ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: C-582-11

DATE: 2014-01-22

BETWEEN:

MARTIN CREEK CONSTRUCTION LTD.
Plaintiff

– and –

MONICA EMELKO and MICHAEL STONE
Defendants

David M. Steele, for the Plaintiff

J. Greg Murdoch, for the Defendants

HEARD: November 26, 27, 28 and 29, 2013

REASONS FOR JUDGMENT

THE HONOURABLE Mr. JUSTICE D. A. BROAD

Parties and Background

[1] The Plaintiff carries on business as a general contractor performing home renovations and home building. Defendants are married and are the owners of a home at 88 Keats Walk, in the City of Waterloo, in the Regional Municipality of Waterloo (the “Property” or the “home”). They are both professors at the University of Waterloo, Ms. Emelko in the Department of Civil and Environmental Engineering and Mr. Stone in the Department of Geography and Water Management. .

[2] The Defendants contracted with the Plaintiff on or about August 25, 2010 to carry out renovations to the home in accordance with plans prepared by a draftsperson, Ron Krofp.

[3] The Plaintiff performed renovation work on the home, commencing on or about August 16, 2010 and rendered invoices to the Defendants on September 7, November 7 and December 1, 2010 and February 1 and April 6, 2011. Revised invoices were issued by the Plaintiff in respect of the December 1, 2010 and April 6, 2011 invoices.

[4] The Defendants made various payments to the Plaintiff in respect of the invoices but did not pay the full amount invoiced.

[5] The Plaintiff caused a Claim for Lien to be registered against the title to the Property on May 20, 2011 in the sum of $39,793.03. It subsequently issued a Statement of Claim and a Certificate of Action under the Construction Lien Act, R.S.O. 1990, c. C. 30, as amended.

[6] It is the Plaintiff's position that the contract was on a "time and materials" basis, whereby the work performed and materials supplied would be charged for on the basis of subcontractors' and materials suppliers' invoices plus 15%, with the labour of the Plaintiff's own forces being charged at an hourly rate of $55.00.

[7] Is the Defendants' position that the contract was based on a fixed price for the work and materials required to complete the scope of work described in a Price Quote provided by the Plaintiff dated June 29, 2010 (the “Revised Price Quote’), with extra work beyond that scope to be charged for on a "time and materials" basis, according to the formula set forth above.

[8] In its Statement of Claim, the Plaintiff, in the alternative, claimed personal judgment against the Defendants on a quantum meruit basis, and on the basis that the defendants have been unjustly enriched at the Plaintiff's expense.

[9] The Defendants, in their Statement of Defence, denied that they are indebted to the Plaintiff, and stated that they are entitled to credit for work not done by the plaintiff and that there were numerous deficiencies and delays for which they are entitled to set-off against the Plaintiff's claim.

[10] The Defendants originally counterclaimed for injury to the health of the Plaintiff Monica Emelko alleged to have been caused by a vent pipe having been negligently installed by the Plaintiff during the course of the renovation, and for damages for loss of care, companionship and guidance suffered by the Plaintiff Michael Stone under the Family Law Act, R.S.O. 1990, c. F.3. At the commencement of the trial the parties advised that the counterclaim had been settled and it was not being pursued.

[11] At the commencement of trial leave was granted to permit the Plaintiff to amend its Reply to substitute the word “beyond” on the first line of paragraph 5 thereof with the word “including” so that its pleading in the Reply was consistent with its claim in the Statement of Claim that the contract was on a time and materials basis.

Evidence

[12] In the fall of 2008 the Defendants Ms. Emelko and Mr. Stone approached Darrell Martin, the principal of the Plaintiff, to discuss their plans to add two additions to their home. Ms. Emelko had had previous dealings with Mr. Martin in respect of the construction of a new home in 2000-2001 by Deitrich-Martin Homes, a company owned by Mr. Martin and his father-in-law John Dietrich. She had also had some renovation work performed by Mr. Martin on another home on Dorset Street.

[13] In the course of the discussions Mr. Martin directed Ms. Emelko and Mr. Stone to Mr. Krofp to prepare plans for their planned renovation. At the request of Ms. Emelko and Mr. Stone, Mr. Martin prepared a Price Quote dated October 20, 2009 (“Original Price Quote”) with the description "Double Addition and Interior Renovations as per Plan.” The parties are agreed that the "plan" referred to in the Original Price Quote was comprised of the plans prepared by Mr. Krofp and reproduced at Tab 13 of Exhibit 1.

