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A subcontractor sued the prime contractor for breach of contract, and in the alternative for quantum meruit recovery, seeking compensation in excess of the amount set forth in the subcontract – arguing that an interim agreement between the Teaming Agreement and the final subcontract agreement provided for more compensation. Appellate court held that the subcontract was a fully integrated contract that did not allow revision by parol evidence or any evidence outside of the four corners of the contract. It further held that because a valid written contract existed there could be no implied contract or presumed agreement that would permit quantum meruit recovery. Vanhook Enterprises, Inc. v. Kay & Kay Contracting, LLC, 543 S.W.3d 569, (Kentucky 2018)

The subcontractor here executed a lien waiver acknowledging full payment for all services performed under the subcontract, including “full and final payment due including any retainage.” Despite that lien release, the subcontractor continued to seek additional payment of $326,024 worth of work it says was outside of the subcontract agreement lump sum contract price.

The basis for asserting entitlement beyond the contract price was the subcontractor’s argument that the parties executed a series of agreement – a Teaming Agreement, a “Prime Agreement” and then finally a “Subcontract Agreement.” The prime contractor denied that there was any so-called Prime Agreement between itself and the subcontractor and that issue is not further explained in the court decision.

What is important is that the court found the Subcontract Agreement to be a complete integration of the dealings between the parties. Accordingly, the court agreed with the trial court that the alleged additional work was included within a plain, ordinary reading of Exhibit A of the Subcontract Agreement as “any other ancillary items required to provide a complete bridge structure.” In refusing to allow evidence from the subcontractor to be considered for interpreting the contract, the state supreme court explained that “the parol evidence rule is a substantive rule that regulates the admissibility of written or oral evidence introduced to vary a written contract. “Under the parol evidence rule, an unambiguous writing intended by the parties to be a full and final manifestation of their agreement cannot be supplemented, contradicted, or modified by evidence of prior written or oral agreements.”

The court further stated that as a matter of law, a document which on its face appears to be a complete integratioin is a complete integration…. Here, the merger clause at Paragraph XXV of the Subcontract Agreement categorically states that the parties intended the Subcontract Agreement to “represent[ ] the entire and integrated agreement between the Contractor and Subcontractor and supercedes [sic ] all prior negotiations, representations, or agreements, either written or oral ….” (emphasis added).

“Because the merger clause states that the parties intended the Subcontract Agreement to be a complete integration, to embody the “entire integrated agreement” between Vanhook and Kay & Kay which supersedes all prior agreements, any evidence of a prior written or oral agreement is inadmissible to vary its terms. Therefore, the trial court properly found that any evidence of the alleged Prime Agreement was inadmissible to vary the Subcontract Agreement’s terms.”

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 20, No. 7 (Aug 2018).

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