No. 90-347 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

Plaintiff and Appellant, 

-vsJUL 23 1991 

t'd 3hitL 

CLERK OF SUPREME COURT 

STATE OF MONTANA 

MORRISON-KNUDSEN COMPANY, SCHLEKEWAY CONSTRUCTION INC., COP 

CONSTRUCTION INC., and SAFECO INSURANCE COMPANY OF AMERICA, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable Russell K. Fillner, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Loren H. Torkelson and Frank Richter; Richter & 

Torkelson, Billings, Montana. 

For Respondent: 

Urban L. Roth and James A. Poore; Poore, Roth & 

Robinson, Butte, Montana. W. Anderson Forsythe; 

Moulton, Bellingham, Longo & Mather, Billings, 

Montana. 

Submitted on briefs: May 16, 1991 

Filed: 

I 

Clerk 
Chief Justice J. A. Turnage delivered the Opinion of the Court. 

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. 
Sherroddls bid, and, in turn, COP1s bid including Sherroddls 

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 l1LSl1 for the 

consideration of $97,500. The parties agree that the letters ItLS1' 

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. COP1s 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 l1Standard Subcontract provision^,^^ 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. 

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, examination, satisfied 
himself as to the . . . character, quantity and kind of materials 

to be enc~untered.~~ 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 agreementstt 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 par01 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 Sherroddts 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, Sherroddts subcontract provided that ItNo 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 Sherroddts 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 

6 
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 

contracts may be relied upon. The public policy and law does not 

permit such uncertainty to occur. 

We conclude that the compensation of Sherrodd is governed 

exclusively by the written contract and that Sherrodd's claims are 

barred under the parol evidence rule. We hold that the District 

Court did not err in granting summary judgment for defendants. 

Affirmed. 
We concur: 

Justices 
Justice Terry N. Trieweiler dissenting. 

I dissent from the opinion of the majority. 

If the facts are as alleged by the plaintiff (and for purposes 

of this proceeding we must assume that they are), then the result 

of this case is that no party can be held accountable for its 

fraudulent conduct so long as it is in a sufficiently superior 

bargaining position to compel its victim to sign a document 

relieving it of liability. 

The facts, as alleged by the plaintiff, offend any reasonable 

sense of fairness. No court should be so bound by a 58-year-old 

precedent that it cannot adapt to circumstances such as those 

presented in this case. 

The plaintiff was informed by Lou Castino, the construction 

manager for Schlekeway and Associates, that the project he was 

being asked to bid on involved moving 25,000 cubic yards of dirt. 

It was based on that information that he submitted his bid. It was 

based on his bid that he was given an oral request to proceed with 

the work. 

After commencing work on the project, plaintiff realized that 

the amount of earth that had to be moved greatly exceeded 25,000 

cubic yards, and was actually more than twice that amount. He had 

conversations with representatives of both COP Construction and 

Schlekeway and Associates, during which it was agreed that the 

amount of work to be performed would be recalculated, and during 

which the defendants agreed to compensate plaintiff on the basis 

9 
of the actual amount of work done, rather than the price which was 

originally agreed upon. 

By May 22, 1985, plaintiff had already been working on the 

project and had incurred substantial expenses and obligations to 

his own employees. He had not been paid for his work, and was 

still operating without a written agreement. It was on that date 

that he was requested by COP Construction's superintendent to sign 

the written contract which the defendants now assert as a bar to 

his cause of action. He was advised that if he did not sign the 

agreement he would not receive the progress payment in the amount 

of $70,372.80 which was due. Without the progress payment he would 

not have been able to pay his current expenses and payroll. 

He was further advised that he would not be bound by the terms 

of the written agreement, but that he would be paid for the actual 

work done at the rate of $3.90 per cubic yard. 

Thereafter, the amount of earth work to be done was 

recalculated at approximately 50,000 cubic yards. On that basis, 

plaintiff tried to recover the full amount due, but payment was 

refused. Instead, the defendants raised the written agreement as 

a bar to any further payment to the plaintiff. 