[14] The Original Price Quote listed, in point form, various items and features which were included in the quote together with items not included. The Original Price Quote also listed certain "extras" with prices attached, which were explicitly not included in the quoted price, including "extra labour for work done other then (sic) per plan $65 per hour plus materials.”

[15] The Original Price Quote included allowances in specified amounts for flooring, plumbing fixtures, cabinets and countertops for kitchen on the lower-level and two bathrooms and two gas fireplaces.

[16] The total price in the Original Price Quote was $160,600 plus tax. The Original Price Quote set forth terms for payment, including a deposit of $25,600 on execution of the document and two $50,000 draws, one upon completion of the foundation and one upon completion of framing and installation of windows. The balance was to be paid, including any extras upon completion, subject to a $4,000 holdback for seasonal exterior work. No commencement date or completion date were set forth in the Original Price Quote.

[17] The Original Price Quote provided signature lines for execution by the Defendants. Mr. Martin testified that the Original Price Quote was intended by him, if accepted by the Defendants, to form a fixed price contract for the double addition and renovations to the home set forth on the plan, based upon to the terms set forth.

[18] The Original Price Quote was not accepted by the Defendants and work did not proceed in the fall of 2009. It had become apparent that, due to the proximity of the property to a floodplain, approval of the Grand River Conservation Authority (“GRCA”) would be required in order to obtain a building permit. In addition, Ms. Emelko and Mr. Stone were contemplating expanding the scope of the renovation to include various matters including a new kitchen, work on the downstairs living room and dry-walling work at the rear of the home

[19] Discussions continued between the parties in the fall of 2009 and into 2010 regarding the planned renovation. Mr. Martin testified that, due to the changes being contemplated by Ms. Emelko and Mr. Stone to the scope of the renovation, he decided that he would only be prepared to do the project pursuant to a time and materials contract. He says that he shared this with Ms. Emelko and Mr. Stone in the early summer of 2010.

[20] In the fall of 2009 the furnace in the home ceased to function. The Defendants engaged the Plaintiff to obtain a subcontractor to supply and install a new furnace as they wanted to ensure that consideration was given to their planned renovation in determining the type and size of furnace to be installed. That work was completed by the Plaintiff at a cost of $3,500 plus tax.

[21] In May 2010 the Defendants engaged the Plaintiff to remove an old exterior fence and replace it with a new pressure-treated fence, work which had been included in the Original Price Quote. The fence work (except for a section of fence to return to the contemplated new addition in the future) was completed by the Plaintiff at a cost of $4,180 plus tax. In addition, in March, 2010, the Defendants requested the Plaintiff to quote on the cost of replacing windows and doors on the existing home. The Original Price Quote included replacing nine windows, one man door, one front door with a side lite and one patio door. The Plaintiff’s March 2010 quote included the doors but was limited to seven new windows rather than nine. That work was completed by the Plaintiff at a cost of $16,300.95 plus tax, including an extra cost for an upgraded front door requested by the Defendants.

[22] The Defendants decided to proceed with a kitchen renovation in conjunction with the balance of the planned renovations and arranged for Mr. Krofp to prepare a floor plan for the kitchen. The kitchen floor plan did not include particulars or grades of the cabinetry and fixtures to be included in the new kitchen, as those matters would be determined by the Defendants in consultation with the specific kitchen supplier that they selected.

[23] At the Defendant’s request, Mr. Martin provided the Defendants with the Revised Price Quote on June 29, 2010. Mr. Martin testified that the Defendants told him that the Revised Price Quote was only required to show to their bank in order to arrange financing for the project. Ms. Emelko testified that, although Mr. Martin was aware that it would be shown to their bank, that was not its sole purpose. She indicated that its purpose was to show them what the cost of the renovation would be, but they also needed it to show to their bank.

[24] The format of the Revised Price Quote was similar to the Original Price Quote in that it listed items included in the quoted price, items not included, and extras with specified prices which were not included, as well as terms for payment, including a deposit, two draws of $50,000 each and the balance, including extras, to be paid in full upon completion. However, the Revised Price Quote did not set forth any allowances for the items for which allowances were given in the Original Price Quote, nor did it include signature lines for acceptance by the Defendants.

