Part I The Guiding Principle, 1 Principle 1: Objective Common Intention
- Formation of contract — Penalty clauses and damages
This chapter explains that the purpose of contractual interpretation is to establish the intention of the parties to the contract. This is done objectively: what would a reasonable person understand their common intention to be from what they have written, said, and done? The chapter discusses what we mean when we talk about the intention of the parties. It explains how the objective approach to interpretation works, and why it is preferred to the subjective approach. Interpretation is important in practice because of the breath of the principle of freedom of contract. The chapter discusses this and its limits, including the penalty doctrine.