Marshall Durbin Food Corp v Baker

Brief Fact Summary. A contract that intended to pay Baker (P), a former employee of Marshall Durbin (D), his salary for five years upon the happening of certain triggering events was argued against by Marshall Durbin (D) because the contract lacked consideration.

Synopsis of Rule of Law. Sufficient consideration to create an enforceable contract where one party has made an illusory promise and the second party has made a promise of a unilateral contract that is contingent on the first party’s performance where the first party has performed to fulfillment of the contingency supports an agreement.

Facts. Mr. Durbin, the proprietor of Marshall Durbin Food Corp. (the “Company”), had entered into an agreement with Baker (P), one of his former employee, during the period the Company (D) going concern was threatened. The agreement stipulated that upon the occurrence of certain triggering events, one of which was the incapacity of Mr. Durbin, Baker (P) would be entitled to five years of his then current salary. Part of the agreement stipulated how payments to be made to Baker (P) would be derived, an “effective date”, and that the contract was entered into for consideration of $10 and other valuable consideration. Also, the contract also made it clear that the agreement was not purported to create a contract of employment which although remained at will. These clauses in the agreement were however approved by the Company’s (D) board.
Mr. Durbin was diagnosed with malignant cancer about 18 months later and a month later, he was judicially declared incapacitated. After his diagnosis, Baker (P) took over as the Company’s (D) president and when Mr. Durbin was declared incapacitated by the court, Baker (P) informed the Company (D) that the triggering event captured by his agreement with the Company (D) has occurred and therefore he would now be working as a contractor and not an employee to the Company (D).
The month after Mr. Durbin was declared incapacitated by the court, he died and the Company’s (D) board was dissolved to give rise to a new board, which repudiated the agreement the Company (D) had with Baker (P) after the plaintiff had sued for specific performance of the agreement. The Company (D) however defended its stand on the ground that the agreement was invalid because it lacked consideration. The trial court in its wisdom, ruled in favor of Baker (P) who had entered in an agreement with the Company (D) to retain management at a time the Company (D) was experiencing difficulties, and because Baker (P) did not seek for employment elsewhere because of the reliance he had placed on the agreement. The state intermediate appellate court however granted review.

Issue. Is an agreement supported by sufficient consideration to create an enforceable contract where one party has made an illusory promise and the second party has made a promise of a unilateral contract that is contingent on the first party’s performance where the first party has performed to fulfillment of the contingency?

Held. (Branes, J) Yes. Sufficient consideration to create an enforceable contract where one party has made an illusory promise and the second party has made a promise of a unilateral contract that is contingent on the first party’s performance where the first party has performed to fulfillment of the contingency supports an agreement. The clause which stipulated hoe Baker’s (P) entitled would be calculated showed that consideration actually existed. On this premise, the Company (D) failed to make sufficient evidence available to challenge this provision and this gives the court enough reason to affirm its ruling as to the existence of consideration, this does not mean that the parties’ differences about the issue will not be addressed.
First, Baker’s (P) promise and the Company’s (D) promise where illusory since their agreement remained at will was argued against and rejected by the Company (D) although it was valid to Baker (P).because Baker (P) had the right to look for employment at any time was an illusory promise and this was the reason he did not give anything up when he promised to stay with the Company (D). The Company’s promise on the other hand was to compensate Baker (P) as set forth in the contract on the condition that Baker (P) continued his employment until the happening of a triggering event. This clearly points out that although Baker’s (P) promise was illusory; the company’s (D) promise was contingent and not illusory.
Furthermore, Baker (P) had the option of supplying consideration for the Company’s (D) promise by “an act other than a promise”, which he did, which implies the act to continuing working for the Company (D) and the Company’s (D) corresponding receipt of benefit from his services. Therefore, Baker’s (P) continuous service to the defendant upon the triggering event of Mr. Durbin’s incapacity fulfilled the contingency clause in the agreement. This performance during the fulfillment of the contingency supplied Baker’s (P) consideration. From the Company’s (D) point of view, Baker’s (P) decision not to seek for employment else, bearing in mind that he had the legal right t look for other employment since his employment was at will, was not a legal disadvantage and cannot therefore constitute consideration for him.
That Baker (P) experienced detriment in forbearing from seeking or accepting other employment and the Company (D) benefitting from his services, is in consonance with what the court found out and which the evidence also supports. Hence, a benefit to the promisor or detriment to the promise sufficient consideration for a contract is an established law. This consideration may consist either in some interest, profit or benefits accruing to the one party, or the detriment, loss or responsibility given, suffered or undertaken by the other, or right. Putting all these factors into consideration, the trial court was rightly ruled that there was consideration for the contract. Therefore, the ruling was sustained. [the court reversed as to the effective date of the agreement].

Discussion. The principle that the presence of an illusory promise does not destroy the possibility of a contract is illustrated by this case, which may give rise to a unilateral contract and the promisor who made the illusory promise (in this case, Baker (P)), can accept the contract performance. That illusory promise by one party gives rise to the return promise not been enforceable unless some other consideration is available is the view held by other courts.