Because of the defendantst failure to pay the plaintiff the 

additional $100,000 to $120,000 which they owed him, plaintiff's 

business lost its ability to borrow money, lost its bonding, and 

was unable to complete additional contracts because of a lack of 

operating capital. Plaintiff was unable to bid on contracts that 

10 
required bonding, and completely lost its ability to carry on 

business as it had in the past. As a direct result of the 

defendants1 failure to pay the amounts due, plaintiff was unable 

to continue in business as a construction company, which it had 

done for the previous 30 years. 

If the plaintiff's allegations are true, then defendant COP 

Construction Company's conduct, at least, satisfies the elements 

of fraud. See Poulsen, et al. v. Treasure State Industries, 

192 Mont. 69, 626 P.2d 822 (1981). COP'S employees represented to 

the plaintiff that he would be paid for the full amount of work 

done, regardless of the written terms of the contract. That 

representation was untrue and material, and COP'S superintendent 

either knew it was untrue or had no reason to believe that it was 

true. COP Construction intended that the plaintiff act in reliance 

upon that representation. Plaintiff did rely on it, and had no 

reason to believe that COP'S superintendent would mislead him. As 

a result, plaintiff has sustained the total loss of his business 

and substantial damages. 

The majority has affirmed the dismissal of plaintiff's claim 

based solely on the par01 evidence rule found at 5 28-2-904, MCA. 

That rule provides that a written agreement supersedes all oral 

negotiations which preceded or accompanied the execution of the 

instrument. Furthermore, 5 28-2-905, MCA, provides that the terms 

of a written agreement cannot be proven by evidence other than what 

is contained in the written document. 

11 
However, an important exception is found at § 28-2-905 (2) , 

MCA, which provides, in relevant part, as follows: 

This section does not exclude other evidence of the 

circumstances under which the agreement was made or to 

which it relates . . . or other evidence to explain . . . fraud . 

In addition, 5 28-2-1611, MCA, provides as follows: 

When, through fraud or a mutual mistake of the parties 

or a mistake of one party while the other at the time 

knew or suspected, a written contract does not truly 

express the intention of the parties, it may be revised 

on the application of a party aggrieved so as to express 

that intention, so far as it can be done without 

prejudice to rights acquired by third persons in good 

faith and for value. 

(Emphasis added.) 

In this case, in spite of the exceptions to the parol evidence 

rule set forth by statute above, the majority has chosen to rely 

on this Court's 58-year-old decision in Continental Oil v. Bell, 

94 Mont. 123, 133, 21 P.2d 65, 68 (1933). In that case, this Court 

held that parol evidence of fraud was not admissible when the oral 

promise directly contradicts a provision of the written contract. 

I would not follow this Court's previous decision in 

Continental Oil for two reasons: 

1. That decision made no specific reference to the statute 

which is controlling, and yet adds qualifications to the statute 

which were not included by the legislature. The legislature 

provided that parol evidence could be offered to establish that a 

contract was induced by fraud. It made no exception where evidence 
of the fraudulent oral agreement contradicted a term in the written 

agreement. 

2. To follow the decision in Continental Oil creates a 

terrible injustice, rewards fraudulent parties who are in a 

superior bargaining position, and totally defeats the purpose for 

which the fraud exception was provided to the par01 evidence rule. 

Based on this decision, and our previous decision in 

Continental oil, all that a fraudulent party needs to do in order 

to avoid accountability for fraudulent conduct is to obtain the 

signature of his defrauded victim on a written agreement. 

The majority expresses concern that but for this decision 

general contractors would not be able to rely on written agreements 

with their subcontractors. However, general contractors who induce 

subcontractors to enter into a written agreement by fraudulent 

representations should find no security in the piece of paper which 

resulted from their culpable conduct. Furthermore, a justice 

system worth its salt should have equal compassion for Montana's 

many subcontractors who, while operating without the benefit of 

legal advice, sign whatever is necessary in order to keep their 

operations afloat and their crews at work. When what they have 

signed results from an obvious misrepresentation and causes them 

the kind of substantial damages and hardship that have resulted in 

this case, those subcontractors are entitled to the protection of 

Montana's laws and its courts. 
For these reasons, I dissent from the majority opinion. I 

would reverse the judgment of the District Court and remand for a 

jury trial to determine the merits of the plaintiff's claim. That 

is really all the protection that Montana's general contractors 

need. 

I concur with the foregoing dissent of Justice Trieweiler.