[25] The Revised Price Quote excluded the items which had been completed by the Plaintiff earlier, namely the fence and the windows and doors, and included a "new kitchen renovation as per plan". The total price set forth in the Revised Price Quote was $170,600 plus tax.

[26] In late June 2010 GRCA granted approval, subject to conditions, for issuance of a building permit. The GRCA conditions required revision to the plan by Mr. Kropf and in early July the Defendants submitted the revised plan to the City of Waterloo and the building permit was issued on July 15, 2010.

[27] The Defendants went away on a planned vacation from July 24 to August 15, 2010. While the Defendants were away, the plaintiff commenced work on the project, consisting of moving a gas meter and conducting excavation, digging a dry-well and starting on the concrete foundation and back-filling.

[28] On December 15, 2010 Mr. Martin provided Ms. Emelko and Mr. Stone with a document entitled "Contract" stated to be for a "Double Addition and Interior Renovations as per Plan.” Under the heading "Terms of Contract” the following was stated:

• a $50,000 non-refundable deposit will be paid immediately

• Darrell and John will be charged out at an hourly rate of $55 each

• all subcontractors and material will be charged with an addition of 15% on top of each invoice total plus taxes

• an invoice will be submitted on the last day of each month for work completed. Payment will be due within seven days. The invoice will include a photocopy of each payment for your reference.

• The $50,000 deposit will be subtracted from the final bill.

• If the terms of this contract are breached construction will cease until payment is made.

[29] The parties are agreed that the reference to "John" is to John Dietrich.

[30] The contract document provided for a signature line for acceptance with the statement "I__________ of ______________ have read and agree and will comply to the above TERMS OF CONTRACT stated by Martin Creek Construction Ltd.”

[31] Mr. Stone's name and address were inserted and he signed the contract document (the “Contract”) on August 25, 2010.

[32] The parties disagreed, in their testimony, on the circumstances under which the Contract came to be executed by Mr. Stone.

[33] Mr. Martin testified that he hand-delivered the document to the defendants on August 15, 2010. He stated that there were discussions between the parties on that date as well as on other occasions regarding the terms under which he was prepared to do the project. He stated, in reference to the contract being on a “time and materials” basis, that he told the defendants "this is the way I would like to do business with you because I see the way things are changing.”

[34] Mr. Martin says that he attended at the home on August 25, 2010 and met with Mr. Stone at the kitchen table at which time Mr. Stone inserted his name and address where indicated in the Contract and signed it. Mr. Martin testified that there was no discussion regarding the terms of the contract on August 25, 2010 and indicated that, although Ms. Emelko was in the home, she was not in the room, as she was attending to the couple’s children.

[35] Mr. Martin's wife Shonda Martin testified that she had driven with Mr. Martin to the defendants’ home in the early evening of August 25, 2010 in order for Mr. Martin to pick up the signed Contract. Mr. Martin had worked for the day at his regular job with his employer Academy Construction. She indicated that she waited in the driveway while Mr. Martin went inside for 10 to 15 minutes and returned with the signed Contract.

[36] Ms. Emelko, in contrast, testified that she was present throughout Mr. Martin's attendance on August 25, 2010 when there was a fulsome discussion respecting the terms of the Contract and the basis on which the project would proceed, lasting one hour to one and a half hours. Mr. Stone testified that the meeting on August 25, 2010 lasted 30 to 45 minutes, during which there were discussions regarding the terms of the contract, which followed upon the number of earlier discussions with Mr. Martin subsequent to the date of the Revised Price Quote. Mr. Stone indicated that he printed his name and address and signed the Contract. The $50,000 deposit called for in the Contract was paid by the Defendants.

[37] Ms. Emelko testified that later on the evening of August 25, 2010 she drafted a detailed e-mail entitled "Mutually Agreed Upon Details of our Renovation Contract” and sent it at 11:44 PM to Mr. Stone with a copy to Mr. Martin. In the e-mail she stated "we appreciate the hour+ that you spent with us today discussing the details of the contract for the house renovations” and went on to state "I thought I'd take a few minutes to summarize our discussion with you, just to make sure we are still on the same page” and after stating that “the three of us agreed that” she listed 12 numbered paragraphs. Included in these were statements that:

• the contract is for the double addition and interior renovations as per the plan submitted to the City of Waterloo, which includes the kitchen renovation, (with the installed windows and built fence removed from the budget and the kitchen allowance added), and details of the plan are in the drawings and the June 2010 the price quote;

• Darrell's [that is the Plaintiff’s] profit is included in the June 2010 price quote for the plan work;

• Darrell will charge 15% on top of each invoice for all subcontractors and materials that are extras beyond the plan, and material upgrades like hardwood flooring or more expensive cabinetry are not extras and will not have 15% charged on top of the cost.

