I have often wondered whether there is such a thing as too small a dispute. Well, the parties in Earl Faulkner v. Tom Emmett Construction Company (pdf) determined to take their $3,000 construction dispute to the Tennessee Court of Appeals. In the end, the Court gave some good instructions on the "first material breach" rule, which applies in many states.
The Owners hired the Contractor to build a new driveway at their home. The total contract price was $18,000 and the Owners refused to pay the balance of $8,000 because they were dissatisfied with the workmanship of the driveway. The Owner sued the Contractor, seeking the cost to remove and replace the allegedly defective driveway. The Contractor claimed that the driveway was properly constructed and filed a counterclaim for the remaining $8,000 balance owed on the oral contract.
The trial court concluded that any problems with the driveway were not sufficient to require that it be removed and replaced. Because there was a problem with how the concrete on one portion of the driveway had been poured, the trial court ordered the Owners to pay only $5,000 of the remaining
$8,000 owed on the contract.
The appellate court affirmed the findings of the trial court, but modified the judgment. The court held that the Contractor committed the first material breach of the contract when it failed to construct the driveway in accordance with the plans. Accordingly, the Owner was relieved of any obligation to pay:
A party who has materially breached a contract is not entitled to damages stemming from the other party’s later material breach of the same contract. Thus, in cases where both parties have not fully performed, it is necessary for the courts to determine which party is chargeable with the first uncured material breach.
. . . We conclude that [Contractor's] admitted failure to use a gravel base prior to pouring the driveway extension constitutes a material breach of the contract, thereby prohibiting [Contractor] from challenging [Owner's] later material breach of failing to pay the balance of the contract price.
Based upon the above reasoning, the appellate court concluded that the Owner was not required to pay the remaining $3,000 breach of contract damages awarded by the trial court.
While the amount in controversy in Faulkner does not seem significant, the decision provides a good illustration of the first material breach rule.