Case Name: SERVICE ELECTRIC SUPPLY COMPANY, INC., Appellant, v. HAZLEHURST LUMBER COMPANY, INC., Appellee
Court: Mississippi Court of Appeals
Jurisdiction: Mississippi
Decision Date: 2006-02-28
Citations: 932 So. 2d 863
Docket Number: No. 2004-CA-02135-COA
Parties: SERVICE ELECTRIC SUPPLY COMPANY, INC., Appellant, v. HAZLEHURST LUMBER COMPANY, INC., Appellee.
Judges: KING, C.J., LEE AND MYERS, P.JJ., BARNES, ISHEE, ROBERTS, JJ., CONCUR. SOUTHWICK, J. CONCURS IN RESULT ONLY. IRVING, J., DISSENTS WITH SEPARATE WRITTEN OPINION, JOINED BY GRIFFIS, J.
Reporter: Southern Reporter, Second Series
Volume: 932
Pages: 863–878

Head Matter:
SERVICE ELECTRIC SUPPLY COMPANY, INC., Appellant, v. HAZLEHURST LUMBER COMPANY, INC., Appellee.
No. 2004-CA-02135-COA.
Court of Appeals of Mississippi.
Feb. 28, 2006.
Rehearing Denied June 27, 2006.
Derek Andrew Henderson, attorney for appellant.
Dennis L. Horn, Shirley Payne, Madison, attorneys for appellee.

Opinion:
CHANDLER, J.,
for the Court.
¶ 1. Service Electric Supply Company, Inc. sold electrical parts to Magnum Industrial and Controls, Inc. for use in a building project owned by Hazlehurst Lumber Company, Inc. (HLC). Magnum was the general electrical contractor on the project. On October 1, 2002, Service Electric filed suit against HLC for the value of certain materials which Service Electric had delivered to the job site. HLC moved for summary judgment. Service Electric filed a response and a cross-motion for partial summary judgment.
¶ 2. The trial court granted summary judgment in favor of HLC and denied Service Electric's cross-motion for partial summary judgment. Service Electric appeals, arguing (1) that a letter from HLC to Magnum and Service Electric created a contractual relationship between HLC and Service Electric; (2) alternatively, that HLC is estopped from denying its liability to Service Electric; and (3) that the trial court should have granted Service Electric's motion for partial summary judg ment and entered a judgment for Service Electric in the amount of $13,787.05.
¶ 3. We find that Service Electric was not entitled to recover payment from HLC for any materials which Service Electric sold to Magnum. Therefore, we affirm the grant of summary judgment to HLC.
FACTS
¶ 4. HLC planned to add updated equipment to its lumber milling operation. On February 11, 1998, HLC contracted with Magnum to perform the electrical work for the project on a cost-plus basis, with the total cost of Magnum's work not to exceed $240,000. HLC agreed to pay Magnum for all materials used in the project at cost plus ten percent. The construction contract was memorialized as HLC's Purchase Order No. 24234.
¶ 5. Shortly thereafter, Ronnie Rogers, the owner of Magnum, informed Starke Albritton, HLC's operations manager, that he wished to purchase electrical supplies for the project from Service Electric. Rogers told Albritton that Larry Stickell, the owner of Service Electric, refused to sell to Magnum unless HLC promised to pay for electrical supplies by joint check payable to Magnum and to Service Electric. In response, Albritton executed the following letter:
February 20,1998
TO: Terry Stickels [sic] and Ronnie Rogers
Hazlehurst Lumber Company agrees to pay for materials used on our project NO. 699-01 by joint check. The check will be made to Service Electric Supply and Magnum Industrial Power and Controls. This in no way affects the responsibility of Magnum to perform to the bid specifications (Dated 1/20/98) and does not in any way alter the purchase order currently in place.
Sincerely,
s/Starke Albritton
Starke Albritton,
Operations Manager
Hazlehurst Lumber Company
¶ 6. Rogers gave a copy of the letter to Stickell. According to Albritton, Stickell called him and asked if HLC was agreeing to pay for any and all materials ordered by Magnum. Albritton said HLC did not agree to pay for any and all materials ordered by Magnum, but only agreed to pay Magnum for parts with joint checks payable to Magnum and to Service Electric. Albritton emphasized that his contract for parts was with Magnum and that the total cost of parts and labor for the project was not to exceed $240,000. Stic-kell stated that Service Electric never would have sold materials to Magnum without the letter from Albritton agreeing to issue joint checks.
¶ 7. Magnum began ordering parts from Service Electric for use on the HLC project. Service Electric shipped the parts to Magnum at the HLC job site. A statement from Service Electric reveals that Service Electric billed Magnum for the parts. Albritton testified that, as the project progressed, Magnum submitted bills to HLC that included parts accountings from Service Electric. HLC paid several such bills by joint check made payable to Magnum and to Service Electric. The amount of each check reflected Magnum's cost for the parts plus his ten percent profit. Magnum endorsed each check and sent it to Service Electric, which endorsed and cashed the check. Per agreement with Magnum, Service Electric kept Magnum's ten percent profit as payment toward Magnum's debt to Service Electric for parts supplied on a prior construction job.
¶8. In April 1998, HLC noticed that Service Electric had overcharged Magnum for certain electrical parts. Magnum contacted Service Electric, which admitted having inadvertently overcharged Magnum. Service Electric issued credit memorandums for the overcharges. At the end of April, HLC instructed Magnum to cease ordering electrical supplies from Service Electric. For the next couple of months, previously ordered parts and their associated invoices continued to arrive from Service Electric.
¶ 9. In June 1998, HLC paid one of Magnum's bills for Service Electric parts with a check made payable to Magnum alone. This check was in the amount of $13,787.05. Albritton admitted that the check was supposed to have been made jointly payable to Magnum and to Service Electric. He averred that HLC's accounting office had inadvertently left Service Electric's name off the check. Magnum cashed the check. Rogers told Stickell that he planned to send the money to Service Electric. Stickell called Albritton and explained the situation. According to Albritton, he told Stickell that HLC would withhold payments from Magnum until Magnum paid the $13,787.05 to Service Electric. In July 1998, Stickell told Al-britton that Magnum had paid it, and HLC resumed payments to Magnum. Later, Stickell told Albritton that, in fact, Magnum had given him a bad check and Service Electric remained unpaid. Service Electric never recovered the $13,787.05 from Magnum.
¶ 10. In late spring and summer 1998, Magnum's work on the HLC project slowed and, by fall 1998, had stopped entirely. Several HLC employees observed Magnum employees removing electrical supplies from Magnum's on-site storage trailer. One of Magnum's employees stated that Magnum was transporting the supplies to other construction sites.
¶ 11. Due to Magnum's failure to perform, HLC was forced to hire other electrical contractors to complete the project. HLC stopped paying Magnum at the time it became apparent that Magnum was not going to complete the work. Albritton was uncertain whether its total payments to Magnum had met the contract price of $240,000.
¶ 12. Magnum never paid several of Service Electric's materials invoices. Service Electric sued to recover $33,420.35, the amount of the unpaid invoices, from HLC in contract or quantum meruit. Additionally, Service Electric moved on the ground of estoppel for a partial summary judgment in the amount of $13,787.05, for the check which HLC had made payable to Magnum alone. In its bench opinion granting summary judgment to HLC, the trial court found that Service Electric could not recover in quantum meruit because it had failed to show that it had a reasonable expectation that HLC would pay Service Electric for the materials. Rather, the court found, HLC had a contract with Magnum under which Magnum was to pay materialmen. The court further found that Service Electric was barred from recovering from HLC because it had failed to serve HLC with a stop notice pursuant to Mississippi Code Anno tated section 85-7-181 (Rev.1999). Finally, the court found that the February 20 letter was a term ancillary to the HLC-Magnum construction contract which provided for a method of payment. The court found that the letter was not a contract between HLC and Service Electric due to a want of consideration.
STANDARD OF REVIEW
¶ 13. This Court reviews the grant or denial of summary judgment de novo. Stewart v. Hoover, 815 So.2d 1157, 1159(¶ 6) (Miss.2002). The trial court's grant of summary judgment will be affirmed when "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." M.R.C.P. 56(c). "[T]o determine which factual issues are material, we must first examine the substantive law that governs the case, and to determine if an issue of material fact is genuine, we must then decide whether 'the evidence is such that a reasonable jury could return a verdict for the nonmoving party.' " Murphree v. Fed. Ins. Co., 707 So.2d 523, 529 (Miss.1997) (quoting Bache v. Am. Telephone and Telegraph, 840 F.2d 283, 287 (5th Cir.1988)). This Court considers all the evidence in the light most favorable to the non-moving party. Hataway v. Nicholls, 893 So.2d 1054, 1057(¶ 9) (Miss.2005).
¶ 14. In the case sub judice, the Court has been asked to review the propriety of the lower court's grant of summary judgment to HLC and its denial of partial summary judgment to Service Electric. On summary judgment, the movant carries the burden of persuading the court that there is no genuine issue of material fact and that he is entitled to a judgment as a matter of law. Hartford Cas. Ins. Co. v. Halliburton Co., 826 So.2d 1206, 1215(¶ 30) (Miss.2001) (citing Fruchter v. Lynch Oil Co., 522 So.2d 195, 198 (Miss.1988)). The party with the burden of proof of a claim or defense at trial carries the burden of production. Id. If the movant has the burden of proof of a claim at trial, then the movant must demonstrate that the non-movant "has no valid . defense to the action" and that the movant therefore is entitled to a judgment as a matter of law. M.R.C.P. 56 cmt. To survive summary judgment, the non-moving party then must produce affidavits or other materials showing that a genuine issue of material fact exists to be tried. Hartford Cas. Ins. Co., 826 So.2d at 1215(¶ 31). If the non-moving party bears the burden of proof of a claim or defense at trial, then the moving party must demonstrate that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Id. at (¶ 30). In response, the non-moving party, "by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Id. at (¶ 31) (quoting MST Inc. v. Miss. Chem. Corp., 610 So.2d 299, 304 (Miss.1992)).
LAW AND ANALYSIS
I. DID THE FEBRUARY 20 LETTER FROM HLC TO MAGNUM AND SERVICE ELECTRIC CREATE A CONTRACTUAL RELATIONSHIP BETWEEN HLC AND SERVICE ELECTRIC?
¶ 15. Pertinent to this appeal are the legal relationships between the parties to a construction contract and the suppliers of materials and labor expended in the building project. At common law, materialmen and laborers who have dealt only with the prime contractor are general creditors of the prime contractor and have no right to recovery from the project own er. Chancellor v. Melvin, 211 Miss. 590, 598, 52 So.2d 360, 364 (1951). Mississippi Code Annotated section 85-7-181 (Rev. 1999) provides that a material supplier or laborer not paid by the prime contractor may serve the project owner with a written notice of the nonpayment, termed a "stop notice." When a material supplier or laborer serves the owner with a stop notice, all funds due from the owner to the prime contractor become bound in the hands of the owner for payment to the party having served the stop notice. Id. A judgment against the owner under section 85-7-181 operates as a lien commencing on the date the stop notice was served. Id. However, the owner's payment in full of all amounts due to the prime contractor prior to the service of a stop notice extinguishes the owner's liability. Engle Acoustic & Tile, Inc. v. Grenfell, 223 So.2d 613, 619 (Miss.1969).
¶ 16. Though it experienced problems securing payment from Magnum, Service Electric never availed itself of the statutory lien by serving HLC with a stop notice. Therefore, Service Electric stood as a general creditor of Magnum and did not have any right to recovery from HLC. Chancellor, 211 Miss. at 598, 52 So.2d at 364. Service Electric admits that it never served HLC with a stop notice and that it did not acquire a lien against any funds which HLC owed Magnum. Service Electric argues that no statutory lien was necessary because it had a direct contractual relationship with HLC that arose from the February 20 letter. Service Electric contends that HLC was contractually bound to pay Service Electric for all materials ordered by Magnum for the HLC project and to pay for said materials by joint check.
¶ 17. An enforceable contract requires an offer, acceptance of the offer, and consideration. Krebs v. Strange, 419 So.2d 178, 181 (Miss.1982). We find that HLC was not contractually bound to Service Electric. While HLC did agree to issue joint checks for any materials which Service Electric sold to Magnum for the project, Service Electric had no return obligation to HLC to sell materials to Magnum. Had Service Electric chosen to stop selling materials to Magnum, or had declined to sell Magnum any materials whatsoever, HLC would have had no recourse in contract. Consequently, there was no mutuality of obligation between HLC and Service Electric and, thus, no contract. See United Elec. Corp. v. All Serv. Elec., Inc., 256 N.W.2d 92, 95 (Minn.1977).
¶ 18. Service Electric argues that a unilateral contract existed because the February 20 letter was an offer by HLC to pay Service Electric for all materials ordered by Magnum and to pay by joint check. Service Electric contends that it accepted this offer by performance in the form of selling goods to Magnum, thus creating a unilateral contract. Service Electric contends that the goods it sold to Magnum constituted consideration supporting its agreement with HLC.
¶ 19. We disagree. Service Electric's sale of goods to Magnum was not consideration to support a contract between HLC and Service Electric. Under the HLC-Magnum construction contract, HLC was to pay Magnum for materials used in the project. The February 20 letter was an agreement between HLC and Magnum as to how HLC would pay Magnum for mate rials for which it owed payment to Magnum under the contract.
