Sherrodd, Inc. v. Morrison-Knudsen Co.

• Decision Date: 22 August 1991
• Docket Number: No. 90-347,MORRISON-KNUDSEN,90-347
• Citation: 815 P.2d 1135,249 Mont. 282
• Parties: SHERRODD, INC., Plaintiff and Appellant, v.COMPANY, Schlekeway Construction Inc., COP Construction Inc., and Safeco Insurance Company of America, Defendants and Respondents.
• Court: Montana Supreme Court

Page 1135

815 P.2d 1135

249 Mont. 282

SHERRODD, INC., Plaintiff and Appellant, v. MORRISON-KNUDSEN COMPANY, Schlekeway Construction Inc., COP Construction Inc., and Safeco Insurance Company of America, Defendants and Respondents.

No. 90-347.

Supreme Court of Montana.

Submitted on Briefs May 16, 1991.

Decided July 23, 1991.

As Modified on Denial of Rehearing

Aug. 22, 1991.

Loren H. Torkelson and Frank Richter, Richter & Torkelson, Billings, for plaintiff and appellant.

Urban L. Roth and James A. Poore, Poore, Roth & Robinson, Butte, and W. Anderson Forsythe, Moulton, Bellingham, Longo & Mather, Billings, for defendants and respondents.

TURNAGE, Chief Justice.

This action arises out of a construction contract on which plaintiff Sherrodd, Inc., was a subcontractor. Sherrodd, Inc., appeals from a summary judgment entered for defendants by the District Court for the Thirteenth Judicial District, Yellowstone County. We affirm.

The issue is whether the entry of summary judgment for defendants was proper.

Sherrodd, Inc. (Sherrodd), is a family-owned Montana construction corporation. Sherrodd subcontracted with COP Construction (COP) to do certain earth-moving work involved in the construction of fifty family housing units in Forsyth, Montana, for the Army Corps of Engineers. COP itself was a subcontractor to the general contractors Morrison-Knudsen Company, Inc. (Morrison-Knudsen), and Schlekeway Construction, Inc. (Schlekeway). Safeco Insurance Company of America (Safeco) provided COP's payment bond on the job.

Sherrodd contends that while its officer William Sherrodd was examining the building site in preparation for submitting a bid on this project, a representative of Morrison-Knudsen told him that there were 25,000 cubic yards of excavation to be performed on the job. It claims that its bid of $97,500 on the subcontract was made in reliance on that representation, based on $3.90 per cubic yard for 25,000 cubic yards. Morrison-Knudsen denies that its representative made any such statement to William Sherrodd.

Sherrodd's bid, and, in turn, COP's bid including Sherrodd's bid, were submitted and accepted. Sherrodd began work before a written contract was signed. While performing the earthwork, Sherrodd discovered that the quantity of work far exceeded 25,000 cubic yards.

The written contract between Sherrodd and COP provided that Sherrodd would perform earthwork in the quantity "LS" for the consideration of $97,500. The parties agree that the letters "LS" mean lump sum. Sherrodd contends that its officers signed the contract, even though by then they knew that the job involved more than 25,000 cubic yards of earthwork, because a COP officer threatened to withhold payment for work already done unless the contract was signed. Sherrodd further contends that the COP officer verbally represented that a deal would be worked out wherein Sherrodd would be paid more than the sum provided for in the contract. COP's position is that it only agreed to assist Sherrodd in presenting a claim for additional compensation to the Army Corps of Engineers, based on differences in the moisture content of the soil from that stated in the bid proposal. That was done, but the claim was denied.

In its "Standard Subcontract Provisions," the contract entered between Sherrodd and COP also provided that

the Subcontractor has, by examination, satisfied himself as to the ... character, quantity and kind of materials to be encountered ... No verbal agreement with any agent either before or after the execution of this Subcontract shall affect or modify any of the terms or obligations herein contained and this contract shall be conclusively considered as containing and expressing all of the terms and conditions agreed upon by the parties hereto. No changes ... shall be valid ... unless reduced to writing and signed by the parties hereto.

