North Dakota Option Agreement

North Dakota Option Agreement

North Dakota Option – Defined

A North Dakota option agreement is a contract pursuant to which:

• the owner – the optionor or option-giver,
• of real property – including mineral rights,
• gives another person or entity – the optionee or option-holder,
• the right to buy the property, at a fixed price, within a specified time, on agreed terms.

Matrix Properties Corporation v. TAG Investments, 2000 ND 88 [14]; 609 NW2d 737, citing Wessels v. Whetstone, 338 N.W.2d 830, 832 (N.D. 1983).

In other words, a North Dakota option agreement is an agreement by which the owner of property gives to another person or entity the privilege of buying the property at a specified price, within a specified time.

Holien v. Trydahl, 134 N.W.2d 851, 856 (1965), citing American Law of Property, Vol. III, Sec. 11.17, p. 47.

North Dakota Option Agreement – a Type of Contract

A North Dakota option agreement has been identified by the North Dakota Supreme Court as a type of a contract by which the owner of property agrees with another person or entity, that the latter shall have the right to buy the property from the owner at a fixed price, within a specified time, on agreed terms.

Holien v. Trydahl, 134 N.W.2d 851, 856 (1965), citing 91 C.J.S. Vendor and Purchaser Sec. 4, p. 832.

Earlier North Dakota Option Agreements – Not a Contract?

The North Dakota Supreme Court has evolved on the question of whether an option agreement creates a contract, since a Supreme Court decision issued in 1956 specifically identified that a North Dakota option agreement was not a contract.

Rather, it was identified as a mere offer on the part of the optionor, which did not become a binding contract until it had been accepted by the optionee within the time, and upon the terms and conditions, provided in the option.

Alfson v. Anderson, 78 N.W.2d 693, 700 (N.D., 1956).

North Dakota Option – Right to Demand a Conveyance

Upon the execution of a North Dakota option agreement, the property owner does not at that time sell the property, but rather sells to the other party the right – at the optionee’s election – to demand a conveyance of title to the property in the manner specified in the agreement.

Matrix Properties Corporation v. TAG Investments, 2000 ND 88 [14]; 609 NW2d 737, citing Wessels v. Whetstone, 338 N.W.2d 830, 832 (N.D. 1983).

Irrevocable Option When Supported by Consideration

When there is sufficient legal consideration for the execution of a North Dakota option agreement, the option becomes irrevocable in favor of the potential purchaser:

“An option supported by consideration is irrevocable for the life of the offer.”

Estate of Jorstad, 447 N.W.2d 283, 285 (N.D. 1989).

To put it another way, an option is a continuing offer which – if supported by consideration – becomes a legally binding promise to keep the offer open through the time specified in the option.

Estate of Jorstad, 447 N.W.2d 283, 285 (N.D. 1989), citing Simpson, Contracts 2d ed. 34-35 (1965).

Option Irrevocable for the Duration of the Offer

Therefore, an option supported by consideration is irrevocable for the life of the offer – which can be terminated only by the lapse of time, a supervening illegality, or the death or destruction of a person or thing essential to the performance of the contract.

Estate of Jorstad, 447 N.W.2d 283 (N.D. 1989), citing J. Calamari & J. Perillo, Contracts 124-25 (1987).

Neither the supervening death of an optionor, nor an attempted revocation by the optionor’s Will, terminates an irrevocable offer.

Estate of Jorstad, 447 N.W.2d 283 (N.D. 1989), citing J. Calamari & J. Perillo, Contracts 124-25 (1987).

North Dakota Option Agreement – Manner of Exercise

To obtain an enforceable right to purchase real property subject to a North Dakota option agreement, the optionee must exercise the option to purchase the property within the time, and upon the terms and conditions, provided in the option agreement.

Wessels v. Whetstone, 338 N.W.2d 830, 832 (1983), citing Mason v. Haakenson, 303 N.W.2d 557, 558 (N.D. 1981); Haugland v. Hoyt, 267 N.W.2d 803 (N.D. 1978).

North Dakota Option – Unequivocal Acceptance

The offer identified in the North Dakota option agreement must be accepted unequivocally, and in accordance with the terms of the option.

Wessels v. Whetstone, 338 N.W.2d 830, 832 (1983), citing Northwestern Bell Telephone Company v. Cowger, 303 N.W.2d 791, 794 (N.D. 1981); Haugland, supra 267 N.W.2d at 806; Greenberg v. Stewart, 236 N.W.2d 862 (N.D. 1975).

North Dakota Option Agreement – Unconditional Acceptance

A North Dakota option agreement merely identifies a continuing offer. Before an acceptance of an offer becomes a binding contract, the acceptance must be unconditional, and without modification or the imposition of new terms.

Alfson v. Anderson, 78 N.W.2d 693, 700 (N.D., 1956), citing Beiseker v. Amberson, 17 N.D. 215, 116 N.W. 94, Horgan v. Russell, 24 N.D. 490, 140 N.W. 99, 43 L.R.A.,N.S., 1150.

