HAND BOOK ON BUSINESS LAW

Business Law (BAWB 1013)/ Commercial Law (BAWB1043)

Introduction

When studying Business Law, you will be drawing on two sources of law, statute law and common
law.  The first one is where the Parliament creates statute law (law that has gone through formal law
making process) while the second one is where the judges decide common law when they hear
cases. All Malaysian courts operate on the adversarial system where the judge acts as the umpire.
Judge-made law, common law or case law (all these expressions have the same meaning) is where
judges make decisions on disputes brought before them in the courts.  They apply the principles of
law which have been developed in past cases to the case which they are currently presiding over
while also referring to and interpreting the written law in the process of arriving at a decision. In
other words, when coming to a decision, a judge looks to decisions given in other similar
disputes/cases and applies the legal principles which underpin those decisions.  This is called
following precedent.

As a student who will be studying law, understanding the principles of the written law (Acts of
Parliaments, By-laws, Ordinances, Enactments etc) is not that difficult. However, most students will
find it hard to understand the concept of judicial precedent whereas precedent forms an important
source of law. By understanding how the doctrine of judicial precedent (or stare decisis in Latin)
operates, students will be able to understand and be adept at applying case laws to the problems
posed to them in the examination where usually they will be asked to advise or solve a problem in a
given scenario. Thus it is important for the student, first and foremost to grasp the concept of
judicial precedent before proceeding with the rest of the chapters.

What is Judicial Precedent?

The operation of the doctrine of stare decisis is best explained by reference to the English
translation of the Latin phrase. "Stare decisis" literally translates as "to stand by decided matters".
The phrase "stare decisis" is itself an abbreviation of the Latin phrase "stare decisis et non quieta
movere" which translates as "to stand by decisions and not to disturb settled matters".

Basically, judicial precedent is the process whereby judges follow previously decided cases where
the facts are of sufficient similarity (or they call it ‘on all fours’). The doctrine of judicial precedent
involves an application of the principle of stare decisis i.e., to stand by things which have already
been decided. In practice, this means that inferior courts are bound to apply the legal principles set
down by superior courts in earlier cases provided they are in the same jurisdiction. Earlier decisions
are treated as binding authorities. This provides consistency and predictability in the law. The
doctrine’s basis lies in the declaratory theory of the common law, i.e. that judges do not make law,
they simply ascertain what the law is and apply it to the facts before them.

In Learning the Law (9th ed. 1973), Glanville Williams describes the doctrine in practical terms:

What the doctrine of precedent declares is that cases must be decided the same way when their
material facts are the same. Obviously it does not require that all the facts should be the same. We
know that in life all the facts of a case will never recur, but the legally material facts may recur and it
is with these that the doctrine is concerned. The decision or judgement of a judge may fall into two
parts: the ratio decidendi (reason for the decision) and obiter dictum (something said by the way).

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RATIO DECIDENDI - The ratio decidendi of a case is the principle of law on which a decision is based.
When a judge delivers judgement in a case he outlines the facts which he finds have been proved on
the evidence. Then he applies the law to those facts and arrives at a decision, for which he gives the
reason (ratio decidendi).The ratio is the authoritative element of a judicial decision. Ratio decidendi,
is the most important part of the judge's decision. It is binding. It becomes the law. It is the central
legal reasoning used to decide the case

OBITER DICTUM - The judge may go on to speculate about what his decision would or might have
been if the facts of the case had been different. This is an obiter dictum, an expression of the judge’s
opinion on a point of law not directly in issue in the present case. Obiter dicta are comments made
by the judge during the process of making the decision. They are comments made 'by the way',
often about related legal issues, rather than the central legal issue (which forms the ratio decidendi).
They are not binding, but are often used in subsequent cases to assist the judge in reaching a
decision. They only persuade, rather than bind, a judge.

