objective theory of contracts

Objective theory of contracts

A contract is formed based on the outward actions and expressions of the parties, rather than their internal intentions.

Reasonable person standard

The standard used to determine how a reasonable person would understand the parties' words and conduct in a contract.

Observable conduct

The focus on what the parties said and did, rather than their secret thoughts or beliefs, to interpret a contract.

Contract formation requirements

Courts look for objective evidence of an offer, acceptance, and consideration to determine if a contract was formed.

Objective meaning

The understanding aligned with observable actions and words in a disagreement over subjective intent in a contract.

Subjective theory

An older theory that focused on the 'meeting of the minds' of the parties, requiring exact same subjective intent for contract validity.

Fairness and predictability

The objective theory promotes these aspects by focusing on observable behavior in interpreting agreements.

Example of enforcement

A contract is enforced based on the objective theory if a reasonable person would understand that the parties agreed, regardless of the individuals' actual beliefs.