Wednesday, April 27, 2016

Illusory Promises

What is an illusory promise? In Contract Law consideration must exist on both sides of a contract if the parties are to be bound to perform their promises. And so if two people promise to perform for each other but only one party is actually bound to perform, then there is an illusory promise involved which will prevent the formation of the contract. So, for example, assume x tells y that x will purchase a product from y if x decides to first apply for a loan from a bank. Because x is not obligated to apply for the loan, x has taken on no additional burden in making that promise and as such the promise is illusory.

As important as it is to recognize illusory promises, it's also important to be able to spot promises that may seem illusory but are not. The following is not an exhaustive list but contains examples that are not illusory and therefore satisfy the mutuality requirement necessary to form a valid contract:

--Requirement and output contracts under the UCC. Claiming that you will purchase all the widgets that you require (not illusory) is different than claiming that you will purchase all the widgets that you want (illusory).

--Conditional promises unless the condition is entirely within the promisor's control.

--Contracts where a party has the right to cancel if that right is somehow restricted (for example if it is stated that cancellation requires notice).

--Voidable promises (such as those made by an infant).

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