MSK Construction, Inc. v. Mayse Construction Company ( 2014 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
August 26, 2014 Session
MSK CONSTRUCTION, INC. V.
MAYSE CONSTRUCTION COMPANY
Appeal from the Chancery Court for McMinn County
No. 2012CV246 Hon. Jerri S. Bryant, Chancellor
No. E2014-00139-COA-R3-CV-FILED-SEPTEMBER 30, 2014
This is a breach of an oral contract action in which MSK filed suit against Mayse for failure
to pay for the use of equipment and fuel used to fulfill a construction contract between Mayse
and the City of Athens. Mayse denied liability. Following a bench trial, the trial court ruled
in favor of MSK and awarded damages in the amount of $44,386.37 and prejudgment interest
in the amount of $1231.39. Mayse appeals. We affirm the decision of the trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which D. M ICHAEL S WINEY,
and T HOMAS R. F RIERSON, II, JJ., joined.
Sam D. Elliott, Chattanooga, Tennessee, for the appellant, Mayse Construction Company.
William J. Brown, Cleveland, Tennessee, for the appellee, MSK Construction, Inc. d/b/a MC
Construction.
OPINION
I. BACKGROUND
Upon learning that the City of Athens (“the City”) intended to hire a contractor for a
sidewalk project, MSK Construction, Inc. d/b/a MC Construction (“MSK”) approached
Mayse Construction Company (“Mayse”) and offered to work as a subcontractor if Mayse
obtained the bid for the contract. MSK was owned by Mike Campbell (“Mike”) and Shane
Campbell (“Shane”), while Mayse was owned by William Preston Mayse (“William”) and
Richard Todd Mayse (“Todd”).1 At some point, the parties learned that MSK could not
proceed as the subcontractor because of the City’s specifications regarding the use of
subcontractors for such a large portion of the project. The parties came to an agreement in
which Mike and Shane (collectively “the Campbells”) would work as Mayse’s employees,
while MSK would serve as a vendor and provide some of the equipment to complete the
project.
Throughout the construction of the project, MSK submitted invoices for payment
regarding the equipment. In total, these invoices amounted to $95,092.78. Mayse remitted
payment in the amount of $50,755.91, leaving an outstanding balance of $44,386.37. MSK
made repeated demands for payment, which Mayse rejected. MSK filed suit. Mayse denied
that it owed any payment to MSK and asserted that the Campbells were individually liable
for negligent misrepresentation. Mayse claimed that it relied upon the Campbells’
computation regarding the cost of the project but that the Campbells were negligent by
failing to include the cost of concrete testing, which caused Mayse to submit a bid that was
not as profitable as originally anticipated.
The case proceeded to a bench trial at which several witnesses testified. Mike
testified that he had worked in the construction business since he was 13 years old. He
related that he became licensed in 1995 and that his son, Shane, started working for him
several years ago but had never obtained a license. He founded MSK, which operated as a
licensed general contractor and had completed numerous projects for the Tennessee
Department of Transportation (“TDOT”) as a subcontractor.
Mike related that he had worked with Mayse on other projects, specifically projects
involving concrete work. He testified that the project at issue in this case involved the
paving, striping, and construction of four and a half miles of sidewalk and handicap ramps.
He explained that the project was beyond MSK’s bonding capacity and that after reviewing
the line items in the overall project, he submitted a price estimate, dated October 30, 2009,
to Mayse in which MSK offered to complete several specific line items as a subcontractor.
He conceded that the estimate did not include a specific line item for the cost of the
equipment that would be used in the project. He explained that the cost of materials,
equipment, and labor was included in the overall estimate for each specific line item. He
opined that if MSK had been hired as a subcontractor, MSK would have assumed the risk in
the bidding process and would be required to absorb the costs beyond what was estimated
in the bidding documents. He related that he later learned that MSK could not complete the
line items as a subcontractor pursuant to the City’s specifications regarding the use of
1
In order to avoid confusion, we will refer to the parties involved by their respective first names.
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subcontractors for such a large portion of the project. He asserted that he informed Mayse
of this fact before Mayse submitted the final bid to the City.
Mike testified that after learning that MSK could not work as a subcontractor, he and
Shane met with Mayse to discuss an alternative option. According to Mike, they came to an
agreement in which he and Shane would be hired as employees, MSK would serve as a
vendor and supply some equipment, and Mayse would recoup the added payroll costs by
increasing its percentage payment from 12 to 14 percent. He claimed that Mayse agreed to
reimburse MSK for the use of the equipment as an expense. He denied any discussion
regarding being paid for the equipment only when the project was recouping a profit. He
related that he was advised to charge everything he could, e.g., fuel and other expenses to
Mayse and that anything that could not be charged would be included in an invoice at the end
of each month as an expense. He explained that his portion of the project could not be
completed without the use of MSK’s equipment and that the charges contained in the invoice
were reasonable and necessary for completing the work. He conceded that he never entered
into a written contract with Mayse for the use of MSK’s equipment but that an oral
agreement was in place before the City awarded the bid to Mayse.
