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Unformatted text preview: t money. The result could be different if there was a good faith dispute as to the amount actually owed, which is known as an unliquidated debt. If Daniel
owed the money because he had bought 50,000 widgets from Carla and he claims that
20,000 of them were defective, and they agree to settle for $40,000, both parties are bound.
Also, if the money is paid before it is due, or if it is accompanied by some new item of consideration, or if the settlement occurs in a bankruptcy proceeding, the creditor’s promise
to accept a lesser amount as payment in full is generally binding. Illusory Promises
In order for consideration to be valid, each party to an agreement must be obligated under
the contract. There are situations in which both parties to a contract appear to be giving
consideration, but, in fact someone is making an illusory promise and really not committing to do anything. For example:
Example 4.30. Wendy offers to sell Oscar “1,000 widgets at $1 per widget,
delivery to be on or before June 1. Seller reserves the right to cancel at any
time without penalty.” Oscar accepts.
At first look, this appears to be a binding agreement because we seem to have an offer
and acceptance and Oscar has promised to pay $1,000, which is consideration on his part.
However, because Wendy included the right to cancel that is completely unrestricted, she
has not committed to selling a single widget to Oscar. Basically Wendy has said she will
sell Oscar the widgets if she feels like it.
As a result, if Oscar doesn’t receive the widgets by June 1, he will be unable to sue Wendy
for breach of contract. Wendy’s promise was illusory, or an illusion of a promise. Thus
there was no consideration from Wendy to Oscar to support a contract.
Suppose XYZ Company promises to buy from ABC Oil Inc. “All the heating oil we want
for the next year at a price of $2.75 per gallon.” XYZ is making an illusory promise; only
ABC is obligating itself to do anything—to provide XYZ with all the oil it wants at a set
price of $2.75 per gallon. If prices drop and XYZ prefers to buy its oil from someone else, it
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- Spring '10
- Business Law