The binding part of a judicial decision is the ratio decidendi. An obiter dictum is not binding in later
cases because it was not strictly relevant to the matter in issue in the original case. However, an
obiter dictum may be of persuasive (as opposed to binding) authority in later cases. A difficulty
arises in that, although the judge will give reasons for his decision, he will not always say what the
ratio decidendi is, and it is then up to a later judge to "extract" the ratio of the case. There may,
however, be disagreement over what the ratio is and there may be more than one ratio.

As stated above, the ratio decidendi [reason of deciding] of a case can be defined as the material
facts of the case plus the decision thereon. Again, Williams, who advanced this definition, went on
to suggest a helpful formula on how to determine a ratio of a case. Suppose that in a certain case
facts A, B and C exist, and suppose that the court finds that facts B and C are material and fact A
immaterial, and then reaches conclusion X (e.g. judgment for the plaintiff, or judgment for the
defendant). Then the doctrine of precedent enables us to say that in any future case in which facts B
and C exist, or in which facts A and B and C exist the conclusion must be X. If in a future case A, B, C,
and D exist, and the fact D is held to be material, the first case will not be a direct authority, though
it may be of value as an analogy.

It follows from William's analysis that the addition of fact D to a future case means that conclusion X
may or may not follow. In other words, the presence of a new fact D may have the effect of
distinguishing the future case from the precedent or conversely the precedent may be extended to
apply to the future case.

However it must be remembered that the application of the doctrine of judicial precedent is based
on the fact that only lower courts are bound by the decision of higher courts within the same
jurisdiction so students should also be familiar with the hierarchy of courts in this country as well as
that in England as we are still following and applying many of the English cases as precedents. For
example, the High Court must follow decisions of the Court of Appeal, which must follow decisions
of the Federal Court (or House of Lords in England)

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Example:

Donoghue v Stevenson (1932)

The case of the decomposing snail in the bottle of ginger beer. The House of Lord held that a
manufacturer owed a duty of care to the consumer that products are safe by virtue of the
‘neighborhood principle’. “Products” have since been held by later courts to include not only food
and drink but also underpants, motor cars, hair dye, lifts and chemicals.

Then in Grant v Australian Knitting Mills (1936)

The claimant bought some underwear but the material contained a chemical which caused
dermatitis. Compensation was awarded based on the precedent set by Donoghue v Stevenson that a
manufacturer owed a duty of care to the consumer that their products are safe for consumption.

CASE BRIEF

Case briefs are documents prepared by students as a study aid when trying to capture the essence
and importance of court decisions. A case brief summarizes a court decision by outlining, at a
minimum, the facts of the case, the legal issues raised, and the rationale for the court’s decision. The
purpose of the case brief is to provide easy reference to students for their revision and to familiarize
students with the case law method in business law.

In Business Law most of the subject deals with the law that has been largely created by judges
hearing cases.  Hence, you will focus on common law rather than statute law.  The decisions of cases
and the legal reasoning, supported by the relevant facts of the case, are authority for the law you
need to cite in your assignments and exam answers. As such when reading a case you need to know
what to look for and where.

To understand the information in a case, it is helpful to know how it is organized in the case.   The
cases in your texts usually follow this format:

A. Case name.
Every case has a title. For example, Smith v. Jones. This title contains the names of the
parties that are suing each other. In a civil case, the first name that appears will be the
plaintiff followed by the name of the defendant if this case is at the first trial stage. Then
the losing party at the trial court (who can either be the plaintiff or the defendant) will
usually seek for an appeal at a higher court. Thus at appeal stage, the first name will be
the appellant and the second will be the respondent. In other words, even if the case is
entitled “Smith v. Jones,” this does not necessarily mean that “Smith” is the plaintiff and
“Jones” is the defendant. It may be that “Smith” was, in fact, the plaintiff in the trial
court. Or, maybe “Smith” was the defendant. However, appellate courts list the name
of the party that filed the appeal first, regardless of their status as plaintiff or defendant
in the trial court. Thus, if “Smith” was the defendant in the trial court, but lost the case
at trial, “Smith” is listed first in the title of the case because he filed the appeal.
Moreover, now “Smith is called the Appellant and “Jones” is called the Respondent.

