Burton, Inc. v. Durkee

Full title: CHARLES A. BURTON, INC., APPELLEE v. DURKEE ET AL., APPELLANTS

Court: Supreme Court of Ohio

Date published: Dec 3, 1952

158 Ohio St. 313 (Ohio 1952)

109 N.E.2d 265

Opinion

No. 32972

Decided December 3, 1952.

Parol evidence rule — A rule of substantive law — Effect — Mutual promises integrated into written contract — Evidence of other oral promises excluded from consideration.

1. The parol evidence rule is a rule of substantive law which, when applicable, defines the limits of a contract.

2. Where parties, following negotiations, make mutual promises which thereafter are integrated into an unambiguous written contract, duly signed by them, the parol evidence rule excludes from consideration evidence as to other oral promises resulting from such negotiations.

APPEAL from the Court of Appeals for Cuyahoga county.

This cause originated in the Court of Common Pleas of Cuyahoga County as an action for the foreclosure of a mechanic's lien.

The plaintiff, Charles A. Burton, Inc., is a corporation organized under the laws of Ohio with its principal place of business in Cleveland.

The defendants are husband and wife and owners of the premises subject to the lien.

The case was tried on the petition, amended answer and cross-petition, and reply.

The petition alleges that on or about September 23, 1948, the plaintiff and the defendant Harvey B. Durkee entered into a contract, partly oral and partly written, under the terms of which plaintiff, a general contractor, agreed to furnish all labor, materials and services requisite to construct, according to plans prepared by another, a residence with garage on premises of the defendants located in Lyndhurst, Ohio. However, it is alleged that the furnishing and installing of heating, wiring and kitchen equipment specifically were excepted from the contract, and the plans were to be modified by omitting the finishing of the second floor, the plastering of the garage, the laying of a stone floor on the back porch and the stone veneering of the front of the garage.

Plaintiff alleges that under the contract the cost of said construction was to include the cost of all materials, labor, permits, taxes and insurance furnished, supplied or incurred in connection therewith and all other costs and expenses directly incident to said work, together with a fixed fee of $2,700 to the plaintiff and compensation at a rate of $2.625 per hour for the time of Charles A. Burton, president of the plaintiff corporation, "spent on matters pertaining to said job, either in the office or in the field."

Plaintiff alleges that it promptly entered into performance of the contract, ordering on its own account and credit and causing to be delivered to the premises above referred to all necessary materials for the construction of the building; that it assigned laborers, carpenters and other building mechanics carried on its own payroll to fabricate such building; that it sublet on its own account and credit such portions of the work as could not be done directly by the plaintiff as general contractor; that it placed one of its foremen in immediate charge of the job; that the company's president devoted such of his own time thereto as was necessary; and that the plaintiff paid the weekly payroll of its laborers, mechanics and foremen and for labor and materials furnished by subcontractors, and also all other costs and expenses necessary or incidental to the construction of said building, including permits, public liability and state industrial compensation insurance premiums, contributions to the state Bureau of Unemployment Compensation, social security, federal income taxes and its own office overhead, for which overhead, however, no charge was made to the defendants.

Plaintiff alleges that the defendants made frequent changes in materials, including substitutions for materials previously installed by the plaintiff, thereby adding greatly to the time consumed in the construction of the building; that in the course of the work changes in the plan and style of construction were made, which were necessitated by reason of deficiencies and defects in the drawings; and that such changes caused substantial additional cost for labor, materials and supervision.

Plaintiff avers that on December 31, 1948, it submitted to the defendants a bill for expenditures and charges for labor, materials and services in the sum of $14,802.16, which sum the defendants shortly thereafter paid; that on March 31, 1949, a second invoice was submitted for $12,899.85 on which the defendants paid the sum of $10,000, out of which payment $18 was applicable to work done on defendants' other residence; that the next invoice submitted to the defendants was under date of May 31, 1949, and was in the sum of $9,900.91; and that the last invoice was submitted July 15, 1949, in the sum of $2,053.15, no part of which has been paid, and defendants still refuse to pay the same.

