### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE October 9, 2001 Se ssion WILLS EL ECTRICCOMPA NY, IN C. v. H ASSAN MIRSA IDI, INDIVIDUALLY & D/B/A MIRSAIDI CONSTRUCTION COMPANY

Appeal from the Chancery Court for Davidson County No. 99-3001-I Irvin H. Kilcrease, Jr., Chancellor

No. M2000-02477-COA-R3-CV - Filed December 13, 2001

A general contractor withheld the f inal payment

for work complete d by

his electrical subcontractor, and the subco ntr act or sued for breach of contract. The trial court awarded the subcontractor the contracted-for

amount, a s well as p

re-judg ment inter

est and consequential damages. We rever se the award o f conseq

uential d amage s. In

all other respec ts, we af

firm the t rial cou rt. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court

Affirmed in Part; Reversed in Part ; and Remanded
B EN H. C ANT RELL , P.J., M.S., delivered the opini on of the court, in which W IL LI AM B. C AIN and P ATRIC IA J. C OTT RELL , JJ., joined. RichardE. Norman, Jr., Nashville, Tennessee, for the appellant, Hassan Mirsaidi, Individually and d/b/a Mirsaidi Construction. Joseph Y. Longmire, Jr. and C. Ronald Blanton, Hende rsonville, Tennessee, for

the appellee, Wills Electric Company, I

nc. OPINION
I. C ONTRACTOR AND S UBCONTRACT OR Gene ral contractor Hassan Mirsaidi of Mirsaidi Construction signed a contra ct with t h e Metropolitan Government of Nashville and Davidson County to renovate a branch

li br ar y. The total value of the contract was over $1,000,000. On January 22, 1998, Mirsaidi Co nstructio n hired Will s Electric as its electrical subcontractor, “to furn i sh all material, equipment and perform all work necessary to complete the electrical sy stem for Pruitt Library

. . . . ” The initial contract price was $97,300, withMirsaidi r

equired to make mo nthly

progress pay

ments to Wills. The final payment was due upon completion of the work. A $4,800 change order , to which the parties agreed on December 9, 1998, increased the total pay out to $102,100.-2-

The proof sho wed that t

he parti es did

not enjoy a harmonious re lationship while the contract was being performed. Russell Wills, who perfor med and/o

r supervised all th

e work do ne by

Wills Electric, claimed t

hat Mirsa idi consist

ently short-c hange d him

on his prog

ress pay ments, mak

ing it difficul tfor him to pay

all his labor and his suppliers. Mr. Wills’ wife, Ly ndi, the president of the co mp an y, claimed that Hassan Mirsaidi told her th at he would not discuss the alleg ed shorta ges with her be ca us e h e d id n’ t h av e t o t al k t o a wo ma n. Fo r h is pa rt , M r. Mi rs ai di cl ai me d t ha t h e a lw ays paid the correct amount, and that any perceived discrepancy

was due to the fact

that he had assumed the responsi

bility of making

direct p ayments to a p

rime supp li er of e lectrical parts which had not agreed to extend credit to Wills Electric. Despite these difficulties, Russell Wills completed the work on the contract in January of 1999, and Hassan Mirsaidi admitted the job was satisfactory . But the general contractor held back a final pa yme nt of $19,0 13, beca

use Wills ha

d not fully

paid all his suppliers or obtained lien releases from them

. For his part, Wills said he could not pay the suppliers until Mirsaidi made the final payment on the c ontract. On Februa

ry 3, 1999, Mr . Wills submitt ed a “fi nal request

for pay ment” to Mr . Mirsaidi

. Payment was not forthcoming, and in a subsequent letter, Wills sugge sted that joint checks be made outto Wills Electric and to three vendors to whom money was still owed. Th is was still unsatisfactory

to Mirsaidi, and on October 18, 1999, Wills filed a complaint for the unpaid contract amount. Mirsaidi answered, a dmitting that he owed on the contract, but claiming that the exact amount could not b e ascer

tained. T he contr actor a lso claime d that Wills h ad refu sed to ac cept a partial payment check made out jointly to the subcon tractor and to two unpaid suppliers, and that Wills’ failure to pay

his supp liers and to ob tain lien releases from them held up Mirsaidi’s final payment from Metro. Wills subsequently filed a Motion for Judgment on the Pleadings, whichwas denied by the trial c ourt. Wills Electric

was a new busines s, and Mir saidi’s r efusal to make the final payment on the completedcontract put it in a financial bind. In order to pay his cred itors and remain in

business, Wills borrowed $25,000 from the First Tennessee B ank. On May 11, 2000, Wills amend ed his complaint to add a consequential damages claim for the interest he had to pay on the loan. The trial cou

rt conducted a hea

ring in t his case on September

6, 2000. The court observed that the parties could have settled this case if Mirsaidi had simply paid the subcontrac tor what it admitted owing, and the subcontractor had used the money to pay

off its suppliers and obtained the necessary releases. However, the question of pre- judgment interest and conseque ntial d amages remained at issue.
At the conclusion of the proof, the court ruled that Mirsaidi was guilty of breach of contr act. The contractor was ordered to pay $19,013 for the breach, plus pre-judgment intere st assessed from February 2, 1999 to September 6, 2000 at the rate of 10%, amounting to $3,026.40. The cour t’s-3-

