How to Pass the ACA Law Certificate Level Module: Mastering Contract Formation

A solid understanding of contract formation is essential for passing the ACA Law Certificate Level paper. This guide will summarise the key aspects of contract law, including contract validity, offer and acceptance, consideration, and more, to support your exam preparation and build foundational legal knowledge.

The Validity of a Contract

Contracts are the cornerstone of commercial law, and understanding their validity is crucial for any aspiring accountant or legal professional.

Key Elements for a Valid Contract (AIC):

• Agreement between the parties
• Intention to create legal relations
• Consideration

Bargaining Power and Protection:

• The law generally supports freedom of contract but intervenes where necessary to prevent unfair advantages.
• Statutes such as the Sale of Goods Act and the Unfair Contract Terms Act help protect against exploitation.

Void and Voidable Contracts

Definitions:

• Void Contracts: Legally never existed; neither party is bound.
• Voidable Contracts: Valid until one party opts to void it, usually due to factors like lack of capacity, duress, or misrepresentation.

Key Points:

• Contracts are void if they are illegal or against public policy.
• Misrepresentation can make a contract voidable, allowing an innocent party to set it aside.

Offer and Acceptance

What Constitutes an Offer?

• A clear, definite promise to be bound on specific terms, distinguishing offers from invitations to treat (e.g., advertisements).
• Carlill v Carbolic Smoke Ball Co (1893): A classic case demonstrating that offers can be made to the world at large.

Termination of an Offer:

• Can be terminated by rejection, counter-offer, lapse of time, or revocation.
• Hyde v Wrench (1840): A counter-offer voids the original offer.

Acceptance:

• Must be an unqualified agreement to the terms of the offer, and silence cannot constitute acceptance (Felthouse v Bindley (1862)).
• The postal rule states acceptance is effective when posted, not received.

Intention to Create Legal Relations

Social vs. Commercial Agreements:

• Social and domestic agreements are presumed not to be legally binding.
• Commercial agreements typically presume intent unless explicitly stated otherwise (Edwards v Skyways Ltd (1964)).

Key Case:

• RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH (2010): Demonstrated that conduct could indicate legal intent even without a signed contract.

Consideration

Definition: Something of value exchanged between parties. Consideration can be:

• Executed: An act performed in return for a promise.
• Executory: A promise made in exchange for another promise.
• Invalid Consideration: Past consideration (e.g., work completed before the promise).

Exceptions:

• Contracts made by deed do not require consideration.

Key Case:

• Williams v Roffey Bros & Nicholls (1990): Highlighted that additional payments for timely performance could be valid consideration.

Privity of Contract

General Rule:

• Only parties to a contract can enforce or be bound by its terms.

Exceptions:

• Contracts (Rights of Third Parties) Act 1999: Allows a third party to enforce a contract if explicitly stated or if the term benefits them.

Next Steps

Understanding the elements of contract law, including the rules around validity, offer and acceptance, and consideration, is vital for how to pass the ACA Law Certificate Level paper. To further enhance your preparation, explore comprehensive study materials and expert insights through our subscription plan. Equip yourself with the knowledge and confidence to succeed in your ACA exams.