It is not unusual for construction litigation between owners, contractors and subcontractors to involve defenses and claims based on alleged untimely completion. The basics of the law in Tennessee related to project completion is a topic about which it is worthwhile for owners, contractors and subcontractors to have some practical knowledge. A good place to start to gain that knowledge is an opinion in a construction case involving claims of breach of contract, a mechanics’ and materialmen’s’ lien, and the Tennessee Prompt Pay Act. That case is Madden Phillips Construction, Inc. v. GGAT Development Corporation, and here are the basic facts of that case:
- Madden Phillips (“Contractor”) and GGAT (“Owner”) entered into a construction contract for the construction of a residential subdivision
- In the written construction contract, Contractor agreed to perform several scopes of work including earthwork and construction of infrastructure for utilities and roads
- The written contract contained neither a date for completion nor a “time is of the essence” clause
- Contractor began work in May of 2004, but suspended its work in July of 2004 based on Owner’s failure to perform work necessary for Contractor to perform its work
- After forty-five days, Contractor resumed construction, but continued to have problems completing its work because of the failure of Owner to complete its work
- After Contractor had performed about ninety five percent (95%) of its work, Owner terminated the contract and refused to pay
As a defense to Contractor’s claims, Owner argued that Contractor had materially breached the construction contract by failing to complete the work in eight months. The trial court rejected this defense based on three findings of fact. First, it found that the parties’ contract did not contain a term that the work had to be completed in eight months. Second, it found that the parties had not agreed to a “time is of the essence” term for completion. Third, any right Owner might have had to terminate Contractor for failing to perform its work on a timely basis was waived by Owner’s actions and inactions, including, failing to provide fill which had to be in place before Contractor could perform its work.
The court of appeals affirmed the aforementioned ruling of the trial court, and, in doing so, it expounded on Tennessee legal principles that are applicable in cases where timeliness of completion is at issue. First, it pointed out that contract clauses which state that “time is of the essence” and contract clauses which set forth a date by which the parties agree that the work will be completed have different legal effects. Here is how: If a construction contract contains a date by which the work will be completed, but does not contain a “time is of the essence” provision, then a failure to complete the work by the agreed date will not rise to a material breach. A non-material breach does not allow the non-breaching party to terminate a contract and refuse to pay, which is what Owner did.