This is going to be the second of a four part post series on the foundations of basic contracts.
What is a Contract?
In its most simple state, a contract is nothing more than an agreement between the parties involved in that agreement that something(s) will be done or not done. This agreement can be formed in many ways but all contracts are either formal or informal in their creation and execution. There are normally, and for our examples in this series, four foundational elements that need to be in-place for a formal contract to be established.
1. Full disclosure
2. Mutual consideration
3. Terms and conditions
4. Evidence of intent
In their basic form all contracts need to meet all of the above fundamentals in order for a contract to be formed.
What is Mutual Consideration?
Mutual consideration is in its most fundamental form simply the offers that the parties to a contract presents to each other. You can look at it like this… “If you do this (their consideration), I’ll do that (your consideration)“. Often it is said to be what all parties to the contract “bring to the table”.
Now as far as I understand mutual consideration, they do not always have to be equal considerations, only that all parties must present some consideration. It is often misunderstood that parties to a contract do not need to present equal considerations and here’s why.
Imagine you are going to have new swimming pool built in your yard and you find the builder you’re happy with and agree on a price. Here your consideration is the price you both agreed on. This price will cover things such as labour, materials, business overheads (as a percentage) and a profit margin for the builder. So if the total cost to the builder for your pool (minus profit margin) is $10,000 yet the price you agreed to pay was $15,000 how can he be providing you with equal consideration? He’s only providing you with $10,000 worth of consideration but wants $15,000 of your consideration in return.
Now that example is very simplified however, it does demonstrate how agreement can over-ride consideration… if it (consideration) is disclosed. If the builder told you upfront that he will charge you $15,000 to build you a pool you, you both agree on that price… that contract… that consideration. There is nothing wrong with unequal consideration to the most part. More on that later.
Let us for example imagine you are a production worker who is paid $50 per hour for your labour. If you then visit a solicitor who charges $250 per hour for his labour and you wish to employ him for one hour, he cannot claim you have not provided equal consideration (nor can you) if it is required that you work for five hours for his one hour. The consideration in this example is simply that you give hime $250 and he will work for you for one hour.
The mutual consideration presented in that example are these:
1. Solicitor provides one hours worth of labour valued at $250 being his consideration
2. You provide $250 being your consideration
If we look at another example we can imagine you visit a chiropractor. Here your contract with the chiropractor is that you will provide him/her with a fee appropriate to their fee schedule for return of services rendered. You pay, they adjust your back. Simple.
Why We Need Mutual Consideration
Without mutual consideration in our contracts we face a potential problem and a situation that can be manipulated to suit an unscrupulous mind. The reason we have mutual consideration is that any party to a contract must contribute something to the contract and therefor be in a position to lose that something should they fail to meet their obligation to that contract. So we can answer why we need mutual consideration with… it is a mechanism that holds all parties to a contract accountable and at loss should they fail to meet their contractual obligations.
Look at it this way, you have an issue with your car (low oil level light on lets say) and you take it to your local mechanic to have the oil and filter changed. The mechanic has a sign up that says “Oil & filter change $99”. You book your car in for an oil and filter change. A few hours later you return to the mechanic and you get in your car and low and behold the oil light is still on. You open the bonnet and see that the oil filter hasn’t been changed and the oil filler cap still has the old piece of tape over it from months back.
You approach the mechanic and he insists he changed the oil and filter, but how can you be sure? You ask him to provide proof he changed it by providing you with the old filter and maybe the old oil. You show him that the oil level on your dipstick is still low so he can’t have done what he said he would do/has done.
Here the mechanic has not provided any consideration to the contract as he has not changed the oil and filter as offered. So he cannot then claim to have suffered any loss if you drive off without paying him. As he provided no consideration you are under no contractual obligation to provide any consideration. By the same logic, you cannot claim to have suffered any loss for his lack of consideration because you have not provided any either. However, if you had paid your $99 before the mechanic was to perform his part/meet his obligations, you would have suffered loss and so you would have every right to recover that loss.
Mutual Consideration & Debt Collectors
Now this is when things get fun for you and hard for the debt collector.
We know by now that a debt collector has never provided you with anything other than a Notice of Assignment from which they make their claims. Sure they provide bank statements and credit card statements but neither of these are proof that a debt exists or even existed. So following our logic trivium we can very quickly expose that the debt collector has not got a solid platform from which they make their claims. Our task is to ask the right questions to make this clear to them.
As a legal assignee, the debt collector must follow the same terms and conditions of the alleged contract they claim to be collecting on. Now this contract must be founded on the above four foundational elements… one being mutual consideration.
Now not wanting to cast debt collectors in a poor light, I’ll assume that they will always act in good faith and with full transparency in their actions. After all, if they have done nothing wrong they should have no reason to hide any information… right? So if we ask a debt collector what consideration they provided the contract they can only give one of two possible answers.
1. The amount of consideration the bank presented
2. The amount of money they bought the debt for
As the debt collector is the assignee we can insist they provide facts and evidence for the consideration that the bank is alleged to have provided to us as credit. We ask for this as it helps us to undermine the debt collectors argument that a debt existed in the first place. So if they can’t provide evidence that the bank did provide consideration from its own assets how can they prove the bank suffered any loss?
Asking for evidence for either of the two options of consideration above we can checkmate the debt collector on all grounds. first off, they will never provide you with any evidence that the bank provided consideration from its own assets thus not proving that a debt ever existed or that the fundamental elements of a contract were met and likewise, they will not tell you what they paid for the debt as then they would be demanding more in payment from you than they provided as consideration.
Let’s not lose sight here also that the only contract that the debt collector is part of is one between them and the bank when they bough the debt. You do not have a contract with the debt collector that states you would pay them the full amount they claim if they pay the bank a much lesser amount. It stands to reason does it not, that if you could afford to pay the debt collector $10,000 then you could have afforded to continue paying the bank $10,000.
If a contract is to be presumed, then it must be able to meet the fundamental elements that form a contract. This post has shown you that even though a debt collector may claim to be recovering on a contract, if they cannot provide evidence of just this one element of mutual consideration their entire claim fails.
If they can’t provide evidence of mutual consideration when asked, then how can they have proof full disclosure was given?