The Objective Theory of Contracts

Abstract

The objective theory of contracts is the dominant approach for determining whether there has been mutual assent to the formation of a contract. Under objective theory, a party’s manifestation of assent will be held to mean what a reasonable person in the position of the other party would conclude that the manifestation meant. The objective theory is a sound approach for determining assent because: it reflects the pragmatic reality that the law must be largely based on externals rather than the whim of subjective perception, it protects the basis for economic exchanges in our commercial system by enforcing the expectations caused by reliance on external manifestations, and it preserves the hallmark principles of freedom of contract and personal autonomy. Notwithstanding the superiority of the objective approach, at least three doctrines concerning contract formation remain contrary to objective theory. These doctrines are the rule that death of the offeror terminates the offer, the rule that an acceptance is effective upon dispatch in the mail (the “mailbox rule”), and the rule that consumer assent to terms in standard form contracts is effective when unread even in the face of the merchant’s knowledge that the consumer would object to one or more of the terms. The rationales for these rules, to the extent they ever held currency, have dissipated. Therefore, these rules should be discarded, or at least modified, so as to conform to objective theory. This harmonization will have the ultimate effect of serving the underlying policy goals of objective theory, and of the consensual act of contracting, including freedom of contract and furthering the personal autonomy of those who propose to enter into contracts.