[38] Ms. Emelko testified that she followed up by a text message on August 28, 2010 at 5:39 PM to Mr. Martin stating "I just wanted to confirm that you got my e-mail from this past Wednesday. We’re agreed on the e-mail and contract?” She produced a copy of that text as well as a response she received by text from Mr. Martin on at 6 PM on the same day "yes we agreed".

[39] Mr. Martin denied receiving the August 25, 2010 e-mail, stating that he first saw it on November 21, 2013, being five days prior to the trial. It is noted in this respect that the heading of the printed copy of the e-mail is an e-mail from Ms. Emelko to Mr. Stone on November 19, 2013, forwarding it and asking him to print it at his work. Mr. Martin also denied discussing or agreeing to most of the listed items in the email, including in particular, that the 15% mark-up would only be charged on extras beyond the scope of work referred to in the Revised Price Quote in the sum of $170,600.00. He maintained that the Contract was on a time and materials basis and he never agreed otherwise.

[40] Mr. Martin testified that, although the address on the e-mail was current in August 2010, he had checked the computer located in his home office and could find no record of receipt of Ms. Emelko’s e-mail of August 25, 2010. Ms. Martin testified that in 2009-2010 she fulfilled the secretarial role for the plaintiff and had full access to the computer in the home office, as did Mr. Martin. She said that she looked for the e-mail on the computer could not find any reference to it in the “in”, “sent” or “deleted” files. She brought the computer to a business called "Waterloo Networks" to see if they could find any reference to the e-mail with no success.

[41] On cross-examination Mr. Martin testified that he had no recollection of the exchange of text messages on August 28, 2010 produced by Ms. Emelko and that he had checked the old cell phone that he utilized in 2010 and could find no reference to those text messages. Similarly he had no recollection of a text message of August 24, 2010 purportedly sent by him respecting the budget price for the kitchen produced in the Defendants Document Brief (Ex. 4) at tab 5, page 3, nor could he find a reference to it on his old cell phone.

[42] The Plaintiff submitted its first invoice to the Defendants following execution of the Contract on September 7, 2010 in the total sum of $25,139.01. The invoice attached a schedule listing all of the bills from third party subcontractors and suppliers and applied a 15% charge to the total of them. Copies of each of the third-party invoices were attached. The face of the invoice set forth a charge of $1,430 for 26 additional hours of labour (being $55 per hour).

[43] The Defendants paid the September 7, 2010 invoice without any discussion with, or questions to, Mr. Martin.

[44] The Plaintiff’s second invoice was issued on November 7, 2010 in the total sum of $115,470.87. It was formatted in the same fashion as the earlier invoice, with a schedule listing all of the third-party invoices, appending copies of them and applying a 15% charged to their total. The face of the invoice also set forth a charge of $2,420 for 44 1/2 additional hours labour.

[45] The Defendants paid all but $15,470.87 of the November 7, 2010 invoice which the Plaintiff carried forward as an outstanding balance on its next invoice of December 1, 2010.

[46] The original December 1, 2010 invoice, which was formatted in the same fashion as the earlier invoices, provided for a charge for third-party invoices plus 15% thereon as well as additional labour, for a total of $69,727.20 plus HST (excluding the $15,470.87 outstanding balance from the November 7, 2010 invoice). The total of the invoice, including the outstanding balance was $94,262.61. The Plaintiff applied $20,000 from the initial $50,000 deposit to this total, leaving a balance owing of $74,262.61.

[47] The Plaintiff issued a revised December 1, 2010 invoice to exclude two invoices of the tile subcontractor Casa Bella in total sum of $7,061.50, as well as its 15% mark-up on those invoices, as the Defendants had arranged to pay Casa Bella directly, without any apparent consultation with the Plaintiff. The total of the revised invoice, including the outstanding balance from the November 7, 2010 invoice, and following the application of $20,000 from the security deposit was $65,086.19. That amount was paid by the Defendants in installments prior to issuance of the Plaintiff's next invoice of February 1, 2011.

