Last week, the Franklin County Court of Appeals reversed a summary judgment previously entered on behalf of an employer on a breach of contract claim involving stock options promised in an offer letter. McGonagle v. Somerset Gas Transm. Co., L.L.C., 2011-Ohio-5768. The offer letter discussed the intent for the parties to enter into a later, more detailed employment agreement specifying the terms, but no such agreement was ever drafted, exchanged or signed. The trial court had found that the offer letter only constituted an agreement to later enter into a binding agreement, but the Court of Appeals disagreed.
According to the Court’s opinion, following negotiations, the plaintiff’s offer letter specified his salary, paid vacation, severance pay, eligibility for various bonuses and stock options, a portion of which would vest every six months within the next two years at a certain price and would immediately vest if he were fired without cause or if there were a change in control of the company. The offer letter provided that a more detailed employment agreement would later be provided specifying what could constitute termination “without cause,” or “with cause.” Both the employer and the plaintiff employee signed the offer letter. However, no detailed employment agreement was ever signed by the parties. The plaintiff was later provided with a management grant agreement concerning stock options in 2006, but he never signed it. He later resigned in 2007 and filed suit in 2008 for the stock options which he had been promised in 2002.
The employer argued that the offer letter was too vague to constitute an enforceable contract and left open a number of significant conditions, including the excise period and whether the plaintiff had ever vested in the options. The trial court concluded that the offer letter only constituted an offer to negotiate and later make a contract and, in the alternative, was too vague to be enforceable. The Court of Appeals reversed.
The Court found that the letter covered the essential terms of the parties’ agreement and could be enforced. "[I]f a term cannot be determined from the four corners of a contract, factual
determination of intent or reasonableness may be necessary to supply the missing term." The parties may rely on extrinsic evidence – such as the negotiations and later discussions -- to explain their intent. The introduction of such extrinsic evidence is permitted by the parol evidence rule, which only prohibits the admission of extrinsic evidence to explain the terms of an integrated (or complete) agreement after it has been reduced to writing. Where the parties have an incomplete agreement – or partially integrated agreement, extrinsic evidence is admissible to explain the missing terms.
A contract is partially integrated if the parties adopt it as a final expression of only one portion of a larger agreement, making the contract incomplete. Id. at ¶37. A party may introduce extrinsic evidence to supplement, but not vary or contradict, the written terms of a partially integrated contract. Id. at ¶38; Williams at ¶28, 30.
The fact that not all of the details (such as the affect of a resignation or duration of the options) had been explained in the offer letter does not mean that a contract was not formed.
The parties may have agreed that appellant's voluntary resignation would have no effect on his vested option to acquire stock or perhaps the parties did not reach an agreement on this issue because it was not contemplated by the parties. Similarly, the parties may have intended an option of unlimited duration or failed to contemplate a specified duration for the option. Regardless, we cannot conclude the letter lacks such enforceable clarity such that a factual determination of reasonableness or intent cannot be utilized to supply the relevant terms that are allegedly omitted from the letter.
In addition, it was not clear when the right to the options was triggered. “Thus, there is a genuine issue of material fact remaining as to whether or not the triggering event, equity financing, has occurred so as to entitle appellant to the stock option.” Therefore summary judgment was not appropriate for either party and the case was remanded “to the trial court for factual determinations of the relevant missing terms and, also, whether equity financing has occurred.”
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
