Opinion ID: 696276
Heading Depth: 3
Heading Rank: 1

Heading: Contract to be Performed Within One Year

Text: 10 Section 26.01(b)(6) of the Texas statute of frauds requires that, to be enforceable, any agreement which is not to be performed within one year from the date of making the agreement must be in writing. 8 The district court concluded that the oral contract alleged by Floors was not intended to be performed within one year of its making and, therefore, was unenforceable under the statute of frauds. We disagree. 11 In his deposition, the president of Floors stated that he believed the oral contract between his company and Fieldcrest would last forever and ever and ever and that Fieldcrest would not terminate the dealership agreement except for good cause. In addition, Floors' president asserted his belief that his company's designation as a Karastan dealer would continue ... as long as [Floors] complied with the rules and regulations that [Fieldcrest] established for its authorized dealers. We conclude from this evidence--essentially uncontradicted by Fieldcrest--that the oral agreement between Fieldcrest and Floors was of an indefinite duration, terminable only for good cause. Thus, we are squarely faced with the question of law: Is an indefinite term contract, terminable only for good cause, required to be in writing under Section 26.01(b)(6) of the Texas statute of frauds? 12 In Falconer v. Soltex Polymer Corp. 9 , we held that an oral contract of employment that was alleged by the employee to last forever, so long as he obeyed the company rules and did his job, was an employment contract for an indefinite term, and was therefore barred by the Texas statute of frauds. 10 Our subsequent decision in Pruitt v. Levi Strauss & Co. 11 , however, observed that our decision in Falconer was questionable because, under Texas law, [i]f an oral employment agreement can cease upon some contingency, other than by some fortuitous event or the death of one of the parties, the agreement may be performed within one year, and the statute of frauds does not apply. 12 13 In Pruitt, we reviewed applicable Texas law and recognized that Texas courts generally held that when no period of performance is stated in an oral employment contract, the statute of frauds does not apply because the contract is performable within a year. 13 The Texas courts, we observed, drew a distinction between contracts of an unstated or indefinite duration, which fell outside the statute of frauds, and contracts of a specified duration longer than a year, which fell within the statute of frauds. 14 14 Despite our acknowledgement of Texas jurisprudence on the issue, we nonetheless held that the oral employment contract in Pruitt, which had not specified any length of time for performance, fell within the statute of frauds and was therefore unenforceable. The reason for our manifestly conflicting decision was that under the stare decisis rule of this Circuit--which provides that one panel cannot overturn the decision of a prior panel in the absence of en banc reconsideration or a superseding Supreme Court decision--we were bound by the precedent of Falconer. 15 15 In Pruitt we also acknowledged the corollary of our stare decisis rule, articulated in our decision in Farnham v. Bristow Helicopters, Inc. 16 , that in diversity cases we must follow subsequent state court decisions that are clearly contrary to one of our prior decisions. 17 We examined one Texas state court decision subsequent to Falconer--namely, Winograd v. Willis 18 , which we read as not clearly contrary to Falconer--and concluded that we were still bound by Falconer. 19 16 Since we decided Pruitt, there have been two published decisions by Texas Courts of Appeals that have addressed the applicability of the statute of frauds to an indefinite term employment contract. 20 In determining that the oral contract in the instant case was subject to the statute of frauds, the district court concluded that those subsequent Texas court decisions were not clearly contrary to our holding in Pruitt and that the court therefore could not disregard the holdings of Falconer and Pruitt. Our close examination of those subsequent Texas cases leads us to the contrary conclusion, i.e., that they are clearly contrary to our decisions in Falconer and Pruitt. That in turn compels us to conclude that Falconer is not a correct statement of Texas law and thus is no longer binding precedent in this Circuit. 17 The first case decided subsequent to Pruitt was Goodyear Tire & Rubber Co. v. Portilla. 21 In Goodyear, the oral employment agreement allegedly provided that the plaintiff's employment would last as long as I ... done my job right. 22 The Goodyear court held that the employer's representation to the plaintiff that she would not be discharged except for unsatisfactory performance formed a satisfaction contract. 23 As the contract did not specify how long the employment term would last, the court held that it was not barred by the statute of frauds because the contract was performable within one year. 24 The Goodyear court distinguished its case from others in which Texas courts had ruled that agreements promising to retain the employee until retirement had to be in writing to be enforceable under the statute of frauds, unless retirement was scheduled to occur within one year. 25 18 The district court held that Goodyear was not clearly contrary to Falconer because the Goodyear court noted that [a]t no time did [the plaintiff] contend that she presumed to have a job until she retired. 26 From this statement, the district court concluded that Goodyear cannot be said to stand for the proposition that satisfaction contracts never fall within the statute of frauds. We think that the district court misinterpreted Goodyear. 19 The statement in Goodyear on which the district court relies merely indicates that the contract involved in Goodyear was an indefinite term contract. If the contract had specified that it would last until retirement, the contract would have been for a definite term and would fall within the statute of frauds unless normal retirement age was to occur within one year. We read nothing in the passage quoted by the district court as being contrary to the general rule; indeed, the Goodyear court's statement merely echoes our conclusion that definite term contracts fall within the Texas statute of frauds whereas indefinite term contracts do not. 20 The second relevant Texas case decided after Pruitt was Gerstacker v. Blum Consulting Eng'rs., Inc. 27 The court in Gerstacker held that the statute of frauds did not apply to an employer's oral promise to employ the plaintiff during [his] good performance and satisfactory performance of his duties. 28 The court proceeded to determine the applicability of the statute of frauds by ascertaining the parties' intent regarding the duration of employment at the time of the confection of the contract. 29 Concluding that the parties had agreed that the intended term for performance of employment was until the occurrence of an express contingency (unsatisfactory performance), the court held that the contract could conceivably be performed within one year and that the statute of frauds therefore did not apply. 30 21 Another Texas case decided subsequent to Pruitt, Collins v. Allied Pharmacy Management 31 , although not clearly contrary to Pruitt, is significant in reinforcing our conclusion that the instant agreement is enforceable because it falls outside the statute of frauds. The Collins court illustrated the converse doctrine of Goodyear when it held that, because the alleged oral employment agreements were for specified terms of three years, they had to be in writing to be enforceable even though there existed the possibility of termination for cause within a year. 32 The Collins court rejected the plaintiffs' argument that the possibility of termination for cause took their three-year oral contracts outside the statute of frauds, concluding instead that the agreements' specified durations trumped the mere possibility of termination for cause: Such a possibility simply did not constitute performance of these specified-term contracts under their own terms. 33 22 We believe that Goodyear and Gerstacker are clearly contrary to our antecedent decisions in Falconer and Pruitt, and that Collins, although not clearly contrary to our decisions because it involved a definite term contract, lends support to our conclusion that Falconer is no longer a correct statement of Texas law. Under Farnham, therefore, we are precluded from following Falconer because subsequent Texas law is clearly contrary to its holding. 23 As we suggested in Pruitt, we are now satisfied that, if faced with this issue, Texas courts would conclude that a contract for an indefinite duration, terminable only for cause, falls outside the statute of frauds. And in light of such satisfaction, we deny Floors' motion for certification of that question of law to the Supreme Court of Texas. 24 The oral dealership agreement between Floors and Fieldcrest in the instant case is a satisfaction contract for an indefinite term--as long as [Floors] followed certain rules and regulations--and not for a specified duration. The contract therefore falls outside the purview of Section 26.01(b)(6) of the Texas statute of frauds. 25