Final Order also stated that the defendant

was liabl e for “incidenta

l and cons equentia

l damag es” in the amount of $2,853.23, which was the i nteres t associated with the plaintiff’s loan. Plaintiff’s counsel was orde

red to disburse

$11,548 to

the rema ining cr editor of Wills Elect

ric, and to obtain a lien release before disbursing a ny funds to the plaintiff. Mirsaidi appea led.
II. B REAC H OF C ONTRACT Mr. Mirsaidi admitted at trial that two or threemonths earlier, Metro ha d paid him th

e full amount on the master contract, and he concede s on appeal that the plaintiff is accordingly entitled to receivethe $19,013 owed, so the que stion of wh ether or not Mirsai di breac

hed the c ontract

would merely be acad emic, we re it not for his argument that he is not guilty of a breach, and therefore that he cannot be

held res ponsible f

or any damage s bey ond the co

ntract a mount. Mr. Mirsaidi continues to insist that Mr. Wills breached the contract by failing to pa

y off his suppliers and obtain re leases from them. He a

lso argues that

the subco ntracto

r has unc lean hands, and tha t it would be

inequita ble to reward him in any

way for the difficulties that he himself created.
We notethat there is nothing in the text of the contract which makes pay ment of the contract amount condition al upon pa

yme nt to suppliers or upon release of liens. Mr. Mirsaidi alleges that the master contract made Metro’s pay ment to him contingent upon such releases, but thesubcontracting agreement

does not incorporate the terms of the master contract either expressly or by reference. The subcontr act doescontain a

pay ment provision, whic

h reads a s follows:
“. . . [t]he said Contractor agrees that he will pay to the said Sub-Contractor the sum of Ninety seven thousand thre e hundred and 00/10 0 ($97,30 0) Dollar s. Pay ment will be made as follows: Sub-Contractor will turn in his invoice minus 10% retainage for progre ss payment by

25 th day of ea

ch month f

or ex amination by architect and contractor, after approval of the invoice by said architect, the invoice will besent to the ow ner f

or pay ment. Thr

ee (3) d ay s after t

he Contra

ctor re ceived ( sic) his payment, the Sub-Contractor will receive his check. (The procedure will apply for retainage money

).” It appears to us that the only contingency

containedin this provision is the approval of the work by t he arch itect and the contr actor, a nd the pro of showe d that the y both gave

their ap proval to the comp lete d job. We do no t b el ie ve th e l an gu ag e a bo ut pa yme nt to th e s ub -c on tr ac to r t hr ee da ys after the contractor is paid constitutes a condition precedent to the co nt ra ct or ’s ob li ga ti on to pa y. We construe it rather as part of a procedure designed to promote an orderly and predictable transfer of funds from the client to the ultimate pay ee. It is axiomatic

that in contract formation the parties are free to allocate risks and burdens as they see fit. Brown Bros., Inc. v. Metropolitan Government of Nashville and Davidson

County , 877 S.W.2d 745 (Tenn. Ct. App. 1993); Empress H ealth and B eauty Spa

, Inc., v . Turner, 503 S.W.2d 188 (Tenn. 1 973). Thu s, the par ties could have inc luded a c lause

making the fina

l pay ment on the

ir-4-

contract contingent upon receipt of lien release s from all the suppliers the subcontractor dealt with. This was not done, so there can be no doubt that Mirsaidi breached the contract at issue.
III. P RE -J UDGM ENT I NTEREST It has long been the law in Te

nnesse e that pr

e-ju dgment interest is allowable when based upon equitable principles. See Fishe r v. Klipsta tter, 689 S.W.2d 870 (Tenn. Ct. A pp 1985) . The common-law rule has been codified at Tenn. Code Ann. § 47-14-1 23 (1995) , which pe rmits courts or juries to award

prejudgment interest as damage s "in accordance with the principles of equity at any rate not in excess of a maximum effective rate of ten percent (10%) per annum." Such an awa

rd i s discretionary with the court if the claim involved is for non-liquidated damage s. Myint v. Allstate Ins. Co. , 970 S.W.2d 920 (Tenn. 1998); Howard G. Lewis Construction Co., v. Lee , 830 S.W.2 d 60 (Ten n. Ct. App. 1991); B.F. Myers & Son v. Evans , 612 S.W.2d 912 (Tenn. Ct. App. 1980). Ho wever, when the claim is f or failur e to make timely pay

