Today’s digital world allows many deals to be negotiated via email creating an easy to follow electronic trail of the bargaining process. In many cases, the parties’ email records serve as the primary evidence of the parties’ intent. However, the convenience of email is not always sufficient to satisfy the attorney’s mantra, "get it in writing." A proposed provision agreed to in an email may not be incorporated in the final draft of the contract, and, if so, the party seeking to enforce that provision can be out of luck. Illinois courts will not look to outside evidence, including emails, correspondence, and prior drafts of the contract, to interpret an otherwise unambiguous contract. But, outside evidence can be submitted to prove a breach of the contract. Such was the outcome in a recent Illinois Appellate Court decision.
Brian E. Wilgus ("Wilgus") was an employee of PaylinX Corp ("PaylinX"), at that time a privately held corporation. While employed there, Wilgus and other plaintiffs were identified as "key" employees and allowed to participate in a plan which granted stock options in PaylinX ("Plan"). The options under the Plan vested over time. The value of the option, to the employee, was the difference between the strike price and the price of the common stock at the time the option was converted to common stock.
The Plan contained the following provision that would be triggered by a merger: "If while unexercised Options remain outstanding under the Plan (i) the Company executes a definitive agreement to merge or consolidate with or into another corporation or to sell or otherwise dispose of substantially all its assets... all Options shall be exercisable in full, whether or not otherwise exercisable." In such event, the Plan required that an option be exercised "by giving written notice of such exercise to the Board." The "Board" was the board of directors of PaylinX. The Plan also required that "the Option Price shall be paid in full, at the time of exercise." Under the Plan, "[a]n optionee or a transferee of an Option shall have no rights as a shareholder with respect to any shares covered by his Option until the date of the issuance of a stock certificate to him for such shares."
On July 9, 2000, PaylinX entered into a merger agreement with CyberSource Corporation ("Cybersource"), a publicly traded company, but the merger was not actually completed until September 18, 2000. The merger agreement specified that Cybersource would assume the PaylinX employee stock options and allow PaylinX employees to buy Cybersource stock under the same terms provided in the Plan. The parties agreed that plaintiffs were presented with amended stock option agreements under which the vesting schedules changed; however, the parties disagreed when these amendments were presented.
Wilgus alleged that once the merger had taken place, he and the other plaintiffs were required to rely on Cybersource for directions regarding the procedure to exercise Cybersource stock options, because the PaylinX board of directors ceased to exist. Cybersource provided its instructions to Wilgus and others in a series of emails. In one such email, Cybersource instituted a blackout period defined by it as "a period of time during which the company has restricted its employees from trading the company's stock." The blackout period operated to bar Wilgus from exercising his option until November 15, 2000.
Wilgus alleged that the blackout restrictions constituted a breach of his option contract because at the time of the merger Cybersource stock was selling at $10.75 per share, but by the time CyberSource converted the shares in November 2000, the price of Cybersource stock had dropped to $1.85 per share, making the options worthless.
The court held that Cybersource could not rely upon information stated in the emails to define the terms of the contract. It agreed with Wilgus that the Plan’s unambiguous provision that "all Options shall be exercisable in full, whether or not otherwise exercisable" was controlling over the subsequent emails notifying Wilgus and the other PaylinX employees of the blackout period. The court reasoned that because the terms and the validity of the contract were not in dispute, the emails between Cybersource and Wilgus could not be introduced as evidence for the purpose of determining the parties’ rights and obligations under the Plan. Instead, such emails could only be used as evidence to prove whether each party performed under the contract.
Proper memorialization of a contract is an essential step in avoiding litigation. Parties must take care to ensure that agreed modifications to the contract are incorporated into the contract or made a part thereof by subsequent modification. If not the parties’ risk losing their rights to enforce such provisions or modifications. Please contact a member of the firm if you have any questions about the construction of a contract, including the integration of informal agreements negotiated via email, or to discuss your rights under an existing contact.