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Failure to Agree on Terms of Project: The Formation of Relations Without Enough Detail to Create a Binding Contract
Question: What are the essential terms required to create a legally binding construction contract?
Answer: To form an enforceable construction contract, parties must agree on a detailed scope of work, an explicit timeline for completion, and a clear pricing structure, ensuring mutual understanding to avoid future disputes and promote a successful project outcome.
The Necessity of Terms Required to Establish a Legally Binding and Enforceable Contract for Construction or Renovation Projects
The maintaining of a positive relationship between a property owner and a contractor is foundational to successful construction projects; and accordingly, to avoid disagreement and to minimize the likelihood of a legal dispute, the establishing of a legally binding and enforceable contract is of great importance. This article delves into the implications of failing to establish a legally binding contract by failing to establish consensus for what the law views as the terms necessary for the formation of an enforceable contractual agreement.
Incomplete Negotiations Cause Unenforceable Contracts
Failure to form a legally binding construction contract, by failing to agreeing on the essential terms as legally required, creates several challenges and concerns. These issues include the failure to establish a definitive scope of work, a timeline for the work, and a clear pricing.
- Scope of Work Discrepancies:
If the parties fail to agree on the exact scope of work, such a failure often leads to misunderstandings about what tasks must be completed and potentially resulting in incomplete or subpar construction work. - Timeline Conflicts:
If the parties fail to set a clear timeline, the project may face delays and the project work may incur additional costs or miss critical deadlines. - Payment Disputes:
If the parties fail to establish a clearly agreed upon pricing, disagreements over the compensation amount due can strain or rupture the relationship.
Detailed Analysis on Contractual Agreements in Construction
The case of Kalogon Spar Ltd. v. Stanley Papageorge, 2020 ONSC 710, highlights the importance for clear contractual agreements and provides a detailing of the basic terms required for the establishment of a legal binding and enforceable construction contract. Specifically, the Kalogon case states:
[188] The requirements for a building contractor are set out in Goulimis Construction Ltd. v. Smith, 2014 ONSC 1239, 30 C.L.R. (4th) 195, at para. 17:
A leading case on the requirements for a building contract is the decision of Fisher J. in Rafal v. Lepaspi, 2007 BCSC 1944 (CanLII), [2007] B.C.J. No. 2925, 2007 CarswellBC 3278 (B.C.S.C.). One of the issues in that case was whether there was an enforceable construction contract. A written contract existed but both parties acknowledged that oral terms supplemented the written contract. They disagreed as to what those oral terms were, particularly as it pertained to the scope of work to be done. Justice Fisher summarize the law in this area and made the following observations: the parties must be ad idem on the essential terms of the contract; where there is no written contract, the court must determine the reasonable expectations and intentions of the parties in creating legal relations; part performance is a good indicator of the parties intention to contract with each other, but it is only an indicator; with building contracts, the parties must not only agree on the building of the improvement, but also on the following three key features, namely the exact scope of the work to be done, the timeline for completion and the price to be paid. He said this at paragraphs 23 and 24:
However, for building contracts, it is not sufficient for both parties to have agreed on the building of a house. For the contract to be enforceable, the parties must also agree on the exact type of house, the timeline for completion and the price… The absence of an essential term, in this case the specification to which the house was to be built, as well perhaps as the price, may result in uncertainty in the parties’ contract…
It is not for this Court to complete the parties’ contract for them, particularly where an essential term is missing, and it cannot be said that the parties agreed to it. Even if the parties believed and acted as if they had made an enforceable contract, and the court’s interpretation of the contract would be fair and calculated to do justice to both parties, the court must be careful not to create an agreement which the parties never had, nor intended…
[189] Cases from this province confirm that price is a material term of a construction contract: Denham v. Solmon, 2015 ONSC 3084, 49 C.L.R. (4th) 148, at para. 14; Androus v. Bedford Residences Inc., 2011 ONSC 2453, at para. 47, and Tecton Construction Inc. v. Yeung, 2016 ONSC 3039, 68 C.L.R. (4th) 327, at para. 83.
[190] I find that there was no contract entered into by these parties, as there was never the certainty of terms necessary to establish a binding contract. The evidence is so vague and contradictory that I am unable to find any clear, mutual understanding of the terms regarding price, exact scope of work or timeline for completion that would meet the requirements of contract formation. ...
Practical Solutions to Ensure Legally Binding Construction Contracts
Given the issues outlined within the Kalogon case, here are some practical solutions to help property owners and contractors establish enforceable construction contracts:
- Detailed Scope of Work:
Establish a clearly defined scope of work within a written contract by specifying all tasks for completion and avoid ambiguities. - Explicit Timeline:
Establish a comprehensive timeline detailing milestones and completion dates to ensure that both parties are aligned in understanding of the schedule for the project work. - Clear Payment Terms:
Establish a total contract price with measurable milestones for the applicable payment schedule.
Conclusion
Failing to agree on the essential terms of a construction contract can lead to significant legal and financial challenges. The case of Kalogon Spar Ltd. v. Stanley Papageorge illustrates the importance of establishing a clear enforceable agreements. The parties involved in a construction project relationship should diligently ensure that all of the essential terms are thoroughly negotiated and documented to avoid potential disputes and to ensure project success.