¶ 20. Magnum had an open account with Service Electric. An open account is an unwritten contract. McArthur v. Acme Mechanical Contractors, Inc., 336 So.2d 1306, 1308 (Miss.1976). It "is a type of credit extended through an advance agreement by a seller to a buyer which permits the buyer to make purchases without a note of security and is based on an evaluation of the buyer's credit." Cox v. Howard, Weil, Labouisse, Friedrichs, Inc., 619 So.2d 908, 914 (Miss.1993).
¶ 21. As noted, Magnum was behind in its payments on the account and Service Electric refused to sell any further materials to Magnum without a promise to issue joint checks from the owner of the project for which the materials were intended. Magnum secured the joint check agreement from HLC, and, in reliance on that agreement, Service Electric began selling materials to Magnum. Nonetheless, in shipping materials to Magnum, Service Electric was simply performing its contract with Magnum under which Service Electric sold materials to Magnum on open account. A party's performance of its obligations under a contract does not function as consideration supporting a different agreement. Leggett v. Vinson, 155 Miss. 411, 418, 124 So. 472, 473 (1929). Thus, Service Electric's shipment of materials to Magnum pursuant to its contract with Magnum was not consideration to support a contract between Service Electric and HLC. We discuss the implications of Service Electric's reliance upon HLC's promise to issue joint checks in Issue II.
¶ 22. Since no contract existed between HLC and Service Electric, the latter stands as a general creditor of Magnum. Chancellor, 211 Miss, at 598, 52 So.2d at 364. As previously discussed, Service Electric could have recovered payment from any funds which HLC owed Magnum by serving HLC with a stop notice pursuant to § 85-7-181. While Service Electric has not renewed its quantum meruit argument on appeal, we observe that, since Service Electric's contract for sale of goods was with Magnum, it could not recover from HLC on that basis. See Holmes v. Shands, 26 Miss. 639, 641 (1854) (stating that ["the owner's] implied liability that would arise generally from his receiving value from the party furnishing [materials], is taken away by the special contract [the owner] has made [with the prime contractor], and especially by the special contract which [the material supplier] has made with the person with whom the owner of the property has contracted to complete the work").
II. ALTERNATIVELY, IS HLC ES-TOPPED FROM DENYING ITS LIABILITY TO SERVICE ELECTRIC?
¶ 23. Service Electric argues that, even if there was no contract between it and HLC, HLC was estopped by its representations from denying its liability to Service Electric. The doctrine of promissory estoppel holds:
an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetuation of fraud or would result in other injustice.
C.E. Frazier Constr. Co. v. Campbell Roofing and Metal Works Inc., 373 So.2d 1036, 1038 (Miss.1979). The purpose of the doctrine of promissory estoppel is to "forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon." Koval v. Koval, 576 So.2d 134, 137 (Miss.1991). The doctrine is "a rule of justice which prevails over all other rules" and may, where applicable, "operate to cut off a right or privilege conferred by statute or even by the constitution." Id. "However, estoppel should only be used in exceptional circumstances and must be based on public policy, fair dealing, good faith, and reasonableness." Powell v. Campbell, 912 So.2d 978, 982(¶ 12) (Miss.2005) (citing PMZ Oil Co. v. Lucroy, 449 So.2d 201, 206 (Miss.1984)).
¶24. Service Electric claims an estoppel arose because, in shipping materials to Magnum, it detrimentally relied upon HLC's promise "to pay for materials used on our project NO. 699-01 by joint check." There are two aspects to Service Electric's detrimental reliance argument that focus upon the interpretation of the preceding language from the February 20 letter. Service Electric argues that the import of the language was (1) that HLC promised to pay for all materials ordered and (2) that HLC promised to pay for said materials by joint check. HLC argues that the letter only promised to use joint checks as the method of payment to Magnum for his materials bills, and was not a promise to pay for all materials which Magnum ordered.
¶ 25. A review of the entirety of the language in the February 20 letter indicates that the letter was ambiguous. It is impossible to discern from the language of the letter whether HLC promised to pay for all materials used in the project, or simply promised to issue joint checks as a method of payment to Magnum for materials. However, due to the contractual relationships between HLC and Magnum and between Magnum and Service Electric, Service Electric could not reasonably have construed the letter as HLC's agreement to pay for all materials ordered. Service Electric knew that HLC's construction contract was with Magnum and that Magnum would sell HLC all electrical supplies used in the project. Since HLC had a contract for. parts with Magnum, Service Electric could not reasonably have construed the letter to signify that HLC would buy parts directly from Service Electric. Further, Albritton's undisputed testimony indicated that he told Stickell it was not HLC's intent to directly purchase materials from Service Electric. Rather, if Service Electric so elected, Service Electric could sell materials to Magnum on open account. For these reasons, it would have been unreasonable for Service Electric to construe the letter as HLC's promise to pay for all of the materials which Magnum ordered from Service Electric.
