Plowman v. Indian Refining Co.
United States District Court 20 F. Supp. 1 (E.D. Ill. 1937)
Plowman and several others are plaintiffs. The defendant requested that the case be dismissed.
Question
Whether the actions by the parties constituted a contract
Rule
Consideration requires detriment and benefit.
Holding
There was no consideration here, therefore this is not a contract. Case dismissed.
Facts
Previous employees of the defendant brought this suit. Because the company was downsizing, they were pulled into the office and told that they could no longer work there. However, due to their age, they were to be given checks amounting to 1/2 of their current salary. The plaintiffs only had to pick them up. These payments continued for a time until the company needed to downsize further and stopped making payments. The plaintiffs believed this was going to last for life so they took up this suit.
Plaintiffs argue that there was consideration that they had to travel to pick up the checks. Additionally they argue that the distribution of the checks ratified the authority of the contract.
Defendants argue that there was no consideration because this was a gift and could be revoked at any time according to the will of the defendant. Additionally, they argue that they had no authority to instill these checks because there was no approval to make a contract with the board of directors.
Analysis
The court agrees that there was no authority. They also agree that there was no consideration. There was no consideration because the payments of the checks were made as a gift, and that the plaintiff’s travel to pick up the gift was a condition not a consideration. Therefore, there was no benefit made to the defendant, only detriment (paying the checks with nothing in return).
Takeaway
Past actions of the defendants do not constitute consideration. Further, a condition necessary to pick up the gift is not sufficient enough to establish consideration.
Additional Notes
This case took place during the Great Depression. So, the company here needed to downsize to save money.
Consideration is not past service. Additionally, Moral consideration is not legal consideration. In other words, just because a party should do something doesn’t mean they have to.
There are three reasons why this is not a contract:
- First, this is a gift, so there is no consideration
- Second, there was no proper authority from the defendant to maintain this as a contract.
- Ratification
Authority
- Business entities (corporations) need to act through agents (people). So, is an agent, given the authority to act in behalf of the business entity? Or, is the individual acting by themselves.
- In this case, the VP is an agent, be the agent was working on their own behalf, outside of the scope.
- The board of directors have actual authority and can provide actual authority to certain agents.
- There is apparent authority where an agent has no actual authority but the owner has acted in a way where a third party reasonably believes that the agent has authority. The third party looks at the actions of the principal. A person can have authority by how the customs of the position.
Ratification
- When an agent acts without authority, actual or apparent. Later with knowledge of the agents actions, the principal acts inconsistent with a disavowal of the agents unauthorized actions. In other words, if there is no authority, the principal finds out, and goes through with it anyways, there is ratification (the contract can stand).
Dohrmann v. Swaney
Illinois Appellate Court 14 N.E.3d 605 (2014)
Swaney is the executor of the late Mrs. Rogers. He is the defendant. Dohrmann is the plaintiff. He lost in the trial court and appeals.
Question
Was the consideration so inadequate as to shock the court?
Rule
“Valuable consideration for a contract consists of some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”
If the consideration is so inadequate, there is not a contract.
Holding
Because the consideration is so inadequate, there is no contract. Dismissal affirmed.
Facts
Mrs. Rogers was an elderly widowed lady who lived in a nice apartment with expensive furniture. Mr. Dohrmann was a married doctor with two kids. He had an apartment in the same complex, but it was not his primary place of residence. He befriended Mrs. Rogers who eventually became concerned that this friendship was to get her money after her life. Dohrmann west to an estate lawyer who gave him advice on how to recover an estate after someone passes. The lawyer drafted an agreement which Dohrmann took to Mrs. Rogers and signed. The consideration was to be that Dohrmann incorporate the Rogers name into his children “so to carry on the Rogers name after she was gone”. Dohrmann added the middle names of his children then sued when the Mrs. Rogers estate did not change.
Plaintiff Dohrmann argues that he had performed his consideration and it is not the role of the court to determine the legal value of such consideration.
Rogers argues that the consideration here is so grossly inadequate that the contract can be considered equivalent to fraud.
Analysis
The court agrees with Rogers. They examine the large disparity of the agreement (Dohrmann receiving over 5,000,000 dollars in exchange for adding the name). Because the disparity is so large, the court wonders if the purpose of the agreement was met. Meaning, the boys had the Rogers name added as a middle name but the name was seldom used. Additionally, the boys’ middle names was simply added, rather than changed. Thus, the benefit to Mrs. Rogers was extremely minimal considering how the purpose of the agreement was not being fulfilled.
There is also the level of unfairness here. Mrs. Rogers was elderly, later diagnosed with Alzheimers. She did not consult with her attorney and Dohrmann was a well educated young gentleman. Therefore, the bargaining power was disproportionate.
Takeaway
The general rule is that a court will not consider the inequities of consideration. However, here, the reason why the court did so was the disparity of bargaining power between the two parties. In other words, due to potential fraud and the lack of benefit obtained, the consideration was so inadequate that the contract was not enforceable.
Additional Notes
The general rule is where the court doesn’t consider the equivalency of consideration. This is one of the few times the courts evaluate the equivalency of the consideration. Here, the disproportionate nature of the considerations say that there are other outlying factors that require the equivalency to be evaluated. In other words, the gross inadequacy of consideration raises the question of fraud.
The reason why this works is because it was so serious that it “shocked the conscious” and suggest fraud.
Consideration Part 3
Marshall Durbin Food Corp. v. Baker
Mississippi Court of Appeals 909 So. 2d 1267 (2005).
Baker is the plaintiff. He won in the trial court and the company appealed.
Question
Did the trial court err in finding the existence of consideration?
Rule
Consideration can be found either if:
- an act other than a promise
- a forbearance
- the creation modification or destruction of a legal relation
- a return promise, bargained for and given in exchange for a promise.
Holding
Here, the plaintiff found consideration through an act other than a promise. There is sufficient consideration to validate the contract. This ruling is affirmed and the effective date was changed.
Facts
Mr. Baker had worked at the company for several years working his way up the chain (to VP). Due to some chaotic family issues with the company management, he became fearful for his and other key management position. So, he went to the owner and enacted an agreement where he could be subject to five years of specified compensation if any of the following factors triggered the effective date:
D. … death or or incapacity of Marshall Durbin Jr.
Mr. Durbin became incapacitated at which time the plaintiff claimed the trigger had happened and he would no longer work as an employment situation but as a consultant. The defendants then said that he had resigned before the effective date took place and refused to pay him his compensation. Baker sued.
The trial court said that because he did not seek employment elsewhere, there was consideration.
Analysis
The court says that the the language was here. Therefore, there was consideration. But they want to address other arguments as well.
The defendants argue that there was no consideration because the promise made by both parties was illusionary. The court disagrees saying that although Baker’s promise was illusionary, the company’s was not. Therefore the company had put forth consideration through a promise. At this point, the contract became unilateral, contingent on the act or performance of Mr. Baker. Since Mr. Baker retained his position, benefited the company, and chose not to deprive himself of the position, his actions sustained a sufficient performance up until the effective date, at which time his performance was no longer required to make the contract valid. Had he been fired before the effective date, there would have been no recovery.
Takeaway
The effective date is key here. In the past we said that consideration can’t occur from past performance. That remains true here. Significantly, this is a unilateral contract where the promise of the company is not needed until the plaintiff made a sufficient performance.
Additional Notes
This agreement was fine as it was, but there are things that could have made it better. They could have started paying him for his work right away and which would then provide the full amount when the trigging event occurred.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