Relative to the issue of concrete testing, Mike recalled that he asserted at the pre-bid
and pre-construction meetings that TDOT would be responsible for the cost of the testing.
He acknowledged receipt of an addendum, dated October 23, 2009, advising everyone that
the cost of concrete testing was to be paid by the contractor, not TDOT. Despite the
addendum, he still believed that Mayse was not required to pay for the testing. He identified
a TDOT document in which it specified that concrete testing was to be performed by TDOT.
He acknowledged that while the project was built to TDOT’s specifications, it was the City’s
project. He conceded that he supplied his estimate after he received the addendum and that
he did not include the cost of concrete testing. He asserted that Mayse should have
performed its own research before submitting the final bid.
Mike testified that the contract for the project was signed on December 29, 2009, and
that construction began on January 8, 2010. He stated that MSK submitted numerous
invoices throughout construction and that the total payment requested for use of the
equipment was $95,092.78. He asserted that Defendant only remitted payment in the amount
of $50,755.91, leaving an outstanding balance of $44,336.87. He explained that Mayse
recouped its 14 percent before remitting any payments for expenses. He recalled advising
Mayse that it should not recoup its profit before paying expenses but that Mayse continued
in that manner throughout the project.
Mike identified an email in which he expressed concern that MSK would not receive
payment if the project was not profitable. He explained that at that point, Mayse had been
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sporadically remitting payments. He conceded that the failure to account for concrete testing
was an added expense. He related that Mayse never blamed him for failing to include the
testing as an expense because everyone involved was confused and also believed that TDOT
was responsible for the testing. He claimed that he was simply an employee when Mayse
decided to accept responsibility for the concrete testing. He acknowledged that his price
estimates were also altered drastically by Mayse’s decision to increase its percentage
payment and by several change orders that were ultimately accepted by Mayse.
Shane testified that he learned of the project in a bid advertisement and that he
contacted Mayse to inquire whether MSK could serve as a subcontractor. He stated that
when they learned that MSK could not work as a subcontractor, he and Mike agreed to work
as employees instead. He claimed that they also agreed that MSK would serve as a vendor
by providing some equipment but that MSK would be reimbursed through monthly invoices.
He alleged that Mayse agreed to remit payment for the use of the equipment regardless of
whether the project was profitable.
Shane testified that he and Mike generated the initial estimate for the bidding process
but that Mayse supplied the final bidding documents well after everyone understood that he
and Mike were to work as employees, not subcontractors. He explained that the cost of
concrete testing was not included in his estimate because he believed that the testing would
be performed by TDOT. He acknowledged that they received an addendum concerning the
added expense of concrete testing prior to his submission of the final estimate. He claimed
that throughout his work on the project, he never received any complaints regarding the way
in which the bid had been constructed with the use of his estimate.
William testified that Mayse held an unlimited license as a utility contractor. He
related that he had worked with the Campbells and found that they had performed well and
were competent in the concrete business. He first learned of the project from Todd, who
informed him that MSK was to perform as a subcontractor. He later learned that they had
to hire Mike and Shane as employees. He believed that despite the change in MSK’s role,
their initial agreement remained in place, with the exception that Mayse would recoup an
additional 2 percent to compensate for the payroll expenses. He also believed that the
Campbells had included the cost of equipment in the initial price estimate. He asserted that
they did not discuss the issue of equipment until after they began work on the project. He
claimed that Mike requested money to pay insurance and that he informed Mike that he
would provide the funds to cover insurance if the job was profitable. He acknowledged that
several change orders were accepted throughout their work on the project and that these
changes affected the profit margin.
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A portion of Todd’s deposition was read into the record in which he conceded that the
expenses requested by Plaintiff were reasonable and necessary but that they disagreed as to
whether the expenses should have been paid regardless of whether the job was profitable.
At trial, Todd testified that he was serving as the president of Mayse during the construction
of the project at issue. He related that he hired Plaintiff as a subcontractor for prior projects
and that they had performed well. He asserted that he contemplated the same arrangement
when he initially made plans with Plaintiff for the project at issue.
