Morrison Law Journal
Morrison Law Group logo

The Morrison Law Journal
December 2017
Volume XII, Edition 12

When A Signed Writing Is Not The Final Word: Court Of Appeal Rules That Stock
Purchase Of Three Corporations Still Subject To Oral Agreement In Spite Of Three
Signed Writings Involving That Transaction

By: Edward F. Morrison, Jr., Esq.
Larry A. Schwartz, Esq.

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.”


signed agreements (Mr. Kanno claimed that there was an oral agreement to pay $2.5 million for preferred stock). At trial, evidence of the oral agreement was admitted and the jury found specifically that the seller had entered into an oral stock redemption agreement with the purchasers, that there was a breach of contract and that, as a result of the breach, the seller had suffered damages of $2.5 million plus 8 percent interest.

On appeal the purchasers argued that the three agreements were integrated and evidence of the oral agreement was inadmissible. As for the Contribution and Purchase Agreement, it had an integration clause and a California choice-of-law provision. As for the other two contracts, they were governed by Delaware law and also contained integration clauses. After considering both California and Delaware law, the Court of Appeal concluded that the three written agreements were at most partial integrations (citing to, for example, the fact that there were different parties to some of the agreements), and, therefore, the oral agreement was enforceable if its terms did not directly contradict and were consistent with those three agreements. The Court of Appeal went on to rule that, based on a comparison of the terms of the oral agreement with the terms of the three written agreements, there was no direct contradiction or inconsistency.

The Kanno case is important to consider in any transaction where there are multiple agreements. For example, with a construction contract, it is imperative that if there is a contract between owner and general contractor, any substantive agreements are confirmed by way of change orders that refer back to the owner/contractor agreement.

About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at

Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504 or

Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter.