 51 So. 767.
Illinois. Fred W. Wolf Co. v. Monarch Refrigerating Co., 252 Ill. 491, 50 L. R. A. (N.S.) 808, 96 N. E. 1063.
New Jersey. Fritz v. Pennsylvania Fire Ins. Co., 85 N. J. L. 171, 50 L. R. A. (N.S.) 35, 88 Atl. 1065.
Washington. Brooks v. Trustee Co., 76 Wash. 589, 50 L. R. A. (N.S.) 594, 136 Pac. 1152.
3 See Sec. 572 et seq.
4 A. Leschen & Sons Rope Co. v. Patterson, 130 La. 557, 58 So. 336; Mayo v. Philadelphia Textile Machinery Co., 105 Va. 486, 53 S. E. 967.
5 A. Leschen & Sons Rope Co. v. Patterson, 130 La 557, 58 So. 336.
6 Mayo v. Philadelphia Textile Machinery Co., 105 Va. 480, 53 S. E. 9G7.
7 Mayo v. Philadelphia Textile Machinery Co., 105 Va. 486, 53 S. E.. 967.
8 See Sec. 572.
9 Brown v. Wilson, 58 Okla. 392, L. R. A. 1917B, 1184, 160 Pac. 94; Eclipse Oil Co. v. South Penn Oil Co., 47 W. Va. 84, 34 S. E. 923.
10 Over v. Byram Foundry Co., 37 Ind. App. 452, 117 Am. St. Rep. 327, 77 N. E. 302; Emerson-Brantingham Co. v. Lyons, 102 Kan. 733, 172 Pac. 513
11 Harlow v. Oregonian Pub. Co., 45 Or. 520, 78 Pac. 737.
Where the option to terminate the contract at will exists, a question presented for decision is what amounts to the exercise of such option. The right to avoid a purchase of stock is not exercised by acting as a stockholder giving a proxy and offering the stock for sale. Such acts amount to affirmance, not rescission.13 An option to avoid a contract within a year from the date of the making thereof is not exercised by a written request for an extension of such time to enable the party making the request to determine, whether it would be possible for him to go on with the contract,14 An option to terminate a contract employing a teacher by giving one week's notice, may be exercised by refusal to employ such teacher before the school opens, and the teacher is then entitled to but one week's salary.15 If, by the terms of the contract, the option to terminate it is to be exercised upon return of the property received under the contract, such provisions must be performed at least substantially in order that such option may be exercised.16 If a cow and calf are sold under a contract which provides that they are regarded as one animal and which permits the purchaser to terminate such contract by returning them in case the cow does not prove to be a breeder, such option can be exercised only by returning both cow and calf.17 If the purchaser reserves the option to avoid the contract by returning the property within a specified time, his failure to return such property within such time prevents him from exercising such option.18 If he continues to use such property after the time specified, the fact that he gave notice before the termination of such period that he would exercise such option, does not operate as a termination of the contract.19
An option to rescind a contract for breach and recover money paid thereunder may be exercised before the date of the maturity of the last payment.20 If an insurance policy provides for cancellation on five days' notice, such notice may be given by writing; but notice sent by registered letter, which purported to be from a different insurance company and which the insured did not in fact open, is not sufficient.21
12 Harlow v. Oregonian Pub. Co., 45 Or. 520, 78 Pac. 737.
13 Jessop v. Ivory, 158 Pa. St. 71, 27 Atl. 840.
14 Ford v. Dyer, 148 Mo. 528, 49 8. W. 1091.
15 Derry v. Board of Education, 102 Mich. 631, 61 N. W. 61.
16 White v. Miller, 132 Ia. 144, 8 L. R. A. (N.S.) 727, 109 N. W. 465 (provision for return in case of breach of warranty); Fred W. Wolf Co. v. Monarch Refrigerating Co., 252 Ill. 491, 50 L. R. A. (N.S.) 808, 96 N. E. 1063.
17 White v. Miller, 132 Ia. 144, 8 L. R. A. (N.S.) 727, 109 N. W. 465.
18 Fred W. Wolf Co. v. Monarch Refrigerating Co., 252 Ill. 491, 50 L. R. A. (N.S.) 808, 96 N. E. 1063.
19 Fred W. Wolf Co v. Monarch Refrigerating Co., 252 Ill. 491, 50 L. R. A. (N.S.) 808, 96 N. E. 1063.
If the time within which the option to end the contract must be exercised, is specified, such option must be exercised within the time thus specified.22 If the time within which the option to end the contract must be exercised, is not specified, such option must be exercised in a reasonable time.23 If A sold bonds to B under a contract by which B was given an option to return such bonds and withdraw her original investment with interest at six per cent "at any time," it is held that such option must be exercised within a reasonable time; and that a delay of six years after such transaction is not a reasonable delay.24