Plowman v. Indian Refining Co.

United States District Court · Contracts

ContractsConsiderationPast considerationGratuitous promisesCorporate authorityRatificationEstoppelconsideration

Facts

The defendant's local vice-president and general manager arranged for several long-time employees to stop working but remain on the payroll and receive semimonthly checks equal to one-half of their former wages, while continuing group insurance deductions. Plaintiffs claimed the oral arrangements promised payments for life, though the confirming letters said only that the employees would be carried on the payroll at a stated monthly rate and would report only to pick up checks. Payments were made until June 1, 1931, when the company terminated them. The company denied any authorized lifetime commitment and argued the payments were voluntary and unsupported by consideration.

Issue

Were the company's promises to pay former employees one-half wages for life enforceable contracts where the asserted consideration was the employees' long and faithful past service and their reporting to the office to pick up checks, and where the arrangement was made without corporate authorization? If not, could the company's temporary payment of the checks amount to ratification or estoppel?

Rule

A valid contract requires sufficient legal consideration, meaning something bargained for and given in exchange for the promise. Past or executed services are not consideration for a later promise, moral obligation alone is not consideration unless the moral duty was once a legal one, and an act that is merely a condition for receiving a gratuity rather than a bargained-for detriment or benefit is not consideration. Absent valid consideration, a promise of lifetime payments is merely a gratuitous and revocable arrangement.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Toledo, Ohio, Norvale Glass Works told Eli Mercer, a 68-year-old machinist, that because of his 32 years of loyal service the company would pay him $1,800 per month for the rest of his life after his job was eliminated. Eli was not asked to perform any further work and accepted the arrangement.

If Eli sues after payments stop six months later, what is the strongest argument against enforcement under the governing rule?

Explanation. A valid contract requires bargained-for consideration. Services already completed before the promise are past or executed consideration and cannot support the later promise. The opinion also rejects moral obligation alone as consideration unless the moral duty was once a legal one, and treats such payment arrangements as revocable gratuities absent consideration. (Derived from Plowman v. Indian Refining Co. (n.d.).)