Contractor liable for completing last phase of contract nine years later, at original price

A paving contractor has been found liable for providing the top coat of paving, when the binder coat was installed nine years earlier. And its liability extends to installing the top coat at the price given nine years before! Factoring into this decision by the Tennessee Appeals Court is the fact that the contractor drafted the contract and never provided for what might happen should the owner delay in seeking completion of the work.

Highways, Inc. provided the quote in 2003 to a subdivision developer, for a 6” base, 2” binder, and 1-1/2” top coat, for a single lump sum price. The base and binder were installed in 2003, and Highways billed and was paid $37,200, leaving an unpaid balance of $8,800. Flash forward nine years: the developer asked Highways to install the binder coat for the contract balance, and Highways declined, saying its price in 2012 would be $38,000 for that work, and not $8,800. The developer then sued for the cost overrun; i.e., the cost in excess of the $8,800 balance.

In the ensuing lawsuit, Highways argued alternatively that (a) there had been two contracts and only one was accepted, or (2) the developer had waited too long to invoke the remaining contract obligations – the legal defense was laches, which is an equitable defense. But the court didn’t accept either argument. It noted that Highways had prepared the original contract which consisted of a single description of work for a single price, even though both sides recognized that the work would be done in two phases. Also, the defense of laches did not succeed as Highways failed to show that the developer was somehow negligent in not asking for the remaining work to be done for nine years. Negligence, per the TN court, is an essential element of that defense. The court clearly believed that Highways could have taken some sort of step to protect itself, had it chosen to do so. Maybe a time limit on the pricing for the top coat, or a time limit on when the second phase of work was to be done, or the right to terminate if the developer failed to ask for the remaining work to be done in a reasonable period of time.

Thus, a contractor who failed to take adequate precautions in its original contract found itself liable for any cost overrun incurred by the developer in getting a binder coat installed some nine years later than expected. This all could have been addressed in a simple and non-controversial manner at the time. You can bet that Highways has amended its standard forms! The case is Avery Place, LLC v. Highways, Inc., 2015 Tenn. App. LEXIS 957 (Dec. 7, 2015).