Common Law Contract Formation

Common law jurisdictions (United States, United Kingdom, Australia, Canada, and most Commonwealth countries) share a legal tradition based on precedent and judge-made law. Contract formation under common law requires specific elements that differ from civil law systems. This primer covers common law formation requirements; universal contract principles are in Contracts Primer.

Formation Requirements

Common law contract formation requires four essential elements: offer, acceptance, consideration, and mutual intent to be bound. All four must be present for a legally enforceable contract.

Offer is an expression of willingness to contract on specified terms, made with the intention that it becomes binding upon acceptance. Offers must be definite enough that a court could determine what was promised. Advertisements, price quotes, and invitations to negotiate are generally not offers—they're invitations to make offers. The distinction matters because only offers can be accepted to form a contract. Offers can be revoked before acceptance unless consideration is given to keep the offer open (option contract).

Acceptance must be unconditional agreement to the offer's terms. Under common law's "mirror image rule," acceptance that modifies terms is a counteroffer, not acceptance. This strict requirement means any deviation from the original offer terms creates a new offer that requires acceptance from the original offeror. Acceptance must be communicated—silence generally doesn't constitute acceptance unless prior dealings establish otherwise. The mailbox rule (when applicable) makes acceptance effective upon dispatch, not receipt.

Consideration is the "quid pro quo"—something of value exchanged by each party. It distinguishes enforceable contracts from unenforceable gratuitous promises. Consideration need not be adequate (courts don't judge fairness of exchanges), but it must be sufficient (legally recognized as value). Past consideration—something already done before the promise—generally doesn't count. Nominal consideration (like "$1 and other good and valuable consideration") is generally sufficient. The key is that each party must give something or suffer some detriment.

Mutual intent to be bound requires that both parties genuinely intend to create legal obligations. Social agreements, family arrangements, and agreements "in principle" may lack this intent. Courts examine objective manifestations of intent, not subjective mental states.

Mirror Image Rule

The mirror image rule requires acceptance to match the offer exactly. Any variation creates a counteroffer that rejects the original offer. This rule applies to common law contracts but is relaxed for sales of goods under the Uniform Commercial Code (UCC). The UCC's "battle of the forms" provisions allow contracts to form despite minor term variations if conduct indicates agreement.

Statute of Frauds

The Statute of Frauds requires certain contracts to be in writing to be enforceable. Categories requiring writing vary slightly by jurisdiction but typically include:

Contracts involving land: Real estate sales, leases longer than specified periods, easements, mortgages. Part performance or unjust enrichment may make oral agreements enforceable despite the statute.

Contracts that cannot be performed within one year: Measured from contract formation. If performance is possible within one year (even if unlikely), the statute may not apply. The one-year requirement is jurisdictional and strictly interpreted.

Contracts for goods above a certain value: Under the UCC, sales of goods over $500 generally require writing. Exceptions exist for goods specially manufactured, admissions in court, or partial performance.

Contracts to answer for another's debt: Guarantees and suretyship agreements must be written. The "main purpose" exception applies when the guarantor's primary motive is to serve their own interests.

Contracts in consideration of marriage: Prenuptial agreements and marriage settlements must be written.

Certain other categories: Vary by jurisdiction—executor's promises to pay estate debts from personal funds, agreements authorizing agents to buy or sell real estate.

Uniform Commercial Code (UCC)

The UCC, adopted with variations by all US states, governs sales of goods and modifies some common law contract rules:

Sales of goods: Contracts for movable property are governed by UCC Article 2, not general contract law. The UCC applies automatically to "transactions in goods" but not to service contracts or real estate.

Battle of the forms: UCC Section 2-207 allows contracts to form despite conflicting terms in offer and acceptance if conduct indicates agreement. This differs from the common law mirror image rule.

Firm offers: Merchants can make irrevocable offers (without consideration) if written and signed. Lasts for stated period or reasonable time, not exceeding three months.

Warranties: UCC creates implied warranties (merchantability, fitness for particular purpose) that may exist even when not explicitly stated.

Statute of limitations: Four years from breach for sales of goods, regardless of discovery. Can be reduced by agreement but not below one year.

US State Law Variations

Within the United States, state law governs most contracts, and states differ meaningfully:

Delaware: Favored choice for sophisticated commercial contracts due to well-developed commercial law and predictable courts. Delaware General Corporation Law and Court of Chancery make it the standard for corporate governance disputes.

New York: Common choice for commercial contracts, particularly in finance and international trade. New York courts are respected and experienced with complex commercial disputes. New York law is often chosen even when neither party has New York connections.

California: Strong consumer protection laws that can't be waived, including the Consumers Legal Remedies Act. Non-compete agreements are generally unenforceable except in specific circumstances (sale of business, dissolution of partnerships). This makes California a less common choice for B2B contracts involving restrictive covenants.

Other states: Variations exist in interest rate limits, statute of limitations periods, unconscionability standards, and specific contract types (insurance, real estate, employment).

Choice of Law and Forum Selection

Contracts governed by common law can specify which state's or country's law applies and where disputes will be heard. These provisions are generally enforceable but must be reasonable. Courts may refuse enforcement if the chosen forum would be seriously inconvenient or if the chosen law violates fundamental public policy of the forum state.

Common Law Interpretation

Common law courts interpret contracts using several principles:

Plain meaning: Clear language is enforced as written. Courts don't rewrite contracts.

Course of dealing and trade usage: Prior dealings between parties and industry custom can supplement or explain contract terms.

Contra proferentem: Ambiguous terms are construed against the drafter.

Parol evidence rule: Prior oral or written agreements are generally inadmissible to contradict a written integrated contract, though exceptions exist (fraud, mistake, conditions precedent).

Reasonable person standard: Terms are interpreted as a reasonable person in the parties' position would understand them.