Many consider a signed writing by all parties to a transaction to be final. To further document that, counsel will often include an integration clause confirming that the agreement of the parties, as set forth in the signed writing, is a full and complete recitation of all matters that have been agreed to. However, often is the case that there may be several signed writings for the same transaction. If all of the agreements fail to contain an integration clause, or do not fully incorporate each other, a question may arise as to whether an oral agreement may still be considered.
Under California law, in what is known as the Parol Evidence Rule, evidence of an oral agreement is not admissible where the parties have an integrated, final executed agreement. 1 In Kanno v. Marwit Capital Partners II, LLP (2017) WL 6547078 ("Kanno case"), the Court of Appeal, in the context of an investment banking transaction, considered the question of whether a claim for breach of an oral agreement was barred by the parol evidence rule. The Kanno case involved three agreements to acquire the stock of three entities: a Contribution and Purchase Agreement, a Stock Subscription Agreement and a Stockholder Agreement. The three agreements involved the sale of stock by the sole shareholder of three businesses based in Hawaii. In that matter, the sole shareholder of the three corporations – Albert Kanno - had increased revenues from approximately $3 million a year to $21 million a year, from the early 1980s to approximately 2007. Mr. Kanno wanted to sell and retire and sought an all cash transaction. A private equity fund, Marwit Capital Partners II, LLP, agreed to acquire the stock but was unwilling to do an all cash purchase as it wanted the shareholder (Mr. Kanno) to remain involved.
As mentioned above, three separate agreements were executed in regard to the transaction. The transaction closed in 2007 and the selling shareholder (Mr. Kanno) continued his employment with the now acquired entities until 2010. The businesses did not do well financially and Mr. Kanno sued the private equity fund in 2011 arguing that there had been a breach of an oral agreement which was not contained in any of the
1 California's Parol Evidence rule is codified in section 1856 of the Code of Civil Procedure. Subdivision (a) of section 1856 provides: “Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement.”