Plaintiff alleges that notwithstanding the defaults in payment it continued work until June 14, 1949, at which time the residence was substantially completed, but the defendants directed the plaintiff to desist from further work, with which direction it complied; and that it performed the contract in a proper, efficient and workmanlike manner except as it was prevented therefrom by the conduct of the defendants.

Plaintiff alleges that it has expended of its own funds, or become liable for, $36,597.25 in the performance of this contract and that there is now due the plaintiff from the defendants the sum of $14,871.91; and that said last sum is not in excess of the fair and reasonable cost and value of the labor and materials furnished and services performed by the plaintiff for the benefit of the defendants, measured by the existing market and prevailing rates under the circumstances then and there appertaining.

The plaintiff prays that it may be adjudged to have a valid and subsisting mechanic's lien on the premises for the sum of $14,871.91, with interest at the rate of six per cent from June 14, 1949; that its lien be foreclosed; and that all liens on the premises be marshaled, the priorities thereof determined and the premises ordered sold as upon execution.

The defendants in their answer admit that the plaintiff and defendants entered into a contract under which plaintiff was to construct a dwelling house with garage, in accordance with the plans and specifications as modified in certain specified particulars; and that by the terms of the contract plaintiff was to furnish all labor, materials and services required to construct such residence except those required for the installation of heating, electric wiring and the kitchen equipment, all of which latter items were to be furnished by the defendants at their own expense. The defendants deny that under the contract the plaintiff was to omit the plastering of the garage, the laying of the stone floor on the back porch or the stone veneering of the front of the garage.

Paragraphs five and six of the answer are as follows:

"5. Defendants further say that it was agreed between the parties at the time said contract was entered into, as a part of said contract, that the entire cost to said defendants for the labor and materials to be furnished by plaintiff would be approximately $27,000 plus the sum of $2,700 as plaintiff's fixed fee for its overhead and profit; that such fee was computed as ten per cent of the approximate price for which the plaintiff agreed to furnish such labor and materials.

"6. Defendants further say that plaintiff represented and warranted that said construction would be done in a good and workmanlike manner, and that the cost thereof would not exceed the fair and reasonable value of the labor and materials used plus the fixed fee of $2,700, nor the fair and reasonable value of the improvements thereby made to defendant's land."

Defendants admit further that the plaintiff proceeded with the construction of the residence, and that it furnished certain materials and labor therefor, but deny that the defendant Harvey B. Durkee interfered with the construction of the premises as alleged. Defendants admit the submission of bills, as alleged, and that payments were made thereon as claimed by the plaintiff, but deny that they directed the plaintiff to discontinue work.

The answer continues as follows:

"* * * that plaintiff on numerous occasions, when questioned about the excessive cost of said house and garage, had assured defendants, and promised them, that if the cost exceeded what defendants were willing to pay, plaintiff would at any time on request take over said property from defendants and pay them whatever amount they had theretofore paid on the same, including the cost of the land; that on June 14, 1949, defendants requested plaintiff to take over said property and pay them the amount they had paid toward the cost of the house and lot; that plaintiff's president thereupon stated that it would stop work until it could determine in the next few days what it would cost to complete the job, at which time plaintiff would inform defendants as to the amounts involved and whether it would purchase the property from defendants; that on the following day defendants received notice from plaintiff that it would do no further work on the house. Defendants say that plaintiff wrongfully and without cause refused to complete the work required by its contract with defendants.

"Defendants deny that plaintiff has done and performed all things in an efficient and workmanlike manner; deny that plaintiff has expended $36,597.25 in the performance of said contract, and deny that there is now due and owing to plaintiff from them the sum of $14,871.91, or any other sum whatsoever."

Defendants then plead that they paid $11,570.36 for labor and materials in the completion of the house and garage; that the reasonable value of the work done by the plaintiff in finishing the second floor which was in addition to the original contract had a reasonable value of $1,800; that in giving full credit to the plaintiff, in accordance with the contract as alleged in paragraph five of the answer, the agreed price with additions was $29,888.80; and that if plaintiff's claim is granted they will have paid the sum of $50,369.25, which constitutes an excess of $21,307.32 above the contract price.

