Lessons in Construction: Documenting Contracts and Site Visits is Critical

A 2024 case from the Ontario Superior Court of Justice has provided a concise and helpful guide to contracts generally and the many concerns that can arise when making oral contracts with customers or other contractors. The case is styled as Quality General Contractor’s Inc. v Wu, 2024 ONSC 2909. Further, this case serves as a reminder that documenting site work is critical and that deficiency work does not extend lien registration deadlines.

Background

The Defendant owners, Judy Wu and Ivan Zee Hin Chan (the “Owners”), of a residential property contracted with a general contractor to do renovation work to their home in May 2018. This general contractor hired Quality General Contractor’s Inc (“Quality”) to do the majority of the requested renovation work.

The initial contract with the general contractor was for a fixed price, but as the renovation project proceeded, extras were included and the contract was revised on occasion to a higher value. Throughout this, Quality worked on site, the Owners paid the general contractor, and Quality invoiced the general contractor.

By October 2018, Quality was owed a significant portion of their invoices from the general contractor. Quality alleged the general contractor was heading towards insolvency and was failing to pay, so it sought a guarantee contract from the Owners to continue the renovation work. Quality alleged the Owners orally agreed to pay the outstanding debt owed to Quality from the general contractor as well as any further invoices to complete the project. The Owners disputed this oral contract’s existence and any request for such an agreement.

Quality continued work on the Owners’ property for the remainder of 2018 and into January 2019. The history of Quality’s site attendance was vague and lacking documentation. In Quality’s original records, it was noted to have worked on the site January 21. In Quality’s eventual lien, it stated the last day of supply was January 24. Quality later produced a photograph of a site note that stated it attended January 25 for its “last day worked” and that such work was the “landmark” for registering a lien.

The Owners disputed the final day Quality was providing services or materials. They provided evidence of an independent cleaning company attending the property on January 22, 2019 to clean the construction debris. The Owners also alleged they attended at the property on January 26 and it was empty and clean.

On March 8, 2019, Quality registered a lien against the Owners’ property. On April 23, 2019, Quality commenced legal action against the Owners (and the general contractor, who did not defend the action). The Owners disputed the claim on the basis no oral contract was made and the lien was registered after the deadline.

Oral Contract

The Court provided a succinct review of the requirements for contracts and considered the factors in the dispute between Quality and the Owners. The requirements for forming any contract, oral or otherwise, are: (1) offer, (2) acceptance, (3) consideration (there must value or benefit exchanged between the parties), (4) certainty of terms, and (5) intention to create a legal relationship. Further the subjective intent of the parties is not considered. Rather, the courts consider whether, objectively, a reasonable person would conclude the actions of each party showed an intent to be bound to a contract.

First, the Court considered offer and acceptance. Quality alleged the contract was entirely oral. It had no supporting evidence of the oral contract of any sort, not even a note in their project file that an agreement was reached. The Owners denied the contract and stated that the contract made no business sense as it would result in them paying a significant portion of the project costs twice (once to the general contractor and once to Quality). The Court found the Owners were more credible witnesses than any produced by Quality and the Owners rationale had more of an objective reality. The Court determined there was no offer or acceptance of the oral contract.

Second, the Court assessed consideration (the value or benefit exchanged by parties to a contract). Quality asserted that the consideration for the Owners was that Quality continued to work despite lack of payment. However, Quality had no evidence of it issuing any stop work order. Due to the lack of evidence, the Court did not believe the severity of the rift with the general contractor that Quality alleged and in turn did not believe that the Owners received any benefit for the alleged contract.

Third, the Court considered the intent to form a legal relationship. Quality again was noted to have serious failures in evidence to support its assertions including the lack of any negotiation history or term descriptions heavily troubled the Court. The Owners were again considered more credible and were noted to be business savvy, so a complete failure to negotiate or consider terms struck the Court as incredulous.

Lastly, the Court raised a specific requirement for a guarantee contract of the nature Quality alleged. For a guarantee to be binding it must be in writing and signed by the person guaranteeing another person’s debt. Alberta has its own legislation with specific and strict rules regarding guarantees as well. In short, both provinces’ legislation would make any oral guarantee unenforceable at law.

With all of the above, the Court concluded there was no contract between Quality and the Owners. There was no offer, acceptance, or legal intent to form a relationship. Further, even if the oral contract existed, an oral guarantee would not be enforceable.

Last Work Supplied

Pursuant to Ontario’s lien legislation, Quality was required to register its lien within 45 days from the date it last supplied services and materials. As noted above, Quality registered its lien on the Owners’ property on March 8, 2019. This means that Quality had to prove that it last supplied materials or services to the project on or after January 22, 2019 (i.e. 45 days earlier). Quality’s evidence concerning its last date of supply was poorly documented and in dispute. Quality’s last contemporaneous site note stated January 21, 2019, Quality’s lien stated January 24, 2019, and in March 2021 (two years after the lien) Quality miraculously found a site note indicating a “last day worked” on January 25, 2019.

The Court noted there was no dispute that work did not occur on January 22, 23, and 24, 2019. This left a determination to be made on whether  the last date of work was January 21, as the contemporaneous diary noted, or January 25, which the suspicious site note indicated.

On the other side, the Owners had documented evidence of their independently hired cleaner attending on January 22, 2019 and the Owner’s sworn evidence that they returned to an empty and clean home on January 26, 2019.

Given the clear evidence of the Owners, and the lacking evidence and general disdain for the evidence provided by Quality, the Court determined that Quality’s last day providing services was January 21, 2019. This resulted in the final determination that the lien was invalid as it was filed too late.

Further, the Court stated if any work was done on January 25 (which it did not believe), then it was solely deficiency repair work. The Ontario case law and legislation states this does not fall within the scope of providing materials or service when it comes to liens. In Alberta, the legislation also excludes rectifying deficiencies or omissions.

Summary and Practicalities

In summary, the Court found that there was no oral contract between Quality and the Owners as it lacked each and every requirement for a legally binding contract. Further, if there was an oral contract, it would have been unenforceable at law due to legislative requirements.

Second, the Court found the registered lien was invalid due to being registered outside the legislated required timeframe. The Court also provided a reminder that deficiency work does not meet the definition of providing material or services.

The practical takeaways from this matter highlight the critical importance of documenting every step in a construction matter. Quality was repeatedly critiqued by the Court for having no corroborating evidence for its affidavit and oral evidence. The Court noted all of Quality’s affiants were employees who served only as “mouthpieces” for the company and who merely repeated the evidence of its principal. Further, all of the affiants provided little to no corroborating documents to support their sworn statements.

When forming and binding yourself to a contract, it is ideal to have it formally documented in writing. If an oral contract arises, then it is critical to document as much of the oral contract as possible – for example, diarizing the reasons behind it, negotiations surrounding it and its terms, and its acceptance.

Quality did none of these. It did not maintain clear accounting of the debt it alleged was owing by the general contractor. It did not diarize the terms or negotiations with the Owners. It did not diarize the fact an agreement was reached. This led the Court to prefer the Owners evidence, and determine that an objective observer would not think there was a contract.

Regarding the lien deadline issue, if in fact Quality was on site later than January 21, 2019, then it failed to properly document its site attendance, resulting in its lien being discharged. In order to avoid this situation as a contractor, it is critical to properly diarize site visits and the tasks completed at those site visits.