When does a quote become a binding contract is a common question. Recently the British Columbia Supreme Court provided some helpful guidance.
In 2003 the construction of a house in Kelowna, BC was nearing completion when the original tile installer walked off the job. Exclusive Flor Sales Ltd. (the "Contractor") is based in Surrey, BC and provided a written quote "site unseen" to finish the work for approximately $31,000. The quote expressly stated that:
ALL PARTIES ARE AWARE THAT EXCLUSIVE IS GOING TO THIS JOB SITE WITH OUT LOOKING AT OR INSPECTING THE JOB. DUE TO DISTANCE AND TIME FRAME WE AGREE TO START SIGHT ON SEEN [sic] AND TRUST THAT CONDITIONS FOR TILE WORK ARE SATISFACTORY AND ANY DOWN TIME FOR THE INSTALLER ON THE CONTRACTORS OR HOME OWNERS SIDE WILL BE EXTRA BILLABLE HOURS . . . .
The Contractor's quote had a space for the signature of the Contractor's salesperson and Homeowner. The fine print in the box for the Contractor's salesperson's signature included the following statement:
Any alteration or deviation from above specifications involving extra costs will be executed only upon written orders, and will become an extra charge over and above this proposal.
The quote was never signed and there were no written change orders for any perceived extras.
When the Contractor's subcontractor first arrived on the site he informed the Homeowner that the deck was bigger than he had been led to believe and that it would take longer to complete than originally anticipated. He also noted that the job was much more complicated than expected, involving curved edges around the perimeter, terrace steps, a planter, an offset tile pattern and that the deck would require the concrete slab to be leveled in certain areas prior to installation of the tile.
While these issues were raised with the Homeowner, the Homeowner insisted that the work be done and that "cost is not a factor". There was, however, no agreement on a revised price.
The Contractor finished the work and invoiced $18,000 more than the quote. The Homeowner refused to pay more than the quote and counter-sued for alleged defects in the work, which he said would cost approximately $93,000 to fix.
Was the quote a binding contract?
In determining whether there was a binding contract, the court looked at the circumstances in which the quote was made. In doing so, the court concluded that there was "a fundamental misunderstanding" between the parties as to the scope of the work stemming from assumptions made by the Contractor and a lack of disclosure by the designer. As a result, the court found that:
Without a common understanding of what the project entailed, there was no "meeting of the minds" necessary to create an enforceable contract.
The court stated that when the Contractor's subcontractor saw for the first time how complex the job was, he was entitled to walk away from the project and that the Homeowner could not have possibly sought to enforce the quoted price at that point. Even though the work was now complete, there was no legal basis in the court's opinion for holding the Contractor to the terms of the quote.
The court further concluded that since the Homeowner never signed the quote, the Contractor would have no way of knowing that the Homeowner viewed the quote as binding and intended to hold the Contractor to it, particularly since there was some discussion about how the work would cost more due to the complexity.
While the court concluded that the quote was not in itself a binding contract, the court did find that the subsequent conversation between the Contractor and the Homeowner did create an enforceable contract, in which the quoted amount formed a base price with the Homeowner being responsible for the "fair charges" over and above that amount to compensate the Contractor for the unanticipated complexity.
The court's challenge, however, was determining what those "fair charges" would be. According to the court, this difficulty arose in no small part due to the lack of transparency and effective communication on the part of the Contractor. While the Homeowner had said "cost is not a factor" the court found that this did not give the Contractor a "blank cheque" nor did it relieve the Contractor of his obligation to disclose, as soon as practicable, what his charges would be. As such, the court determined that any doubt in calculating the fairness of the charges would be resolved in favour of the Homeowner. The court then proceeded to assess what the fair costs should be, ultimately concluding that the Contractor should be paid $10,000 on top of the original quote.
While the Contractor ultimately was paid more than the quote, it came at no small cost. This dispute started n 2003 and ended in 2010. The trial took seven days, which would have cost several tens of thousands of dollars. While the Contractor will likely get some of its legal costs covered by the Homeowner, it will most likely only be a fraction of what the Contractor actually spent.
This article was written by Ian Moes, a lawyer who practices construction law with the law firm of Kuhn LLP. It is only intended as a guide and it is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact him at 604-682-8868.