The Origins of the Objective Theory of Contract Formation and Interpretation

Abstract

Most contracts scholars have come to believe that the Subjective Theory of contract formation and interpretation dominated the nineteenth century. This article demonstrates that the objective approach to formation and interpretation of contracts has been dominant since the origins of the common law. There was, indeed, a flirtation with the subjective approach in the mid nineteenth century. This flirtation had few practical consequences because the rules of evidence did not permit parties or other interested persons to testify and the parol evidence rule was vigorously applied. Soon after the bar of party testimony was lifted, the courts altered the rules of relevancy to create a new objective approach. The ultimate root of objectivity is the legal profession's distrust of party testimony. Oliver Wendell Holmes, Jr. is often credited with creating the modern objective theory. His role, however, was to propagate what the courts had already created. Despite the defeat of the Subjective Theory, some remnants survive, particularly in cases of duress and other grounds for avoidance of contracts.