Commutative: Definition, Example and Related Terms
What does it mean when a contract is Commutative ?
Imagine you're trading a baseball card with your friend. You give her your favourite card and she gives you hers. This is a 'one-for-one' swap. In the world of contracts, this kind of even, 'one-for-one' swap is what 'commutative' means. When we say a contract is 'commutative', it means the exchange of goods, services or promises are considered to be equal or similar in value.
Here's an interesting fact: the word 'commutative' comes from the Latin word 'commutare', which means 'to change' or 'to swap'. So when you're trading baseball cards, you're actually doing something quite ancient and following the principles of commutative contracts!
Scenario Description Trade Goods A company trades a dozen of its product for a dozen of another company's product. They both consider this an even swap. Bartering Services A web developer agrees to build a website for a graphic designer, who in exchange will design the web developer's logo. They consider the effort and value equal. Future Trading Two farmers agree to trade a number of live chickens for a bag of fertiliser when the next batch is ready. This is considered a fair exchange by both parties. Software Exchange A software company decides to trade their personnel management software for a productivity tool from another software company. Both consider this trade of software licenses of equal value.