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The case citation follows the case name and with the case name tells you where you can
find the full report of the case. Cases are collected in various law reports and the case
citation tells you where to find the particular case.

B. The Facts.
The facts are nothing more than the story of what happened to the parties. Clearly, at a
minimum, your facts must include what transpired between the parties that resulted in a
lawsuit. You need to understand the key events in a dispute to locate the important or
material facts.  The material facts of the case are those which are considered to be
essential to the reasoning in the decision.  It is important for you to locate these because
it will help you to understand the legal principles being developed or applied in the case.

C. The court's decision (i.e. who won the case)

This is the section of the brief where one must summarize what the court said about the
rules of law, how the rules apply to the facts of the case, and what conclusion the court
reached. How has this court resolved the issue? What was the outcome? What action did
the court take? Like the legal issue, the court’s decision or holding is probably clearly
stated in the opinion (e.g., “We hold . . .”).

D. The reasons for this decision (i.e. what legal principles were applied)
Why did the court reach the decision it did? What arguments justify the holding?
Because judges often write many pages when justifying and explaining their decisions,
this can be a difficult section for student’s to write. The doctrine of stare decisis requires
judges to align their decision with legal principles established in previously decided cases.
As a result, court opinions take considerable space to show how the current decision is
consistent with the established principles. Your job is to state, as briefly as possible, the
rationale provided by the court’s majority in support of their decision.

Thus in reading a case, there are several elements to be taken into consideration. The first would be
‘what is the case all about i.e. it is related to what legal principle?’ Then a student should take note
of the material facts of the case. What would be material are those facts that distinguish a
particular case from another as well as those facts that would affect the judgment of the court. After
the facts, students should then see to the decision/ judgment of the court and take note of the
underlying reasons behind the decision i.e. what facts and factors in the case that make the judge
decide the case as it is. Sometimes it is also important to take note of any dissenting judgment to
have a full comprehension of the case.

Extracting key information from a case:

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Look at the case of Clarke v. Dun raven below and see how important / material information are
extracted from the facts given.

Clarke v Earl of Dun raven [1897] AC 59

Both Clarke and Dunraven were entrants in a regatta organized by the Mud hook Yacht Club.  Each
had signed a letter to the secretary of the club undertaking that he would be bound by the rules of
the Yacht Club Association.  The rules of the regatta provided that the owner of any yacht which,
in breach of the rules, fouled another entrant would be liable to pay for all damages arising there
from. While coming up into position for the start of the race,  Clarke's boat, the Satanita, fouled
and sank Dun raven’s boat, the Valkyrie, and the latter sued for damages.  The vital question was
whether any contract existed between them.  Clearly, there was no direct relationship between
the competitors. The immediate relationship of each owner was not with each other but with the
secretary of the club. Nevertheless it was held (by both the Court of Appeal and the House of
Lords) that a contract did exist between the participants in the race.  In the view of Lord Herschell,
‘The effect of their entering the race, and understanding to be bound by [the] rules to the
knowledge of each other, is sufficient, ...where those rules indicate a liability on the part of one to
the other, to create a contractual obligation to discharge that liability (at 63).”
Consequently, Clarke was held liable to compensate Dunraven for the damage arising from the
breach of contract.

The key information are:

(1) The parties.

Appellant – Clarke
Respondent - Dunraven

(2) The issue/area of dispute

Did a contract exist between Clarke and Dunraven even though there was no direct relationship
between them?

(3) The facts of the case

1. Clarke v Dunraven entrants in regatta (Mudhook Yacht Club)
2. Each signed letter to secretary of club to be bound by rules of Yacht Club Association.
3. Rules stated that owner of any yacht who fouled another entrant was in breach of rules and
liable for damages.
4. Clarke's boat fouled Dunraven's.
5. Dunraven sued for damages.

