Uncertain Terms: Absence Of A Formal Agreement On Construction Projects

• Published date: 10 June 2022
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning
• Law Firm: Borden Ladner Gervais LLP
• Author: Rodney A. Smith, Stela Hima Bailey, Jason Buttuls and Celine Zhen (Articling Student)

Parties who have partnered up for construction projects, but have not drafted a formal contract may face uncertainties about their legal rights when potential issues arise. Although binding contractual relationships may be found in law in the absence of a formal contract, recent case law from the British Columbia Supreme Court and the Alberta provincial court came to opposite conclusions about the conditions under which this is possible.

In Hodder Construction (1993) Ltd. v Topolnisky, 2021 BCSC 666, the plaintiff contractor brought a claim against the defendant homeowner in relation to the construction of a new home. A year into the construction, issues began to arise on the project. Costs began to exceed earlier estimates and the homeowner fell behind on payments. A few months later, the general contractor withdrew from the project, registered a builders' lien, and sued the defendant for $359,400 in unpaid invoices. The homeowner counterclaimed for the contractor's alleged failure to complete the project and for deficiencies. The parties never entered into a formal written contract. Although there were extensive text messages, letters, email exchanges and in-person communication, the court held that there was no binding contract between the parties.

The court held that an agreement between the parties to work together was not sufficient to establish an enforceable construction contract. The court concluded that an enforceable construction contract generally requires a meeting of the minds as to the nature of the construction and the timeline for completion and the price. While the court may look to external circumstances to ascertain the objective intentions of the parties, the surrounding circumstances cannot result in effectively creating a new contract that the parties never intended to create.

In this case, the parties did not agree on a timeline, structure of fees, or a contract price. Instead, the court's sole finding as to an agreement was with respect to the parties agreeing that the plaintiff would act as the general contractor. The court opined that the issuance and payment of invoices, in absence of a formal contract, could show a meeting of the minds on essential terms if the invoice was clear enough. However, this is a highly factual analysis, and in this case, it was dependent upon the detail in the invoices. In another case considered by the court, Greenhill Properties (1977) Ltd. v Sandcastle Recreation Centre Ltd., a binding contract...