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ABC Company and informal contracts

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ABC 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 At a meeting in 1997, they expressed concern to an executive that the company was not likely to survive as they used outdated equipment and worked long hours.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 ABC. In 2001, ABC 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.

You be the judge. Who wins? Why? Make sure you address all the issues.

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Solution Preview

The contract is enforceable. Let's look at a few things. The employer is correct in the fact that the employees were at-will employees, just as the employer is an at-will employer. Under the law, being an at-will employee or employer does not void contracts. Also, there are some contracts that do not have to be in writing in order to be enforceable by the courts. This is one of those cases.

This situation demonstrates a typical unilateral contract and is enforceable. In this ...

Solution Summary

This solution explains each aspect of the ABC company. All legal elements are discussed.