[48] During the course of the work in the fall of 2010 the Defendants requested and authorized the Plaintiff to perform work beyond the scope set forth in the revised plans prepared by Mr. Krofp and referred to in the Revised Price Quote. A list of thirty-five of these items was set forth at paragraph 6 of the Plaintiff's Reply. There was no serious dispute at trial that these items were completed by the Plaintiff and that, subject to an issue respecting the extent of retiling of a downstairs bathroom as discussed below, they were all requested by the Defendants. Some of the more significant items included the following:

(a) installation of a vaulted ceiling in the kitchen, and three large skylights, which necessitated an application for a revised building permit on October 25, 2010;

(b) replacement of shingles on the entire house, whereas the Revised Price Quote included only shingles on the two additions;

(c) painting of existing living room, entire recreation room, lower-level hallway, brick fireplace, lower-level bathroom, upper level hallway and "drum room";

(d) installation of two French doors;

(e) installation of double pocket doors at the top of the stairs to existing bedrooms;

(f) supply and installation of a central vacuuming unit;

(g) carpeting the existing staircase;

(h) retiling the existing downstairs bathroom;

(i) insulating the entire apartment ceiling;

(j) finishing the entire basement of the slide addition including insulating the "drum room" ceiling;

(k) rearranging the en suite bathroom to accommodate a glass closed shower;

(l) installing in-floor heating in the en suite bathroom;

(m) installing pot lights to the existing living room and the existing recreation room.

[49] The Plaintiff issued an invoice on February 1, 2011, formatted in the same fashion as its previous invoices, in the total sum of $69,929.14, comprised of third-party invoices plus 15% thereon, 35 additional hours for labour and HST, as well as a credit of $709.77 related to the kitchen supplier. The Plaintiff applied the balance of the security deposit in the sum of $30,000, reducing the net amount of the invoice to $39,929.14. The defendants paid $10,000 of this invoice leaving a balance outstanding of $29,929.14.

[50] The Plaintiff carried forward the balance of $29,929.14 to its next invoice of March 10, 2011 which totalled $57,657.05, representing the $29,929.14 balance from the February 1, 2011 invoice, plus net new charges of $27,727.91 inclusive of HST.

[51] The plaintiff issued a final invoice of April 6, 2011 which provided for third-party invoices plus the 15% thereon totaling $1,092.79, together with an outstanding balance on that date of $38,668.35 for a total of $39,903.20. Mr. Martin indicated in testimony that the Defendants had made a payment in the interim reducing the outstanding balance from the March 10, 2011 invoice to $38,668.35. The Plaintiff issued a revision to its final invoice, giving credit for tile repairs in the sum of $97.50, resulting in a revised balance of $39,793.03. This amount was not paid by the Defendants and represents the amount for which the Plaintiff registered a Claim for Lien on the title to the property.

[52] The Defendants had vacated the home in October to accommodate the renovations and moved back prior to Christmas, 2010. The relationship between the parties began to become strained in January and deteriorated further into February, 2011. In early January the Defendants had experienced uneven heat in the home, as apparently the heating and ventilating system had not been balanced to that point by the HVAC subcontractor.

[53] The Plaintiff engaged Delta Air Systems Ltd. in January 2011 to check the heating and ventilating system as well as the fireplaces and to carry out any necessary repairs and adjustments, including balancing the system, and it issued an invoice dated February 28, 2011 in the sum of $6,245.55, comprised of labour of $4,250, materials in the sum of $1,995.55 plus HST for total of $7,057.47.

[54] Disagreements escalated between the parties following the Plaintiff’s February 1, 2011 invoice and at the time of their partial payment of $10,000 on February 22, 2011 Ms. Emelko sent a lengthy e-mail to Mr. Martin. In the e-mail she stated, in part:

“the check (sic) is for $10K because it covers all of your remaining expenses (that you have provided to us) for work on our house. We didn't leave a check for the profit portion of your bill because we really want to sit down with you to talk about how the work has gone/what has been done, the expenses associated with completing the work, and your relative role in completing the work.”