Defendants aver further that, if the plaintiff did expend the money as claimed, "such expenditures were grossly excessive and far beyond the fair and reasonable value of the labor and materials supplied by it, and greatly in excess of the reasonable value of the improvement to defendants' property by plaintiff, the reasonable value of which does not exceed $21,000."

Defendants then deny each and every other allegation in the petition not expressly admitted to be true.

In their cross-petition defendants adopt the allegations in the answer and in addition thereto allege that the defendants have paid for the construction of the house the sum of $36,354.52 to the plaintiff and other persons; that, allowing 10 per cent to plaintiff because the agreed price was approximate, the contract price for which plaintiff agreed to construct the house was $32,877.68; that they have suffered additional damages in the sum of $500 by reason of the failure of plaintiff to properly construct concrete floors; and that by reason of the overpayment and the damages to concrete floors they have been damaged in the amount of $3,976.84, for which they pray judgment.

A reply was filed which admits certain payments by the defendants by reason of a small mechanic's lien, but specifically denies that the plaintiff represented, warranted or agreed that it would erect defendants' said building for any specified sum; that it undertook to erect such building as provided in any written specifications or by any complete and detailed plan; and that it failed in any respect to serve the defendants in the erection of the building faithfully and in a good and workmanlike manner.

The case was tried to the court, a jury being waived. Upon consideration thereof the court made separate findings of fact and conclusions of law. It found that the parties had entered into a contract for the construction of the building substantially as pleaded by the plaintiff, and that "for the materials, labor and services agreed to be furnished and installed by plaintiff, defendants agreed to pay said plaintiff the sum of $27,000 to cover the cost of such labor, materials and services, together with the additional sum of $2,700 for the overhead, profit, and compensation of said plaintiff for the services to be performed by it, or a total of $29,700."

The court found that certain changes in the manner of construction originally agreed to had increased plaintiff's costs in the sum of $3,500; that the defendants had paid persons other than plaintiff for materials and labor which plaintiff was obligated by its original contract to provide; that $2,000 was the reasonable cost of such materials and labor; that the defendants had paid a mechanic's lien for other materials furnished, in the sum of $857.18, for which they were entitled to credit; and that "plaintiff did not efficiently and expeditiously push the job to conclusion, but rather used too much labor time for the work accomplished."

For its conclusions of law the court found that there was due the plaintiff from the defendants the amount of the original contract price of $27,000, plus plaintiff's fee of $2,700 and the sum of $3,500, the reasonable cost and value of the extras furnished, less, as credits, the $857.18 paid by the defendants to release the mechanic's lien, $2,000 as the reasonable cost of labor and materials furnished by the defendants, for which the plaintiff was obligated to pay by its contract, and the sum of $24,784.16 paid by defendants to plaintiff in cash, leaving a balance due the plaintiff from the defendants of $5,558.66, for which sum the court entered judgment.

Appeals were prosecuted by the plaintiff, Charles A. Burton, Inc., and by the defendants, Harvey B. Durkee and Hazel E. Durkee, to the Court of Appeals where they were heard on questions of law. That court, upon consideration, found that substantial justice had not been done to the plaintiff as follows:

(1) The finding of the Court of Common Pleas that there was a contract to construct a building for $27,000 plus the additional sum of $2,700 for overhead, profit and compensation is not supported by any credible competent evidence and is contrary to the admissions of the defendants in their answer and to the contract between the plaintiff and the defendants; (2) by the undisputed competent evidence in the record the contract was on a cost plus a fixed fee basis entitling plaintiff to receive thereunder from the defendants its actual job costs, as such job costs were defined in the contract and interest as claimed in the petition, of all materials, labor and services furnished, installed and performed by it pursuant to said contract and its job costs arising by reason of agreements between the parties for additions and changes in the building made subsequent to the contract, plus the fixed fee stipulated in the contract, to wit, $2,700; and (3) defendants are not entitled to recover from the plaintiff or to offset against plaintiff's costs the costs to the defendants of any labor and materials installed by them for improvements and not included by plaintiff in its costs, but defendants are entitled to offset against plaintiff's costs and recover of plaintiff any lawfully compensable damages suffered by them by reason of any malfeasance, extravagance, wastefulness or negligence on the part of the plaintiff in the prosecution of the work or failure to proceed therewith with due diligence.

