Construction of a Contract (General Principles)

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Date Retrieved:	2024-04-16
CLNP Page ID:	239
Page Categories:	Contract Law
Citation:	Construction of a Contract (General Principles), CLNP 239, <https://rvt.link/23>, retrieved on 2024-04-16
Editor:	MKent
Last Updated:	2022/12/14

Metro Rehabilitation Centre Inc. v Mclean, 2010 CanLII 101087 (ON SCSM)

ELEMENTS OF A VALID CONTRACT

[42] A contract is an exchange of promises between the contracting parties. Although generally expressed in writing, it can be reached verbally between the parties as well. But at its heart are two or more parties exchanging such promises.

[43] As the authors of Business Law in Canada (9th Ed.) state:

“not all agreements are contracts. To qualify as a valid contract, an agreement must contain certain elements. They are:

1. Consensus. Parties to a contract must have reached a mutual agreement to commit themselves to a certain transaction. They are assumed to have negotiated the agreement from equal bargaining positions. The process by which the agreement is reached usually involves an offer and an acceptance, although consensus can be implied.

2. Consideration. There must be a commitment by each party to do something or to abstain from doing something. The consideration is the price each is willing to pay to participate in the contract.

3. Capacity. Parties to a contract must be legally capable of understanding and entering into the agreement…

4. Legality. The object and consideration involved in the agreement must be legal and not against public policy.

5. Intention. Both parties must be serious when making the agreement, and both must intend that legally enforceable obligations will result from it.”

[44] The absence of any of these elements renders an agreement unenforceable in law.

The Gatti Group Corp. v. Zuccarini, 2020 ONSC 2830 (CanLII)

[71] It is well established law that for there to be a binding construction contract there must be an agreement, a meeting of the minds between the parties, on three elements: the scope of the work; the schedule; and the price. In Rafal v. Legaspi, 2007 BCSC 1944 (B.C.S.C.)] Madame Justice Fisher stated the following in paragraph 23: “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: Fame Construction Ltd. v. 430863 B.C. Ltd., (1998) B.C.J. No. 2300 (C.A.)(QL); affirming Smith J.”s decision, (1997), 1997 CanLII 4342 (BC SC), 30 B.C.L.R. (3d) 68 (S.C.).]” In Goulimis Construction Ltd. v. Smith, 2014 ONSC 1239 in paragraph 17 I quoted at length from the Rafai decision in determining whether there was a binding construction contract in that case. I found that there was not such a binding contract as there was no meeting of the minds as to scope and price. The Goulimis decision was referred to with approval by Justice Healey in the recent decision in >Kalogon Spar Ltd. v. Stanley Papageorge, 2020 ONSC 710 (SCJ) at paragraph 188. The judge went on to find that there was no contract in that case stating in paragraph 190 the following: “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.”

[72] Should the court find that there is no enforceable agreement, there is a strong argument to be made by the contractor for recovery on the basis of quantum meruit. In Goulimis I stated the following in paragraph 41: “The courts generally will grant recovery on the basis of quantum meruit where a party supplies services and materials to another at their request, encouragement or acquiescence, whether under a quasi-contract or no contract, and where it would be unjust for this other party to retain the benefit.”

[73] What makes the case before me interesting, and what distinguishes it from many of the cases involving a dispute over the existence of a construction contract (such as Goulimis), is that here there was a document that was signed by both parties on July 21, 2014, namely the Contract Document. There is no dispute that this was a form of construction contract that was prepared and delivered by GGC. It is entitled, “Renovation and Construction Agreement,” and is under GGC letterhead. There is no dispute that the document was signed and dated in three places by both parties, Mr. Gatti on behalf of the “contractor,” GGC, and Ms. Zuccarini on behalf of the “owners.” There is no dispute that neither party signed the document under duress or on account of unconscionable conduct by either party. Nevertheless, Mr. Mitchell argued at length that this document was not enforceable as there was too much uncertainty as to the essential elements of scope and price.

[74] This means that I must consult the established principles of contract interpretation. Mr. Drudi provided me with authority in this regard. In Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 (S.C.C.) the Supreme Court of Canada was dealing with a dispute concerning a fee agreement. The Court had to interpret the agreement. In paragraph 47 the Court stated the following about contract interpretation: “The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, (2006) 1 S.C.R. 744 (S.C.C.), at para. 27 per Lebel J.; see also Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4, (2010) 1 S.C.R.69 (S.C.C.), at paras. 64-65 per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.”