Cases: A condition is a condition

Where a contract requires written notice as a condition for the exercise of a right, that notice is a condition precedent and will not be excused unless it is “incidental to” the agreement, according to a recent decision by the Texas Court of Appeals.

Henry Donaldson had been the president and chief operating officer of Digital General System. When DGS changed management teams, Donaldson was kept on for the transition period. His employment agreement included provision for stock options, which could be exercised up to one year after termination of employment, upon written demand. The same day Donaldson signed the employment agreement, however, he executed a separate Incentive Stock Option Agreement, which only gave him 30 days after termination to execute the stock option. Donaldson subsequently was terminated, and four months after termination he telephoned the company to exercise his options. A company representative told him he had no such options. He later sued.

The two agreements were ambiguous, said the court in an opinion by Justice David Bridges, since they conflict with each other. But since the the employment agreement stated specifically that it was “subject to” the stock option agreement, the court held that the latter controlled.

Moreover, even if the one-year period applied, Donaldson was out of luck because he failed to provide written notice. Donaldson argued that DGS’s refusal to acknowledge that he had any options excused his written demand to exercise them, but the court disagreed. The written notice was important to the company, and nothing that DGS did caused Donaldson to dispense with the notice. It therefore was not excused.

Donaldson v. Digital General Systems, 2005 Tex. App. LEXIS 5727 (Tex. App.-Dallas, July 22, 2005).