Todd testified that he relied on the Campbells’ estimate in preparing the bid for the
project. He acknowledged that the Campbells advised him that the estimate was “on the tight
side.” He asserted that they should have accounted for the concrete testing in the initial
estimate and that once the addendum was included in the contract, he was required to pay for
the testing in the amount of $25,139.05. He claimed that he learned that MSK could not
serve as a subcontractor after he had submitted the bid. He stated that he then agreed to hire
Mike and Shane as employees and that he increased his company’s percentage from 12 to 14
percent to account for payroll costs. He acknowledged that everyone understood that MSK
was not the subcontractor when the final contract with the City was signed. He provided that
Mike and Shane were paid for their work and that they even drew unemployment
compensation from his company. He asserted that the project was not as profitable as
anticipated and that he advised Mike and Shane that he could not fulfill the remainder of
MSK’s invoices. He claimed that he had already paid some of the invoices when the job was
making a profit and that according to their arrangement, MSK was responsible for bearing
the risk of loss as a vendor.
Following the presentation of the above evidence, the trial court found that MSK had
entered into an oral contract with Mayse to provide equipment for the project as a vendor and
that the parties recognized that the expenses were to be paid before any profit was
distributed. The court found that MSK was entitled to payment in the amount of $44,386.37
and prejudgment interest in the amount of $1231.39. The court denied Mayse’s counterclaim
for negligent misrepresentation, finding that Mayse accepted responsibility for the concrete
testing in the contract it formed with the City. This timely appeal followed.
II. ISSUES
We restate the issues raised on appeal by Mayse as follows:
A. Whether the trial court erred by finding in favor of MSK.
B. Whether the trial court erred in denying Mayse’s claim for negligent
misrepresentation.
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MSK raised an issue for our consideration on appeal that we restate as follows:
C. Whether the trial court erred in setting the rate of prejudgment interest.
III. STANDARD OF REVIEW
We review the trial court’s findings of fact de novo on the record, presuming those
findings to be correct unless the evidence preponderates otherwise. Tenn. R. App. P. 13(d);
Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001); Wright v. City of Knoxville, 898 S.W.2d
177, 181 (Tenn. 1995). When the trial court’s factual determinations are based on its
assessment of witness credibility, we will not reevaluate that assessment absent clear and
convincing evidence to the contrary. See Jones v. Garrett, 92 S .W.3d 835, 838 (Tenn.
2002); Sullivan v. Sullivan, 107 S.W.3d 507, 510 (Tenn. Ct. App. 2002). We review a trial
court’s conclusions of law de novo, with no presumption of correctness. Whaley v. Perkins,
197 S.W.3d 665, 670 (Tenn. 2006); Taylor v. Fezell, 158 S.W.3d 352, 357 (Tenn. 2005).
The trial court’s award of prejudgment interest is reviewed under an abuse of
discretion standard. BankcorpSouth Bank, Inc. v. Hatchel, 223 S.W.3d 223, 230 (Tenn. Ct.
App. 2006); Franklin Capital Assocs., L.P. v. Almost Family, Inc., 194 S.W.3d 392, 405
(Tenn. Ct. App. 2005). “A trial court abuses its discretion only when it ‘applie[s] an
incorrect legal standard or reache[s] a decision which is against logic or reasoning that
cause[s] an injustice to the party complaining.’” Eldridge v. Eldridge, 42 S.W.3d 82, 85
(Tenn. 2001) (quoting State v. Shirley, 6 S.W.3d 243, 247 (Tenn. 1999)). If a discretionary
decision is within a range of acceptable alternatives, we will not substitute our judgment for
that of the trial court simply because we may have chosen a different alternative. White v.
Vanderbilt Univ., 21 S.W.3d 215, 223 (Tenn. Ct. App. 1999).
IV. DISCUSSION
A.
Mayse argues that the trial court found that there was no meeting of the minds
regarding the payment of expenses but then erroneously concluded that there was an oral
contract between the parties regarding the issue of expenses. Mayse asserts that the
preponderance of the evidence as demonstrated by the actions of the parties reflects that
MSK was only entitled to payment if there was a sufficient profit to cover the expenses.
MSK responds that the court did not err in finding that the parties entered into an oral
contract in which Mayse agreed to pay MSK’s expenses, regardless of whether the project
was profitable. MSK opines that there was ample evidence in the record to support the trial
court’s ultimate finding that an enforceable contract existed between the parties.
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In finding that a contract existed regarding the payment of expenses, the trial court
stated, in pertinent part,
There was further no additional meeting of the mind and discussion on
[MSK’s] expenses. Exhibit 9, created by [MSK], shows that Mayse was
getting 14 percent and it did not reflect [MSK’s] expenses. Now, that
explanation [MSK] had for that document was that this was on a form as
requested by [Mayse]. Neither party in this case explained why they did not
go further and nail down these expenses as part of their agreement.
