Title: Board of Trustees v. Peoples Bank
Citation: 538 So. 2d 361
Docket Number: 58100
State: Mississippi
Issuer: Mississippi Supreme Court
Date: January 4, 1989

538 So. 2d 361 (1989) BOARD OF TRUSTEES of STATE INSTITUTIONS OF HIGHER LEARNING, et al. v. PEOPLES BANK OF MISSISSIPPI, N.A. No. 58100. Supreme Court of Mississippi. January 4, 1989. Rehearing Denied February 22, 1989. *362 Mike Moore, Atty. Gen. by Ed Davis Noble, Jr., Asst. Atty. Gen., Jackson, for appellants. Donald C. Woods, Keyes, Moss, Piazza &amp; Woods, Jackson, for appellee. EN BANC. DAN M. LEE, Presiding Justice, for the Court: Peoples Bank of Mississippi initiated this action against the Board of Trustees of State Institutions of Higher Learning and/or the University of Mississippi School of Dentistry to recover on a proposed lease assigned to the bank by Southern Copier Corp. The initial complaint in this case was filed in the Circuit Court of the First Judicial District of Hinds County, Mississippi, on October 7, 1983. On March 1, 1985, the Circuit Court of the First Judicial District of Hinds County transferred jurisdiction of the case to the Chancery Court of the First Judicial District of Hinds County. Following this action, Peoples Bank refiled a complaint in the chancery court with affidavits and the Board of Trustees filed answers on September 10, 1985, with supporting exhibits. Peoples Bank's second complaint alleges that it was a holder in due course of a lease between the University of Mississippi School of Dentistry and Southern Copier Corporation; therefore, Peoples Bank contends that they were not subject to the claims or defenses that the University of Mississippi may have had against Southern Copier Corporation. Consequently, Peoples Bank sought judgment for the lease payments that would have remained unpaid under the proposed lease had it not been cancelled, in addition to a reasonable attorney's fee. The Board of Trustees argued that the proposed lease which was attempted to be assigned on August 21, 1981, was never completed or submitted to the proper state supervisory agency for approval and execution. The Board also correctly contends that no lease was completed or signed until October 21, 1981, and it was for ten months not 60 months. The lease also provided for cancellation upon 30 days' notice, which, in the course of events, was complied with and terminated on February 22, 1982. Moreover, the Board of Trustees points out that, according to statute, Bob Norsworthy, Jr., director of business administration for the School of Dentistry, did not have the final authority to sign the proposed lease or any other lease on behalf of the University of Mississippi. At trial, the chancellor found that Bob Norsworthy, Jr., possessed apparent authority to sign the lease. Judgment was awarded to Peoples Bank against the University of Mississippi in the amount of $70,000 plus attorney's fees of $23,331, totalling $93,331, together with interest and all costs. The Board of Trustees appeals and assigns one error. Finding merit in this assignment, we reverse and render. A chronological time table reveals these events: All of the above events took place prior to the approval of the proposed lease by the UMC purchasing department. The purchasing department followed a strict procedure in obtaining equipment for each department. The procedure by which UMC purchases equipment was explained by Mr. Norsworthy: This necessarily required a three-step procedure to obtain a valid lease, a common procedure well known to Mr. Norsworthy, as well as to Ben Walker, sales representative for Southern Copiers. Mr. Walker, by affidavit, stated: Despite the fact that Southern Copier had not secured a completed binding purchase order or contract with UMC, Fred E. Meigs III, senior vice president of Peoples Bank, by letter dated August 21, 1981, advised the School of Dentistry of the assignment. A portion of that letter appears as follows: Are the terms of your lease as follows: Meigs requested the School of Dentistry to notify him if the terms of the $1400 for 60 months did not agree with the School of Dentistry's records. The School of Dentistry received Meigs' letter on August 25, 1981, and did not reply. Indeed, no completed or binding lease was in existence at that time. The UMC purchasing department did not issue its actual purchase order until October 12, 1981, some fifty days after the attempted assignment. We point out that the purchase order was for ten-month period not 60 months and contained a 30-day *364 cancellation letter. Mr. Norsworthy testified: In September of 1981, the School of Dentistry accepted delivery of the copiers and began using them, keeping a record of service calls. On November 16, 1981, in a memo to Don McNamara, UMC director of purchasing, Mr. Norsworthy requested that McNamara cancel one of the Minolta copier leases due to performance problems. McNamara then wrote Southern Copier on November 18, 1981, and requested cancellation of the lease on that unit. On December 17, 1981, Norsworthy in a second memo to McNamara requested that he discontinue leasing another two copiers, again citing performance problems as the reason for the cancellation. On January 4, 1982, McNamara wrote Southern Copier and requested cancellation of the lease on those units. On December 30, 1981, the School of Dentistry paid Southern Copier $4,378.95 under the terms of the proposed lease, and made one final payment of $969 on February 22, 1982, at which time all the copiers had been picked up by Southern Copier and the lease terminated, presumably under the 30-day cancellation clause. By letter dated July 16, 1982, Ross Lamberson, senior vice president of Peoples Bank, notified the School of Dentistry that lease payments were to be made to the bank rather than Southern Copier nearly a year after the assignment of the proposed lease on July 22, 1981, and some six to nine months after the termination of the lease and return of all the copiers to Southern Copier by the Board of Trustees. Mr. Lamberson enclosed a copy of the proposed lease in his letter to UMC. As a result of that letter, Norsworthy drafted a memo to Frank Zimmerman, vice chancellor of business affairs, and acknowledged that he had signed the proposed lease on July 22, 1981. On July 28, 1982, A.R. Gray, with UMC, responded to Lamberson's letter and acknowledged installation, stating that the lease was cancelled because the copiers failed to perform. The Board of Trustees argues that Bob Norsworthy, was not authorized to execute any binding agreement for the University Medical Center/Dental School. In point of fact, the Board