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Option money is consideration for the seller's promise to hold the property during the option period

A worked RES examination question on consideration, from our Paper 1 bank — with the rule it turns on, and why each of the four options is right or wrong.

Paper 1Lesson 6ConsiderationFree — no sign-up

The question

A buyer pays the option money on a private resale condominium and receives a signed Option to Purchase valid for fourteen days. Before the deadline he finds a unit he prefers in a neighbouring development, and does not exercise. He asks for his money back on the footing that the sale never happened and he received nothing at all in return.

Consider the following statements.

  1. (i) The option money was consideration for the seller's promise to hold the property.
  2. (ii) The seller kept that promise throughout the option period.
  3. (iii) He may recover the option money, no property having been transferred to him.
  4. (iv) The option money is not part payment of the purchase price.
  1. A. (i) and (ii)
  2. B. (ii), (iii) and (iv)
  3. C. (i), (ii) and (iv)
  4. D. (i), (iii) and (iv)

The answer, and why

Answer: C

The rule. Option money is consideration for the seller's promise to hold the property during the option period. It is not part payment of the price, and it is forfeited if the buyer does not exercise.

Why C is correct. (i), (ii) and (iv) all hold. (iii) is false — the promise bought was performed.

The other options.

  • B and D carry the false (iii).
  • A drops (iv), the point that the money is not part payment, which is what makes the forfeiture intelligible.

Exam note. "I got nothing" feels fair and is legally wrong. He bought fourteen days of certainty and received them.

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