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                                                                   EXHIBIT 10.27

May 11, 2004

Mr. James Guthrie
[ Address ]
[ Address ]

PERSONAL AND CONFIDENTIAL

Dear Jim:

      This letter sets forth the substance of the separation agreement (the
"Agreement") which Vitria Technology; Inc. (the "Company") is offering to you to
aid in your employment transition.

            NOTIFICATION DATE: May 7, 2004

            SEPARATION DATE: May 14, 2004

            RETURN DATE: You will have until May 29, 2004 to accept this
Agreement.

      1.    SEPARATION. Your last day of employment with the Company will be May
            14, 2004 (the "Separation Date"). On the Separation Date, you will
            be paid all accrued salary, and all accrued and unused vacation
            earned through the Separation Date, subject to standard deductions
            and withholdings. You are entitled to these payments regardless of
            whether you sign this Agreement.

      2.    SEVERANCE. If you sign this Agreement and comply with your
            obligations herein, the Company will pay you a one-time lump sum
            amount equal to your annual salary of $275,000 plus the remaining
            guaranteed portion of your 2004 bonus equal to $68,500.

      3.    OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as
            expressly provided in this Agreement, you will not receive any
            additional compensation, severance or benefits after the Separation
            Date.

      4.    STOCK OPTIONS. You expressly acknowledge and agree that your Company
            stock options cease vesting the day after the Separation Date. You
            must exercise vested options pursuant to the terms of Vitria
            Technology, Inc.'s EQUITY INCENTIVE PLAN, within ninety (90) days
            after the Separation Date.

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                                       2                            May 11, 2004

      5.    HEALTH INSURANCE. To the extent provided by federal COBRA law and
            the Company's current group health insurance policies, you are
            eligible to continue your current health insurance benefits at your
            own expense. Later, you may be able to convert to an individual
            policy through the provider of the Company's health insurance. If
            you timely elect coverage under COBRA and comply with all of your
            obligations under this Agreement, then the Company will pay the
            premiums necessary to continue your current health insurance
            benefits for twelve (12) months following the Separation Date.

      6.    EXPENSE REIMBURSEMENTS. You agree that within thirty (30) days of
            the Separation Date, you will submit your final documented expense
            reimbursement statement to Human Resources reflecting all business
            expenses you incurred through the Separation Date, if any, for which
            you seek reimbursement. The Company will reimburse you for these
            expenses pursuant to its regular business practice.

      7.    RETURN OF COMPANY PROPERTY. You agree to return to the Company on or
            before the Separation Date or on a date otherwise agreed to in
            writing with the Company, all Company property which you have had in
            your possession at any time, including, but not limited to, Company
            files, notes, drawings, records, business plans and forecasts,
            financial information, specifications, computer-recorded
            information, tangible property (including, but not limited to,
            computers), credit cards, entry cards, identification badges and
            keys; and any materials of any kind which contain or embody any
            proprietary or confidential information of the Company (and all
            reproductions thereof). Failure to return Company property as
            specified herein shall entitle Vitria Technology, Inc. to withhold
            severance benefits pursuant to this Agreement.

      8.    PROPRIETARY INFORMATION OBLIGATIONS. Both during and after your
            employment you will refrain from any use or disclosure of the
            Company's proprietary or confidential information or materials, and
            you acknowledge that you continue to be bound by the terms of the
            Company's Confidentiality Agreement attached hereto as Exhibit A.

      9.    CONFIDENTIALITY. The provisions of this Agreement shall be held in
            strictest confidence by you and the Company and shall not be
            publicized or disclosed in any manner whatsoever; provided, however,
            that: (a) you may disclose this Agreement to your immediate family;
            (b) the parties may disclose this Agreement in confidence to their
            respective attorneys, accountants, auditors, tax preparers, and
            financial advisors; (c) the Company may disclose this Agreement as
            necessary to fulfill standard or legally required corporate
            reporting or disclosure requirements; and (d) the parties may
            disclose this Agreement insofar as such disclosure may be necessary
            to enforce its terms or as otherwise required by law.

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                                       3                            May 11, 2004

      10.   NONSOLICITATION. You agree that for a period of 12 months
            immediately following the notification of your termination of your
            Vitria employment, you will not either directly or indirectly for
            yourself or on the behalf of others solicit, encourage, recruit or
            take any action intended to introduce Vitria employees or
            contractors to terminate their relationship with Vitria. You agree
            to bring to Vitria's attention any attempts to recruit current
            employees by any company that you are employed with.

      11.   NONDISPARAGEMENT. You agree that you will not at any time disparage
            the Company or its directors, officers, shareholders, agents, or
            employees in any manner likely to be harmful to the personal or
            business reputation of it or them, and the Company (through its
            officers and directors) agrees that it will not disparage you in any
            manner likely to be harmful to your personal or business reputation,
            provided that both you and the Company shall respond accurately and
            fully to any question, inquiry, or request for information when
            required by legal process.