of Trustees asserts that the lease agreement was a nullity due to the fact that the purchase order had not been authorized by the purchasing department. The official purchase order of the Medical Center was not issued to Southern Copier until October 12, 1981, and was materially different from the initial proposed lease in that the approved lease was for ten months not 60 and provided for cancellation upon 30 days' notice. Peoples Bank contends that Norsworthy served as director of business administration for the School of Dentistry since 1976. In that position, he dealt with vendors and negotiated leases on behalf of the School of Dentistry. Norsworthy also negotiated the proposed lease with Southern Copier on behalf of the School of Dentistry. By negotiating the lease, argues Peoples Bank, Norsworthy set into motion a series of events which induced third parties to act. In analyzing these arguments, we turn to the most essential question: Was the lease agreement negotiated in a manner consistent with UMC's purchasing requirements? Underlying this question, however, is the more fundamental question of public and state contracting laws. In Jerry Bruner v. University of Mississippi et al., 501 So. 2d 1113 (Miss. 1987), we stated: Id. at 1115. The "UMC Purchasing Policy and Procedure" manual contains this language: We recognize that the University of Mississippi Medical Center's Purchasing Department acts for the Board of Trustees and has the sole responsibility of approving all leases and contracts. This power originates from the State Commission of Budget and Accounting. See §§ 31-7-3, et seq., Miss. Code Ann. (Supp. 1986), which reads: From this Code section it is clear that the authority to supervise the procurement activities of all state agencies, departments and institutions is vested in the State Commission of Budget and Accounting. Under the direction of and pursuant to the rules and regulations of the Commission on Budget and Accounting, the University of Mississippi Medical Center's purchasing department has the sole responsibility of binding the Dental School or UMC to a written contract. A strict procedure is followed in obtaining a purchase order. Without any final authorization by the purchasing department and the accounting department at the University of Mississippi Medical Center, Norsworthy could not enter into a binding agreement with any outside vendor. Likewise, according to the testimony of Ben Walker, representative for Southern Copiers, he knew Norsworthy had no such authority. Furthermore, it was not Southern Copier's intention to bind the School of Dentistry to the terms of the lease agreement; on the contrary, the lease agreement was simply to assure the manufacturer that the order was "on line" so that the goods would be ready for use if and when all state leasing requirements were satisfied and signed by an authorized person. Therefore, we hold that no binding contract was entered into on July 22, 1981, between UMC and Southern Copier. A valid contract did not exist between the two parties until October 12, 1981, when UMC released the purchase order. Furthermore, the October 12, 1981, contract was materially different from the original lease terms in that it was for ten months only and provided for cancellation upon 30 days' notice. As to Peoples Bank's argument that Bob Norsworthy had apparent authority to execute any lease agreement, we point to our language in Bruner: Bruner, 501 So. 2d at 1116. Finally, Peoples Bank contends that the Board of Trustees has never been statutorily required to approve copier leases and enter approval on its official minutes; that the UMC purchasing policies and procedures that appellants rely on are nothing more than internal purchasing procedures of UMC. Peoples Bank suggests that the UMC purchasing policy and procedures were not prescribed by the Legislature, unlike the situation in Bruner, which was governed by § 37-101-15(f). Although Bruner involved an employment contract, the analysis of § 37-101-15 included in this Court's opinion, is applicable here. We said: Bruner, 501 So. 2d at 1115. We point out that the University of Mississippi Medical Center is an agency of the State of Mississippi. Under § 37-101-1 the Legislature gives the Board of Trustees the power over all State Institutions of Higher Learning. Moreover, under § 37-101-15, the Board of Trustees has the authority to set up purchasing policies in order to carry out their authority as dictated by the Legislature. Section 37-101-15(d) reads in pertinent part: These Code sections dictate that UMC purchasing policies are authorized by the Board of Trustees by virtue of the authority bestowed upon them by the Legislature. Therefore, the contention of Peoples Bank that the purchasing policies of UMC are merely internal policies ignores the explicit intent of statutes governing state agencies. Whether for a purchase or a lease, certain procedures are required by statute for letting a contract with the State of Mississippi. Therefore, we hold that Southern Copier, at its own risk, dealt with an employee of UMC who did not possess the authority to bind UMC to a contractual obligation. Peoples Bank assumed this risk by accepting the assignment of the lease. The contract entered into by UMC's purchasing department was for a term of ten months and contained a 30-day cancellation provision. The Board of Trustees complied with these provisions and cancelled the leases in November and December of 1981 and January 1982 six to nine months prior to the time that Peoples Bank elected to call upon the Board of Trustees to send payments to the bank. Having been assigned an incomplete lease executed by an unbindable agent, the Bank possessed only an unauthorized incomplete lease. As we stated in Weeks v. Cal-Maine Foods, Inc., 522 So. 2d 725 (Miss. 1987): The chancellor erred in permitting Peoples Bank to recover on an assignment based on a proposed lease that was not authorized or accepted by the Board of Trustees. Peoples Bank had no greater rights in the uncompleted/unauthorized lease than was possessed by the assignor, but simply stood in the shoes of the assignor. The lease, as finally accepted on October 12, 1981, was for ten months only and contained a 30-day cancellation provisions, which was utilized by UMC to cancel the lease and return the copiers. Accordingly, we reverse the learned chancellor's order dated November 7, 1986, and render judgment for the Board of Trustees. REVERSED AND RENDERED. *367 ROY NOBLE LEE, C.J., HAWKINS, P.J., and PRATHER, SULLIVAN, ANDERSON, and ZUCCARO, JJ., concur. ROBERTSON, J., not participating.