[55] Following a description of various complaints which the Defendant had, Ms. Emelko concluded her e-mail by stating:

“please be assured that we do want to pay you, but we don't feel comfortable doing that until we first speak to you and have a clear sense of how you propose to wrap up this job from a work completion and billing perspective. Giving the events that have transpired, we believe it's fair to ask you to be accountable for the 15% that you are asking us to pay you… at present, we are mostly interested in hearing from you and seeing how you will handle the gas/heating/cooling issues and associated billing. Then we'd like to have an overall discussion of billing as it relates to your 15% and associated oversight.”

[56] The aggregate amount charged by the Plaintiff for its profit on the project, being the 15% markup on third-party invoices, to February 1, 2010 was $31,303.58. The amount that the Defendants held back, following its payment of $10,000 on February 22, 2011 was the sum of $29,929.14, representing in excess of 95% of the Plaintiff’s profit on the project to that date.

[57] The Defendants reiterated that they were holding back payment of the profit component of the Plaintiff’s invoices in an e-mail from Ms. Emelko dated April 13, 2011. She stated in the e-mail that "before paying you, we require detailed information from you to ensure that we are not paying for work that is 1) incomplete or improperly completed or 2) unnecessary re-work that was conducted because of mis-communication between you and the various subcontractors. There are also a few miscellaneous issues that remain unaddressed."

[58] The parties exchanged a series of e-mails whereby Ms. Emelko set forth detailed areas of concern, to which Mr. Martin provided responses. The parties met at least three times commencing in late April into May, 2011 to go over the Defendants’ concerns. John Dietrich attended the meetings with Mr. Martin.

[59] The issue of the presence of carbon monoxide emissions in the home occupied the first meeting, as the Defendants wanted assurance that the testing by Delta Air Systems confirmed that the problem had been resolved. The final meeting was attended by Mr. Stone, Mr. Martin and Mr. Dietrich and took place at Mr. Dietrich's real estate office. Ms. Emelko was not in attendance. Mr. Martin and Mr. Dietrich each testified that, at the end of the final meeting, Mr. Stone agreed that the Defendants owed the outstanding amount. Mr. Dietrich testified that he could not recall any discussion at the final meeting respecting the method of billing, or of concerns on the part of the Defendants that the cost had exceeded the original estimated amount. He indicated that the subject matter of the meeting was the list of deficiencies in the work prepared by Ms. Emelko.

[60] Mr. Stone testified that in the second meeting he and Ms. Emelko expressed concerns not only about deficiencies but also about the cost of the project exceeding the amount they had budgeted for and that they had understood that the basic renovation, based on the plan, would cost $170,600 and that any extras above that would be paid for on a time and materials basis. He indicated that this issue was a source of real disagreement in the meeting

[61] Mr. Stone denied that that he agreed in the third meeting to pay the outstanding amount but rather stated that the matter had not been resolved to his satisfaction and he did not agree to pay what Mr. Martin wanted. On cross-examination he stated that at the conclusion of the third meeting he indicated to Mr. Martin and Mr. Dietrich that he and Ms. Emelko would pay for work that had been done which was of high quality but there remained outstanding issues which he would have to discuss with Ms. Emelko

[62] The Defendants did not pay the balance of $39,793.03 set forth on the plaintiff's final invoice dated April 6, 2011, as revised May 5, 2011. The Plaintiff registered a Claim for Lien against the title to the Property in that amount on May 20, 2011. The Claim for Lien stated that the time within which services or materials were supplied was August 16, 2010 to April 6, 2011, and stated the contract price as $309,006.93.

Issue I: Preservation of the Plaintiff's Claim for Lien

[63] Section 31(2) of the Construction Lien Act R.S.O. 1990, c. C.30 (the “Act”) provides that the time for preservation, by registration, of a contractor's lien expires, where there is no certification or declaration of the substantial performance of the contract, at the conclusion of the 45 day period next following the occurrence of the earlier of the date the contract is completed and the date the contract is abandoned.

[64] To support the timeliness of the preservation of its lien, the plaintiff relies upon services having been performed to the improvement by its subcontractor Delta Air Systems on April 6, 2011. There were no other services or materials supplied to the improvement during the 45 day period prior to the date that the Claim for Lien was registered May 20, 2011. The time records of Delta Air Systems indicated that a technician attended at the home on April 6, 2011 for three hours and "installed stainless exhaust hood and to talk to homeowners". The technician attended again on April 20, 2011 for two hours to replace “R/A grilles”. The April 6 work appears to have been included in Delta’s invoice dated March 31, 2011 in the sum of $880.25 plus tax for total of $994.68, and was included in the Plaintiff's final invoice of April 6, 2011 including its 15% markup.

