Problem: The Case of The Illusory Bonus
John was an agent for Super Life, an insurance company, and was paid a salary and commissions for writing life insurance policies. In early February 1997, Super Life issued a bulletin addressed to all agents. The bulletin was titled "Extra Earnings Agreement" and stated that "you will receive at the end of each 12 month period a bonus" in accordance with a formula based upon the percentage of policies that you are able to renew after lapse. The lower the lapse ratio, the higher the bonus. Thus, if an agent's lapse ratio were between 0 and 10%, the bonus would be 150% of the average monthly premiums in force, but if the lapse ratio were, say, between 40 and 50%, the bonus would be only 60% of the premiums. If the lapse ratio were over 70%, there would be no bonus. In paragraph 7 (there were 12 paragraphs in all), the following term appeared in the same type size as the rest of the bulletin:
This renewal bonus is a voluntary contribution on the part of Super Life. It is agreed by you and by us that it may be withheld, increased, decreased or discontinued, individually or collectively, with or without actual notice. Further, this Renewal Bonus is contingent upon you actually writing policies for this Company as a licensed agent at the time such Bonus is to be paid.
The agents were exhorted to give their "best efforts" and requested to sign and return the "enclosed copy of this agreement." John complied.
In February 1998, John reported that his lapse ratio over the last twelve months was between 20 and 30% and that, under the schedule, he was entitled to a bonus of 100% of the average monthly premiums in force, some $10,000. Without giving any notice or reasons, however, Super Life discontinued the bonus plan on February 15, 1998 without paying any bonuses.
John and other agents sued for the bonuses. Super Life filed a motion to dismiss and argued: (1) No promise was made, since the "voluntary" contribution clause reserved complete and unfettered discretion to the company; (2) The plain and ordinary language of the clause, which the agents as "White Collar" workers should reasonably understand, should be implemented; and (3) Even if a promise was made, there was no consideration since the Agents were already obligated to sell and renew life insurance policies.
In opposing the motion to dismiss, John's attorney made the following argument. "Your honor, we think that a literal interpretation of the bonus plan language should be avoided, especially where extra efforts were expended by the agents. Super Life is subject to a duty of good faith in the performance of the contract, and that duty should be imposed upon the exercise of the reserved discretion to terminate the plan, unless both parties intended Super Life to have unfettered discretion. The question is whether this interpretation was within the fair contemplation of the parties, and the answer is not found in the 'four corners' of the writing or the 'plain meaning of the language. If no such intention is found, the next question is whether Super Life acted in bad faith and this, at a minimum, requires an examination of Super Life's reasons for withdrawing the plan. Thus, factual questions about intention and bad faith are presented, and the motion to dismiss should be dismissed." John's brief cited Nolan u. Control Data Corp.,
243 N.J.Super. 420 (App.Div. 1990) to support this argument.
How would you rule?