The Court of Appeals, therefore, rendered judgment in favor of the plaintiff and against the defendants upon plaintiff's petition and upon the cross-petition of the defendants, subject "to the determination of the issues upon which this cause is remanded."

The cause was remanded to the Court of Common Pleas for a new trial "upon the issues, only, of the amount of plaintiff's unpaid costs, inclusive of fee and compensation, as hereinbefore indicated, plus interest, and of the amount, if any, of any lawfully compensable damages which defendants may have suffered by reason of any malfeasance, extravagance, wastefulness or negligence upon the part of plaintiff in the prosecution of said work, or failure to proceed therewith with reasonable dispatch and due diligence, and for final judgment consistent herewith and with said court's findings upon such issues."

The cause is before this court upon the allowance of a motion to certify the record of the Court of Appeals.

Messrs. McCreary, Hinslea Ray and Mr. Ansel B. Curtiss, for appellee.

Messrs. McDonald, Hopkins, Hood Hardy, for appellants.

MATTHIAS, J.

The primary issue is the construction of the contract entered into between the plaintiff and the defendants under which the construction of the dwelling with garage was undertaken by the plaintiff. The record shows that on September 22, 1948, after some negotiations between the parties and consideration of offers by other builders, the plaintiff wrote the following letter to defendant Harvey B. Durkee:

"This letter is to confirm verbal agreement entered into September 22, 1948, between Harvey B. Durkee — owner, and Charles A. Burton, Inc., contractor, outlining the terms and general conditions under which a new house is to be built on owner's sublot No. 28 Club Side road, Lyndhurst Park Estates, Lyndhurst, Ohio, according to plans drawn by Richard D. Mumper Associates, Designers.

"The contractor is to have full charge of the work with the exception of heating, wiring and kitchen equipment which will be let directly by the owner. The balance of the work is to be done on a cost-plus-a-fixed-fee bases [basis]. The fee agreed upon $2,700. The job costs are to include all materials, labor, permits, taxes, and insurance, and all other costs and expenses incurred directly with the work including Charles A. Burton's time actually spent on matters pretaining [pertaining] to this job, either in the office or the field, at the rate of $2.625 per hour.

"The contractor agrees to place Henry J. Lippert in charge of this job and not to take him off for any of the contractor's other construction work except in an emergency.

"The contractor agrees to start the job promptly and to complete the work as rapidly as conditions permit.

"The contractor will render monthly detailed statements of expenditures. The owner agrees to pay the contractor once a month for said expenditures.

"(Signed) Harvey B. Durkee, owner Harvey B. Durkee, owner Charles A. Burton, Inc., contractor by Charles A. Burton, president."

The letter was signed by both parties thereto and the original returned to the plaintiff accompanied by the following letter:

"Charles A. Burton, Inc. September 23, 1948 "1836 Euclid avenue "Cleveland, Ohio

"Dear Mr. Burton:

"Enclosed please find signed agreement as outlined per our verbal conversation and one important item we should keep in mind. The total cost which we aim to build this house for is approximately $27,000.

"The permit has been taken out as of this date. Mr. Mumper (architect) will contact you regarding some of the changes we made.

"I am enclosing a quotation from the Quiggin Co. which came to me when they estimated the heating.

"Very truly yours,

"(Signed) H.B. Durkee H.B. Durkee"

It is contended by the defendants that the two written communications created a contract whereby the plaintiff agreed to construct the building, excluding heating, wiring and kitchen equipment, for the sum of $27,000 plus a fixed fee of $2,700.

Was the Court of Appeals in error when it found that these letters created a cost plus a fixed fee contract?

