SW Legal studies in Business

Unilateral Contract Became Enforceable When Performed
Description

Texas high court held that a promise by an employee to employees that they would be cut in on profits when the business was sold in the future, if they remained with the company, was a unilateral promise that was performed upon by the employees who remained with the company until it was sold.

Topic Contracts
Key Words

Unilateral Contract; Enforceability; Employment-at-Will

C A S E   S U M M A R Y
Facts

AES was formed in 1996 and hired employees that year. At a meeting in 1997, they expressed concern to an executive that the company was not likely to survive as they used outdated equipment and worked long hours. The executive told the employees that they should stay with the company because it was likely the firm would merge with another company and, if it did, the original eight employees would be rewarded with five percent of the value of the sale or merger of AES. In 2001, AES was bought by another company. Seven of the eight original employees were still with the firm and requested their five percent of the sale price. The company refused to pay, contending that the employees were at-will and there was no enforceable contract. The alleged agreement was illusory and, in any case, it violated the statute of frauds because it took more than one year to come into effect. The employees sued for breach of contract. The trial and appeals court agreed with AES; the employees appealed.

Decision

Reversed and remanded. The employees who remained with the company from 1997 forward performed on the unilateral contract, thereby making it enforceable. A unilateral contract is created by the promisor promising a benefit if the promise performs, and the contract becomes enforceable when the promisee performs. Even if the promise by AES to pay the employees five percent of the sale revenues was illusory, the at-will employees, by staying at AES until it was acquired by another company, performed on the unilateral contract, thereby making it enforceable.

Citation Vanegas v. American Energy Services, ---S.W.3d--- (2009 WL 4877734, Sup. Ct., Texas, 2009)

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