Contract Theory: The Evolution of Contractual Intent

Contract Theory: The Evolution of Contractual Intent

Contract Theory: The Evolution of Contractual Intent

Contract Theory: The Evolution of Contractual Intent

Synopsis

Contract Theory examines the logical and conceptual structures that arise in the process of making, honoring, and enforcing contracts. The touchstone of Anglo-American contract law is the determination of contractual intent. Two theories have competed for center stage: the subjective theory of the "meeting of the minds" and the objective theory in which the parties' manifestations and the transaction's contextual factors became the means for contract interpretation and enforcement. The implementation of the objective theory of contract is the "reasonable person standard". Larry DiMatteo focuses on the development, construction, and application of the reasonable person standard. He undertakes a study of the origins of the reasonable person in the disciplines of philosophy, theology, and psychology and concludes with an examination of the interplay between this objective standard and the subjectivity of judgment. The importance of the synthesis of the objective and subjective elements of contracts is crucial for a complete understanding of contract law.

Excerpt

My law school training began with an indoctrination into the lore of contracts. The sacred scrolls of contract unfolded the nomenclature that has remained with me throughout my career. The metaphysical melting or meeting of the minds was proffered as the paradigm of contractual obligation. The perfection of the paradigm was soon modified by the second order discourse represented by the objective theory of contracts. Despite its displacement by the objective theory, the subjective theory continued to surface in judicial rationales. Moreover, this subjective-objective dialectic surfaced elsewhere in my legal studies. The state of mind or mens rea requirement in criminal law, the reasonable person standard in tort, the notion of apparent versus actual authority in the law of agency, and the duality of objective-subjective morality in the realm of legal ethics are but a few examples.

Elsewhere, the realm of subjectivity continued to be a forceful presence. For example, the law of satisfaction is inherently pulled toward the subjective pole of the dialectic. Despite interparty agreement on a subjective standard of satisfaction, the courts have often tried to recast the parties' expressed subjectivity into the mold of the objective reasonable person. They have done this covertly by the use of creative interpretation and judicial fictions in determining what the parties "actually" meant. They also have more overtly recognized the subjective element but have proceeded to cloak it in a subdoctrine of objectivity. A party's satisfaction can be made subjectively personal but that subjectivity is tempered by an implication of a duty of good faith or of genuine and honest dissatisfaction. The implication of good faith in the exercise of the right of dissatisfaction results in a convergence of the dialectic. The gauge of dissatisfaction is not to be achieved by analyzing how the reasonable person would have measured the performance. Instead, the gauge is the genuineness or honesty of the rejection of performance. The rejection may be objectively unreasonable as long as it is honest and genuine. This clearly engenders a study of the subjective motive or intent of the rejecting party.

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