A recent decision from the BC Supreme Court reaffirms some basic principles of contract law in the construction setting and provides some useful lessons for contractors and owners.
In the decision, the Court reaffirmed that:
- a binding contract requires a consensus ad item (a meeting of the minds);
- the test for determining whether the parties formed a consensus ad item is an objective one, requiring a consideration of the outward expressions of the intent of the parties;
- in the construction context, the fact that the parties have agreed to work together on a building project is not enough to create a legally enforceable contract; and
- an enforceable construction contract generally requires agreement as to the nature of the construction, the timeline for completion, and the price.
- a timetable or completion date; and
- the contract price or remuneration the general contractor was to receive upon completion of its agreed-upon scope of work.
The Court’s decision in Hodder Construction (1993) Ltd. v. Topolnisky, 2021 BCSC 666 arose from a dispute between a general contractor and an acquaintance of the principal of the construction company. In short, the general contractor agreed in October 2015 to act as general contractor for the acquaintance in the construction of a 3,850 square foot house near Kamloops. Despite the relatively large scope of the project for a residential project, the parties did not have a written contract. Construction began in late September 2016 and did not go smoothly. By late October 2017, the supervising architect had withdrawn from the project, the owner fell behind in payments to the general contractor, and the cost of the project was vastly exceeding early estimates.
In December 2017, the general contractor withdrew from the project, filed a claim of builders lien against the title to the property, and commenced a lawsuit against the owner for $359,400 in unpaid invoices. The owner counterclaimed in the amount of $131,094 for items that she alleged were within the general contractor’s scope but were over an alleged agreed-upon maximum price of $850,000.
One of the issues the Court had to consider in resolving these claims was whether there was a binding contract and if so, whether it was a fixed-price contract, a cost-plus contract, or some other form of construction contract.
Ultimately, the Court found that there was no contract. Despite a good deal of text messaging, in-person communications, meetings, and invoicing between the parties, as well as completion of a significant portion of the project, the parties never reached a consensus ad idem on essential terms. Specifically, the Court found that the parties never agreed on:
Although the general contractor was ultimately able to recover $199,879.16 plus pre-judgment interest through a claim in restitutionary quantum meruit for the reasonable value of services it provided, the Court’s decision is a good reminder to all parties involved in construction projects that a clear agreement between the parties that sets out the nature of the construction, the timeline for completion, and the price may be required to create a legally enforceable construction contract.