Understanding Contracts: Formation, Performance, and Breach
This module delves into the fundamental aspects of contract law, crucial for the REG section of the CPA exam. We will explore how contracts are formed, the obligations involved in their performance, and the consequences of breaching these agreements.
Contract Formation: The Building Blocks
For a contract to be legally binding, several essential elements must be present. These elements ensure that both parties genuinely intend to enter into an agreement and understand their commitments.
Offer, Acceptance, Consideration, and Mutual Assent.
Contract Performance: Fulfilling Obligations
Once a contract is formed, parties are obligated to perform their agreed-upon duties. Performance can be complete, substantial, or excused under certain circumstances.
Breach of Contract: When Promises Are Broken
A breach of contract occurs when one party fails to perform their obligations without a valid legal excuse. The type and severity of the breach determine the available remedies.
| Type of Breach | Impact on Non-Breaching Party's Performance | Available Remedies |
|---|---|---|
| Minor Breach | Must still perform, but can sue for damages. | Compensatory damages for the loss caused by the minor breach. |
| Material Breach | Discharged from performance; can sue for damages or rescission. | Compensatory damages, consequential damages, or rescission. |
| Anticipatory Breach | Can treat as immediate material breach; sue for damages. | Same as material breach. |
For CPA exam purposes, always distinguish between minor and material breaches, as this distinction dictates the non-breaching party's rights and remedies.
Key Concepts for CPA REG
Understanding the nuances of contract law is vital for the REG section. Focus on identifying the elements of formation, distinguishing between types of performance, and recognizing the implications of different types of breaches and their associated remedies.
Learning Resources
Provides a concise legal definition and explanation of offer and acceptance from the Legal Information Institute at Cornell Law School.
Explains the legal concept of consideration, a crucial element for contract formation, from Cornell's Legal Information Institute.
A comprehensive overview of what constitutes a breach of contract and its general implications from Cornell's Legal Information Institute.
Details the various legal remedies available to a party when a contract is breached, including damages and equitable remedies.
Official information from the AICPA regarding the Regulation (REG) section of the CPA exam, which includes contract law topics.
A YouTube video explaining the core concepts of contract formation, breach, and remedies in an accessible manner.
An article from UpCounsel that breaks down the concept of a material breach and its legal consequences.
Nolo's legal encyclopedia provides a clear and practical introduction to contract law principles.
Explains the mailbox rule, a key concept in contract acceptance, from Cornell's Legal Information Institute.
Defines and explains the equitable remedy of specific performance in contract law from Cornell's Legal Information Institute.