DD 2/16/10 Parol evidence will not avail homeowner who signs unequivocal contract guaranteeing subcontractor payment.

Daily Development for Tuesday, February 16, 2010
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri
dirt@umkc.edu

CONSTRUCTION LAW; SUBCONTRACTORS; PAROL EVIDENCE: If a property owner agrees in an unambiguous contract with a subcontractor to pay for work related to the construction of a residence, courts will not use parol evidence to invalidate such contract, even if the parties believed that the subcontractor would be paid by the general contractor when the contract was executed.

Barber Cabinet Company, Inc. v. Sparks, 2009 Westlaw 4406079 (Ky. Ct. App. 2009). (Not yet released for publication)

Sparks hired Parker as general contractor to construct a residence. Sparks selected Barber, a subcontractor recommended by Parker, to complete the cabinets in the residence. Written specifications for the cabinets were prepared in a sales contract, and Sparks executed language at the end of contract which included a provision that "[t]he undersigned has ordered and approved all specifications, materials and finishes on this job. The undersigned will be responsible personally for payment in full of the total job cost . . . ."

Barber built the cabinets to the satisfaction of Sparks. However, Parker failed to pay Barber for the work, prompting Barber to file a lien on the property in an effort to obtain payment. Subsequently, an entity Barber owed for work associated with the project filed suit for payment against Barber, and Barber cross-claimed against Sparks and sought enforcement of its lien and payment of the debt. The trial court addressed the issue of "whether, upon Parker's failure to pay Barber, Sparks is liable to Barber under the written instrument [described above]."

The trial court allowed parol evidence of precontractual negotiations and the parties' course of conduct to determine intent, concluding that despite Sparks' signature on the contract, there was no meeting of the minds with respect to Sparks' personal responsibility for payment. Accordingly, it held that both Sparks and Barber believed Parker would be responsible for the debt. In holding for Sparks, the trial court relied on Murphy v. Torstrick, a case in which parol evidence was admitted to invalidate the terms of a contract after the court determined that the parties did not intend to be bound by the writing.

On appeal to the Kentucky Court of Appeals, Barber argued that the language of the written agreement was unambiguous, and therefore parol evidence should not have been allowed into evidence. The court began with a general discussion of when parol evidence may be considered as a means to determine whether a contract has been formed, noting that parol evidence may not be considered to vary or alter the terms of a written agreement. It also acknowledged the practical difficulties of the Murphy case and its understanding of the trial court's decision to allow parol evidence, given two innocent parties and the sympathy often afforded to homeowners under the circumstances. Nevertheless, being "bound to observe the basic precepts of contract law and the overriding principles served by the enforcement of contracts as written," the court stated that the rule that "a written contract should be enforced according to its terms in all but very limited circumstances is, in a broad sense, necessary to realize . . . predictability and efficiency in business transactions."

The court distinguished Murphy from the subject case, noting that the writing in Murphy was a bid for a construction project, the language in the contract was utilized only to obtain financing from a third party, and neither party expected the writing to serve as a binding contract. In contrast, the court in the subject case believed the minimum expectation was that Parker would pay Barber, and that if such payment did not occur, the contract should not be negated.

"Even though both parties expected Parker to pay, when Sparks signed the contract he undertook responsibility to see to it that Parker did pay prior to his final payment to Parker."

Quoting a 2007 Kentucky Supreme Court case, the court stated that "[i]f the legality of the contract can be sustained in whole or in part under any reasonable interpretation of its provisions, court should not hesitate to decree enforcement." While the parties intended for Parker to pay Barber, that mutual presupposition did not negate the express intention of the parties in their written instrument. Because an objective analysis of the language used in the contract clearly indicated mutual asset, the court of appeals reversed the trial court holding in favor of Sparks and ordered payment to Barber.

Comment: Missouri case law, at least, is replete with cases in which owners or lenders provided assurances to subcontractor that they would be paid, with the result that the subcontractor’s liens were granted greater enforcement or higher priority.  Although one has sympathy for the owner/consumer here, he is the one who picked the contract and consequently delivered the bad apple into the basket.  The subcontractor’s reliance on the language of the contract is fair and appropriate. 

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