Can You Retract a Discounted Invoice?

What happens if you discount an invoice and are not paid? Can you retract the discount and bill for the full amount? A recent decision from the BC Supreme Court shows that you may not be able to do so.

FACTS

A West Vancouver man (the "Homeowner") entered into an agreement (the "Contract") with a custom electronics company (the "Contractor") for a home integration systemto control the lighting and music in his home (the "System"). 

Under the Contract, there was a fixed price for the equipment (approximately $400,000) and labour was to be billed hourly. The Contractor provided the Homeowner with an estimate (the "Estimate") of $62,000 for the labour. 

However, the labour actually incurred totaled $165,000.  The Contractor testified that where there was no fixed-price contract for a project, it was the Contractor's practice that the sales representative could adjust invoices as he or she considered necessary, taking into account any estimate provided, in order to produce invoices that the sales representative considered to be a reasonable.  In this instance, the sales representative had exercised his discretion to invoice $110,000 instead of the full $165,000.

The Homeowner made various payments for the System but refused to make the final payment.  The Homeowner complained that the System was not functioning as he expected or desired.  The Contractor visited the Homeowner's residence but was unable to recreate the problems described by the Homeowner and considered the System to be functioning perfectly.  After nearly two years, during which the Homeowner continued to complain of problems that the Contractor could not recreate them, the Contractor demanded that the Homeowner pay the full amount for labour instead of the discounted invoice.

The Homeowner remained frustrated with the System. Convinced that the System was defective, the Homeowner had it inspected on three occasions.  After four years, the Homeowner decided to have a new system (the "New System") installed by another company. 

The Contractor sued the Homeowner for the full amount of the labour.  The Homeowner argued that the Contractor was bound by the Estimate and could not charge any more than $62,000 for labour.  He also sought damages for breach of contract including $433,000 in costs to install the New System.

ISSUES

  1. Was the Contractor entitled to payment for the full amount for labour or was he restricted to the discounted invoice amount?
  2. Was the Homeowner entitled to recover the $433,000 he claimed he spent to repair the System?

 

DECISION

The court rejected the Homeowner's argument that the Estimate was a fixed price for labour because it was inconsistent with the wording in the Contract. However, the court held that Homeowner was not obligated to pay for the full amount of labour as recorded on the time sheets.  The Contractor's employee who prepared the Estimate was found to be an expert who knew that the Homeowner was relying on it; thus, the parties could not have intended the Estimate to be meaningless.  So, while the Estimate was not binding, the Homeowner could expect the final labour costs to have "some reasonable relationship" to it.  The court noted that the Contractor's practice was for the sales representative to adjust the invoices as necessary such that the final amount was "reasonable or fair...in the circumstances" and held that the $110,000 invoiced was the proper labour cost under the Contract.

In response to the Homeowner's claim for damages, the Contractor hired an expert to provide evidence about the testing that would typically be performed to diagnose problems in a home integration system with the view to repairing it, none of which was done in this case.

With the expert's evidence in mind, the court concluded that the inspections carried out were "consistent with replacing and upgrading, rather than fixing".  The court also found that the testing conducted by the company who installed the New System was done after the Homeowner had already made the decision to upgrade and after parts of the System had been dismantled.  Moreover, this testing was carried out when the System was already four years old, which the court considered to be "a long time in the world of technology".  Therefore, the court concluded that Homeowner failed to prove on a balance of probabilities that the System was so defective as to require complete replacement and denied his claim for $433,000.

LESSIONS LEARNED

  1. If you discount an invoice, you may not be able to retract it.
  2. Be careful when giving estimates. Where the facts show that the estimate was not intended to be meaningless, the court may only permit you to charge a final price that has some "reasonable relationship" to the estimate.
  3. If you are going to repair allegedly defective work, make sure to first have the work properly tested to confirm that it is defective and requires the repairs actually done.

 

 

This article was written by Ian Moes, a lawyer, and Micaela Carlson, an articled student, who practice in construction law with the law firm of Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction law matters, please contact us at 604-864-887.