Mutuality

Question 1

When will a contract lack mutuality?

Answer 1

• A contract lacks mutuality if one party does not suffer a detriment and can escape future liability under the contract - “a free way out”
• If one side can party to the contract can away totally, without consequence, that party is not giving consideration. This renders the contract unenforceable - illusory - because it lacks mutuality.
• If one party is not bound then the other party cannot be bound.

Question 2

When do parties not have a free way out?

Answer 2

Parties do not have a free way out if there is some check on their discretion, such as the duty of good faith, a requirement that the party’s dissatisfaction be reasonable or in good faith, or in the case of a termination right announced with advance notice.

Question 3

What are some examples when a promise will not be rendered illusory?

Answer 3

• If A and B enter into a contract by which A agrees to furnish to B, all the coal that B needs to operate its factory the contract is not lacking in mutuality, as B may require A to furnish all the coal it needs for its operation and A may insist that B shall take from him all the coal he needs for this purpose
• Other examples: foundry - all the coal it needs for the season, furnace company - requirements of iron, hotel - supply of ice. In these examples, although the quantity is not measured by any certain standard, it is capable of an approximately accurate forecast

Question 4

Is the promise to purchase an unspecified quantity of a product by a person who does not own an established business binding?

Answer 4

If the buyer is an experienced salesperson who would be able to sell a substantial amount of the product to the mutual profit of both parties the contract is binding

Question 5

Does a promise for a promise that is dependent on a condition make the contract illusory?

Answer 5

• A promise for a promise that is dependent on a condition does not necessarily make the contract illusory
• A contractor can, by the use of clear and appropriate words, make his own duty expressly conditional upon his own personal satisfaction with the quality of performance for which he has bargained and in return for which his promise is given. Such a limitation on his own duty does not invalidate the contract as long as the limitation is not so great to make his own promise illusory.
• Satisfaction could be based on either plaintiff’s personal satisfaction or the satisfaction of a ‘reasonable person’
• This is a question of fact for the jury to decide
  The promisor’s duty to exercise his judgment in good faith is adequate consideration