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University of Dayton School of Law
Hallinan, Charles G.

A.      Mutual Assent: For a contract to be formed, the parties must reach “mutual assent.” That is, they must both intend to contract, and they must agree on at least the main terms of their deal.
1.       Not subjective agreement: This requirement of “mutual assent” does not mean that the parties have subjectively (in their minds) been in agreement. Rather, it means that each party must act in such a way as to lead the other to reasonably believe that an agreement has been reached. The doctrine that only the parties’ acts, and not their subjective thoughts, are relevant in determining whether there has been mutual assent stems from the objective theory of contracts.
2.       Agreement required only as to major terms: The requirement of mutual assent does not mean that the parties must agree (even by the objective standard) on all the terms of the contract. Instead, they must agree on the “major” or “essential” terms. If they disagree on minor terms, or if they simply have not provided for such minor terms, the court may conclude that one party’s understanding controls, or may supply the missing terms. But the parties must, despite the minor gaps or minor disagreements, intend to have a contract.
B.       Objective theory of contracts: Contract law follows the objective theory of contracts. That is, a party’s intent is deemed to be what a reasonable person in the position of the other party would think that the first party’s objective manifestation of intent meant. For instance, in deciding whether A intended to make an offer to B, the issue is whether A’sconduct reasonably indicated to one in B’s position that A was making an offer.
Example: A says to B, “I’ll sell you my house for $1,000.” If one in B’s position would reasonably have believed that A was serious, A will be held to have made an enforceable offer, even if subjectively A was only joking.
1.       Secret Intent: A parties secret intentions are irrelevant in determining whether a contract exists and what its terms are.
2.       Other uses for objective theory: The objective theory of contracts will be used not only to determine whether the mutual assent necessary to form a contract has occurred, but also to determine the meaning of particular terms of the contract.
Example: A and B sign a complex agreement for a sale of goods by B to A. The contract makes no mention whether B is to insure the shipment. B has always done so in past deals with A, but this time he subjectively intends not to insure the goods because insurance prices have gone up. He says to A, however, “this deal’s just like the ones we’ve done before.” A court would probably hold that A reasonably expected B to insure the shipment as he has always done, and B will be placed under a contractual obligation to do so, despite his subjective intent to the contrary.
C.      Legal enforceability: The parties’ intention regarding whether a contract is to be legally enforceable will normally be effective. Thus if both parties intend and desire that their “agreement” not be legally enforceable, it will not be. Conversely, if both desire that it be legally enforceable, it will be even if the parties mistakenly believe that it is not.
Empro Mfg. Co. v. Ball-Co Mfg., Inc.
If intent were wholly subjective there would be no parol evidence rule, no contract case could be decided without a jury trial, and no one could know the effect of a commercial transaction until years after the documents were inked. That would be a devastating blow to business. Contract law gives effect to the parties’ wishes, but they must express these openly. Put differently, “intent” in contract law is objective rather than subjective. As a matter of law parties who make their pact “subject to” a later definitive agreement manifest an objective intent not to be bound, which under the parol evidence rule becomes the definitive intent even if one party later says that the true intent was different. Intent must be determined solely

made in jest is not a valid offer. Thus even if it is “accepted,” no contract is created. [16] B. Preliminary negotiations: If a party who desires to contract solicits bids, this solicitation is not an offer, and cannot be accepted. Instead, it merely serves as a basis for preliminary negotiations. [16] Example: A says, “I would like to sell my house for at least $100,000.” This is almost certainly a solicitation of bids, rather than an offer, so B cannot “accept” by saying, “Here’s my check for $100,000.”
C. Advertisements: Most advertisements appearing in newspapers, store windows, etc., are not offers to sell. This is because they do not contain sufficient words of commitment to sell. (Example: A circular stating, “Men’s jackets, $26 each,” would not be an offer to sell jackets at that price, because it is too vague regarding quantity, duration, etc.) [19] Moulton v. Kershaw
The court held that the sellers’ letter did not constitute an offer but only a solicitation for offers and therefore that the complaint did not state a cause of action for breach of contract. There was an element of uncertainty in this contract, (the quantity) and in order for there to be a contract both parties must agree on the main terms. No offer and acceptance here = No contract.
Care should always be taken not to construe as an agreement letters which the parties intended only as preliminary negotiations.
Advertisements are construed as an invitation for an offer of sale on the terms stated, which offer, when received, may be accepted or rejected and which therefore does not become a contract of