Key Takeaways

  • The subjective approach in contract law focuses on the actual state of mind and intentions of the parties.
  • Courts traditionally favor the objective approach, but the subjective standard can play a role, especially where ambiguity or deception is present.
  • Legal systems like the CISG consider subjective intent more directly than common law jurisdictions.
  • The interplay between subjective and objective standards raises challenges in balancing fairness with legal certainty.
  • Recognizing subjective intent could lead to more equitable outcomes but may complicate contract enforcement.

Subjective approach contract law refers to a legal doctrine that regards a contract formed on the basis of a subjective meeting of minds as legally binding. It requires the court to consider a contracting party's state of mind when determining whether a contract is legally enforceable. If an objective approach is used, the court will look at the case from the point of view of a rational person. While many legal experts reject the subjective approach, there are some who believe it should play a more important role in contract law.

What Is the Subjective Approach to Contact Law?

The subjective approach to contract law refers to a legal theory that defines a contract as an agreement in which there is a subjective meeting of the minds between the parties involved. When using this approach, the court will look at the subjective expectations and anticipations of the parties and ignore the contract's objective language. However, some courts and commentators have rejected this theory, preferring the objective approach instead.

Understanding Intent in Contract Law

From a legal perspective, intent can be defined as an individual's state of mind when performing an act or behaving in a certain manner. It is the aim or reason of a sequence of activities that the person wishes to follow. According to contract law, a contract is only legally enforceable if the parties show an intention to be legally bound.

In addition, a party must express his or her intention through unambiguous words or actions. The other party should understand the words or actions as the former party had intended for him or her to. However, this is not always the case. Sometimes, there may be miscommunication resulting from certain factors, such as:

  • Wrong selection of words or actions.
  • Misunderstood or differently comprehended materialization of intent.
  • Intentional concealment of secrets.

Improper communication can lead to a conflict regarding the validity of a contract and its terms. There are many legal cases where parties agree to follow a course of action, but they had no intention to enter into a legally binding agreement with each other. Contract law seeks to distinguish contracts with an intention to create a legal relationship from those that do not.

Subjective and Objective Intent Under Contract Law

To determine whether parties to a contract have the intention to start a legal relationship, the court uses the test of contractual intent. Such a test is objective and not subjective in nature. It uses an objective approach to validate the contract's enforceability.

The court disregards a party's subjective intent, which is his or her actual state of mind, and focuses more on objective intent, which is the intention of a rational person under the same circumstances. It does not interfere in a person's personal mental sphere but looks at the situation from a reasonable person's point of view.

It is not necessary to have a subjective meeting of the minds to make a contract legally enforceable. The court evaluates the entire situation and attempts to find out whether it will be rational to ascribe such an intention to the parties. In the event the requirements of the contractual test of intent are not met, the court will assume the party under consideration did not have the intention to enter into a legally enforceable contract. A disparity may exist between a party's objective intent and his or her subjective intent.

Blended Approaches in Modern Jurisprudence

While courts often state a preference for the objective approach, real-world rulings frequently reflect a hybrid model. For example, ambiguity in contract terms might open the door for courts to consider subjective evidence like negotiations or internal communications.

This blended methodology helps reconcile fairness and predictability. Courts can use the objective test as a default rule, but turn to subjective indicators when fairness demands it—especially where contracts were formed under special circumstances such as fraud, duress, or mutual mistake.

Implications of the Subjective Approach

Some legal experts believe the subjective approach to contract law should be given more importance. This is because limiting the creation of contracts to objective intent alone may unduly restrict the formation of contracts. This approach, however, has its positive and negative implications.

If subjectivity of intent plays a more significant role in determining the enforceability of a contract, it will broaden the scope of contracts being created and not limit them to being formed based on objective intent only. As such, it can facilitate the creation of genuine contracts.

Nonetheless, the problem with the subjective approach to contract law is that it may require the court to consider and give unnecessary importance to data that may not be accurate or reliable. This can undermine the court's ability to deliver justice. Then again, if a party's subjective intent is backed by valid and trustworthy evidence, it can enhance the justice delivered.

Application in International and Comparative Contract Law

The subjective approach holds more sway in international contract frameworks such as the United Nations Convention on Contracts for the International Sale of Goods (CISG). Under CISG Article 8(1), the emphasis is placed on a party’s actual intent, provided the other party knew or could not have been unaware of that intent. This prioritization of subjective intent reflects a fundamental difference from the objective-centric tradition of common law systems.

In civil law countries and under international instruments, courts are more willing to inquire into what the parties actually intended, particularly in disputes involving language barriers, cross-cultural misunderstandings, or ambiguous contractual wording. This is especially important in transnational contexts where a rigid objective standard might yield unjust results.

Challenges and Limitations of the Subjective Approach

Despite its appeal in promoting fairness, the subjective approach comes with practical and evidentiary challenges:

  • Proof Issues: It is inherently difficult to prove what a party was subjectively thinking at the time of contract formation.
  • Risk of Bad Faith: Parties might later fabricate their intentions to avoid contractual obligations.
  • Judicial Uncertainty: Emphasizing subjective intent may reduce predictability and stability in contract enforcement, which are essential in commercial contexts.
  • Potential for Strategic Litigation: Opportunistic litigants might exploit subjective standards to argue against otherwise valid agreements.

These issues often lead courts to prioritize objective manifestations of intent—such as written terms and conduct—over internal mental states.

Frequently Asked Questions

  1. What is the subjective approach in contract law?
    The subjective approach considers the actual state of mind and intentions of each party when determining if a contract was formed.
  2. How does the subjective approach differ from the objective approach?
    The subjective approach focuses on internal intent, while the objective approach considers how a reasonable person would interpret the parties' actions and words.
  3. Is the subjective approach widely used in courts?
    Most courts rely on the objective approach for clarity and consistency, but they may consider subjective intent in cases involving ambiguity, fraud, or international contexts.
  4. How does the CISG treat subjective intent?
    The CISG gives greater weight to subjective intent, particularly when one party knew or should have known the other’s intentions.
  5. Why is the subjective approach controversial?
    It can be hard to prove and may lead to inconsistent rulings, but it also allows courts to better account for fairness and the real intentions of the parties.

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