Plowman v. Indian Refining Co.
20 F. Supp. 1 (1937)
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Rule of Law:
Past services rendered by an employee do not constitute sufficient legal consideration to support a subsequent promise by an employer to pay a pension for life. An act required of a promisee that is merely a condition to receiving a gift, and not a bargained-for detriment, also fails as consideration.
Facts:
- Indian Refining Co. employed a group of individuals for many years at a fixed wage.
- On or about July 28, 1930, the vice-president and general manager, Mr. Anglin, informed these employees individually that they were being laid off due to economic conditions.
- Anglin told the employees that due to their many years of faithful service, the company would place them on a retirement list and pay them a monthly sum equal to one-half of their former wages.
- Most employees were verbally told these payments would continue for the rest of their lives.
- The employees were relieved of all duties except for the obligation to report to the main office to pick up their checks.
- Each employee was sent a letter confirming the arrangement, but the letters did not specify the duration of the payments.
- The company made these payments regularly from August 1930 until June 1, 1931.
- On June 1, 1931, Indian Refining Co. terminated the payments and informed the employees the arrangement was over.
Procedural Posture:
- Thirteen former employees and the administrators of five deceased former employees filed suit against Indian Refining Co. in federal district court (the court of first instance).
- The plaintiffs sought a decree to enforce the company's alleged promise to make payments for life.
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Issue:
Does an employer's promise to pay a lifetime pension to former employees, based on their past service and the condition that they personally collect their checks, create an enforceable contract?
Opinions:
Majority - Lindley, District Judge
No, an employer's promise to pay a lifetime pension based on past service and the condition of collecting a check does not create an enforceable contract. For a promise to be enforceable, it must be supported by valid consideration, which is something given in a bargained-for exchange. The court reasoned that the employees' long and faithful service was past consideration, as it was rendered before the company's promise of payments was made, and thus cannot support a contract. Furthermore, the requirement that employees pick up their checks was not a legal detriment to them or a benefit to the company; it was merely a condition precedent to their collection of a gratuitous payment, not a price paid for the promise. Lacking any valid consideration, the company's promise was merely a gratuitous arrangement, which is unenforceable and could be revoked at will.
Analysis:
This case strongly affirms the traditional contract law principle that a promise must be supported by valid, bargained-for consideration to be enforceable. It clearly distinguishes between valid consideration and concepts like past consideration and moral obligation, which are generally insufficient to form a contract. The court's analysis also provides a clear distinction between a true contractual detriment and a mere condition on a gift, reinforcing that not every action required of a promisee qualifies as consideration. This decision solidifies the position that promises of employee benefits based on prior work, without a new exchange of value, are typically unenforceable gratuities, highlighting the need for such arrangements to be structured with clear, present consideration to be binding.
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