注册会计师accaCHAPTER 1文档格式.docx

注册会计师accaCHAPTER 1文档格式.docx

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IAS-InternationalAccountingSchoolwww.IAS

■Hi

Learningobjectives

•

Defineacontract

•Identifytheessentialelementsofacontract

•Beawareoffactorswhichmightaffectthevalidityofacontractandtheirconsequences

•Understandandapplytherulesrelatingtooffer,acceptanceandtheintentiontocreatelegalrelations

•Understandandapplytherulesrelatingtoconsideration

•Understandthatcontracttermsmaybeexpressorimpliedintothecontract.

Thespecificsyllabusreferenceforthischapteris1a.

Syllabuslinks

Asseenabove,theissueofcontractformationcouldberelevantinmanydifferentareasofthesyllabus,forexampleaccountingandauditing,employment,businessandfinancialmanagement.

Contractsarealsoimportantinassurance;

forinstance,akeycontractistheengagementletterbetweentheclientandtheassuranceprovider.

Examinationcontext

Contractisanimportantpartofthesyllabus.Typicallysevenoutoffiftyquestionsrelatetocontractlaw.Understandingthebasicpreceptsrelatingtocontractisvital.

Youarelikelytobepresentedwithscenariosandmayhavetoconcludewhetheravalidcontracthasbeenformed.Manycasesarereferredtointhisandlaterchapters.Theywillnotbeexamineddirectly,butillustratepointsoflawthatcouldbe.

Intheassessment,candidatesmayberequiredto:

•Recognisewhenalegallybindingcontractexistsbetweentwoparties

•Understandhowacontractmaybeenforced

Law

IAS-InternationalAccountingSchool1Thevalidityofacontract

Sectionoverview

•Avalidcontractisalegallybindingagreement,betweentwoparties,whichagreementmaybeevidencedbywriting,wordsoraction.

•Threeessentialelementsmustbepresent,namely

-Agreement

-Anintentiontocreatelegalrelations

-Consideration.

Itisalmostinvariablythecasethatthetwopartiestoacontractbringwiththemdifferinglevelsofbargainingpower.Acontractmaybemadebetweenalargeretailcompanyandanindividualforexample.Insuchcases,theagreementislikelytobeintheformofastandardformcontract,preparedbythedominantpartyandwhichtheotherpartyhasnochoicebuttotakeorleave.

Generallyspeakingthelawwillnotwishtorestrictorinterferewiththeabilityofcontractualpartiestodecidewhetherornottoenterintoacontractand,ifso,uponwhatterms（'

freedomofcontract'

）.However,itwilloftenintervenewhereonepartyseeksanunfairadvantageasaresultofhissuperiorbargainingposition.

Suchinterventionwillbemadebythecourtsorbylegislation.Thus,forexample,theSaleofGoodsActimpliestermsintoacontractwhichimposeobligationsonthebusinesssellerastothequalityandfitnessforpurposeofthegoodshesells.LikewisetheConsumerCreditActaffordstheconsumerprotectionwhereheentersintocreditagreements.Inrespectofexclusionclauses,inwhichtypicallythestrongerpartyseekstoavoidliability,theUnfairContractTermsAct（discussedinChapter2）mayresultinsuchaclausebeingvoidoutrightorvoidifthecourtconsidersittobeunreasonable.

YoushouldbeawarethattheEuropeanCommissionputforwardadraftregulationforanewCommonEuropeanSalesLaw（CESL）in2011.Thiswasintendedtobeimplementedattheendof2012,butcontinuingoppositionfromtheUKgovernmentandothersmeansthatitnowseemsunlikelytobecomelawinthenearfuture.TheCESLaimstopromotetradebetweenmemberstates,bycreatingaharmonisedcontractlawwhichisdesignedtoapplytocross-bordercontractsforthesaleofgoods,digitalcontentandrelatedservices.Itwillapplyonlywherethepartieschoosetoadoptit.

Inordertobevalid,threeessentialelementsofacontractmustbeshowntobepresent.Thesearedealtwithindetailinsections2-4below.Sufficeittosayherethatthoseelementsare

•Agreementbetweentheparties

•Anintentiontocreatelegalrelations

•Consideration

1.1Voidandvoidablecontracts

Eveniftheseessentialelementscanbeshown,acontractmaynonethelessberenderedvoidorvoidablebyoneormoreofthefollowingvitiatingfactors:

LackofcapacityAnindividualmustbeofsoundmindandVoidableattheoptionoftheagedeighteenoroverpersonwithoutcapacity

AbsenceoffreewillApartyshouldnotbemadetoenterintoaVoidablecontractotherthanbyhisownfreewill,ienotbyduressorundueinfluence

IllegalityAcontractshouldnotbeillegaloroffendVoid'

publicpolicy

£

•

MistakeYoushouldbeawarethatifoneorboth

partiesallegesthattheyweremistakeninsomeway,thismayaffectthevalidityofthecontract.However,thelawisascomplexasthefactsofeachcasearevariedandyoudonotneedtoknowthelawforthepurposesofyourstudies.

