The Objective Test

 This lesson brief is under Construction.

Objective Test of Agreement in Contract Law

1. Introduction

The objective test of agreement is a fundamental principle in contract law used to determine whether a valid agreement exists between parties. It asks what a reasonable person in the position of the parties would have understood from the external expressions of intent – such as words and conduct – rather than the actual subjective intentions of the parties.

2. Definition

The objective test evaluates contractual agreement based on external evidence of intention (i.e., what was said or done), rather than internal thoughts or beliefs of the parties. The principle here is that contractual liability is based on manifested intention and not on what a party secretly intended as demonstrated in the case of Smith v Hughes (1871) LR 6 QB 597.

3. Application of the Objective Test

• The courts examine whether a reasonable person would believe that an offer had been made and accepted, based on the parties’ conduct.
• This ensures certainty in contractual dealings and protects reliance on apparent assent.

4. Key Ghanaian and Common Law Cases

(a) Smith v Hughes (1871) LR 6 QB 597

• Facts: A buyer thought he was purchasing old oats; the seller offered new oats. The court held that the agreement stood because the seller did not mislead the buyer and the buyer had assumed without verifying.
• Principle: It is not what the parties thought but what they communicated that matters.

(b) Centrovincial Estates plc v Merchant Investors Assurance Co. Ltd. [1983] Com LR 158

• Principle: An objective approach is taken when interpreting whether a statement amounts to an offer or acceptance.

(c) GIHOC v Hanna Assi [1977] 1 GLR 365

• Ghanaian Case: The court focused on the objective manifestation of intent and not the inner thoughts of the parties.

(d) Appenteng v Bank of West Africa Ltd. [1962] 1 GLR 377

• The court emphasized conduct and outward appearance of agreement rather than internal intentions.

5. Examples

Example 1:

• Scenario: A says to B, “I’ll sell you this car for GHS 30,000.” B says, “I accept.”
• Objective View: A reasonable observer would conclude that an agreement has been formed, regardless of whether A intended to sell for GHS 35,000 internally.

Example 2:

• Scenario: A says to B, “You can have this item for GHS 1,” intending it as a joke. B accepts.
• Objective View: If B reasonably believed the offer was genuine, the contract may be valid.

6. The Ghanaian Statutory Context

Although Ghana’s Contracts Act, 1960 (Act 25) does not explicitly codify the objective test, its provisions reflect similar principles. For example:

“A contract is an agreement made between two or more parties with the intention of creating a legal obligation.”

• This implies that intention is judged from outward actions, not inner thoughts.

7. Importance of the Objective Test

• Promotes legal certainty and commercial reliability
• Prevents bad faith denials of contract formation
• Encourages clear communication and due diligence

8. Criticisms

• May cause injustice in cases where one party had genuine but unexpressed misunderstanding.
• May disregard power imbalances or non-verbal cultural cues common in certain African settings.