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Vanegas v. Am. Energy Servs. - 302 S.W.3d 299 (Tex. 2009)

Rule:

A bilateral contract is one in which there are mutual promises between two parties to the contract, each party being both a promisor and a promisee. A unilateral contract, on the other hand, is created by the promisor promising a benefit if the promisee performs. The contract becomes enforceable when the promisee performs. A unilateral contract occurs when there is only one promisor and the other party accepts, not by mutual promise, but by actual performance or forbearance. When illusory promises are all that support a purported bilateral contract, there is no contract.

Facts:

American Energy Services (AES) hired the petitioner employees in 1996. In 1997, the employees voiced concerns to John Carnett, a vice president of AES, about the continued viability of the company. The employees alleged that, in an effort to provide an incentive for them to stay with the company, Carnett promised the employees, who were at-will and therefore free to leave the company at any time, that in the event of sale or merger of AES, the original eight employees remaining with AES at that time would get 5% of the value of any sale or merger of AES. AES Acquisition, Inc. acquired AES in 2001. Seven of the eight original employees were still with AES at the time of the acquisition. Those remaining employees demanded their proceeds, and when the company refused to pay, the employees sued, claiming AES breached the oral agreement. AES moved for summary judgment on two grounds: that the agreement was illusory and therefore not enforceable, and that it violated the statute of frauds. The employees responded that the promise represented a unilateral contract, and by remaining employed for the stated period, the employees performed, thereby making the promise enforceable. The trial court granted AES’s motion for summary judgment, and the employees appealed. The court of appeals affirmed, holding that the alleged unilateral contract failed because it was not supported by at least one non-illusory promise.

Issue:

Was the oral agreement between employees and the president of a company an enforceable unilateral contract?

Answer:

Yes.

Conclusion:

The supreme court agreed with the employees. Acocrding to the court, the fact that the employees continued their employment with the company until it was sold constituted performance under such a unilateral contract, making the promise enforceable, regardless of whether that promise might have been considered illusory at the time it was made. Whether the promise was illusory at the time it was made was irrelevant; what mattered was whether the promise became enforceable by the time of the breach. Almost all unilateral contracts began as illusory promises. The employees accepted the offer by remaining employed for the requested period of time. Assuming the employer did make such an offer, the seven remaining employees accepted the offer by staying with the employer until the sale. Regardless of whether the promise was illusory at the time it was made, the promise became enforceable upon the employees' performance.

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