What defines commutative contracts?

Commutative contracts are defined by the principle that both parties provide fairly equal consideration in their agreement. This means that the value exchanged by both parties is approximately equivalent, establishing a balanced relationship in the contract. Such contracts are grounded in mutual obligations, where each party’s promise or performance can be measured and is directly related to the other party's promise or performance.

In the context of insurance, while it may seem that insurance contracts involve a disparity in consideration—where one party (the insurer) provides coverage in exchange for premiums from the other party (the insured)—the idea of commutative contracts emphasizes equality in what is exchanged, even if those exchanges are not identical in nature. Different forms of contracts may exhibit varying degrees of balance or disparity in what is offered, but a hallmark of commutative contracts is that both parties have a reciprocally equitable stake in the agreement.