¶ 26. Albritton's testimony shows that what HLC did intend for Service Electric to rely upon, and what Service Electric did rely upon, was HLC's promise to issue joint checks to Magnum when Magnum presented HLC with a bill for parts from Service Electric. It was undisputed that Service Electric would not extend credit to Magnum without this assurance from HLC. When Magnum relayed Service Electric's position to HLC, HLC gave Service Electric a written assurance that it would issue joint checks. Service Electric relied upon HLC's assurance by selling parts to Magnum on open account. Then, HLC issued joint checks as promised.
¶ 27. Service Electric argues that it relied on HLC's assurance to its detriment because HLC made one check for $13,787.05 payable to Magnum alone. Indeed, Albritton admitted that the check was intended to have been made jointly payable to Magnum and Service Electric. Magnum cashed the check and absconded with the funds which it owed Service Electric. HLC knew that the reason Service Electric requested that HLC issue joint checks was to protect itself from the occur rence of this exact event. Thus, Service Electric did incur detriment from HLC's failure to issue a joint check as promised.
¶ 28. HLC argues that Service Electric had an opportunity to cure the detriment it suffered from HLC's failure to issue a joint check. HLC points out that Albrit-ton told Stickell that HLC would withhold payment to Magnum until Magnum paid over the $13,787.05 to Service Electric. In fact, Magnum gave Stickell a check, Stic-kell assured Albritton that Service Electric had been paid, and HLC resumed payments to Magnum. Then, Stickell found out from the bank that Magnum's account had insufficient funds to cover the check, and Stickell complained to HLC that Service Electric had not been paid after all. HLC argues that Service Electric should have assured itself that Magnum's check was good before inducing HLC to release funds to Magnum.
¶ 29. For estoppel, "the test is whether it would be substantially unfair to allow a person to deny what he has previously induced another to believe and take action on." Koval, 576 So.2d at 138. We have found that HLC intended for Service Electric to rely upon a promise to issue joint checks and that Service Electric reasonably relied upon the promise to its detriment. However, any injustice that resulted from HLC's failure to issue a joint check was abrogated by Service Electric's negligent failure to assure itself that Magnum's check was good before notifying HLC that it could release funds to Magnum. HLC resumed paying Magnum in reliance upon Service Electric's assurance that it had been paid the $13,787.05. In this circumstance it would be inequitable for HLC to be made to pay twice. We affirm the grant of summary judgment in favor of HLC.
III. SHOULD THE TRIAL COURT HAVE GRANTED SERVICE ELECTRIC'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND ENTERED A JUDGMENT FOR SERVICE ELECTRIC IN THE AMOUNT OF $13,787.05?
¶ 30. We have disposed of this assignment of error under Issue II.
¶ 31. THE JUDGMENT OF THE CIRCUIT COURT OF COPIAH COUNTY IS AFFIRMED. ALL COSTS OF THIS APPEAL ARE ASSESSED TO THE APPELLANT.
KING, C.J., LEE AND MYERS, P.JJ., BARNES, ISHEE, ROBERTS, JJ., CONCUR. SOUTHWICK, J. CONCURS IN RESULT ONLY. IRVING, J., DISSENTS WITH SEPARATE WRITTEN OPINION, JOINED BY GRIFFIS, J.
. Stickell testified that, at the inception of the HLC project, Magnum already owed Service Electric approximately $25,000 for prior materials purchases.
. An August 18, 1998 letter from HLC to Magnum was partially read into Albritton's deposition. In the letter, HLC communicated that it would make no further payments to Magnum until Magnum paid Service Electric the $13,787.05.
. In United Electric, the Minnesota supreme court reached this result concerning an analogous joint check arrangement. United Elec. Corp., 256 N.W.2d at 95. We consider this result to be a sound one that reflects the intent of the parties sub judice as well as the business practices of the construction industry in Mississippi.
. This was established by Albritton's deposition testimony and unrefuted by any evidence submitted by Service Electric. In his deposition, Stickell never denied telling Albritton that Service Electric had been paid.