MisrepresentationIfAmakesapre-contractualstatementofVoidablefactthatisintendedtoanddoescauseBtoenterintothecontractbutturnsouttobe

untrue（misrepresentation）theotherpartymaychoosetoavoidthecontract

Theconsequencesofacontractbeingrenderedvoidorvoidableareasfollows:

Void

Avoidcontractisnotacontractatall.Thepartiesarenotboundbyitandiftheytransferpropertyunderittheycangenerallyrecovertheirgoodsevenfromathirdparty.

Voidable

Avoidablecontractisacontractwhichonepartymaysetaside.Propertytransferredbeforeavoidanceisusuallyirrecoverablefromathirdparty.

1.2Unenforceablecontracts

Evenifacontractsatisfiestheaboverequirementsandisvalid,itmaystillbeunenforceable.Thismeansthatifeitherpartyfailstoperformhispartofthecontract,theotherpartycannotcompelhimtodoso.

Acontractwillbeunenforceablewhereitisnotinthecorrectform.Generallyspeakingacontractmaybemadeorallyorinwritingandanoralagreementwillbejustasbindingasawrittencontract.

Howeverincertaincasesthelawprovidesthatanoralcontractwillnotbesufficient,forexampleagreementsforthetransferoflandandconsumercreditagreements（thatareregulatedbytheConsumerCreditAct1974（asamendedbytheConsumerCreditAct2006））mustbeinwriting.Notethat,increasingly,contractsaremadeelectronicallyandanelectronicsignaturecanbeusedasevidenceofthevalidityofacontractinthesamewayasawrittensignature（s.7ElectronicCommunicationsAct2000）.

Anotherexamplewithwhichyoushouldbefamiliarisaguarantee.Thisiswhereaguarantorpromisestopayacreditorthesumofthedebtor'

sdebts,intheeventthatthedebtorfailstopaythemhimself.Theagreementitselfneednotbeinwritingbutthetermsmustbeevidencedinwritingbeforeanyactionisbrought.Thewrittenevidenceshouldbesigned（oracknowledgedinsomeway）bytheguarantor.

GoldenOceanGroupLtdvSalgaocarMiningIndustriesPVT2011

Thefacts:

BrokersforGoldenOceanandSMIexchangedanumberofemailsinwhichthetermsofacharterpartybySMI'

sSingaporeancharteringarm,Trustworth,werenegotiated,buttheywereneverformalisedintoawrittenagreement.Emailsearlyintheexchangehadstatedthatthecharterwouldbe'

fullyguaranteed'

bySMI.WhenTrustworthrefusedtotakedelivery,GoldenOceansuedSMIontheguarantee.

Thedecision:

TheCourtofAppealrecognisedthatcontractsareoftennegotiatedinformallybyemail（particularlyintheshippingindustry）andheldthatasingledocumentwasnotnecessary.Norwasitmaterialthatnodocumentshadbeensignedinthetraditionalway.ThetypednameofthebrokerforSMIinthefinalemailhadclearlysignifiedhisagreementtoallnegotiatedtermsandconstitutedavalidsignature.

■Interactivequestion1:

Essentialsofavalidcontract[Difficultylevel:

Easy]

Whatwillbetheconsequencesofthefollowinginrelationtoapurportedcontractbetweentwoparlies?

A

Thereisclearagreementbetweenthepartiesonalltermsandtheyintendtocreatealegallybindingagreementbutthereisnoconsideration.

□

B

Oneofthepartiesisaged17

C

ThecontractisanagreementtodefraudHMRevenue&

Customs.

D

ThecontractismadeorallyandprovidesforGrahamtopayHarrythedebtowedtoHarrybyImran.

SeeAnswerattheendofthischapter.

•Asnotedabove,thefirstessentialelementintheformationofavalidandbindingcontractisagreement.Thisisusuallyanalysedandunderstoodintermsof'

offer'

and'

acceptance'

.

•Itisamatterofinterpretationwhethersomethingamountstoanoffer.

•Thereareanumberofruleswhichdeterminewhetheranofferhasbeenvalidlyaccepted.

2.1Whatconstitutesanoffer?

Anofferisadefinitepromisetobeboundonspecificterms.Itismadebyanofferor.

Itisamatterofinterpretationastowhethersomethingissufficientlydefinitetocompriseanoffercapableofacceptance.Astatementthatisvagueandthatcannotberenderedcertainbyreferencetopreviousdealingsorcustomcannotbeanoffer.Onlyanofferinthepropersensemaybeacceptedsoastoformabindingcontract.Astatementwhichsetsoutpossibletermsofacontractisnotanofferunlessthisisclearlyindicated,althoughif,inthecourseofnegotiationsforasale,thevendorstatesthepriceatwhichhewillsell,thatstatementmaybeanofferwhichcanbeaccepted.

Anoffermustbesomethingmorethanasupplyofinformationorastatemento