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Tuesday, January 4, 2005

Cases—Novation—Later option deal rendered earlier promise unenforceable

Rhode_island_flag An employee who failed to get the 2,000 options he was promised as part of his employment, but later took and exercised 6,000 options (with different terms) could not recover on the original promise because the later deal worked a novation, according to the Rhode Island Supreme Court.

Plaintiff Scott Weaver went to work for American Power Conversion Corp., on a promise that he would get 2,000 options.  Through an apparent error, the company failed to give him the options, but promised he would be given 6,000 less valuable options the next year.  Weaver objected because he thought the deal as not as good as the one originally proposed, but he later took the 6,000 and exercised them, making about $400,000.  After leaving APC’s employment, Weaver sued based on the original offer of 2,000 shares.

No, said the court in a per curiam opinion. The court was dubious about whether what happened was a novation or an accord and satisfaction, but concluded that the distinction was unimportant—the question was whether the 6,000 shares were intended to extinguish the prior obligation and substitute a new one.  Since the testimony was that the 6,000 shares were offered as a replacement for the original 2,000, plaintiff had the burden of showing that it was not a novation, and he failed to do so.  Weaver v. American Power Conversion Corp., 2004 R.I. LEXIS 201 (Sup. Ct. Dec. 15, 2004).

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