[65] Section 2(3) of the Act provides that the contract shall be deemed to be completed when the price of completion, correction of a known defect or last supply is not more than the lesser of:

(a) 1 per cent of the contract price; and

(b) $1,000.00

[66] The Defendants argue that the contract was deemed complete pursuant to section 2(3) of the Act prior to April 5, 2011 as the only work done after that date was the three-hour attendance of a Delta technician on April 6. It is clear that Delta’s invoice of March 31, 2011 in the sum of $880.25, exclusive of tax, included other work beyond the April 6 attendance including "completion of venting of kitchen stove" and "balancing of house". The price of the work performed on April 6, 2011 was clearly less than $1,000, and accordingly, I find that the Contract was deemed complete in excess of 45 days prior to the date of registration of the Claim for Lien, and therefore the Plaintiff's Claim for Lien was not preserved within the time required by the Act and must be discharged. The Plaintiff did not vigorously oppose this in submissions.

[67] The finding that the Plaintiff's Claim for Lien was not timely does not end the matter, as the Plaintiff is entitled to pursue its contract claim against Mr. Stone and its quantum meruit and unjust enrichment claims in the Statement of Claim against both Defendants.

Issue II: The Terms of the Agreement between the Parties

[68] As indicated above, the Plaintiff states that it was agreed that the improvement would be performed on a "time and materials” basis, and points to the Contract dated August 15, 2010 and executed by Mr. Stone on August 25, 2010. That document provided that the services of Mr. Martin and Mr. Dietrich would be charged out at an hourly rate of $55 each and that "all subcontractors and material will be charged to you with an addition of 15% on top of each invoice total cost taxes."

[69] The Defendants state that it was agreed that the work and materials within the scope of the Revised Price Quote would be performed for a fixed price of $170,600 plus tax, and that the $55 hourly rate and 15% markup on subcontractors’ and suppliers’ charges would apply only to extras beyond the scope of the Revised Price Quote. They say that these terms were agreed to prior to execution of the Contract document by Mr. Stone, and it was on the basis of that agreement that he executed the Contract. They point to Ms. Emelko’s e-mail to Mr. Martin of August 25, 2010 and the subsequent exchange of text messages between herself and Mr. Martin on August 28, 2010 as confirmation of this.

[70] The Plaintiff argues that the Contract document signed by Mr. Stone represents the entire agreement between the parties and the parol evidence rule precludes the admission of extrinsic evidence to modify the terms of the contract which was reduced to writing.

[71] The parol evidence rule was enunciated by Winkler, J. (as he then was) in the case of Toronto Dominion v. Leigh Instruments et al 1998 14806 (ON SC), [1998] O.J. No. 2637 (S.C.J.), at p. 171 of the decision, as follows:

Where a document purports on its face to be the final and conclusive expression of the parties’ agreement, the document will be taken to be a reliable record of the parties’ latest agreement, and evidence of the negotiations leading up to it will not be admissible.

[72] Notwithstanding this general rule, Winkler, J. found that the Court may admit evidence of the "factual matrix" or circumstances surrounding the conclusion of the agreement as an aid in interpretation. While evidence relating to the factual matrix may be admitted to construe a term, such evidence does not extend to the evidence of the parties’ subjective intentions which ought not to be admissible (see Regan v 435766 Ontario Ltd. (c.o.b. as Guinane Bros. Construction [1999] O.J. No. 42 (S.C.J.) at para. 22).

[73] Where a writing, signed by the parties, contains a recital that it is the final and conclusive expression of their agreement, the case for exclusion of extrinsic evidence is strengthened (see Waddams, The Law of Contracts (6th ed.) at para. 322).

[74] There are numerous exceptions to the parol evidence rule, including the following:

1. fraud or illegality, want of capacity, etc.;

2. the existence of any separate oral agreement, constituting a condition precedent to the attaching of any obligation under any such contract;

3. the existence of any distinctive subsequent oral agreement to rescind or modify any such contract;

4. any usage or custom by which incidents not expressly mentioned in any contract are annexed to contracts of that description, unless repugnant to or inconsistent with the express terms of the contract;

5. the existence of any separate oral agreement as to any matter on which a document is silent, and which is not inconsistent with its terms – if, from the circumstances of the case, the Court infers that the parties did not intend the document to be a complete and final statement of the whole transaction between them.

