ACCA F4 - Corp and Business Law (ENG)

Part B The law of obligations  3: Formation of contract I 39

The standard form contract is a document prepared by many large organisations setting out the terms on

which they contract with their customers. The individual must usually take it or leave it. For example, a

customer has to accept their supply of electricity on the electricity board's terms – they are not likely to

succeed in negotiating special terms, unless they represent a large consumer such as a factory.

2.3 Consumer protection

The development of a mass market for complex goods in the last century meant that the consumer can no

longer rely on their own judgement when buying sophisticated goods or services. Consumer interests are

now served by two main areas.

(a) Consumer protection agencies, which include government departments (the Office of Fair Trading)

and independent bodies (the Consumers' Association).

(b) Legislation.

Public policy sometimes requires that the freedom of contract should be modified. For example, the

Consumer Credit Act 1974 and the Unfair Contract Terms Act 1977 both regulate the extent to which

contracts can contain certain terms.

2.4 The electronic contract

English law has been concerned with formulating the rules for oral and written contracts for centuries, and

cases decided in the 1800s continue to be valid today. As you will see, there are a number of important

rules which deal with the timing of the sending and receipt of letters by post. With the advent of telex and

fax machines, the law has had to be applied to new situations. Now the development of the internet for

commercial purposes has brought new challenges as new ways of doing business come into being.

3 The essentials of a contract

The three essential elements of a contract are offer and acceptance, consideration and intention to

enter into legal relations.

The courts will usually look for evidence of three essential elements in any contract.

 There must be an agreement usually made by offer and acceptance.

 There must be a bargain by which the obligations assumed by one party are supported by

consideration (value) given by the other.

 The parties must have an intention to create legal relations between themselves.

3.1 Validity factors

Even if these essential elements can be shown, a contract may not necessarily be valid or may only be

partially valid. The validity of a contract may also be affected by any of the following factors.

(a) Capacity. Some persons have restricted capacity to enter into contracts.

Minors cannot enter into contracts for goods other than necessities, nor do they have the

capacity to contract for loans.

Those who lack mental capacity or who were intoxicated can avoid contracts if they can

show they did not understand the nature of their actions and the other party ought to have

known about their disability. They still must pay a reasonable price for the goods received.

(b) Form. Some contracts must be made in a particular form.

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