(4) State the court's decision (judgment):

Contract did exist between Clarke and Dunraven. Clarke liable to compensate Dunraven for damages
of breach of contract

(5) The legal principle (ratio decidendi):

Where a contract is made with a third party, who is also contracting with others for the same purpose
and on the same terms, a collateral contract will form, which will be binding on all the parties
notwithstanding the fact that they have not actually contracted with each other.

HOW TO ANSWER LAW QUESTIONS

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1. THEORETICAL QUESTIONS

The questions in examinations may be a theoretical one e.g.: 'Explain the difference between Offer
and Invitation to Treat', or one featuring a case and asking you to solve/give advice to it.

For the theoretical type of questions, always starts by

 Defining the term /principle,
 Lay down the elements or conditions or your explanation of the term/principle and
 give an example to illustrate that you really understand the principle. The example may
be your own, or even better if you could quote a decided case.

In quoting decided case, please remember to quote the fact of the case together, not just stating
down the name. Taking the example of 'Invitation to Treat' above, here's a correct and wrong way of
answering the question, assuming that it is worth 8 marks.

Correct:
Invitation to treat is somewhat similar to that of an offer and is sometimes confused with an
offer. However an offer is something which is definite and absolute, upon acceptance of
which it will turn into a valid contract. For example, Ali offers to sell his car to Babu for RM
20,000. If Babu accepts this offer, there is a binding contract between Ali and Babu.
(2 marks)

Invitation to treat on the other hand is asking for other people to extend their offer to the
maker of the invitation. It cannot be met by an acceptance. Instead, the maker of the ITT
makes the invitation, someone else will extend their offer and the maker of the ITT will
decide whether to accept the offer made to him or not. (3 marks)

A good example of ITT will be that of an advertisement. Here say a company advertises a
vacancy in the company. This is an ITT, not offer. Then interested candidate will make their
'offer' to the company i.e. offering the service to the company. Then it will be to the
company to decide whom among the applicants to accept or reject. And because this is an
ITT, not offer, the candidates who failed in their application cannot sue the company
claiming breach of contract, as their application is just an offer, not an acceptance capable
of creating a valid contract. (3 marks)

Or if you decide to quote a case, then:

A case to illustrate ITT would be the case of Pharmaceutical Society v. Boots Cash Chemist
(or just 'the Boots Cash Chemist case' or if can't remember the name, but remember the
fact, then, 'In a decided case). What happened in this case is that the defendant is being
sued for allegedly selling poison openly in their chemist contrary to some regulation.
However the plaintiff argued that when the put the poison on the shelf, it is not an offer to
sell to anybody, but an ITT whereby an interested purchaser would have to bring the poison
to the cashier and offer to buy it. Then the cashier would have the control over whom the
poison is sold to by accepting the offer to buy or rejecting it. The court agrees with the
plaintiff. (3 marks)

Wrong:

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Invitation to treat is like an advertisement in the newspaper where one party advertises a
position and the other party applies for the position. It is not an offer because the applicant
cannot then sue the company if he did not get the job. An example of invitation to treat
would be the case of Pharmaceutical Society.

The above answer is wrong, because first, it is too short. How do you explain a principle in 3
sentences? Note that the question is worth 8 marks. How can the examiner give 8 marks for the
above answer? The answer also clearly did not differentiate between offer and ITT. Then the answer
only quotes the name of the case. That would defeat the purpose. DO NOT ASSUME that just by
quoting the name of the case, the lecturer will know the fact of case. Of course logically the lecturer
will know, but the exam is to test YOUR knowledge, not the lecturer's. So you have to show the
lecturer that you know what the case is all about. Remember what you have learned about the use
of cases: what is binding is the ratio decidendi. This involves understanding the reasoning of the
judges, as well as the facts. Just giving the facts without showing how the decision is relevant is as
inadequate as giving the name without any indication of what the case is about.

