Greetings my fellow tutors and educators,

I have been given a practice example for Contract Law involving Properties and Option to Purchase. Would request your kind assistance with regards 5 out of 15 questions I have sieved out. It would be great if you are able to cite Legal Principles and Case Laws (without explaining to me, I will read them myself) The passage is as follows:

Tim and Kesan were two good friend who met for dinner after office one evening. Tim asked Kesan how his business was doing.

Kesan answered politely that all was good and asked how Tim was doing. As the evening wore on, the 2 of them had started to complain about how badly their businesses were doing. Tim said that he was in such a bad financial state that he was thinking of selling his condominium apartment in Pineapple Street (which is a very expensive district). Tim was the sole owner of that apartment, as he bought it when he was very successful in the early days of his career. Kesan became interested, and asked him if he had done any valuation of the unit. Tim informed Kesan that he did not conduct any proper valuation, but he stated that since he bought it for $400,000 in the year 2005, he was willing to sell it for any price above that amount.

Kesan knew that even the smallest apartment in Pineapple Street would fetch much more than that amount. He requested Tim to state his offer price, and Tim said he would let it go at halfa-million. Kesan offered to buy his apartment. Tim was grateful for his friend’s gesture in helping him.

The next day, Tim got his lawyers to put up a written contract, an Option to Purchase, and gave it to Kesan. It was an Option to Purchase issued by Tim as the seller, to Kesan as the buyer, and the subject matter was Tim’s condominium apartment, at the price at $500,000. The Option to Purchase stated that Kesan, upon paying an Option money of 1% of the sale price to Tim, Tim would allow Kesan a period of 14 days to decide whether he wanted to buy the apartment at the price of $500,000. The time was needed by Kesan to run some checks on the property and to find a financier for his purchase. 

Tim happily issued the Option to Purchase. Kesan paid him an option fee of 1% (i.e. $5,000). If Kesan he did not exercise the Option promptly before the expiry of the 14 days, the 1% Option fee payment would be forfeited to Tim. Therefore, Tim would be compensated for holding the property for Kesan during the 14-day period.

3 days later, Tim called Kesan and accused him of cheating him, because he had found out that his apartment was currently valued at $1.2 million. Tim said that he was “cancelling” the contract, and refused to sell it to him.

Kesan is very upset. He says he did not cheat Tim, as the price was quoted by Tim himself. Kesan has paid the 1% payment for the Option to Purchase. He has the following questions on which he would like to have your opinion. Please advise Kesan as to the position at law.

-Was the Option to Purchase a valid contract? Yes or No.

– please outline the 4 elements of a valid contract in the facts of this case.

-Is Tim able to “cancel” the contract now? Yes or No.

-What would happen if, at the end of 14 days, Kesan exercised the Option and completed the contract?

-What would happen if Kesan fails to exercise the Option in time?

Warmest Regards

 

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a-1.Assuming the correlation between the annual returns on the two portfolios is indeed zero, what would be the optimal asset allocation?

a-2.What is the expected return on the portfolio?

a-3.What should be Greta’s capital allocation?

 

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