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MSK Construction, Inc. v. Mayse Construction Co.

Court of Appeals of Tennessee, Knoxville

September 30, 2014

MSK CONSTRUCTION, INC.
v.
MAYSE CONSTRUCTION COMPANY

Session August 26, 2014

Appeal from the Chancery Court for McMinn County No. 2012CV246 Hon. Jerri S. Bryant, Chancellor

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.

John W. McClarty, J., delivered the opinion of the Court, in which D. Michael Swiney, and Thomas R. Frierson, II, JJ., joined.

OPINION

JOHN W. McCLARTY, JUDGE

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 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 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 ...


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