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Contracts: Mutuality

An important part of a contract is mutuality, that is, both parties must be bound or neither is. This principle doesn’t apply to unilateral contracts where only one party is bound or to cases where both parties make promises but one party isn’t bound (such as fraud). It does, however, apply to bilateral contracts. An example of mutuality is seen in Scott v. Moragues Lumber Co. Here, Scott told the lumber company that if he bought a ship, he’d ship their lumber. This created an express condition. Neither party was bound until the condition was fulfilled. Indeed, Scott did buy a ship, but he chartered it to someone else. The lumber company was understandably upset. The court held that Scott was bound to the contract as soon as he bought the ship.

This is pretty straight-forward, but what about illusory promises? An illusory promise has the form of a promise, but not the substance of one. We have an example of such a promise in Wickham & Burton Coal. v. Farmers Lumber. The coal company agreed to fill any orders from the lumber company at a certain price. The lumber company, however, didn’t actually promise to buy any coal. The court held that the contract wasn’t mutual because the quantity to be delivered (even if it’s none) is conditioned entirely on the buyer. Because Farmers Lumber could have decided not to purchase coal, they weren’t bound. So if both aren’t bound, neither are. For more on illusory promises, check out section 77 of the Restatement Second on Contracts.

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January 30, 2007 - Posted by | Contracts

2 Comments »

  1. Thanks for this valuable reference! R2 § 77 doesn’t explain under part (B) that the resulting K would be one with an express condition in the case where one party may enter into a K when he plans to buy a ship (but hasn’t already)and you help greatly to make that point clear.

    Comment by Scott Davies | June 18, 2007 | Reply

  2. Thank you so much – even my law outlines seemed to be muddling the concept. I really appreciate your succinct clarification!

    Comment by Molly | September 11, 2007 | Reply


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