Much evidence was offered by the defendants and received by the court to show that the preliminary negotiations between the parties had resulted in a contract by plaintiff to construct the building for the fixed price of $27,000 plus a specified fee. It seems undisputed, however, that the preliminary negotiations were merged in the final written contract. It is to be noted that the changes in and additions to the building agreed upon after the signing of this contract are by both parties conceded to be supplemental additions thereto, and it follows that payment was to be made in accordance therewith.

The effect of the parol evidence rule, where it is claimed that a contract is partly oral and partly written, is well stated in 3 Williston on Contracts (Rev. Ed.), 1813, Section 631, as follows:

"That rule [the parol evidence rule], in spite of its name, is not only not a rule of evidence, as has been abundantly shown by Thayer and Wigmore, but is not a rule of interpretation or of construction. It is a rule of substantive law which, when applicable, defines the limits of a contract. It fixes the subject matter for interpretation, though not itself a rule of interpretation. * * *

"Most commonly the rule is invoked when suit is brought upon the written contract in order to preclude an attack upon the terms of the writing as the complete statement of the contract * * *."

It is contended by the defendants (1) that the writings alone made a contract for an approximate price of $27,000 for the construction of the building; (2) that the parol evidence confirmed a contract for an approximate price of $27,000 rather than a cost-plus basis; (3) that even if the contract in question was a cost plus contract the evidence submitted limited the plaintiff to a recovery of $35,000; and (4) that by reason of the great discrepancy between the estimate allegedly furnished by the plaintiff and the amount claimed by it as its costs the burden was on the plaintiff to show that its costs were reasonable.

The Court of Appeals found that by the writings alone a contract was created whereby the building was to be constructed on a "cost plus fixed fee" basis. The text of this finding is fully set forth above. The parol evidence offered showed the sum of $27,000 was only an estimate of the costs of the construction of the building. Indeed it was admitted by Harvey Durkee, on the witness stand, that it was an "estimate" of the cost.

Defendants place some reliance upon the decision of this court in the case of Ohio Crane Co. v. Hicks, 110 Ohio St. 168, 143 N.E. 388, and assert that in that case the reference in the pleadings to oral agreements excluded the theory of merger thereof with a written agreement. In that case, however, there was a clearly ambiguous and incomplete writing requiring interpretation thereof by the court. In accordance with well established rules, applicable to such construction, parol evidence was admissible for the purpose of clarifying an ambiguity in the language used.

The defendants contend that under the evidence the plaintiff's recovery was limited to $35,000, and, therefore, the burden of proof was cast upon the plaintiff to show that its costs were reasonable, and they cite as supporting authority Knott v. Moore-Lamb Construction Co., 111 Ohio St. 94, 144 N.E. 697. It is urged that this court in that case announced the principle that under a cost plus fee contract the builder can only recover the proved reasonable cost of his labor and material. If that theory is applicable then into every cost plus contract will be read a rule of law that the builder is entitled to recover his cost plus his fee only if he proves that it is reasonable. The Knott case does not announce that principle.

In that case there was no written contract and there arose a disagreement between the parties as to the terms of the oral contract. Evidence of the estimated value of the building contracted for was held competent solely for the purpose of tending to show what the agreed price was. Likewise, evidence of the reasonable cost of labor and materials was held competent as tending to show what the actual cost was.

The decision in the case of Klonowski v. Monczewski, 109 Ohio St. 230, 142 N.E. 368, cited by counsel for defendants, involved an action on a contract conceded by both parties to have been oral and involved no issue such as is presented in the instant case.

Cases are cited from other states, none of which contradict the well established rule recognized and applied in this jurisdiction.

The language of the written contract, which was signed by the parties hereto, is clear and unambiguous, and the Court of Appeals properly held that the agreement between the parties was that payment by the defendants to the plaintiff for the erection of the dwelling, according to original plan, was to be the cost of all materials, labor, permits, taxes and insurance and all other costs and expenses incurred directly in the work plus a fixed fee of $2,700.

The judgment of the Court of Appeals is affirmed.

Judgment affirmed.

WEYGANDT, C.J., ZIMMERMAN, STEWART, MIDDLETON, TAFT and HART, JJ., concur.