## 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

1. 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.
2. Whether the fraud exception to the parol evidence rule permitted admission of alleged misrepresentations that directly contradicted the written subcontract’s terms.
3. 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.


Sherrodd, Inc. v. Morrison-Knudsen Co., 249 Mont. 282, 815 P.2d 1135 (Mont. 1991)