Summary
Section 87 governs the formation and enforceability of option contracts—agreements that give one party the right to accept or reject an offer within a specified period. An offer is binding as an option contract if it is in writing, signed by the offeror, recites a purported consideration, and proposes a fair exchange within a reasonable time.
The section also provides that an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance, and which does induce such action or forbearance, is binding as an option contract to the extent necessary to avoid injustice. This subsection protects subcontractors and others who rely on offers before formal acceptance.
Section 87 is particularly important in construction bidding, where general contractors rely on subcontractors’ bids in formulating their own bids. Under § 87(2), the subcontractor’s bid may become an irrevocable option contract once the general contractor reasonably relies on it.
Key Elements
- 1Writing signed by the offeror with recital of purported consideration
- 2Must propose an exchange on fair terms within a reasonable time
- 3Reasonable reliance can create a binding option even without consideration
- 4Protects reliance on offers before formal acceptance
- 5Binding to the extent necessary to avoid injustice
Practical Application
Section 87 is most commonly applied in construction bidding disputes. When a subcontractor submits a bid and the general contractor relies on it to win the project, the subcontractor may be bound under § 87(2) even though the general contractor has not yet formally accepted. Courts also apply § 87(1) to evaluate whether option contracts in real estate and commercial transactions are enforceable.
Exam Relevance
Watch for construction bidding hypotheticals or scenarios where someone relies on an offer before accepting it. The key issue is whether the reliance was reasonable and foreseeable. Also distinguish § 87 from § 90—both involve reliance, but § 87 specifically addresses offers and option contracts, while § 90 covers promises more broadly.