Sherrodd was paid the $97,500 provided for in the contract, less approximately $9,750 for work left uncompleted. It brought this suit to set aside the price provisions in the contract and to recover quantum meruit plus tort damages. Its legal theories were fraud, both actual and constructive, and breach of the covenant of good faith and fair dealing. Defendants moved for summary judgment, which was granted based on the parol evidence rule regarding modification of written contracts.

Summary judgment is proper when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. The District Court held that, under the parol evidence rule, Sherrodd could not introduce evidence of the alleged oral misrepresentations by either the Morrison-Knudsen representative or the COP officer. Therefore, it concluded that even taking the evidence in the light most favorable to Sherrodd, summary judgment for defendants was proper.

The parol evidence rule is codified in Montana statutes. Section 28-2-904, MCA, provides that:

The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.

Section 28-2-905, MCA, provides that when an agreement has been reduced to writing by the parties, there can be no evidence of the terms of the agreement other than the contents of the writing except when a mistake or imperfection of the writing is claimed or when the validity of the agreement is the fact in dispute.

Although it mentions mutual mistake in its brief to this Court, Sherrodd did not rely on that theory in the proceedings below, as evidenced in the pretrial order and in the District Court's memorandum on the summary judgment. We will not consider on appeal a theory not raised at the trial court level. Morse v. Cremer (1982), 200 Mont. 71, 81, 647 P.2d 358, 363.

A further exception is made to the parol evidence rule when fraud is alleged. Section 28-2-905(2), MCA. However, that exception only applies when the alleged fraud does not relate directly to the subject of the contract. Where an alleged oral promise directly contradicts the terms of an express written contract, the parol evidence rule applies. Continental Oil Co. v. Bell (1933), 94 Mont. 123, 133, 21 P.2d 65, 67. Accord, Superior Oil Company v. Vanderhoof (D.Mont.1969), 297 F.Supp. 1086.

Here, any reliance on the alleged fraudulent statement of the Morrison-Knudsen representative is contradicted by the terms of the written contract that Sherrodd has, "by examination, satisfied himself as to the ... character, quantity and kind of materials to be encountered." The contention that the $97,500 covered only 25,000 cubic yards of earthwork contradicts the terms of the written agreement that all "negotiations and agreements" prior to the date of the contract are merged in the writing and that the work to be done is "lump sum." We conclude that the parol evidence rule applies. Because the written agreement supersedes all previous oral agreements, the rule prohibits admission of any evidence of the representation by the Morrison-Knudsen representative.

Next we consider Sherrodd's claim that COP officers induced Sherrodd officers to sign the contract with the promise that more money would be paid than the contract provided. Section 28-2-1602, MCA, provides that a written contract may be altered only by a subsequent contract in writing or by an executed oral agreement. Also, Sherrodd's subcontract provided that "No changes ... shall be valid ... unless reduced to writing and signed by the parties hereto." As the District Court noted, there is no allegation of a subsequent contract in writing, and if there had been an executed oral agreement to pay additional sums for the work, there would have been no reason for this lawsuit.

Because of the inadmissibility of Sherrodd's evidence as to alleged misrepresentations, the claim of breach of the covenant of good faith and fair dealing also fails. There is no allegation of any violation of the express terms of the written contract, as would be required in this arms-length contract under our opinion in Story v. City of Bozeman (1990), 242 Mont. 436, 791 P.2d 767.

As we have stated,

Commercial stability requires that parties to a contract may rely upon its express terms without worrying that the law will allow the other party to change the terms of the agreement at a later date.

Baker v. Bailey (1989), 240 Mont. 139, 143, 782 P.2d 1286, 1288.

The parol evidence rule is the public policy of Montana and it is clearly established by statute and the decisions of this Court. If this public policy and rule is not upheld, contracting parties that include lawful provisions in written contracts would be under a cloud of uncertainty as to whether or not their written...