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Corporate Officer Signing Contract Uses Parol Evidence Rule to avoid Personal Liability



By Patricia Porter Kryder

When the contractor became unhappy with the quality of the subcontractor’s work, the contractor withheld the payments remaining under the contract. In response, the subcontractor filed suit alleging that the signer of the contract, the owner of the corporate general contractor, was personally liable for the amount remaining under the contract, together with prejudgment interest and attorneys’ fees.

The owner admitted signing the estimates but asserted that he was not personally liable because he intended to contract with the subcontractor in his capacity as an officer and agent of the corporate general contractor. The owner asserted that the parol evidence rule did not prohibit the introduction of additional documents to correctly identify the parties to the contract.

The trial court agreed with the owner and found that the estimates did not constitute the entirety of the contract because the change orders altered the terms. Additionally, the trial court found that the contract could not be fulfilled without referring to the site drawings, which were specifically referenced in the estimates. The trial court held that because the site drawings and change orders created an ambiguity as to the identity of the party with whom the subcontractor had contracted, it was necessary to consider additional documentation to ascertain the relationship between the parties and the identity of those involved in the contract. After reviewing the additional documentation, the trial court found that the parties to the contract consisted of the corporate general contractor and the subcontractor. Accordingly, the trial court dismissed the subcontractor’s claim against the owner in his individual capacity, and the subcontractor appealed.

The Tennessee Court of Appeals then considered the issue and determined that the owner was not personally liable for the remaining amount due under the contract. The court considered the cardinal rule of contract interpretation that the court must attempt to ascertain and give effect to the intention of the contracting parties. In order to determine the intent of the parties, the language of the contract controls the analysis and courts do not normally look beyond the contractual language. Thus, the court noted that “[o]rdinarily, the parol evidence rule would prevent a party to a written contract from contradicting the terms of the contract by seeking the admission of ‘extrinsic’ evidence.” The court held, however, that extrinsic evidence is generally admissible when the language of the contract is ambiguous with respect to the identity of the parties. The court found the identities of the parties was ambiguous in this case, which permitted the introduction of extrinsic evidence to determine the intention of the parties.

In reviewing the extrinsic evidence, the court held the documentation reflected that the parties intended to establish a contract between the subcontractor and the corporate general contractor, and the subcontractor expected payment from the corporate general contractor. The court noted each change order and request for payment was addressed to the corporate general contractor and the site drawings for the project, which was incorporated into the contract, listed the project owner as the corporate general contractor. Accordingly, the court affirmed the trial court’s ruling and held the owner was not personally liable for the debt to the subcontractor.


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