***
I don’t think either party talked about the risk of loss in this case. There was
no meeting of minds if this contract went over or if it couldn’t be done or what
was the risk; that the parties did not anticipate there was going to be a loss in
this case.
***
[MSK] is suing [Mayse] claiming that it was a salary plus expense contract.
Under [MSK’s] meaning of the agreement between the parties, this was very
basic and they were not responsible for their numbers being tight or any cost
overruns. [Mayse] says they would not have gotten into this job and accepted
this risk of loss, yet they did go on with the contract. [Mayse] says [MSK]
would not get paid for use of their own equipment if the job was not profitable.
That does not seem reasonable to this [c]ourt. The expenses of the job must
be paid before anyone gets paid out of profits.
The court ultimately held that the parties “recognized in this case that expenses were to be
paid before profits disbursed” and that Mayse breached its oral contract with MSK to pay for
the use of the equipment.
In order to prevail in a breach of contract case, Plaintiff first had to prove that an
enforceable contract existed between the parties. See Seramur v. Life Care Ctrs. of Am. Inc.,
No. E2008-01364-COA-R3-CV, 2009 WL 890885, at *2 (Tenn. Ct. App. Apr. 2, 2009)
(citing BankcorpSouth Bank, Inc. v. Hatchel, 223 S.W.3d 223, 227 (Tenn. Ct. App. 2006)).
A contract, either written or oral, “must result from a meeting of the minds of the parties in
mutual assent to the terms, must be based upon a sufficient consideration, free from fraud or
undue influence, not against public policy and sufficiently definite to be enforced.” Higgins
v. Oil, Chem. and Atomic Workers Int’l Union, 811 S.W.2d 875, 879 (Tenn. 1991) (internal
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quotation and citation omitted). Tennessee courts have also defined a contract more simply
as “‘an agreement, upon sufficient consideration, to do or not to do a particular thing.’”
Calabro v. Calabro, 15 S.W.3d 873, 876 (Tenn. Ct. App. 1999) (quoting Smith v. Pickwick
Elec. Coop., 367 S.W.2d 775, 780 (Tenn. 1963) (internal citation omitted)). “‘For there to
be consideration in a contract between parties to the contract it is not necessary that
something concrete and tangible move from one to the other. Any benefit to one and
detriment to the other may be a sufficient consideration.’” GuestHouse Intern., LLC v.
Shoney’s North America Corp., 330 S.W.3d 166, 189 (Tenn. Ct. App. 2010) (quoting Walker
v. First State Bank, 849 S.W.2d 337, 342 (Tenn. Ct. App. 1992)). Indeed, “‘[a]ny
consideration, however small, will support a promise.”’ Id. (quoting Smith v. Riley, No.
E2001-00828-COA-R3-CV, 2002 WL 122917, at *3 (Tenn. Ct. App. Jan. 30, 2002)).
In this case, MSK and Mayse sought to obtain the bid for the City’s project. Upon
learning that MSK could not serve as a subcontractor, the parties agreed that the Campbells
would work for Mayse as employees and that MSK would provide some of the equipment
as a vendor. While the cost of the equipment was included in the initial estimate provided
by the Campbells when they sought to participate as a subcontractor, they never provided an
additional estimate reflecting their status as employees or MSK’s status as a vendor. This
oversight understandably caused confusion between the parties. Nevertheless, MSK
regularly submitted invoices for payment regarding the use of the equipment. Mayse paid
a number of these invoices and also regularly paid the Campbells as salaried employees.
While Mayse argued that it only remitted payment when the job was profitable, the testimony
presented at trial reflected that MSK objected to this arrangement and made repeated
demands for payment. Moreover, the trial court found that Mayse’s position that it was only
required to remit payment when there was a sufficient profit was unreasonable. We agree
with this finding. Indeed, we give great weight to the factual findings of the trial court which
rest on determinations of witness credibility. Randolph v. Randolph, 937 S.W.2d 815, 819
(Tenn. 1996). We will not reevaluate an assessment of witness credibility absent clear and
convincing evidence to the contrary. Wells v. Tenn. Bd. of Regents, 9 S.W.3d 779, 783
(Tenn. 1999). In consideration of these facts, we conclude that the parties assented to a
“handshake agreement” in which MSK agreed to provide equipment, while Mayse agreed
to pay for the use of the equipment in order to fulfill its contractual obligations with the City.
