Objective theory of contract

Objective theory of contract
See also
Mutual assent Executory consideration Executed consideration Inchoate instrument Binding contract Mutual agreement Vitiating factor Contractual relationship Material misrepresentation

Objective theory of contract - the offer-acceptance method of reaching an agreement, the difference between bilateral and unilateral contracts, and how to distinguish the meaning of the agreement

In determining whether a contract has been completed, the element of intention is of principal importance. In contract law, the intention is determined by the objective theory of contracts, not by the individual or subjective intent, or belief, of a party. The theory is that a party's intention to enter into a legally binding agreement or contract is judged by outward, objective realities as interpreted by a reasonable person, rather than by the party's own secret, subjective intentions .

Exception for Objective theory

The revocation by death rule, when it is implemented to an offeror's death that is unknown to the offeree, is a pointed exception to the universal objective theory of contracts - under the objective theory, a manifestation of assent is effective without regard to actual mental assent, so the offeror's hidden death should not terminate his agreement .

Definition of a Contract

'Contract - a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty. In other words, a contract is a legally binding agreement between two or more parties who agree to perform or to refrain from performing some performance now or in the future. Commonly, agreement conflicts appear when there is a promise of future performance. If the contractual obligation is not fulfilled, the party who made it is subordinate to the sanctions of a court. That party may be obligated to pay damages for failing to perform the contractual promise; in limited instances, the party may be required to perform the promised action .

Formation of a contract requires two basic elements :

• the mutual assent of the parties
• enforceability

Requirements of a Valid Contract

If any of the elements, which are listed below, are lacking, no contract will have been formed :

• agreement
• consideration
• contractual capacity
• legality

Examples of Objective theory of contract

• Bilateral Contract: A bilateral contract is an agreement between two parties, in which each party makes a promise to the other. For example, a contract between two businesses to exchange services or goods for payment is a bilateral contract.
• Unilateral Contract: A unilateral contract is a contract where only one party makes a promise to the other. For example, an insurance policy is a unilateral contract in which the insurer promises to pay the insured if certain conditions are met.
• Offer and Acceptance: Offer and acceptance is a method of reaching an agreement between two parties. The offeror makes an offer to the offeree, and if the offeree accepts the offer, the contract is formed. For example, if a company offers to sell a product to a customer at a certain price and the customer accepts, a contract is formed.
• Distinguishing the Meaning of an Agreement: Parties to an agreement must understand the meaning of their agreement in order to be bound by it. For example, if a contract is written in a language that neither party understands, the parties cannot be bound by the contract unless they take steps to understand the meaning of the agreement.

Advantages of Objective theory of contract

The objective theory of contract is a method of reaching an agreement through offer and acceptance. It is a theory of contract law which states that the intention of the parties should be determined objectively, rather than subjectively. It is widely used to settle disputes arising from contract law. The following are some of the advantages of this theory:

• It is less complex than the subjective theory of contract, as it does not require an examination of the parties’ intentions.
• It offers clarity and certainty to a contract, since it is based on the offer and acceptance of a contract.
• It allows for the distinction between bilateral and unilateral contracts, which is important for determining the rights and obligations of the parties.
• It helps to determine the meaning of the contract, since it is based on the words used in the agreement.
• It prevents courts from making subjective judgments regarding the parties’ intentions, which can lead to unfair outcomes.

Limitations of Objective theory of contract

The objective theory of contract is a method of reaching an agreement through an offer and acceptance process. However, there are some limitations to this approach. These include:

• The objective theory does not consider the intentions of the parties when reaching the agreement, which means that the courts may interpret the agreement differently than the parties originally intended.
• Because the subjective intent of the parties is not taken into consideration, the objective theory does not provide any protection for parties in the event of a dispute.
• The objective theory is limited in its ability to distinguish between bilateral and unilateral contracts, since it does not take into consideration the intention of the parties when forming the agreement.
• The objective theory does not take into account any ambiguity in the language of the agreement, which can lead to confusion and dispute.
• The objective theory is limited in its ability to determine the meaning of an agreement, since it does not consider other factors, such as the context in which the agreement was formed.

Other approaches related to Objective theory of contract

Objective theory of contract is associated with the offer-acceptance method of reaching an agreement, the difference between bilateral and unilateral contracts, and how to distinguish the meaning of the agreement. Other approaches related to this theory include:

• The Mirror Image Rule: This rule states that an acceptance of an offer must be an exact mirror image of the offer that was originally made. If the two do not match, then the acceptance is not valid.
• The Battle of the Forms: This rule is used when two parties disagree on the terms of the contract. The court will attempt to determine which of the two forms should be accepted, and the contract will be formed around that form.
• The UCC Section 2-207: This section of the Uniform Commercial Code states that an acceptance is valid even if it contains different or additional terms than the offer. The court will determine which terms are binding, depending on the circumstances.
• The Mailbox Rule: This rule states that an acceptance is legally binding when it is placed in the mail, even if the offeror does not receive it.

In summary, the Objective Theory of Contract is associated with the offer-acceptance method of reaching an agreement and the difference between bilateral and unilateral contracts. Other approaches related to this theory include the Mirror Image Rule, the Battle of the Forms, the UCC Section 2-207, and the Mailbox Rule.

References

• Barnett R. E. (2010), The Oxford Introductions to U.S. Law: Contracts Oxford University Press
• Cross F., Miller R. (2008), The Legal Environment of Business: Text and Cases -- Ethical, Regulatory, Global, and E-Commerce Issues Cengage Learning
• Emanuel S. (2006), Contracts Aspen Publishers Online
• Hevia M. (2012), Reasonableness and Responsibility: A Theory of Contract Law Springer Science & Business Media
• McKeag E. C. (2003), Mistake in Contract: A Study in Comparative Jurisprudence The Lawbook Exchange

Footnotes

Author: Klaudia Wojtas