What is an illusory promise?
How do you legally define an illusory promise?
What are some examples of illusory promises?
We will look at what is an illusory promise, we’ll look at its definition, enforceability in contract law and examples so you can fully grasp the notion.
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What is an illusory promise
An illusory promise is a promise made by one party to another which is uncertain, indefinite, vague and uncertain.
For example, by paying me $10,000, I’ll sell you my used car if I feel like it.
This is an illusory promise as you have an obligation to pay while I don’t have an obligation to deliver you my used car.
For a contract to be formed, you need an offer and acceptance.
The offeror’s promise or offer must be clear enough so that the offeree or the party receiving the promise can decide whether to accept it or not.
For example, if you go into a jewelry store and the merchant promises to sell you a very specific ring for a specific price, you can decide to purchase the ring or not.
By accepting the offer, a contract is formed.
However, imagine the merchant does not refer to a specific ring and tells you that he promises to sell you the best ring in the world or as many as you’d like.
In this case, the merchant’s offer is vague and does not have a specific object.
This is what we can an illusory offer or illusory consideration.
It’s an offer that is vague to the point that it is unenforceable in law.
Elements of a contract
What are the elements of a contract?
A contract is formed when you have:
- Offer
- Acceptance
- Consideration
- Capacity
- Legality
Illusory promises affect the validity of the consideration leading to potentially an unenforceable contract.
No consideration
As the saying goes, no consideration no contract!
In other words, if a party is obligated to perform obligations under a contract without receiving a benefit or consideration in return, that contract is not valid.
The notion of consideration goes beyond just a sum of money.
In a bilateral contract, consideration can be considered anything of value that a party may receive in exchange for performing an obligation.
It can be a tangible benefit (profits or money) or it can be an intangible benefit (to do or not to do something).
A promise that leads to no specific consideration is an illusory promise in contract law
One of the parties may have no actual obligation to perform while the other party will have an obligation to perform.
For example, a retailer says that he or she will give you everything he has in his store if you buy this specific item right now.
Illusory promise definition
How do you define an illusory promise?
According to Cornell Law School’s Legal Information Institute, an illusory promise is defined as:
A promise that is unenforceable due to indefiniteness or lack of mutuality, where only one side is bound to perform.
What is notable in this definition is that the promise is “unenforceable” because it lacks mutuality or is not clearly defined.
A contract formed on the basis of illusory promises may appear valid but are not as only one party is typically required to perform an obligation.
Illusory promise enforceability
Requirements for a valid contract
For a contract to be formed and enforceable in law, whether the contract is oral or in writing, it must have a clear object, the obligations must be clear and both parties must have a consideration of some kind.
For example, if you buy a car:
- the object is the car
- the obligation for the seller is to deliver the car and the buyer pays a certain amount of money for the car
- the consideration for the buyer is the car and for the seller is the money (it is something of value that a party is pursuing)
A contract containing an offer, acceptance and consideration leads to a legally binding contract and enforceable in the court of law.
Illusory promise unenforceable
A contract formed on the basis of an illusory promise will not be valid and enforceable.
An illusory promise is vague and uncertain rendering the obligation of the person making the vague promise vague and uncertain.
The party making an ambiguous promise may not have a clear obligation to perform whereas the other party may a more definitive obligation.
In such cases, the courts will not enforce an illusory promise or a contract formed on the basis of an illusory promise due to the lack of clear consideration for both parties.
Intention of the parties
In the event of a dispute on the validity of a promise or contract formed on the basis of an illusory promise, the courts will consider the facts of the case to assess the parties’ real intention.
Typically, the courts consider that if parties exchanged promises to contract, their intention was to enter into a binding contract.
As a result, if the parties had an intention to form a contract and expected a consideration but did not use the proper contract language to express their intentions, the courts may consider that the contract is valid and dismiss the argument of an illusory promise.
However, if it appears that there was no consideration for one party while there was a benefit to the other, then the court may accept the argument of illusory promise and not enforce the promise or contract.
Promissory estoppel
In certain cases, the courts may use the doctrine of promissory estoppel to enforce an illusory promise and provide a party with legal remedies.
When a party (promisee) relies on the promise of another (promisor) and performs an obligation or act in his or her detriment, the court may consider that the promisor is bound to execute his or her obligations to the promisee as well.
