Summaries Sunday: OnPoint Legal Research

One Sunday each month OnPoint Legal Research provides Slaw with an extended summary of, and counsel’s commentary on, an important case from the British Columbia, Alberta, or Ontario court of appeal.

Hugh’s Contracting Ltd. v. Stevens, 2015 BCCA 49

AREAS OF LAW: Contracts; Fire damage; Extra work; Quantum meruit

~Where parties have agreed for the provision of goods and services but failed to provide for terms of remuneration, they may be presumed to have intended a reasonable price and a contractual term to that effect may be implied.~

BACKGROUND:  In September 2008, the home of the Respondent, Laurie Stevens, was damaged by fire. In consultation with her insurer, she sought and obtained bids for the cost of repairing the damage. She ultimately entered into a contract with the Appellant, Hugh’s Contracting Ltd. No changes were to be made to the contract without a written change order or other written agreement signed or initialled by both parties. When the contract was entered into the principal of the Appellant, Mr. Astrope, ordered blank change order forms for the purpose of evidencing agreed changes to the contract. All changes but one, however, were undertaken following discussion but without written change orders or any specific agreement as to their cost. These changes involved significant improvements to the home, well beyond the fire damage repair. The project was still not complete by March 2010, at which time a dispute had arisen. The Appellant refused to compromise on billing amounts, refused to continue work until the Respondent made payment, and refused to return building materials to the Respondent, which the Respondent believed she had paid for as part of a $110,000 payment toward the additional work. At trial, the judge found that the Appellant had repudiated the contract and that the Respondent was justified in terminating it. The judge assessed the Appellant’s entitlement to be paid for extra work in accordance with the principle of contractual quantum meruit, allowing claims for expenses and extra materials in the net amount of $126,371.51. Considering the $110,000 already paid, the judge held that the Respondent owed the Appellant $16,371.51. The judge found that the contract’s interest provision with respect to payments for the insured work did not apply, as there had been no agreement with respect to payments for the cost of extras. The Respondent counterclaimed, alleging that she had been obliged to spend more than she otherwise would have paid to repair the insured damage to the house, had the Appellant completed the contract. She retained an expert to estimate the portion of the total expenses that were incurred to finish the insured part of the work the Appellant had contracted to do. The expert estimated the total cost of the repair at $126,379.03 more than what the Appellant had agreed to charge. The Respondent counterclaimed for this amount. The judge deducted the Respondent’s insurer’s payment from this amount, leaving an adjusted claim for $47,800. However, the judge did not accept the expert’s estimate and held that the Respondent was entitled to $25,000 with court interest. The judge admitted that this was a “somewhat arbitrary” figure. The judgments resulted in a net debt of $8.628.49 owed by the Appellant to the Respondent.

APPELLATE DECISION: The appeal was dismissed and the cross-appeal allowed. The Appellant argued that the trial judge erred in failing to allow two components of its claim for extras, being a $12,000 per month supervision fee and interest on the unpaid fee in the amount of 24% per month. The Appellant submitted that if it was entitled to the supervision fee, it was not in breach of contract by insisting on the fee’s payment. It maintained that the Respondent should be found in breach of the contract and, as a result, it should be found to have lost 10% profit on approximately $120,000 of insured work to be completed. The Appellant also took the position that the quantum meruit rule should not apply. The Respondent cross-appealed, arguing that the trial judge made a number of factual errors in calculating damages. She alleged that her claim for additional expenses was erroneously reduced by deducting the insurer’s payment. She also claimed that she should have been credited with a payment she made for flooring on the Appellant’s account, and that the cost of a fireplace for the house was erroneously considered to be an extra expense instead of part of the insured repairs. The Court of Appeal held that the trial judge relied on clear jurisprudence in concluding that where parties have agreed for the provision of goods and services but failed to provide for terms of remuneration, they may be presumed to have intended a reasonable price and a contractual term to that effect may be implied. Only had the contract provided for the payment of such services would the trial judge’s application of these principles be in error, and on the facts this was not the case. The judge made no error in principle, nor did he misapprehend the facts in this regard. On the cross-appeal, the Court held that the fireplace replacement was not extra work and that the insurance payment should not have been deducted from the amount owed to the Respondent. On this second finding the matter was remitted to trial for quantum assessment.

Comments provided by Andrew Bird, Counsel for the Respondent:

Contractual quantum meruit has been around since 1609, when it was invented as a remedy for innkeepers and tailors who neglected to inform their customers of their prices, but whose customers clearly intended to create contractual relations with them. At the time, no action arose in debt because no definite amount was discussed; and nor in special assumpsit because there was no express undertaking. To grant relief, courts implied a contractual term to pay the charges: “It is an implied promise of every part, that is, of the part of the innkeeper that he will preserve the goods of his guest, and of the part of the guest that he will pay all duties and charges which he caused in his house.” By 1610 it was declared to be “the usual course to appoint a tailor to make a garment or a smith to shoe his horse and that he will content him; and such a contract is good enough.”

Cunning businesses might take advantage of this rule by waiting until after the customer has received the goods to gouge the customer with aggressive prices which the customer by then would not be able to escape. Accordingly, by 1621, the Court of King’s Bench held that “such promise to pay tantum quantum meruit is certain enough, and he shall make the demand what he deserves, and, if he demand too much, the jury shall abridge it according to their discretion.”

This remains essentially unchanged four centuries later. Contractors ought to know by now that if they fail to specify their prices in advance of the work, the implied term is a reasonable price, which may or may not be the same as the contractor’s usual price, or even the contractor’s price in previous dealings with the same client. Those things are merely evidence of what is reasonable.

The contractor here failed to discuss prices for extras and then presented a whopping bill, about half of which was accepted as reasonable at trial. The contractor appealed, not on the basis that the trial judge erred in dismissing the charges as unreasonable, but on the basis that, though unreasonable, they were owing in contract, and “reasonableness has nothing to do with it.” As there was no express agreement as to price, the contractor argued there was an implied term to pay general supervision of $12,000 per month for the extras, because that sum was a component of the fixed price contract, which governed the original scope of work.

The Court of Appeal upheld the longstanding rule that absent an express price, the implied term is to pay a reasonable price, and prior contractual dealings are merely evidence of what is reasonable. If a contractor wishes to charge an unreasonable amount, he must obtain the express agreement of his client before performing the work. Here, the supervision fees were unreasonable because the contractor achieved little progress – there was virtually nothing to supervise.

The Court of Appeal found that whether there is an express price is a question of mixed fact and law, citing Sattva Capital Corp v. Creston Moly Corp 2014 SCC 53. Historically contractual interpretation has been a question of law, but Sattva reversed that, holding that it is usually a question of mixed fact and law, although there may be extricable questions of law. Determining whether the parties agreed on price is not one of them.