Get it in Writing - Making Sure You Have a Written Contract Before Getting to Work

Trying to hammer out all the little details before a construction project begins can seem like an unnecessary barrier to getting the job done. At times, it may even be tempting to dispense with a written contract altogether and just focus on the big picture, hoping that all the details will fall into place later on. However, the recent case of NR Excavating & Services Ltd. v. Mand serves as a cautionary tale on the serious problems that can result when parties fail to record their agreements in writing.

Facts

In early 2008, Ranjit Mand, one of the proprietors of J Mand Trucking ("JMT"), was asked by his friend, Harpal Sohi, to submit a proposal for excavation and soil removal services the "Work")in relation to the development of 11 lots in a residential townhouse development (the "Project"). Mr. Sohi was one of the owners (the "Owners") of Newton Creek Homes Ltd., the developer responsible for completing construction of the Project. When JMT was later engaged by the Owners, Mr. Mand subcontracted the excavation related services to the Plaintiff, NR Excavating & Service Ltd. ("NR"), a company owned by a friend of one of Mr. Mand's business associates.

In due course, JMT prepared a quote for the Work based on a fixed price of $3000 for the preparation of each lot. An additional cost of between $120 and $240 per load was to be added to this fixed price for the cost of Mr. Mand's soil removal services. This quote was not signed by any of the parties.

JMT later invoiced the Owners in the amount of $123,900 for the Work. At this time, the Owners had already paid JMT a sum of $59,523 for the Work, either directly or through settling outstanding accounts with its subcontractors. The Owners refused to pay the balance of the invoice, alleging that JMT had later agreed to complete the Work on a fixed price basis for $5000 per lot rather than in accordance with the original payment terms. The Owners maintained that pursuant to the terms of this side agreement, the total contract price was only $57,750 inclusive of G.S.T. Consequently, the Owners' contended that JMT had already been overpaid for the Work and no further amounts were due and owing under the invoice.  As a result, JMT failed to pay its subcontractor, NR, and a claim of lien was brought under the Builder's Lien Act.

Issues

 1.         What were the terms of the contract between the Owners and JMT?

Court Decision

Although not directly related to NR's claim of lien, a primary issue arose as to the terms of the contract between the Owners and JMT. Determining this issue, however, was complicated by the fact that none of the parties had signed a written agreement. In his decision, Justice Verhoeven strongly condemned the parties' failure to enter into a written contract before starting work on the Project, writing:

When, for whatever reason, parties take little or no care in documenting the terms of their business arrangements, they have only themselves to blame when disagreements ensue, and if the court makes findings contrary to their intentions.

 

In the absence of clear written terms, the court was required to infer the nature of the parties' agreement from witness testimony. In this case, the court simply believed the version of events relayed by JMT and disregarded the theories advanced by the Owners. Since the Owners could not produce any documentary evidence supporting their argument that they had rejected the terms of JMT's quote, the court enforced these written terms despite the fact that the Owners had never signed this agreement.

Lessons Learned

The most important takeaway from this case is to always document the terms of your agreements in writing. Although it is unclear from the evidence why the parties chose to conduct their business dealings in such an informal manner, one can speculate that their personal relationships may have been a reason. Whatever the cause, it is clear that the Owners' inability to produce written evidence of the terms of the alleged side agreement was a key factor in the court's decision to hold them to the terms of the original quote.

Although the exact terms to be included in a written building contract will vary depending on the circumstances, some key areas that should be addressed will frequently include:

  1. A clear description of who the parties are;
  2. A detailed scope of work, including reference to any applicable drawings and specifications;
  3. A construction schedule, including a start date and completion date for the project;
  4. The price for the work and terms clearly defining when it will be paid; and
  5. A clause addressing how changes to the scope of work will be addressed.

 

This article was written by Ian Moes and Andrew Delmonico, lawyers 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 Ian or Andrew at 1-888-704-8877.