To Draft or Not to Draft? The Dangers of Verbal Contracts
Verbal contracts are generally just as valid as written contracts. However, practically speaking, verbal contracts can be hard to enforce and unnecessarily complicate disputes between parties. Verbal contracts in the construction industry can be even more problematic given that construction related agreements can be inherently more complicated.
The recent Alberta Provincial Court decision, Saville Drilling Services Inc v Alpha Construction Inc, 2021 ABPC 125(“Saville”) serves as a cautionary example of the dangers associated with verbal contracts. In Saville, the Defendant was a general contractor hired by the Town of Fox Creek (the “Town”) to upgrade the Town’s water treatment plant. After debris was found in two of the 13 wells, the Town insisted that the Defendant hire its preferred contractor, the Plaintiff, to blow out the wells containing debris, re-install the pumps fixing the wiring and damage and add monitoring tubes – the tubes being an addition, with the cost borne by the Town.
The Court highlights that all contracts require an offer, acceptance, and consideration as well as terms that are certain or can be determined with a “reasonable degree of certainty”. The Plaintiff, as the party attempting to enforce the verbal contract, must also establish the three elements of contract certainty in order to prove that a verbal contract existed. These elements are the parties, subject matter, and price.
In Saville, the Court was ultimately able to infer by the words and conduct of the parties that a verbal contract existed. However, the Plaintiff was not successful in recovering the full amount of its claim. To its own detriment, the Plaintiff incorrectly invoiced and apportioned work to the Defendant which should have been borne by the Town. The Town was a party to the verbal agreement but not the litigation, hence the Plaintiff’s inability to recover.
Essentially, the Plaintiff misinterpreted the assessment of liability between the Town and the Defendant. This resulted in the Plaintiff inaccurately billing the Defendant for the tubing work which should have been apportioned to the Town. The Court in Saville commented that the proper cost appointment was “simple and reasonably clear”. This suggests that the Plaintiff may have forgotten or misinterpreted something over time. Had there been a written contract, perhaps this mistake could have been avoided. The Court was also tasked with resolving conflicting interpretations of what constituted a “fair price” to be paid for the services properly completed by the Plaintiff. Notably, this potentially could have been resolved among the parties without litigation had the contract been in writing.
Written contracts, in addition to being more easily enforceable in court, can more accurately document the essential elements of an agreement between the parties in ways that fading memories and conflicting interpretations of events cannot. They also serve as a point of reference that can be used by parties throughout the contractual relationship. Finally, they help parties avoid having to resolve their disputes by way of litigation – or at least simplify the disputes between the parties such that litigation may be less costly.
Should you have any questions regarding the material covered in the article above, please feel free to reach out to Broynn Rosser or any other member of our Construction Industry Group