ment on a contract amount, and there is no dispute as to the amount due, pre-judgment interest is considered a ma tter of right. See Tenn. Code. Ann. § 47-15-109; Jaffe v. Bolton , 817 S.W.2d 19 (Tenn. Ct. App. 1991); Performance Systems, Inc. v. First American National Bank, 554 S.W.2d 61 6 (Tenn. 1977). I t is presume d in such cas es that e quity requires that the plaintiff be compensated for the loss of use of money he wa s entitled to collect under the contract. Alth ough there ma

y be some cas e s where it

is inequita

ble to awa

rd pre- judgmen t interes t when an obligor

has failed to make timely pa yment under a c ontract, this does not appear to be such a case. There was no evidence presented at trial of

inequitable conduct on the part of Wills. There was, however, some proof that Mirsaidi had told one of Wills’ suppliers that Wills had already been paid in full on the library

contract when

that was not the case, in order to increase the pr essure on the subcontractor. The award of pre -judgment interest is affirmed. IV. C ONSEQUENTIAL D AMAG ES Alth ough the trial court’s judgment denominated the damag es suffered by the plaint if

f as “incidental and consequential,” these terms are not sy nonymous. I

n fact, they r

efer to two distinct forms of damages, for

the recovery

of which very

different standards apply . Incidental damag es are a type of g eneral damages – that is, those damages “which the law itself implies or presumes [to be] the immediate, direct or proximate result, or such as necessarily results from the injury, without reference to the special character, condition or circumstanc es of the plaintif f.” Black’s Law Dictionar y (6th ed. 1990). Consequential or “spec ial” dama ges a re defined in Black’s as “[s]uch damage as does not flow directly and immediately from the act of the party , but only from some of the consequences or results of such act.” The rule from th e venerable and familiar case of Hadley v. Baxend

ale , 9 Ex. 341, 156 Eng. Rep. 145 ( 1854) sta tes that c onseque

ntial dama

ges will only be awarde d if they

could reasona bly be supposed to have been within the contemplation of the parties at the time of-5-

contra cting, as a pr obable consequence of a brea ch of contract. The Baxenda le rule has been seconded many times by

our Tennessee courts. See, for e xample , Lane v. Associ ated Ho using Develo pers, 767 S

. W.2d 640 (T enn. Ct. Ap p. 1988); Turner v. Benson , 672 S.W.2d 752 (Tenn. 1984). Several Tennessee cases have stated that our courts may allow recovery

of all damages which are the norma

l and for eseeab le result s of a bre ach of c ontract

. Moore Construction C o. v. Clark

sville Dept. of Electr

icity , 707 S.W.2d 1 (Tenn. Ct. App. 1985); Bush v. Cathey , 598 S.W.2d 777 (Tenn. Ct. App. 1979 ); Wilso n v. Deal y , 434 S.W.2d 835 (Ten

n. 1968). Such resu

lts would include b oth incidental damages and those consequential damages that meet the Baxenda le test. For purposes of analy sis, to say that cer

tain results were foresee able at the time of contr acting , or that th

ey could reasona bly be su pposed t o have been within the contemplation of the parties would seem to be functionally equivalent.
In the pres ent case , there i s no evidence that at the time of contracting Mr. Mirsaidi knew or suspectedthat failure o n his part t o make timely and complete payment to Wills would force the subcontractor

to borrow money to kee

p his company afloa

t. It is clear that after

contracting Mirsaidi became aware that Wills faced some financial difficulties. For example, Braid Electric, which was the prime supplier on the subcontract would not extend credit to Wills because the company w as too new, so Mirsaidi had to purchase the necessary supplies on his own credit. But such after-acquired knowl edge cannot be

used to prove that

at the time of contracting Mirsaidi could have fore seen the consequences of his failure to make timely payment on the contra

ct. Also, as we stated above, the award of pre-judgment intere st was meant to c ompensat e Wills for the loss of use of the money to which he was entitled. An additional award for interest on money borrowed would ap pear to c ompensat

e the pla intiff twi ce for a

single injury . In li ght of th is circumstance, and of the rule in Baxenda le , we rev erse the award o f conseq

uential d amage s. IV. The judgment of the trial court is affirmed in regard to pay ment on the contract amount and pre-jud gment in terest, b ut rever sed in re gard to

consequential da

mages. Remand thi s cause to the Chancery Court of D avidson County for further proceedings consistent with this opinion. Tax the costs on appeal equally

between the appellant and the appellee.

_________________________________________ BEN H. CA

NTREL L, PRESI DIN G JUDGE, M. S.