Definition and Contract Basic Principles
A contract is created at law when there is a mutual exchange of promises upon
reasonably understandable terms and conditions. A contract does not have to be reduced to
writing in order to be enforceable; however, for the purposes of this manual, the term contract is
intended to mean a written form of communication. Please remember that many types of
documents can constitute a contract, including invoices, memoranda, and letters.
For a more detailed discussion of the legal principles of contracting, please see Contracting Basics below.
Note: Only certain ASU administrators have authority delegated from the President to sign
specified ASU contracts pursuant to the ASU Contract Signature Authority Policy (PUR 202), or as otherwise authorized in writing by the President. Please refer to the policy whenever you have a question about signature authority.
- The Elements of a Contract
- Offer: a promise to do or forbear from doing something within a certain time period.
- Acceptance: an acceptance of an offer through either a promise or performance.
- Consideration: there must be a legal and adequate inducement given in exchange for the promise to do something that one is not legally required to do or to forbear from doing something that one is legally allowed to do.
- Form of the Contract: the contract must be in a form as may be required by law--e.g., Statute of Frauds--certain contracts must be in writing; (e.g., a contract to sell goods with a value over $500 (unless there was partial performance); an agreement in excess of one year, sale of real property, a commitment to loan money in excess of $250,000 and not made in connection with personal, family or household purposes. (See A.R.S. Section 44-101).
- Capacity to Contract: the parties to a contract must have the legal capacity and competency to contract. In addition, a representative of a corporation, partnership or organization must have the authority to bind the corporation, partnership or organization. (See PUR 201-02 and PUR 202).
- Legality of the Contract Matter: the subject of the contract must be legally permissible and not against public policy.
- Barriers to Formation of a Contract
- Mutual mistake or ambiguity with respect to material terms.
- Revocation or expiration of offer.
- Lapse of time.
- Death or incapacity of offeror.
- Lack of formality, e.g., letters of credit and other negotiable instruments must contain certain matters.
- Enforcement of the Contract
- Is the contract valid, void, voidable or unenforceable?
- A valid contract has the elements listed in I. above and is legally enforceable.
- A contract that is void is not legally enforceable and the parties thereto are not legally obligated to each other. Generally, contracts are void because the subject matter is not legal or one of the contracting parties does not have the competency to contract. For example, a contract to commit a crime is void and cannot be enforced.
- A contract that is voidable is otherwise a valid contract but the obligations can be avoided for certain reasons permitted by law (e.g., duress, lack of capacity). The party with the capacity to void the contract can choose to ratify the contract and perform the obligations thereunder. For example, a party can argue that the other party coerced it to enter into a contract for delivery of certain services at a very low rate; that it did so under duress. In this case the coerced party can argue that the contract is voidable. Unlike a void contract which cannot be enforced, the coerced party can choose to perform an otherwise voidable contract.
- An unenforceable contract is generally a valid contract but is not enforced because of public policy or law.
- Breach of Contract Terms: failure to perform either fully or adequately the obligations provided in the contract.
- Remedies for Breach: the nonbreaching and performing party may be provided relief for the breaching party's failure to perform its obligations.
- Damages: are generally designed to compensate the nonbreaching party for the benefit of its bargain. Damages may be compensatory, consequential, punitive or nominal. The nonbreaching party generally has an obligation to mitigate its damages. Liquidated damages are allowed so long as they are not designed as penalties. Liquidated damages must be agreed to at the time of contract, must be a reasonable estimate of damages and the damages must have been considered at the time of contracting as being difficult to estimate in case of breach.
- Specific Performance: the nonbreaching party may seek an order to force the breaching party to perform in accordance with contract terms. This remedy is generally granted only if money damages are inadequate as a remedy (e.g., sale of land).
- Rescission and Restitution: the remedy of canceling a contract and making restitution to the parties.
- Reformation: this is an equitable remedy that allows the parties to rewrite or reform the contract as originally created in order to reflect what they intended.
- The nonbreaching party may waive its right to enforce a remedy. Generally contracts provide that waiver of one event of default does not mean waiver of any future defaults.
- If permitted by law, the contracting parties can limit the type and amount of remedies provided to the nonbreaching party.
- Other Sources of Authority for Formation and Enforcement of a Contract
- The Uniform Commercial Code governs transactions related to among other things, secured transactions, sales, and negotiable instruments.
- State and Federal Law
- Contracting with The State and State Universities
- All procurement by departments, agencies, boards and commissions of the State of Arizona must be conducted in accordance with the procurement procedures described in Title 41, Chapter 23 of the Arizona Revised Statutes (A.R.S. Sections 41-2501 through 41-2673)("the State Procurement Code"). The Arizona Board of Regents and the Universities are exempted from the State Procurement Code. See A.R.S. Section 41-2501(E). The exemption, however, is specifically conditioned on the requirement that the Arizona Board of Regents and the Universities adopt procurement policies and procedures that are "substantially equivalent" to those set out in the State Procurement Code. The Arizona Board of Regents has adopted such policies and procedures which can be found at Arizona Board of Regents Policy Number 3-801 et seq. Accordingly, the Universities conduct their procurements in accordance with Arizona Board of Regents Policy Number 3-801 et seq.
- Generally, procurements of $50,000 and more must be competitively bid with different procedures for procurements between $25,000 and less than $50,000. Exceptions are made for sole source and emergency procurements. In addition, State agencies subject to A.R.S. Section 41-2501 may procure services and materials not in excess of $50,000 according to rules promulgated by the Arizona Director of the Department of Administration. (See A.R.S. Section 41-2535.)
- Contracts generally cannot be in excess of 5 years.
- State of Arizona Provisions: Certain contractual provisions are mandated by the State Constitution and/or state statutes and are generally not negotiable. These provisions are incorporated into contracts entered into with Arizona State University.
Clarkson, Miller, Jentz & Cross, West's Business Law, 4th Edition.
Arizona Board of Regents Policy Number 3-801 et seq.
Arizona Revised Statutes Section 41-2501 et seq.
Some of the legal material found at this site has been abridged from laws, regulations, court decisions, administrative rulings, ABOR and ASU policies and other sources. Further details may be necessary for complete analysis and understanding in particular matters. The information contained at this site, and related links, is not a substitute for professional legal counsel. Any discrepancy between the information at this site and ASU policy is not intended to alter or amend official ASU policy or procedure.
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