Contracts and Sales Multistate Bar Practice Exam

Which of the following is an example of a valid option contract?

1. A promise to provide future services without consideration

2. An agreement requiring performance on a certain date

3. A promise where one party retains the right to choose between alternatives

4. A promise contingent on a future uncertain event

The correct answer is: A promise where one party retains the right to choose between alternatives

An option contract is a specific type of contract that gives one party the right, but not the obligation, to take a specified action, such as buying or selling an asset, within a certain time frame. For an option contract to be considered valid, it must involve consideration, which is something of value exchanged between the parties, and it must clearly articulate the options available to one party. The correct answer describes a promise where one party retains the right to choose between alternatives. This inherently embodies the essence of an option contract, as one party is granted the right to make a decision at a later point regarding which option to pursue, thereby creating flexibility and control. The presence of alternatives allows the holder of the option to make a choice based on conditions or preferences that may evolve over time. In contrast, a promise to provide future services without consideration does not form a valid contract, as consideration is a necessary element of a binding contract. An agreement requiring performance on a certain date lacks the flexibility that characterizes option contracts and may merely establish a duty to perform instead of providing a choice. A promise contingent on a future uncertain event might involve elements of option contracts but does not inherently provide the alternative selection aspect that defines them. Thus, the option where one party retains