Contracts & ExecutionQuestion 796 of 1605
Under the objective theory of contracts, whether a binding agreement exists is determined by:
a.The party who drafted the document
b.Whichever party can prove better faith
c.The parties' outward words and conduct as a reasonable person would understand them
d.The secret, subjective intent hidden in each party's mind
Explanation
Courts apply the objective theory of contracts: mutual assent is judged by the parties' outward expressions, words and conduct, as a reasonable person would interpret them, not by unexpressed private intentions. A party's secret intent not to be bound is irrelevant if their outward conduct manifests agreement. This protects reasonable reliance on what people actually say and do.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)