W.F. Holt Co. v. A & E Elec. Co., Inc.

• Citation: 665 S.W.2d 722
• Parties: W.F. HOLT COMPANY, Plaintiff-Appellant, v. A & E ELECTRIC COMPANY, INC., et al., Defendants-Appellees.
• Decision Date: 07 November 1983
• Court: Court of Appeals of Tennessee

Page 722

665 S.W.2d 722

W.F. HOLT COMPANY, Plaintiff-Appellant, v. A & E ELECTRIC COMPANY, INC., et al., Defendants-Appellees.

Court of Appeals of Tennessee Middle Section at Nashville.

Nov. 7, 1983.

Permission to Appeal Denied by Supreme Court Jan. 30, 1984.

William Hume Barr and Craig V. Gabbert, Jr., Harwell, Barr, Martin & Sloan, Nashville, for plaintiff-appellant.

William Thomas McHugh, Tune, Entrekin & White, Nashville, for defendants-appellees.

OPINION

CONNER, Judge.

This is a construction dispute. Though at one time there were other parties to the litigation, this appeal concerns only a general contractor, W.F. Holt Company, plaintiff-appellant (Holt), and an electrical subcontractor, A & E Electric Company, Inc., defendant-appellee (A & E). ¹

Two projects are involved, the Holiday Inn at the intersection of Briley Parkway and Elm Hill Pike and the Gresham & Smith Office Building on West End Avenue, both in Nashville. The principal dispute, monetarily and otherwise, centers around the Holiday Inn complex wherein A & E was the initial electrical subcontractor to Holt, which in turn held the general contract with the owner.

THE PROCEDURAL BACKGROUND

This action was commenced on December 6, 1979, when Holt sued A & E, its principals, Walter Edwards and Ronald Edwards, and an affiliate, A & E Electric Service, Inc. (A & E Service), for breach of contract and conversion. Holt sought damages and an injunction prohibiting defendants from coming on the Holiday Inn project.

A & E answered denying the breach. It asserted a counterclaim against Holt, and a third-party claim against Fuellgraf Electric Company of Tennessee, Inc. (Fuellgraf) for conspiring to have A & E terminated under its contract with Holt and removed from the site, and for illegally entering the work trailers of A & E and taking possession of the materials, supplies and work products of A & E. Fuellgraf had been hired by Holt to replace A & E after its termination. A & E likewise sought damages and injunctive relief to bar its termination. A & E later filed an "Amended and Supplemental Cross-Claim" alleging that General Electric Supply Company (GESCO), a material supplier, was a party to the conspiracy with Holt and Fuellgraf. A & E sought damages and injunctive relief to bar GESCO from cancelling the purchase orders of A & E on the Holiday Inn project.

On March 12, 1980, A & E Service instituted a separate lien lawsuit against Holt and the owners of the Holiday Inn project. The cases were consolidated for trial.

On the eve of trial in May of 1981, A & E filed a "Supplemental Answer and Counter-Claim," asserting waiver, estoppel and laches as defenses to Holt's allegations of breach of contract, and also seeking damages from Holt for (1) various breaches, including failure to properly make progress payments pursuant to its subcontract with A & E; (2) for the reasonable value of labor and materials which A & E had furnished to the Holiday Inn project and for which it had not been paid; (3) for tortiously inducing the breach by GESCO of its contracts with A & E, in violation of common law and T.C.A. § 47-15-113; (4) for conversion of A & E's property; and (5) for quantum meruit for the reasonable value of services rendered by A & E to Holt with regard the Gresham and Smith project wherein it was never awarded a subcontract.

A & E also sought recovery of damages against Fuellgraf for (1) its alleged conspiracy with Holt; (2) tortious interference in A & E's contractual relationship with Holt; and (3) conversion of A & E's materials, supplies and purchase orders.

A & E, A & E Service, Walter Edwards and Ronald Edwards, and GESCO reached a pre-trial settlement. A non-jury trial between the remaining parties over portions of seven days was held in May of 1981.

Thereafter, the chancellor took the case under advisement and issued a lengthy memorandum opinion on November 13, 1981, which was subsequently reduced to judgment. The chancellor found that A & E had breached the Holiday Inn subcontract. The trial court originally awarded $51,789.00 to Holt against A & E. This represented the difference in the total amount Holt spent to complete the electrical subcontract work and the amount of the A & E subcontract. The chancellor dismissed all of the claims by A & E, expressly finding that Holt did not breach its subcontract with A & E and that Fuellgraf did not tortiously interfere with A & E's contract nor conspire with Holt to remove A & E from the job.