Accordingly, we further conclude that a valid oral contract had been formed between MSK
and Mayse and that Mayse breached the contract when it refused to remit the remainder of
the amount owed.
B.
Mayse argues that the trial court erred in dismissing its claim for negligent
misrepresentation relating to the Campbells’ failure to include the cost of concrete testing in
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the initial estimate. Mayse notes that it justifiably relied upon the estimate. The Campbells
respond that the trial court did not err in denying the claim when the information regarding
the responsibility for concrete testing was also available to Mayse.
Persons asserting a negligent misrepresentation claim must establish:
One, who, in the course of his business, profession or employment, or in any
other transaction in which he has a pecuniary interest, supplies false
information for the guidance of others in their business transactions, is subject
to liability for pecuniary loss caused to them by their justifiable reliance upon
the information if he fails to exercise reasonable care or competence in
obtaining or communicating the information.
Restatement (Second) of Torts § 552(1) (1977); Robinson v. Omer, 952 S.W.2d 423, 427
(Tenn. 1997). An essential requirement for a claim of negligent misrepresentation is
“detrimental reliance on a false premise.” McNeil v. Nofal, 185 S.W.3d 402, 408 (Tenn. Ct.
App. 2005) (supporting citations omitted). To succeed on a claim of negligent
misrepresentation, the plaintiff must prove that he or she relied justifiably on the defendant’s
statements. See Lambdin v. Garland, 723 S.W.2d 953, 956 (Tenn. Ct. App. 1986). It is the
plaintiff’s burden to establish that his or her reliance on the defendant’s statements was
reasonable. Nofal, 185 S.W.3d at 409; see also Metro. Gov’t of Nashville and Davidson
Cnty. v. McKinney, 852 S.W.2d 233, 238 (Tenn. Ct. App. 1992).
The record reflects that the final bid was submitted after the parties received an
addendum providing that the contractor was responsible for the cost of the concrete testing.
This information was equally available to all parties. Additionally, the testimony presented
at trial also reflects that the parties discussed the issue of concrete testing on multiple
occasions and that Mayse, a sophisticated business, should have inquired further before
submitting its bid. Accordingly, we conclude that the trial court did not err in denying the
claim for negligent misrepresentation.
C.
MSK asserts that the trial court abused its discretion in setting the rate of prejudgment
interest at the statutory rate of 1 percent. Mayse responds that the court did not err.
The trial court may award prejudgment interest “as an element of, or in the nature of,
damages . . . in accordance with the principles of equity at any rate not in excess of a
maximum effective rate of ten percent (10%) per annum.” Tenn. Code Ann. § 47-14-123.
“The usual means of compensating for [loss of use of funds] is the allowance of interest.
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Interest recovered in order to make the obligee whole is the relief usually sought, and the
allowance of prejudgment interest under such circumstances is ‘familiar and almost
commonplace.’” Mitchell v. Mitchell, 876 S.W.2d 830, 832 (Tenn. 1994) (quoting Deas v.
Deas, 774 S.W.2d 167, 170 (Tenn. 1989)). “The purpose of [prejudgment] interest is to fully
compensate a plaintiff for the loss of the use of funds to which he or she was legally entitled,
not to penalize a defendant for wrongdoing.” Hunter v. Ura, 163 S.W.3d 686, 706 (Tenn.
2005) (quoting Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998)).
In determining whether to award prejudgment interest, courts should consider the
principles of equity and two additional factors. Mitchell, 876 S.W.2d at 830. First, an award
of interest is allowed when “the amount of the obligation is certain” or reasonably
ascertainable “by a proper accounting” and “is not disputed on reasonable grounds.” Myint,
970 S.W.2d at 927. Second, an award of interest is allowed when “the existence of the
obligation itself is not disputed on reasonable grounds.” Id. However, “[t]he uncertainty of
either the existence or amount of an obligation does not mandate a denial of prejudgment
interest, and a trial court’s grant of such interest is not automatically an abuse of discretion,
provided the decision was otherwise equitable.” Id. at 928.
Here, the amount of the obligation was certain, and the award of interest was equitable
because MSK lost the use of the funds while the case progressed in litigation. Moreover, the
court’s decision to award prejudgment interest at a statutory rate of 1 percent was wholly
within the court’s discretion. See Tenn. Code Ann. § 47-14-123. Following our review, we
conclude that the trial court did not abuse its discretion in setting the rate of prejudgment
interest.
V. CONCLUSION
The judgment of the trial court is affirmed, and this case is remanded to the trial court
for collection of costs below. Costs of the appeal are taxed to the appellant, Mayse
Construction Company.
______________________________________
JOHN W. McCLARTY, JUDGE
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