The Trouble With Oral Contracts – They Aren’t Worth The Paper They Are Written On!

Old joke, but it made for a difficult and expensive lesson in a recent case involving a drywall contractor.

FACTS

The drywaller verbally agreed to mud and tape about 21,000 square feet at a fixed price per square foot.  Unfortunately, the drywaller didn’t see the job site until he arrived to begin work.  The boarding was not complete when he arrived and soon an argument arose over what was included in the scope of work, what was an extra and how much if anything he would be paid for the work.  There was a “round room” and lots of butt joints and other unanticipated site conditions (such as the boarding crew leaving their garbage in the way and work required above 8 feet, thereby needing scaffolding).  But it was too late to reach agreement; the work had to begin.  The work went slow and although there was no express agreement on when it was to be finished, the construction manager fired the drywaller when he was not finished in time for the painters’ planned start.  A replacement mudding and taping crew was brought in.  The drywaller was paid nothing and, understandably, filed a lien and sued in Supreme Court for what he thought was owing; about $11,000. 

ISSUE

What are the terms of an oral agreement?

DECISION

The judge was left with the inevitable credibility problem of “he said this” versus “he said that”.  After two days of trial, the judge concluded that there were a number of ‘implied terms’ in the oral agreement (as these things were not discussed).  First, the work was to be done in a ‘reasonable’ and workmanlike fashion.  He found that in the absence of expert evidence that it was defective, the work was satisfactory.  Second, the work was to be done within a ‘reasonable’ time.  Since there was no agreement that the work was required to be completed within a specific time when the contract was made, the Judge found that, failing notice to finish in a ‘reasonable’ time, the drywaller was improperly kicked off the job.  Thirdly, with respect to extras, it was determined that the drywaller should be paid a ‘reasonable’ sum for work that was beyond the scope of the original contract, even if there was no agreed basis for payment.  In general, the Judge held that the amount charged by the drywaller for extra work was ‘reasonable’.  Because the drywaller did not finish the job, he could not claim for the whole contract sum, as it was a unit price contract, and an arbitrary 25% was deducted (the Judge feeling that this was a ‘reasonable’ deduction as there was no evidence on exactly how much work had been left to complete).

Footnote:  Because the drywaller was successful, he was entitled to costs.  But because he only succeeded in winning less then the $10,000 limit of Small Claims court, he was deprived of all but his out-of-pocket costs (no legal fees for his lawyer’s involvement).  This may be in question, as an action on a builder’s lien can only be enforced in Supreme Court, not Small Claims, regardless of the amount.

LESSONS LEARNED:

  1. Oral contracts are dangerous.  Write it down, even if it is in note form.  He who has the best “paper trail” typically prevails.
  2. Notice the use of “reasonable” throughout.  “Reasonable” is what a Judge determines it to be.  Therefore, be sure you are being “reasonable” by objective standards wherever possible.  Don’t just assume that you are reasonable and the other guy isn’t.  Get good advice.
  3. When a dispute occurs, use every means possible to resolve it (mediation, independent third parties and “reasonable” negotiation) before launching into a court battle.  There are rarely real winners in litigation.  Even the “winners” lose; it is only a question of by how much.

This article was written by Robert G. Kuhn, a lawyer who practices in construction law at the law firm of Kuhn LLP. It is only intended as a guide and cannot cover every situation. 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 us at 604-864-8877.