An optionee must exercise the option within the time and upon the terms and conditions provided in the agreement, and the exercise of an option must be unconditional.

Matrix Properties Corporation v. TAG Investments, 2000 ND 88 [20]; 609 NW2d 737, citing Mason v. Haakenson, 303 N.W.2d 557, 558 (N.D. 1981).

North Dakota Option – Rejection

Any attempt to exercise a North Dakota option that deviates from the terms of the option agreement acts as a rejection of the option, and counteroffer.

Matrix Properties Corporation v. TAG Investments, 2000 ND 88 [20]; 609 NW2d 737, citing Mason v. Haakenson, 303 N.W.2d 557, 558 (N.D. 1981).

Any counter proposition, or any deviation from the terms of an offer contained in a purported acceptance, is deemed to be a rejection of the offer and not binding as an acceptance on the person making the offer.

No contract is made by any such qualified acceptance alone.

Mason v. Haakenson, 303 N.W.2d 557, 558 (N.D. 1981), citing Beiseker v. Amberson, 17 N.D. 215, 116 N.W. 94 (1908). See also, Greenberg v. Stewart, 236 N.W.2d 862 (N.D.1975).

General Contract Law – Manner of Acceptance

General contract law provides that the acceptance of an offer to enter into a contract may be made in various ways depending on the terms of the agreement – sometimes by performance, and sometimes by a promise of performance.

Matrix Properties Corporation v. TAG Investments, 2000 ND 88 [16]; 609 NW2d 737.

See Restatement, Contracts 2d § 50 (1981) (concluding acceptance by performance requires at least part of the offer requests be performed or tendered, but acceptance by promise requires the offeree to complete every act essential to the making of the promise);

17A Am.Jur.2d Contracts, § 95 (1991) (stating “there are various modes of acceptance which are equally conclusive upon the parties”).

North Dakota Option – Manner of Acceptance

A North Dakota option agreement – like other offers to enter into a contract – may provide for acceptance of the proposed contract by either a promise, or an action, depending on whether the contemplated contract is to be bilateral or unilateral.

Wessels v. Whetstone, 338 N.W.2d 830, 832 (1983), citing 1 Williston on Contracts, 3d Ed., § 61D, page 205.

North Dakota Bilateral Contracts – Acceptance of Offer

In a North Dakota bilateral contract involving two parties, both parties mutually promise to do a future act, and the consideration for the promise of one party is a promise on the part of the other.

Matrix Properties Corporation v. TAG Investments, 2000 ND 88 [16]; 609 NW2d 737.

17A Am.Jur.2d Contracts, § 5 (1991)

Acceptance of an offer to enter into a bilateral contract may be made by giving a promise – and not by performance.

Matrix Properties Corporation v. TAG Investments, 2000 ND 88 [16]; 609 NW2d 737.

See 77 Am.Jur.2d Vendor and Purchaser § 56 (1997) (stating “if the acceptance requested and furnished is a promise, the contract to sell is bilateral, binding each party to perform his promise”).

North Dakota Option – Manner of Exercise

In 1981, the North Dakota Supreme Court applied general contract law to identify the manner in which a North Dakota option to purchase real estate was to be exercised:

“[w]here the exercise of the option to purchase does not provide for payment of the purchase price coincident with the optionee’s exercise of the option, the payment of the purchase price is merely an incident of performance of the bilateral contract created by the exercise of the option.” . . . an option must be exercised within the time and upon the terms and conditions provided in the agreement.

Matrix Properties Corporation v. TAG Investments, 2000 ND 88 [17]; 609 NW2d 737, citing Northwestern Bell Tel. Co., v. Cowger, 303 N.W.2d 791, 795 (N.D. 1981).

Conclusion – North Dakota Option Agreement

A North Dakota option agreement is a contract in which a North Dakota landowner or mineral rights owner (the optionor or option-giver), gives another person or entity (the optionee or option-holder), the right to buy the owner’s surface or mineral rights at a fixed price, within a specified time, and on agreed terms.

If you need assistance with a North Dakota option agreement, please contact North Dakota attorney Gary C. Dahle, at 763-780-8390, or Gary@Dahlelaw.com.

Gary C. Dahle has represented clients from the countries of Canada, Norway, and Sweden, and the states of Alabama, Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Tennessee, Texas, Virginia, Washington, and Wisconsin in the United States, with respect to North Dakota mineral rights and probate issues in various North Dakota Counties.

Even though Minnesota and North Dakota attorney Gary C. Dahle does not maintain an office in North Dakota, he is able to assist persons throughout the United States with their North Dakota probate, real estate, and mineral rights issues which do not require a court appearance.

Attorneys not licensed in North Dakota are invited to refer the North Dakota portion of the probate estate they are associated with to Minnesota and North Dakota attorney Gary C. Dahle, at 763-780-8390, or gary@dahlelaw.com.

Minnesota and North Dakota attorney Gary C. Dahle does not represent oil companies – only owners of North Dakota mineral and royalty interests, and is currently accepting new clients with respect to North Dakota Option Agreements.

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