Lack of Written Contract Costs Drilling Company Half Its Fees

While a written contract is highly recommended, verbal contracts may be recognized in certain circumstances.

However, as seen in the recent Alberta case discussed below, a lack of a written contract may cost a party dearly, as a company learned when the court cut the fees it claimed were due by almost half.

No Contract Signed Between Parties

A general contractor was responsible for installing 13 water wells in the Town of Fox Creek, Alberta in 2017. However, the Town had some concerns and found debris in two of the wells. While the contractor offered to clean the wells, the Town was not satisfied by their offer.

As such, the Town, the contractor and an engineering firm discussed bringing in another contractor. While the contractor maintained that the system was up and running as designed, it agreed under threat of liquidated damages by the Town to use the Town’s preferred contractor, a drilling services company, for the remaining work on the wells.

In September 2017, the drilling company met with the Town and the contractor. The company was asked to perform further work on the wells. Prior to that meeting, the company had provided its hourly rates to the Town, and the Town had approved those rates, though the contractor itself never requested information regarding the hourly rates before, during or after the meeting.

The drilling company commenced the requested work in late September 2017 and it was subsequently determined that all of the wells contained debris.

In January 2018, the drilling company invoiced the contractor for its travel to the site, pulling the remaining pumps and blowing the wells. It also invoiced the Town for the re-installation of the pumps, fixing wires and damage, and the installation of the monitoring tube, together with travel back from the site. It charged the same rates to both the contractor and the Town.

In total, the drilling company invoiced the Town approximately $71,000, which was paid in full. It also invoiced the contractor $40,608, but that amount was not paid.

The drilling company then went to court,seeking the sum of $40,608 for services rendered to the contractor. It claimed that it had entered into a contract with both the Town and the contractor to complete the work on the wells.

In response, the contractor denied that there was a meeting of the minds on all essential terms sufficient to form a binding and enforceable contract with the drilling company. Alternatively, the contractor claimed that the amount the drilling company had charged was excessive and inconsistent with other pricing on the project.

At issue before the court was whether the drilling company had established on a balance of probabilities that a verbal contract had been made.

Court Finds Verbal Contract, But Cuts Amount in Half

The court began by noting that there had been no written contract between the drilling company, the contractor and the Town. The court then explained the task at hand, stating:

“A written contract would certainly have been of valuable assistance here, but a verbal contract may be inferred from the words and conduct of the parties.

A contract requires an offer and acceptance, and terms that are either certain or can be determined with a reasonable degree of certainty. The test to determine whether a binding contract exists is an objective one.

The three hallmarks of contract certainty are parties, subject matter, and price. The person seeking to enforce the verbal contract has the onus of proving the essential terms of the contract with a reasonable degree of certainty. The burden of proof is on a balance of probabilities.

The question is whether or not a reasonable bystander, considering objectively the words and conduct of the persons involved, could determine there was a contract, and with reasonable certainty who was a party to the contract, the subject matter or scope of the contract, and the price.”

The court found that all three parties had agreed that the drilling company would complete the requested work and that it would be paid for the work. As such, the court held that the subject matter or the scope of the contract had been identified and confirmed at the meeting. The court also held that all three were parties to the contract.

However, the court stated that what was less clear was the portion of the work that was to be paid for by the Town, and the portion that was to be paid for by the contractor. The court found that, while this division of responsibility for payment was clear between the Town and the contractor, there was limited evidence of any discussions with the drilling company regarding who was to pay for what part of the work.

After reviewing the evidence, the court concluded:

“All essential elements of the contract can reasonably be inferred from the communication between and the conduct of the parties with sufficient clarity. [The contractor] agreed to pay [the drilling company] a fair price for the costs associated with blowing out the wells….

What constitutes a fair price is a question of fact dependent upon the circumstances in each case. The principal of contractual quantum meruit enables the Court to determine a fair price for services performed in this situation. A fair price is measured by the value of the services and what they are reasonably worth.”

As such, the court ordered the contractor to pay the drilling company for services rendered. However, the court ultimately determined that the price to be paid by the contractor should be reduced to that which it could reasonably have expected to pay, which the court set at $23,510, or close to half of what was requested.

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