However, in response to a "Motion to Reconsider" filed by A & E the trial court amended its prior decision to find that Holt had also breached the Holiday Inn subcontract by its failure to make progress payments to A & E. The chancellor then awarded damages to A & E in the full amount of those progress payments, $167,813.64, plus $7,500.00 for materials remaining on the project site. The court also awarded A & E damages of $7,000.00 on the theory of quantum meruit for work performed by A & E on the Gresham and Smith project. Moreover, the trial judge reduced the amount of damages originally awarded to Holt to $48,481.00 to correct an earlier miscalculation. After Holt then filed a "Motion to Alter or Amend Judgment," the chancellor disallowed the previous $7,500.00 award for stored materials.

Holt appeals the chancellor's amendment of the original judgment and the award of any damages to A & E. Holt argues that the chancellor erred in finding Holt breached the Holiday Inn project subcontract by not making progress payments; that even if this failure to make progress payments amounted to a breach the chancellor erred in calculating damages; and that the chancellor erred in holding A & E entitled to recovery in quantum meruit for the preparatory work done on the Gresham and Smith project. A & E by cross-appeal contends that it should have been awarded even greater damages for lost profits and because the actions of Holt destroyed it as a viable business.

THE HOLIDAY INN DISPUTE

The material factual findings of the chancellor regarding the parties' dealings, as to all of which there is substantial material evidence, are well summarized in the court's initial memorandum:

"On August 8, 1979, Holt hired A & E to perform the electrical portion of the Holiday Inn project. Accordingly, the parties entered into a subcontract agreement .... The agreement provided that A & E would perform the job for a fixed price of $738,769.00. ¹

"Holt, the general contractor for the project, had been hired by Holiday Inns, Inc., the owners, and was the second lowest bidder for the project. ² A & E was the low bidder on the electrical portion of the contract, and Fuellgraf submitted the second lowest bid.

"Holt did not originally require A & E to post a performance bond on the subcontract. Rather, Holt allowed A & E to support its applications for payment by submitting actual supplier invoices for materials it purchased. In addition, A & E agreed that Holt would issue joint checks to A & E and the supplier for all major materials purchased.

"It is noteworthy that Holt, who received a first payment of $94,230.00 on October 11, 1979, neither issued joint checks nor paid A & E any monies for work satisfactorily completed on the project.

"On or about September 25, 1979, A & E submitted its first application for payment to Holt .... ³ Such payment requests were included in Holt's application for payment from the owners. Thomas McCafferty, then employed as a vice president for Holt, edited the invoices submitted to A & E before sending the requests to Holiday Inns, Inc.

"Between October 3-5, 1979, an employee of GESCO contacted Holt and informed the company of various discrepancies in the invoices submitted by A & E. The invoices, originating from GESCO, were presented in support of A & E's Application No. 1, and were discovered to be false because they were not the original invoices issued by the supplier to A & E. Through the submittal of five false invoices, A & E requested an overpayment of approximately $25,070.00 on material costs....

"Thereafter, a meeting was held to discuss the fraudulent invoices. Those present were Thomas McCafferty for Holt and Ronald Edwards for A & E, who admitted that A & E had attempted to defraud Holt through the fraudulent invoices. Discussions about the financial condition of A & E also occurred. Ronald Edwards told Holt through Thomas McCafferty that A & E had no debts and was not troubled financially. He stated that A & E was worth approximately $180,000.00 to $200,000.00.

"A second meeting was held between Thomas McCafferty, James Holt, and Walter Edwards to discuss the problem.

"Though fully cognizant of A & E's attempted fraud, Holt allowed A & E to continue working on the construction project. In fact, Holt told A & E that it could correct and resubmit the altered invoices. In addition, Holt would pay A & E for its labor and materials and a fair overhead in each progress payment. Further, Holt told A & E that it would thereafter be required to post a performance bond.

"A & E agreed to these conditions. Revised applications for payment were submitted ... and A & E attempted, albeit unsuccessfully, to obtain a performance bond.

"Approximately six weeks after Holt told A & E that it could remain on the project, provided it obtained a bond, attorneys for Holt sent a letter of termination dated November 28, 1979 .... This letter served as formal notice to A & E that the submission of fraudulent invoices prompted termination of the electrical subcontract. In addition, termination by Holt was premised upon Articles VI(a)(v) and IV(g) of the subcontract agreement. Further, the letter stated that A & E would not be authorized to remove materials ordered and stored for use on the project absent proof of payment and/or supplier releases of materialmen's liens.

"Before Holt sent the letter and A & E complained that the termination was unjustified, Holt asked Fuellgraf...