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Home Construction Contract Case: Tennessee Court Of Appeals Upholds Nashville Chancery Court

A recent opinion of the Tennessee Court of Appeals in a construction defect case between a homeowner and a contractor is worth the read for any lawyer or homeowner contemplating a breach of contract case against a contractor. The opinion touches on two areas of the law that might be implicated in any construction defect case where breach of contract and/or negligence are alleged: (1) the amount of damages a homeowner might be able to recover for a contractor’s defective work; and (2) a homeowner’s right to the remedy of rescission of the contract in a breach of construction contract case.

The opinion gives a plenary explanation and description of the contractor’s work which was alleged to have been incomplete, defective, and below standard (which is too detailed and lengthy to be repeated in this blog). In a nutshell, the facts of the defective construction case were as follows:
• Homeowner retained Contractor to remodel her residence
• Homeowner did not pay Contractor the final installment on the contract because she believed that Contractor’s work was incomplete and defective
• Contractor sued Homeowner, and Homeowner filed a countersuit
• The Homeowner asserted that her damages consisted of amounts which she had to pay other contractors to remedy the defective work
• There was no express warranty or guarantee given by Contractor
The trial court, the Chancery Court for Davidson County, Tennessee, first found that a warranty that the Contractor’s work would be “standard” and “acceptable in the industry” would be implied. In Tennessee, where a homeowner and a contractor do not expressly agree on a warranty, a warranty that the work will be done in a workmanlike manner will be implied. If, however, the homeowner and contractor do expressly agree on a warranty (whether it is more protective or less protective than the implied workmanlike manner warranty), that express warranty will be applied by a court in the event of a dispute.

The trial court next found that Contractor could not rely on the defense that the Owner had not given him notice of his defective and incomplete work and an opportunity to cure his work because the “homeowner was consistently telling the contractor that the work had not been done.” In Tennessee, a party to a construction contract should always assume, unless advised otherwise by a lawyer, that the breaching party should be given notice of its defective or incomplete work and an opportunity to cure it. In many situations, a party may be barred from recovering damages for defective or incomplete construction work where that party failed to give notice, and an opportunity to cure, to the other party.

The trial court recited, in detail, the work of Contractor which was defective and incomplete, and found that Contractor had breached the implied warranty, and had negligently performed its work. At trial, Homeowner asked the trial court to allow her to rescind the contract between her and Contractor. Had the court rescinded the contract, Contractor would have been required to return all of the money paid to him by Homeowner. Instead of rescinding the contract, the trial court awarded monetary damages to Homeowner.

In Tennessee, courts are very reluctant to rescind contracts, and will do so only when it is clear that the parties can be placed in the very same situations which they occupied before the contract was formed. Homeowner never had a chance of convincing the court to rescind the contract in this case. Why? It would have been unfair to require Contractor to return all of the money paid to him by Homeowner because some of his work was not defective. Put another way, rescission was not possible because it was impossible to put Contractor in the same situation he occupied before the construction contract between him and Homeowner.

For a breach of contract construction case where the court did allow the homeowners to rescind a construction contract, take a look at Robinson v. Brooks, a 1979 decision of the Tennessee Court of Appeals. In that case, the homeowners discovered that their house was built on an inappropriate soil base that was causing the house to lean dangerously.

In the case which is the subject of this blog, the court of appeals affirmed the decision of the trial court as to the damages awarded to Homeowner, and the trial court’s decision not to rescind the contract. It also affirmed the trial court’s decision that Contractor had not engaged in fraud. The court of appeals stated: “Bad work…does not, in and of itself, prove fraud.” For those who want a realistic evaluation of the damages they might recover in a home construction contract case, that observation by the Tennessee Court of Appeals is worth heeding.