Lack of Contract Costs Homeowner $15,000

Smith and Jones were friends and neighbours. Jones asked Smith to build a house for him. This was done solely on the basis of a verbal contract. A dispute arose as to the final price. Jones stated that it was a fixed-price contract for $86,000 whereas Smith states that $86,000 was just an estimate, and that it was a "cost plus 10%" contract, which led to his bill of $112,252. Jones paid the $86,000 plus an additional $9,000 which he called a "goodwill" payment. Smith sued for the balance.

The Court found that while each man may have thought that there was an understanding as to the manner in which the work would be billed, there was no consensus, and thus no agreement. The Court held to the basic principle of contract law that the Court will not create a bargain for the parties where they have not made one for themselves. Instead, the Court felt that in the absence of an agreed price, Jones was liable to pay a reasonable price for the work and materials which were supplied to him at his request and with his approval. This reasonable price was to be arrived at by reviewing the invoices supplied by Smith, and rejecting any unreasonable charges. This led to a reduction of the mark-up on materials and work supplied by subcontractors from 10% to 3%, and a reduction of 15% on the amount billed for hours worked. The final cost of the house was deemed to be $101,853.10, some $15,000 more than Jones originally thought he would be required to pay.

PRINCE EDWARD ISLAND SUPREME COURT - TRIAL DIVISION
[1993] P.E.I.J. No. 23