Dynegy Inc. V. Yates

Issues of law

Does the statue of frauds hold as a legal defense for an oral agreement regarding payment and collateral?

Defendant

Dynegy Inc

Material Facts

James Olis was an employee of Dynegy Inc and was charged on multiple counts of fraud. He hired Yates to defend him and stated that payment will be made by Dynegy, this statement was supported by Yate's associate. It was also confirmed by an attorney in Dynegy legal department. However, in the written agreement, it states that Olis was responsible for the payment of his legal fees. Yates testified that despite the written agreement, there was a oral contract between them where Dynegy was expected to pay the legal fees. After this happening, Dyngey hand delivered a note to Yates that they would pay him direct for legal fees through August 17,2003, but Olis will be expected to pay for everything forward on from that point. Dyngey covered the initial invoice (15,000) and the bill for 105,176 (paid in November but was for the transaction of August). Once Otis was convicted of all fraud case, Yates submitted a final invoice for 448,557 that represented all work performed from August 2003 to April 2004. Dynegy refused to pay the legal fees as Olis did not meet the "good faith standard." Yates sued Dynegy for breach of contract in not paying the rest of the legal fees, in which they orally agreed to.

Cause of Action

Legal Fees and Collateral Contracts

Rules of law

Statue of Frauds and written contract required for collateral

Plaintiff

Terry Yates

Final ruling

The Supreme Court decision reversed the lower courts decision, case was dismissed.

Defendants contentions

The defendants move for summary judgement, their defense resting on the statues of frauds.

Application of rules

The main purpose doctrine required Yates to prove: (1) Dynegy intended to create primary responsibility in itself to pay the debt; (2) there was consideration for the promise; and (3) the consideration given for the promise was primarily for Dynegy's own use and benefit—that is, the benefit it received was Dynegy's main purpose for making the promise. Yates was unable to carry the burden to prove the elements of the main purpose of the doctrine.

Plaintiffs contentions

The plaintiff contends that defendant breached the contract that was enforceable through an oral promise.

Lower courts ruling

The trial court denied the defendant's motion and Dynegy appealed to the Texas Court of Civil appeals. The appellate court affirmed the lower court's judgement; the statue of frauds did not apply because Dynegy's promise amounted to a primary obligation. The defendant appealed the the US Supreme Court.