Illusory promises can lead to unfair outcomes
The courts will consider the facts of the case to determine if a party suffered prejudice due to the unfair outcome resulting from an illusory promise.
Was a party induced in error?
Were there fraudulent actions?
Was a party in bad faith?
For the court to establish the proper remedy in a particular case, it’s important to consider the case in its entirety to conclude if a contract based on an illusory promise should be enforced and remedies granted.
Illusory promise example
An illusory promise is one that cannot be enforced in law because it is vague and not clear or that one party has a consideration while the other party does not.
Undefined promise
Let’s look at an example where the promise of a party or offeror is undefined or not specific.
For example, you go to a jewelry store and the merchant tells you that he can sell you all the jewelry in the world or as many as you’d like.
This promise is illusory.
In other words, it is not clear what is the exact promise of the merchant and whether the promise will be performed or not.
Another example is a company enters into a contract with another one to purchase inventory based on undefined obligations.
The seller commits to selling the buyer as much inventory as the buyer wants while the buyer is committed to buying all the stock in the seller’s possession on a weekly basis.
The seller’s promise is illusory as the seller does not have a clear obligation of how much to sell while the buyer has a clear obligation to buy all the stock on a weekly basis.
Personal satisfaction
A party refuses to pay he or she is not fully satisfied with the other party’s performance.
This is an illusory promise as one party may subjectively decide that he or she is not satisfied, keep the product or service and have no obligation to pay to result in no consideration whatsoever to the seller.
When a personal satisfaction clause is used in contracts, it’s typically called the “satisfaction clause”
The courts will imply in law that the promisor must act in good faith when deciding whether the performance of the other party was satisfactory or not.
The courts may also include implied-in-fact terms to the contract to complement the satisfaction clause.
In other words, would a reasonable person in the same situation consider the performance satisfactory?
This is the “reasonableness test” in law.
Subjective performance
A promise by one party to render an obligation based on feelings is likely to be an illusory promise.
For example, a buyer commits to buy stock from a merchant while the merchant offers to sell as much as the other party feels like.
This is an illusory promise as the buyer has an obligation to buy from the merchant while the merchant does not have an obligation to sell to this buyer.
Another example is a contractor promising to renovate your property if he or she feels like it provided you pay $10,000.
Evidently, this promise cannot lead to an enforceable contract as it is illusory.
You have a legal obligation to pay $10,000 while the contract will take your money and renovate your property if he or she feels like it.
Unilateral changes
A seller offers to sell stock to a buyer provided the seller is able to terminate the contract at any time without any notice to the buyer.
This is an illusory promise and cannot be enforced.
In other words, the seller has the ability to unilaterally alter the terms of the bargain and terminate the agreement without any notice to the buyer.
This will generally not be an enforceable position in court.
Illusory promise FAQ
What is an example of illusory promises?
To illustrate illusory promises, let’s look at a few examples.
Illusory promise: Example 1
If you pay me $25 to mow your lawn, I’ll do it one day when I feel like it.
This promise is illusory as the promise or offer consists of you committing to pay me $25 for me to mow your lawn while my commitment is linked to my subjective feeling.
Illusory promise: Example 2
Merchant A offers to sell goods, only if they choose to manufacture them, provided that Merchant B commits to buying exclusively from Merchant A and for an amount of $50,000.
This is an illusory promise as Merchant B will be bound to performing an obligation in favour of Merchant A while Merchant A does not commit to anything towards Merchant B.
In this case, there is a lack of consideration for Merchant B.
Is an illusory promise a consideration?
An illusory promise is not a consideration.
However, illusory promises affect the consideration an element of a contract formation.
For a contract to be valid and legally binding, both parties must obtain a consideration.
If a party is not effectively getting a value, benefit or interest in legally committing to an obligation, that contract will not be enforceable in law.
Conversely, if a promise is made by the offeror to the offeree in such a way that both parties can receive consideration, the acceptance of that offer will lead to a perfectly valid contract.
What is an implied promise?
An implied promise is not the same thing as an illusory promise.
An implied promise is an unwritten or unspoken but enforceable promise to perform certain obligations.
The implied promise is enforceable based on the actions of the parties and the circumstances clearly showing that a party intended to make a legally binding promise to enter into a contract.
On the other hand, an illusory promise is one that is an unenforceable promise as one party may be missing consideration in law.