In answering any exam questions, FIRST, determine what the question wants. If it say requires you
to explain a concept / rule / principle – then what you do is to define the
term/concept/rule/principle first. Definition here need not be definition that comes from the book,
you don’t have to memorize them word by word, enough that you define the terms in your own
word, as long as it is correct and contains all the necessary elements, it should be okay with me.
However, definition alone is NOT ENOUGH. You must also provide an example to show your
understanding of the principle. Of course, if possible, I would expect you to quote a decided case.

EXAMPLE:

If the question asked you to “Explain what is meant by Privity of Contract” (5 marks), the first thing a
student need to do is define the term:

Privity of contract means that when two parties enter / sign a contract, then any liabilities or
rights that arise from that contract is binding upon them only and not a third party’.
(2 marks here)

The next step is to provide an example. As I said above, preferably you give an actual decided case,
where the relevant case on privity is Dunlop Pneumatic Tire v. Selfridges, so continue:

In the case of Dunlop Pneumatic Tire, Dunlop makes a contract with Dew, a trade purchaser,
for tires at a discounted price on condition that they would not resell the tires below the
listed price and that any reseller who wanted to buy them from Dew had to agree on the
same condition .Dew sold the tires to Selfridge and made Selfridge agree not to sell at a
lower price. However, Selfridge sells the tires below the listed price. Dunlop then sued
Selfridge but the court decided that since the contract was between Dew and Selfridge, not
Dunlop and Selfridge, therefore in absence of any contractual relation between the parties,
the action must fail. (3 marks)

However, if you desperately cannot remember any case to support your answer, then you might
consider giving your own example, just to show the examiner that you actually understand how this
principle operates in real life. Therefore, you may write:

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For example, let’s say that David and Acong enters into a contract that requires David to
build a garden shed for Acong. However, half way through, David decided to quit and left
the shed half done. In this case, David has commited a breach of contract, but he can only
be sued by Acong and not Meilin, who is Acong’s wife even though the half done shed
caused a mess of her beloved garden. This is because she is not a party to the contract
between her husband and David. (2 marks only)

As such, the answer to the question ‘Explain what is meant by Privity of Contract’
(5 marks) could either be:

Answer #1 (5 marks – where student provides actual decided case):

Privity of contract means that when two parties enter / sign a contract, then any liabilities or
rights that arise from that contract is binding upon them only and not a third party’.
In the case of Dunlop Pneumatic Tire, Dunlop makes a contract with Dew, a trade purchaser,
for tires at a discounted price on condition that they would not resell the tires below the
listed price and that any reseller who wanted to buy them from Dew had to agree on the
same condition .Dew sold the tires to Selfridge and made Selfridge agree not to sell at a
lower price. However, Selfridge sells the tires below the listed price. Dunlop then sued
Selfridge but the court decided that since the contract was between Dew and Selfridge, not
Dunlop and Selfridge, therefore in absence of any contractual relation between the parties,
the action must fail.

OR

Answer # 2 – (4 marks – where student gives own example):

Privity of contract means that when two parties enter / sign a contract, then any liabilities or
rights that arise from that contract is binding upon them only and not a third party’.
For example, let’s say that David and Acong enters into a contract that requires David to
build a garden shed for Acong. However, half way through, David decided to quit and left
the shed half done. In this case, David has commited a breach of contract, but he can only
be sued by Acong and not Meilin, who is Acong’s wife even though the half done shed
caused a mess of her beloved garden. This is because she is not a party to the contract
between her husband and David.

The reason for the difference in the marks is as an incentive to students who put in effort to
memorize the cases. It is not that hard to remember the cases, that is why I asked you to do the case
brief assignment, to get you to be familiar with the cases and to enable you to just give the

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summarize facts and ratio of the case in your exam answer. Or, if time is limited, then it is enough
that you just quote the name of the case and its ratio. On the other hand, giving your own example
is only allowed when you answer theoretical questions i.e. one that asked you to explain a rule /
principle/ term etc. If the question is a problem question i.e. one that gives a scenario and requires
you to solve the case / advise the parties (like what you did in the case study) then you CANNOT give
your own example but must only use actual decided case to support your argument.

