Every first-year law student learns: a valid contract requires consideration from both parties. Something for something. But in modern banking, there's a hole in this logic big enough to drive a truck through.
Contract Law 101
Three requirements for valid consideration:
Not a gift or past action. Actually exchanged as part of the deal.
Actually worth something — even if minimal.
Actually given up or promised. Not just theoretical.
Without valid consideration from both parties, there is no valid contract.
The Analysis
Let's apply this test to a modern mortgage:
| Party | What They Provided | Valid? |
|---|---|---|
| You (Borrower) |
|
Yes Real, bargained-for value |
| Bank (Lender) |
|
? If money came from YOUR note, where is THEIR consideration? |
The bank is essentially:
- Taking your promissory note (worth $300,000)
- Recording it as an asset (like depositing a check)
- Creating a deposit in "your" account
- Claiming you owe them $300,000 plus interest
But you already GAVE them $300,000 — in the form of your promissory note. What did THEY give up?
Historical Contrast
- Bank gives: Gold-backed currency (real pre-existing value)
- Borrower gives: Promise to repay
- Valid mutual consideration
- Bank gives: Credit entries created from YOUR promise
- Borrower gives: Promise to repay
- One-sided consideration?
The fundamental change in how money works post-1971 wasn't accompanied by any change in how loan contracts are understood. We're using 19th-century contract assumptions for a 21st-century monetary reality.
Why Courts Don't Accept This
This argument has been raised in courts. It almost never succeeds. Here's why:
Multiple intermediary steps hide the simple truth. Technical jargon confuses. Even lawyers rarely understand banking mechanics. Judges often lack financial expertise.
Courts avoid the consideration question through standing requirements, jurisdiction issues, procedural defects, and "frivolous lawsuit" doctrine. Never reach the substance.
Under UCC Article 3, banks become "holders in due course" — a status providing immunity from most defenses, including lack of consideration claims.
Courts take "judicial notice" that banks lend money, that this is how banking works, that FRNs are money. Challenging this is dismissed as "frivolous."
31 U.S.C. § 5103 declares Federal Reserve Notes legal tender. Courts interpret this as meaning FRNs are valid consideration by law — regardless of how they're created.
"Too big to fail" applies to legal challenges too. "This would collapse the economy." "Too disruptive to remedy." "Congressional action needed." Pragmatism overrides principle.
The Credit River Case
One case did accept this argument:
Known as the "Credit River Decision." Justice Martin V. Mahoney ruled:
- The bank admitted they created credit "out of nothing"
- No lawful consideration was provided by the bank
- The contract was void for lack of consideration
- The foreclosure was invalid
The bank's president testified: "The money and credit first came into existence when they created it."
Result: The decision was buried, declared to have no precedential value, and largely disappeared from legal databases. Justice Mahoney died six months later under disputed circumstances.
This isn't cited as proof of conspiracy — but as an example of what happens when the system's fundamental assumptions are challenged in court.
What Actually Works
Direct attacks on consideration rarely succeed. Here's what has worked:
- Chain of title issues — Who owns the note?
- Standing challenges — Can they sue?
- MERS problems — Electronic registration defects
- Robo-signing — Document fraud
- TILA — Truth in Lending Act failures
- RESPA — Settlement procedure violations
- FDCPA — Debt collection violations
- State consumer protection laws
- Loan modifications — Negotiate within system
- Short sales — Agreed exits
- Bankruptcy — Legal discharge
- Quiet title actions — Make them prove ownership
- Attack procedure, not the system
- Use existing statutes
- Make them prove their case
- Document everything
The consideration argument provides understanding — but practical success usually comes through other routes. Attack the procedure, not the philosophy. Use existing statutes. Make them prove their case.
Why This Still Matters
Even if the consideration paradox doesn't win in court, understanding it transforms your position:
You understand what you're actually in — not what they tell you you're in.
You negotiate from knowledge, not fear. You know what questions to ask.
You know what to challenge, what documents to request, what claims to dispute.
You see the system clearly. You can make conscious choices about how to navigate.
The system depends on people not understanding it. Once you see the consideration paradox, you can't unsee it — and that changes everything about how you navigate.
Paths Forward
Use the knowledge for negotiation leverage. Pursue modifications, settlements, or statutory challenges. Pragmatic but effective.
Reduce debt-based agreements. Use credit unions or community banks. Live within means that don't require creating money through loans.
Public banking initiatives. Monetary reform movements. Educational campaigns. Change the system over time.
Understand your specific agreements. Know the questions to ask. Be ready to challenge when appropriate. Knowledge is protection.
The Discovery Section Complete
You now have the full conceptual foundation:
- Agreements — What they are and what makes them valid
- Conscious vs. Unconscious — The critical distinction
- Energizing — How you keep agreements alive
- Covert Contracts — Hidden agreements you didn't know you made
- Healthy Agreements — The standard to measure against
- Money Creation — How currency really works
- Consideration Paradox — The legal vulnerability in banking
With this foundation, you're ready to explore practical pathways for navigating real situations — starting with the mortgage path.