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Court Of Appeals Of Tennessee Affirms Ruling Precluding Recovery By Developer Due To It Committing A Prior Material Breach Of The Same Contract

In The Manor Homes, LLC v. Ashby Communities, LLC, et al., No. M201701369COAR3CV, 2018 WL 3814981 (Tenn. Ct. App. Aug. 10, 2018), the Court of Appeals of Tennessee affirmed a ruling precluding recovery by the developer due to it committing a prior material breach of the contract. The case involved the construction of a house in Arrington, Tennessee. Ashby Communities, LLC (“Ashby”) was the developer and owner. Ashby entered into a contract with The Manor Homes, LLC (“Manor Homes”) to serve as its builder.

Work on the home began in May 2011 and the respective parties immediately had disagreements on the direction of the project. After resolving the initial disagreements, the project ran smoothly until January 2012.

At that time, Ashby informed Manor Homes that “there was a lot of activity surrounding the trim.” Manor Homes, for the first time, also learned that Ashby had retained two independent designers who had inspected the home and were of the opinion that there were issues with the overall design.  Rather than allow Manor Homes to address the design concerns, it was summarily fired from the project and its final invoice for work completed was never paid.  

Due to non-payment, Manor Homes filed suit against Ashby. Ashby filed a counterclaim in response, seeking damages for, among other things, the alleged faulty work. After a bench trial, the Court held that Manor Homes was entitled to damages for breach of contract based upon Ashby’s failure to pay it for all work completed. It also determined that Ashby was precluded from seeking recovery of damages for the work it believed Manor Homes had not completed in compliance with the terms of the contract based upon it committing a prior material breach when it fired Manor Homes prior to giving it an opportunity to cure.

In affirming the decision, the Appeals Court noted that under Tennessee law, “a party alleging defects in the performance of a contract is required to give notice and a reasonable opportunity to cure the defects.” The reason for this requirement is to encourage contracting parties to settle their disputes and avoid litigation by allowing the defaulting party the chance to repair defective work, reduce damages, and avoid additional problems. In addition, the party that commits the first breach of a contract is precluded from recovering damages based on the other party’s later breach of the same contract. Therefore, because Ashby did not give Manor Homes notice and an opportunity to cure any defects in the house prior to removing it from the project, Ashby was the first to breach the contract and was, therefore, not entitled to recover damages as a result of Manor Homes’ alleged failures.

This case is a good reminder for developers and general contractors of the need to allow builders and other subcontractors an opportunity to cure defects in workmanship prior to termination. Failure to provide such an opportunity could preclude a party from being able to recover damages for faulty work if a lawsuit later arises.