Question 30

Smith's option rights allow him to do nothing; the option automatically expires.

Smith has the right to let the option lapse without taking any action, meaning that if he chooses not to exercise it, the option will automatically expire after the specified period.

A) Rescind the contract

Rescinding the contract is not an option available to Smith in this context, as it implies a mutual agreement to cancel the contract, which does not apply when discussing an option that has not been exercised.

B) Sign a declaration of novation

Signing a declaration of novation would involve replacing an existing contract with a new one, typically requiring consent from all parties involved. Since Smith's option is about deciding whether to exercise it, this action is irrelevant.

C) Do nothing; the option automatically expires

This option is correct because it accurately describes Smith's right regarding his option. If he does not take action to exercise the option within the designated timeframe, it will indeed expire automatically without any further obligations.

D) Have an attorney draw up a discharge contract

Having an attorney draw up a discharge contract is unnecessary in this situation. Discharge contracts are typically used to release parties from existing obligations, but in this case, Smith simply has the choice to let the option lapse.

Conclusion

The correct choice is C, as it encapsulates the nature of Smith's option rights effectively. All other options fail to accurately represent the implications of the option, either introducing unnecessary actions or misinterpreting the nature of the rights involved. Thus, understanding the automatic expiration of options is crucial in this context.