2. PROBLEM QUESTIONS.

The following is a guide to help you use the IRAC method to sort through a hypothetical legal
problem.

1. Issue(s)
2. Rule(s)
3. Application
4. Conclusion

Facts

Even if you are not required to submit a list of facts in your answer, it is a good idea to write one.
This will help you sort through the facts you have been given and determine which facts are relevant
and how you are going to use them. The following is a list of questions that may help you do this

 Who is involved? (identify parties specifically by name, if possible)

 Who suffered?
 How?
 Why? (was is avoidable?)
 What is the known (relevant) information?
 Is there any missing information?
 Include specific details like dates and monetary figures

Note: Reread the question at the end of the case study. This will tell you what you are supposed to
be doing and it will help you determine which facts are relevant.

Issues

 Identify the problem: what has gone wrong and for whom?
 Name each Plaintiff and Defendant and briefly describe their individual issues

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 Work out what area of law may govern the resolution of the problem.
 This could include, but is not limited to the following bodies of law

o Contract law (be specific about which part)
o Trade practices (e.g. misleading conduct)
o A company law issue (e.g. breach of director’s duty)
o Negligence Criminal Law
o Constitutional Law
o Partnership Law
 Assignments generally relate to one area of law but the assignment will usually raise a
number of issues within that general area.
 Identify any conflicting or troublesome facts
 Note: Assessment tasks are set around the work that you have done in class or will do in
class. You are not expected to go outside the content of the unit but you are expected to
explore it

Rules and relevant Law

 Set out the legal principles that will be used to address the problem.
 Source legal principles from cases and legislation.

Note: Make sure you are specific when stating the relevant law/rules that apply, and always make
sure to support propositions with case authority.

Application

 Explain in detail why the Plaintiff’s claims are (or are not) justified, based on the body of law
pertaining to the case.
 How will this law be used by each party to argue their case?
 Use relevant precedent cases or Legal Principles to support each answer.
 You may also choose to use Legislation, when applicable.
 There are often several Plaintiffs involved. Take the time to examine each case individually
and analyse why their claims are (or are not) valid.
 Legal Principals and precedent cases are used in each analysis, even if there is overlap
among Plaintiffs (the same precedent can be applied to both parties, if appropriate. See
example 2).
 It is acceptable to refer the reader to another point in the paper, rather than rewriting it
word for word, if the situation calls for the same legal recommendation. (See example 1 and
2)

Note: Take time to discuss the contentious aspects of the case rather than the ones that are most
comfortable or obvious.

Conclusion

 Stand back and play ‘the judge.’

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 Choose the argument you think is the strongest and articulate what you believe to be the
appropriate answer.
 State who is liable for what and to what extent.
 Consider how parties could have acted to better manage their risks in order to avoid this
legal problem.

**The major advantage of the IRAC method is that you will be able to accrue marks as your answer
progresses, especially by explaining the relevant law on the main issues and applying the law to the
facts you have been given. It allows you to write your answer in a straightforward and logical way
that will not confuse your response or alienate the examiner.

Consider the following simple tutorial exercise:

Read the following facts and answer the questions below:

1 April: Dee Pty Ltd offers by letter to sell 500 tonnes of sand to Tempo Ltd. It does
not specify a method of acceptance and its fax number appeared on the letter.
8 April: The director of Dee Pty Ltd asks his assistant to revoke the offer. She does not
send a fax or phone the office of Tempo Ltd. Instead, she sends a letter.
11 April: Tempo Ltd receives the offer and faxes its acceptance. The director of Dee Pty
Ltd reads the acceptance on the same day.
14 April: Tempo Ltd receives the letter of revocation.

Explain whether the offer has been accepted or revoked.

This problem question could be approached in the following way. Please note this “answer”
is not a model answer, but is used simply to illustrate the IRAC method.

