The difference between the “objective” and “subjective” theories of contract law.
Subjective and objective theories of contract law are different in that to determine the intent of a party, subjective theory seeks to consider what a party may have internally (or subjectively) thought or believed. [1] On the other hand, the subjective theory relies on the interpretation of words and actions of a party to determine intent. [2]
Keeping in mind that “mutual assent is the basis of a contract,” we can see that the outcome of attempts to resolve disagreements are likely to differ depending on which theory is used. [3] For instance, to determine if the mutual assent of each party existed during the formation of a contract, subjective theory would apply a real meeting of the minds test where the “subjective intent” of each party pertaining to contract formation must be the same. Yet, the very existence of a dispute where one party is claiming a contract did not exist is prima facie evidence that a real meeting of the minds did not exist. As a result, under subjective theory, a contract could not have existed. [4].
Conversely, using the objective theory an objective test is employed to determine intent. [5] Meaning that to resolve the issue of whether mutual assent existed, the court will look at the words and actions of the parties. For instance, if the contract stated that Bob would buy Ella the cow from Jim for ten dollars (cash on delivery), even if Jim claimed a contract did not exist, Jim’s act of delivering the cow to Bob, under objective theory, would be determined to be an act that supports the existence of a contract. [6] While objective theory is the accepted theory in contract law, courts understand that there are times when allowing subjective evidence, such as a party’s state of mind is beneficial helping to determine the intent of a party’s words and actions. [7]
[1] Brian A. Blum, Examples & Explanations: Contracts 59 (6 ed. 2013).
[2] Id.
[3] Id. at 60.
[4] Id. at 61.
[5] Id.
[6] Id.
[7] Id.