Facts
- A federal housing project in Forsyth, Montana involved general contractors Morrison-Knudsen Co., Inc. and Schlekeway Construction, Inc., with COP Construction, Inc. as a subcontractor.
- Sherrodd, Inc. subcontracted with COP to perform excavation and earth-moving work; Safeco Insurance Company of America issued COP’s payment bond.
- Sherrodd alleged that, during a site visit, a representative of Morrison-Knudsen stated that the job required 25,000 cubic yards of excavation; Sherrodd claimed it priced its $97,500 bid based on that estimate.
- Sherrodd began work before a written subcontract was executed and later concluded that the excavation quantity substantially exceeded 25,000 cubic yards.
- The written Sherrodd–COP subcontract set compensation as a lump sum (“LS”) of $97,500, contained an integration clause merging prior negotiations, and required modifications to be in writing.
- Sherrodd asserted it signed the written subcontract despite knowing the quantity exceeded 25,000 cubic yards because COP threatened to withhold payment for work already performed unless Sherrodd signed.
- Sherrodd further claimed COP and Schlekeway orally promised Sherrodd would be paid based on actual work performed rather than the lump-sum price; COP disputed this, stating it only agreed to assist with a claim for additional compensation to the U.S. Army Corps of Engineers on a different basis.
- After Sherrodd completed the work, it was paid the contract amount (subject to a deduction for incomplete work) but sought additional compensation and consequential business damages.
- Sherrodd sued for quantum meruit, fraud, and breach of the implied covenant of good faith and fair dealing; the district court granted defendants summary judgment, and Sherrodd appealed.
Issues
- Whether summary judgment was proper where Sherrodd sought to introduce extrinsic evidence of alleged pre-contract oral representations and oral payment promises that conflicted with a written, integrated lump-sum subcontract.
- Whether the fraud exception to the parol evidence rule permitted admission of alleged misrepresentations that directly contradicted the written subcontract’s terms.
- Whether alleged oral modifications could be enforced notwithstanding a contractual requirement that modifications be in writing.
Decision
- The Montana Supreme Court affirmed summary judgment for the defendants.
- The court held the parol evidence rule barred evidence of prior or contemporaneous oral statements that contradicted the integrated written lump-sum subcontract.
- The court held the fraud exception did not apply because the claimed misrepresentation and payment promises conflicted with the subcontract’s express lump-sum terms and integration language.
- The court held alleged oral modifications were invalid where the contract prohibited oral modifications and the written agreement superseded prior negotiations.
- Because the controlling contract terms could not be altered with inadmissible extrinsic evidence, Sherrodd’s quantum meruit, fraud, and implied-covenant claims failed as a matter of law.
Legal Principles
- When a written contract is intended as a complete expression of the parties’ agreement, it supersedes prior or contemporaneous oral negotiations, and parol evidence is inadmissible to contradict its terms.
- A merger (integration) clause and a clear lump-sum pricing term support treatment of the writing as fully integrated.
- The fraud exception to the parol evidence rule does not permit a party to prove reliance on an oral representation that directly conflicts with the written agreement’s express terms.
- Where a contract requires modifications to be in writing, alleged oral modifications that alter price or scope are unenforceable and do not create a triable issue of fact.
- A party may not avoid the parol evidence rule by recharacterizing a contract dispute as quantum meruit, fraud, or breach of the implied covenant when the theory depends on contradicting integrated contract terms.
Conclusion
The court enforced the integrated lump-sum subcontract and excluded conflicting oral representations and alleged oral modifications, concluding no genuine issue of material fact existed and affirming summary judgment against Sherrodd on its extra-compensation and related tort and implied-covenant claims.