Case Facts
The plaintiffs sought specific performance of an option to purchase freehold property in London SE25. On 12 December 1971, the defendant signed a written agreement granting the plaintiffs an option to purchase the property at a price of £10,000, in consideration of £1. The option was exercisable by written notice within six months of the date of the agreement. Upon exercise, the plaintiffs were required to pay a deposit of £1,000 to the defendant's solicitors as stakeholders, with completion to take place six weeks after the option was exercised.
In January 1972, before the option was exercised, the defendant sent a letter purporting to withdraw from the agreement. The plaintiffs nonetheless exercised the option by written notice dated 29 March 1972. The defendant refused to complete and denied that the agreement was binding upon him. The plaintiffs brought an action by writ on 11 May 1972, claiming specific performance of the contract of sale and, in the alternative, damages for breach of contract.
The defendant advanced three grounds for attacking the validity of the option. First, he alleged misrepresentation, claiming he had been told he could withdraw from the agreement within six weeks. The trial judge rejected this, preferring the evidence of Mr Sambruck. Second, the defendant contended that the agreement amounted to an unconscionable bargain. This was also rejected: there was no evidence that £10,000 was an inadequate price — the defendant had in fact successfully negotiated £1,000 more than his neighbours in a row of four houses subject to similar options — and although the defendant could not read, the option agreement had been explained to him by his friend and lodger Mr Reid, leaving no evidence of weakness of mind. Third, and most significantly, the defendant argued that £1 did not constitute valuable consideration in law, such that the option was not binding upon him and could be revoked.
At first instance, Brightman J held the plaintiffs were entitled to specific performance on the basis that an option to purchase land constitutes an equitable interest in land, rendering it immaterial whether the option had been granted gratuitously or for token consideration. The defendant appealed to the Court of Appeal, where the hearing took place on 16 and 17 October 1974.
Held
The Court of Appeal dismissed the appeal and affirmed the order for specific performance, but did so on different grounds from those adopted by Brightman J below.
The Court of Appeal held that the option agreement constituted an irrevocable offer to sell the property at £10,000. The defendant's purported withdrawal in January 1972 was inoperative: because the plaintiffs had paid £1 in consideration for the grant of the option, the offer was irrevocable throughout the six-month option period. When the plaintiffs exercised the option by written notice on 29 March 1972, a binding contract of sale came into existence.
On the question of consideration, the proposition that £1 could not constitute valuable consideration in law was firmly rejected as a startling proposition for which no support could be found in English authority.
The Court of Appeal expressly declined to affirm the decision of Brightman J on the ground that an option creates an equitable interest in land. Instead, the court rested its decision on the straightforward analysis that what was being enforced was not the option agreement itself but the contract of sale that came into existence upon exercise of the option. The consideration for that contract of sale was £10,000, which was plainly adequate. The defendant's further argument — that even if the option were valid, specific performance should be refused because the option consideration was merely token — was accordingly rejected: the adequacy of the consideration for the grant of the option was wholly irrelevant to the remedy sought, which was specific performance of the contract of sale.
Ratio Decidendi
The ratio of this case concerns two closely related propositions. First, a payment of £1 constitutes good and valuable consideration in law sufficient to render an option to purchase land a binding and irrevocable offer for the duration of the option period. A purported withdrawal by the grantor during that period is without legal effect. Second, and critically, when a court is asked to order specific performance following the exercise of an option, it is enforcing the contract of sale that arises upon exercise — not the option agreement itself. The consideration for that contract of sale is the purchase price agreed between the parties, and it is the adequacy of that consideration, not the consideration paid for the grant of the option, which is relevant to the availability of specific performance. On the facts, there was no basis for refusing specific performance of a contract for the sale of land at £10,000.
The decision therefore makes clear that nominal or token monetary consideration, though it may appear commercially insignificant, is legally sufficient to support a binding option. The law does not concern itself with the adequacy of consideration, only its existence; and the existence of even a small monetary payment suffices to make an offer irrevocable for the stipulated period. This principle sits alongside the wider rule that courts will not inquire into the sufficiency of consideration, as confirmed in Chappell v Nestlé [1960] and illustrated by the classic statement of consideration in Currie v Misa (1875).
Obiter Dicta
The Court of Appeal expressly declined to decide whether, as Brightman J had held at first instance, an option to purchase land creates an equitable interest in land such that the adequacy of the consideration for its grant is irrelevant. That reasoning was left open and was not affirmed. The court's decision to rest its analysis on the separate enforceability of the contract of sale — rather than on the characterisation of the option as an equitable interest — means that the equitable interest point remains available for argument in future cases, though it carries the weight of Brightman J's first instance reasoning in its favour.