Issue
This problem addresses the issue of Agreement, which is one of the main elements of every
simple contract. For a contract to be valid and enforceable, it must contain an offer and an
acceptance to satisfy this element. The question also addresses the issue of revocation,
because if an offer has been validly revoked by the offeror, acceptance by the offeree will not
be possible.

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Rule
For an offer to be validly revoked, there are two basic rules that must be satisfied. Firstly, it
has been held by common law courts for many years that revocation takes place when it is
received. In other words, revocation is only valid if and when it has been communicated to
the offeree, even though it does not necessarily have to be communicated by the offeror
directly. (see Dickinson v Dodds). Secondly, revocation is only valid if it has been received
before acceptance (Byrne v van Tienhoven). If the offeree has already accepted by
complying with the offeror’s prescribed method of acceptance, or by satisfying the postal
acceptance rule, the revocation will not be valid and the parties will have achieved
agreement.

Application
In this case, the offeror Dee Pty Ltd makes an offer on 1 April by mail, which is received by
the offeree Tempo Ltd on 11 April. The revocation is sent on 8 April but by law does not
take place until 14 April, the day of receipt by Tempo Ltd. Because Tempo Ltd has already
faxed its acceptance, which was received by the offeror, on the same day, we can say that
acceptance has already taken place and that agreement was reached before the revocation
took place.

Conclusion
The offer has not been revoked validly and Tempo Ltd will be able to enforce the agreement
against Dee Ltd if necessary.

* Acknowledgments to Vickery R and Pendleton W, Australian Business Law, Pearson Ed, 5th ed, 2006

SAMPLE QUESTION AND ANSWER # 2

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Dr. Akmal has for some years run a clinic offering free medical care to the homeless and poor
families in the PJ area. The clinic occupies a house owned by Ms. Kate and leased from her on a
month-to-month basis. On May 1, Dr. Akmal met with Ms. Kate to ask if she would like to sell him
the house. "It would give me some freedom to renovate the house to accommodate my homeless
patients if I own the building", he explains. "I'd consider selling it for $200, 000," came the reply from
Ms. Kate
."I think that I can raise $200,000 through sponsorship--if you give me six months," said Dr. Akmal.
"But I will need to show potential donors proof that I can buy the house at that price, “he continues.
"I'll be glad to help on that count," smiled Ms. Kate. "I have a soft spot for your clinic, you know, it's
wonderful what you're doing for those poor people". Then she gave Dr. Akmal a signed note, which
reads as follows:

'In return for all that Dr. Akmal has done for our community, I hereby promise that if he
delivers $200,000 to me at any time between now and November 1 of this year, I will give
him title to the building that houses his clinic.'

Signed,

Kate Blanchett.

Dr. Akmal thanked Ms. Kate, took the note, and set to work raising the required money. In the
meantime, real estate prices soared. On September 1, Ms. Kate told Dr. Akmal that she was putting
the house on the market. "I've raised $180,000 and will have the rest soon!" he insisted.
On October 1, Dr. Akmal proudly presented Ms. Kate with a check for $200,000 and requested the
title to the clinic building. With some embarrassment, she told him that she no longer held the title.
"I just sold the house for $350,000."
Discuss Dr. Akmal's rights against Ms. Kate under the law of contracts.

Answer to question #2

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The answer given is more in the form of framework rather than a full answer. The scheme provides
guidelines to students as to what are roughly expected from their answer.

Issue
 The issue here is whether there is a valid and legal offer made by Kate to Akmal to sell the
house to him and whether Akmal has accepted such an offer.
 On the other hand, if the promise made by Kate is not considered an offer but rather an
option, then is Kate bound to keep the option open as promised.
 Also another issue is whether if the promise is an option rather than outright offer, Akmal
provided any consideration so that Kate is bound to hold the option open.
 Finally, is there any revocation as to the offer or option so as to make Kate not liable for
breach of contract and if so, has such revocation been done properly? If not what would be
the remedies available to Akmal.

