WHAT IS AN OPTION CONTRACT AND HOW DOES IT WORK?

DEFINITION AND NATURE OF THE OPTION CONTRACT

An option contract is defined as an agreement in which one party grants the other an exclusive right to decide whether to accept a specific offer. Initially, this contract is unilateral, as it only obliges the offeror (the party granting the option) to keep the offer open during the agreed period. The option holder, on the other hand, has the right—but not the obligation—to accept the offer under the stated terms.

The Supreme Court of Justice of Bolivia, in Supreme Ruling No. 342/2022, clearly affirms this unilateral nature. The contract becomes bilateral only once the option holder exercises the right to accept the offer, thereby creating binding obligations for both parties.

VALIDITY PERIOD OF THE OPTION CONTRACT

A critical element of the option contract is its validity period. Under Bolivian law—specifically Article 464 of the Civil Code—the maximum duration for an option contract is two years. This time limit ensures legal certainty and prevents indefinite obligations that could lead to disputes and legal uncertainty.

REQUIREMENTS AND FORMALITIES OF AN OPTION CONTRACT

To be legally valid and enforceable, an option contract must meet specific formal requirements:

• Written Form: The contract must be in writing and must clearly define the conditions of the option, its object, and its validity period.
• Clear Clauses: Contract terms must be precise and unambiguous, outlining the rights and obligations of both parties, including a description of the goods or services involved and the terms of acceptance.
• Registration: In certain cases—especially in real estate transactions—the option contract may need to be registered with a competent authority to be enforceable against third parties.

A practical example of how an option contract functions is its use in anticrético agreements. In Supreme Ruling No. 342/2022, the court addressed a case where a sale option was included in an anticrético contract. The court ruled that the property owner was obliged to honor the sale option granted to the anticresistas for the period specified—three months beyond the main contract’s expiration.

In that case, the option holders failed to express their intention to exercise the option within the stipulated time. As a result, the owner was released from the obligation and was free to dispose of the property to third parties.

LEGAL CONSIDERATIONS FOR OPTION CONTRACTS IN BOLIVIA

Bolivian law highlights several important aspects of option contracts:

• Irrevocable Nature: Once granted, the option cannot be revoked unilaterally by the offeror before the agreed expiration date.
• Exclusive Right: The option holder enjoys an exclusive right to accept the offer during the contract’s validity, ensuring priority over other potential interested parties.
• Expiration of Rights: If the option is not exercised within the specified timeframe, it automatically expires, and the offeror is released from any related obligations.

The option contract is a powerful legal tool that offers both parties a structured period for decision-making and negotiation, backed by clear legal guarantees. Proper drafting and compliance with legal requirements are essential to avoid disputes and to promote fairness in contractual relations.