The Objective Test and Basic Principles of Offer and Acceptance
§4.1INTERPRETATION AND THE OBJECTIVE TEST
For a contract to be formed, the parties must intend to enter a contractual relationship, and the terms of the contract are those on which they have mutually agreed. This sounds simple and straightforward, but it is complicated by the fact that the parties must communicate their intentions to each other, and this communication could be poorly expressed or incorrectly understood. Where a dispute arises between the parties over whether they entered a contract at all, or over the terms that they agreed to, their communications must be interpreted to resolve this dispute. Interpretation of the parties’ words and actions is therefore a pervasive theme in the area of contract formation, as it is throughout contract law. One of the fundamental principles of modern contract law is that where a court seeks to ascertain the intent of the parties, it does not focus on what each party may have thought or believed he was agreeing to (that is, his subjective intent) but on the reasonable perception of that intent, as conveyed by his words or actions (his objective intent).