Rule
 This case is about offer, acceptance, options and also revocation to such offer or revocation.
 Students are expected to explain and elaborate the law (relevant provisions under Contract
Act, the common law and case law) as regards to the above to determine the making of a
valid offer, its binding acceptance, the meaning of option as well as the rules as regards to
revocation of offer and also acceptance.
 Explain also the various remedies available to a plaintiff upon finding of breach of contract
by the defendant.

Apply
As regards to offer, first it must be considered whether the initial dealing between Akmal and Kate
amount to offer and acceptance or not. It is submitted that on the fact of the case, when Akmal first
approach Kate to inquire about the house and that Kate reply saying that she would consider selling
the house for RM 200K, that could amount to a valid offer and acceptance. However from the
wordings of the communication, there seems to be some uncertainty involved, i.e. the usage of the
word 'I'd consider' by Kate seems to suggest that the so called offer to buy made by Akmal was not
accepted unconditionally. This would negate the inference of offer and acceptance. The same
argument applies to the subsequent conversation between the parties pertaining to Akmal's request
that he be given 6 months to raise the money as well as the requirement of some hard evidence to
convince would be sponsors.

Thus it is submitted that in this case, offer only materialize when Kate wrote the note offering to sell
him the house for RM200K and that she will hold the offer open until November 1. Such an action is
enough to fulfill the requirement of a valid offer. Now that there is already an offer, it is up to Akmal
to make the acceptance that would bind Kate into a legal contract. However the fact of the case
shows that acceptance was not done instantaneously but instead Akmal just set to work raising the
purchase price.

When an offer is to be kept open for a period of time, such an offer is called an option. A promise to
keep an offer open is only binding when the offeree provides some consideration to the offeror to
keep the offer open. If no such consideration is provided, then the party agreeing to keep the offer
open may revoke the offer before the end of the agreed period. An offer may be revoked at any

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time before acceptance as held in the case of Routledge v. Grant where although the defendant had
given the plaintiff six weeks to accept an offer to buy his house, he was entitled to withdraw the
offer at any time prior to the plaintiff acceptance of the offer.

Applying the law to the case, the question is whether Akmal has provided any consideration to
Kate to keep the offer open until November 1. Case laws in regards to this point seem to suggest
that the consideration given need to be in term of money, something like a deposit paid to the
offeror. The fact of the case did not indicate anything to this effect, so it is assume that no such
consideration was given.

On the other hand, it may be argued that the definition of consideration under contract is not
limited to money alone, it may be an act by the offeree. Thus it may still be argued that the act
of Akmal setting to work raising the money may on itself be a consideration. However such an
argument would be difficult to maintain. Going from the point that there is no consideration
given by Akmal, therefore Kate is actually free to revoke the offer at any time within that period
i.e. she is not bound to hold the offer open until 1 st November.

However, revocation is not effective until it has been communicated and received by the
offeree. In this case such communication is effected when Kate told Akmal personally on 1 st
September that she is putting the house on the market, thus effectively end her promise to hold
the offer open exclusively for Akmal. Subsequently, Akmal is no longer in the position to accept
an offer that has been effectively revoked by the offeror. Thus his act of presenting the check to
Kate on October 1, which is well under the promised time still, could not amount to a valid
acceptance.

Conclude

As a conclusion, from the arguments stated below, it seems clear that in the beginning there is a
valid offer made by Kate to Akmal, but one which was not accepted immediately by Akmal as
the offer extends to a period of time. However as no consideration was provided by Akmal to
make Kate keep the offer opens until the promised date, the law says that in such a case, the
offeror is free to revoke the offer. Provided that such revocation is made before acceptance and
is was communicated to the offeree. In this case such revocation was indeed made before
acceptance and was also communicated to Akmal.

Thus, as the offer has been effectively revoked, Kate is not in breach of contract with Akmal.
Akmal has neither rights nor any course of action against Kate in this matter.

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