      12.   RELEASE. In exchange for the consideration provided to you by this
            Agreement that you are not otherwise entitled to receive, you hereby
            generally and completely release the Company and its directors,
            officers, employees, shareholders, partners, agents, attorneys,
            predecessors, successors, parent and subsidiary entities, insurers,
            affiliates, and assigns from any and all claims, liabilities and
            obligations, both known and unknown, that arise out of or are in any
            way related to events, acts, conduct, or omissions occurring prior
            to or on the date you sign this Agreement. This general release
            includes, but is not limited to: (1) all claims arising out of or in
            any way related to your employment with the Company or the
            termination of that employment; (2) all claims related to your
            compensation or benefits from the Company, including salary,
            bonuses, commissions, vacation pay, expense reimbursements,
            severance pay, fringe benefits, stock, stock options, or any other
            ownership interests in the Company; (3) all claims for breach of
            contract, wrongful termination, and breach of the implied covenant
            of good faith and fair dealing; (4) all tort claims, including
            claims for fraud, defamation, emotional distress, and discharge in
            violation of public policy; and (5) all federal, state, and local
            statutory claims, including but not limited to claims for
            discrimination, harassment, retaliation, attorneys' fees, or other
            claims arising under the federal Civil Rights Act of 1964 (as
            amended), the federal Americans with Disabilities Act of 1990, the
            federal Age Discrimination in Employment Act of 1967 (as amended)
            ("ADEA"), and the California Fair Employment and Housing Act (as
            amended).

      13.   ADEA WAIVER. You acknowledge that you are knowingly and voluntarily
            waiving and releasing any rights you may have under the ADEA. You
            also acknowledge that the consideration given for the waiver and
            release in the preceding paragraph hereof is in addition to anything
            of value to which you are already entitled. You further acknowledge
            that you have been hereby advised, as required by the ADEA, that
            your waiver and release do not apply to any rights or claims that
            may arise after the execution date of this Agreement. You are
            advised to consult an attorney before waiving any rights that you
            may have under the ADEA. In accordance with the ADEA, you have a
            period of 21 days

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                                       4                            May 11, 2004

            in which to consider the terms of this Agreement (although you may
            accept it sooner) and 7 days, after signing this Agreement, in which
            you may choose to revoke your acceptance of its terms. If you
            exercise this right of revocation, you must put the revocation in
            writing and deliver or mail it to the Company within the seven (7)
            day revocation period. A mailed revocation must be postmarked within
            the seven (7) day revocation period and properly addressed to the
            Company, to the attention of the individual who has signed this
            letter. Eight (8) days after both parties have signed this Agreement
            (the "Effective Date"), its terms will automatically become
            effective provided that you have returned the Agreement to the
            individual who has signed this letter, unless you have revoked your
            acceptance of the terms.

      14.   SECTION 1542 WAIVER. IN GIVING THE RELEASES SET FORTH IN THIS
            AGREEMENT, WHICH INCLUDES CLAIMS WHICH MAY BE UNKNOWN TO YOU AT
            PRESENT, YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND SECTION
            1542 OF THE CALIFORNIA CIVIL CODE WHICH READS AS FOLLOWS: "A GENERAL
            RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
            OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
            RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
            SETTLEMENT WITH THE DEBTOR." YOU HEREBY EXPRESSLY WAIVE AND
            RELINQUISH ALL RIGHTS AND BENEFITS UNDER THAT SECTION AND ANY LAW OF
            ANY JURISDICTION OF SIMILAR EFFECT WITH RESPECT TO YOUR RELEASE OF
            ANY UNKNOWN OR UNSUSPECTED CLAIMS.

      15.   MISCELLANEOUS. This Agreement, including Exhibit A, constitutes the
            complete, final and exclusive embodiment of the entire agreement
            between you and the Company with regard to this subject matter. It
            is entered into without reliance on any promise or representation,
            written or oral, other than those expressly contained herein, and it
            supersedes any other such promises, warranties or representations.
            This Agreement may not be modified or amended except in writing
            signed by both you and a duly authorized officer of the Company.
            This Agreement shall bind the heirs, personal representatives,
            successors and assigns of both you and the Company, and inure to the
            benefit of both you and the Company, their heirs, successors and
            assigns. If any provision of this Agreement is determined to be
            invalid or unenforceable, in whole or in part, this determination
            will not affect any other provision of this Agreement and the
            provision in question shall be modified by the court so as to be
            rendered enforceable. This Agreement shall be deemed to have been
            entered into and shall be construed and enforced in accordance with
            the laws of the State of California as applied to contracts made and
            to be performed entirely within California.

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                                       5                            May 11, 2004

If this Agreement is acceptable to you, please sign below and return it to me.

I wish you the best in your future endeavors.

                                         Sincerely,

                                         VITRIA TECHNOLOGY, INC.

                                         By: /s/ Dale Skeen
                                             ----------------------------------
                                                 Dale Skeen
                                                 CEO

Exhibit A: Confidentiality Agreement

ACCEPTED AND AGREED:

/s/ James Guthrie
--------------------------
James Guthrie

May 14, 2004
Date

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                                       6                            May 11, 2004

                                    EXHIBIT A

                            CONFIDENTIALITY AGREEMENT