How long can work under a contract be suspended before the contractor's obligations will be deemed terminated? A lot longer than you might expect.

In Avery Place, LLC v. Highways, Inc., a recent case from the Tennessee Court of Appeals, the Court was asked to consider whether the trial court had erred in granting a motion for summary judgment regarding a breach of contract action where the contractor refused to perform work at the price specified in the contract. The contract had been suspended for eight years.

Key Considerations:

• The work was intended to be done in two phases, with at least a one-year gap between the completion of phase one and the start of phase two.
• According to the contractor, the cost of materials necessary to perform the work had increased by over 300 percent since the contract had been executed, making an $8,800 job into a $38,000 job.
• There was no set time or deadline for the performance of the second phase of work in the contract.
• The contractor drafted the contract.
• There was no negligence on the part of the developer in waiting eight years to request that the phase-two work be completed.

In a win for solicitors against those pesky litigators who are always trying to punch holes in our beautifully drafted contracts (and by "pesky", I of course mean "diligent"), the Court swept aside the many sophisticated legal arguments of the contractor and relied on the language and interpretation of the contract in affirming the summary judgment of the trial court, holding that the eight-year period was "a mere hiatus" in the contractor's obligation to perform the work, and that the developer was entitled to have the work performed at the original price set out in the contract despite the extended suspension of work and the increase in the price of such work. Because the contractor had refused to perform the work at the price stated in the agreement, it was in breach of contract and had to pay $29,200 as damages for work it had initially agreed to perform for $8,800.

While Tennessee case law is not binding in Alberta (and it appears an equivalent case has not been before a Canadian court to-date), don't assume a suspended contract will automatically become a terminated contract at some point “ unless it says so in the agreement.

A special thanks to Sandra Geddes and Odessa O'Dell for their research assistance.