option contract

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An option contract is a promise to keep an offer open for another party to accept within a period of time. With an option contract, the offeror is not permitted to revoke the offer within the stated period of time. Most option contracts require consideration and other contract formalities in order to be enforceable. However, there are some exceptions where a court will not require consideration for the option to be enforceable. A minority of jurisdictions will enforce a written option contract that cites consideration for the option, even if no consideration actually exists. Where a party relies to their detriment on an otherwise unenforceable option contract, a court may still enforce the option under the theory of promissory estoppel, such as when a general contractor relies on a bid from a subcontractor. Under contracts covered by the Uniform Commercial Code (UCC), any agreement by a merchant in writing, signed and to hold an offer open will be upheld without consideration for up to three months. 

[Last updated in August of 2023 by the Wex Definitions Team]