Show Me NO Money: Is Paying Zero for an Option Legal?

By:

Tifanie Jodeh
Andrew Keyes
Heather Lanter

As entertainment business professionals, many of you have probably entered into agreements without exchanging money. Many producers option life rights or book rights without paying for the initial option. Is this legal? YES!

The following hypothetical situation will help you to understand why a contract where no money changes hands can be a valid and binding agreement: 

Producer meets with well-known Model who wants to create a film about her life story. Producer doesn’t have the money to pay for Model’s life rights, but in lieu of money, the Producer agrees to shop her life story to a film studio. Model and Producer enter into an option agreement. Producer spends the next five months shopping Model’s life story to every studio in town. In the meantime, Model speaks with Studio Executive, who also wants to make the movie at his studio without Producer’s involvement. Model prefers to work with Studio Executive instead. To get out of the option agreement with Producer, Model argues that the agreement isn’t valid because she didn’t get paid for the option. In legal terms, Model is arguing the option agreement has no “consideration”. Is Model correct? The short answer is NO.

Of all the elements required to make a contract legally binding, consideration can be the most difficult to understand. In simple terms, consideration is a bargained-for exchange of valuable promises between the parties of a contract. It can take the form of physical items, such as a puppy or a diamond ring. It can also be money or simply a promise to act. One of the most famous cases illustrating consideration is Hamer v. Sidway, 124 N.Y. 538, 27 N.E. 256 (1891), where an uncle agreed to give his nephew $5,000 on his 21st birthday if the nephew promised not to drink, smoke, swear, or gamble. When the uncle died and the estate refused to give the nephew the $5,000, the court held that the exchange of promises between the uncle and his nephew was valid consideration. Therefore, the uncle’s estate had to pay the nephew $5,000. This case shows that even a promise not to do something can be consideration. The most important aspect of consideration is that there is bargaining between the parties.

Returning to our hypothetical, the question is whether there was valid consideration for the option agreement between Model and Producer. What is Producer giving? He is giving his time, efforts, expertise, and connections, which will be used to get the film into production. What is Model giving? She is giving Producer the exclusive right to shop her life story to film studios, which both parties hope will lead to a lucrative blockbuster picture. Since Producer and Model are each giving and getting something, there is valid consideration between them to make their option agreement binding.

Though we highly recommend that you put down money as consideration for an option agreement, even as little as $100, know that a promise to act will also make a good argument for consideration.

COPYRIGHT & DISCLAIMER

Tifanie Jodeh is Partner at Entertainment Law Partners dedicated to corporate, business and entertainment affairs.  You may contact her at Asst@entlawpartners.com.

Tifanie Jodeh grants column recipients permission to copy and distribute this column and distribute it free of charge, provided that copies are distributed for educational and non-profit use, no changes or revisions are made, all copies clearly attribute the article to its author and include its copyright notice.

DISCLAIMER: Readers should consult with a lawyer before solely relying on any information contained herein.