(see Corey Developments Inc. v. Eastridge Developments (Waterloo) Ltd. et al 1997 12254 (ON SC), [1997] O.J. No. 2836 (S.C.J.) at pp. 6-7)

[75] It is not suggested by the Defendants that the terms set forth in Ms. Emelko’s e-mail of August 25, 2010 represented a distinctive subsequent agreement to rescind or modify the executed Contract. By its terms, Ms. Emelko, in her e-mail, sought to document pre-contractual negotiations between the parties. She stated "I thought I'd take a few minutes to summarize our discussion with you, just to make sure we are still all on the same page."

[76] Nor do the Defendants take the position that they entered into a separate oral agreement constituting a condition precedent to the attaching of any obligation under the contract. A condition precedent, as it is commonly understood, is an event which must take place before a party to a contract must perform its obligations under it.

[77] The concepts of fraud or illegality have no application, nor do questions of usage or custom. The applicability of the fifth exception to the application of the parol evidence rule referred to above is therefore the issue.

[78] It is apparent that the parties did not intend the contract document to be a complete and final statement of the whole transaction between them. The document is silent with respect to the commencement and completion dates for the work. The evidence indicated that the parties orally agreed that the work be completed by Christmas, 2010. Certain other terms were clearly left to be either implied or agreed to separately, such as a requirement that the work conform to all applicable codes as well as the standard of workmanship required. There was no "entire agreement" clause in the document nor a recital that it was to be the final and conclusive expression of their agreement.

[79] The onus is on the Defendants to prove that there was an oral agreement as to matters on which the contract document was silent, and which are not inconsistent with its terms. In this respect the Defendants state that the document, insofar as it provides for a $55 per hour charge for the services of Mr. Martin and Mr. Dietrich and the invoices of subcontractors and suppliers being charged to them with a 15% markup for the plaintiff's profit, only speaks to extras and not to the scope of work contemplated in the Revised Price Quote.

[80] It is noted that, in the contract document under the heading "Description" the subject matter of the contract is stated as “Double Addition and Interior Renovations as per Plan” being the same subject matter as the Original Price Quote and the Revised Price Quote. On the face of the document there is nothing limiting its application to “extras” nor is there any express indication that it is supplementary to some other agreement. Standing by itself it is capable of being read as applicable to the entire improvement comprising “double addition and interior renovations as per plan.”

[81] The Defendants point to Ms. Emelko’s e-mail of August 25, 2010 as confirmation of a collateral agreement between the parties concluded on that day prior to execution of the Contract by Mr. Stone. They say that this collateral agreement was concluded in a meeting at their home on August 25, 2010 which Ms. Emelko stated lasted one hour to one half hours and Mr. Stone indicated lasted 30 to 40 minutes.

[82] Mr. Martin denied that there was any discussion respecting the terms of the Contract on August 25, 2010 and that his attendance at the home that evening was very brief, consisting of Mr. Stone signing the contract, without Ms. Emelko, as she was attending to the couple’s children at that time. Mr. Martin's evidence regarding the short duration of his attendance on that date was corroborated by Shonda Martin in her testimony.

[83] The circumstances surrounding Ms. Emelko’s e-mail are disputed. Mr. Martin denies that he received it and states that he never saw it until five days prior to the commencement of the trial. As indicated above, the copy entered into evidence was printed on November 19, 2013, which suggests that it was not disclosed to the Plaintiff earlier in the proceeding in an Affidavit of Documents, on discovery or otherwise. Moreover, there is no evidence that it was ever referred to by the Defendants in any of their discussions or written exchanges with Mr. Martin, notwithstanding numerous lengthy e-mails drafted and sent by Ms. Emelko setting forth in detail the Defendants’ complaints regarding workmanship issues and the manner in which the project had been managed by Mr. Martin.

[84] The August 25, 2010 e-mail itself did not expressly request a response from Mr. Martin affirming the terms set forth in it. The text which Ms. Emelko says that she sent to Mr. Martin seeking his affirmation of the terms set forth in the e-mail simply made reference to an "e-mail from this past Wednesday" without specifying the subject matter. Ms. Emelko did not explain why she chose to communicate by a brief text message rather than by a follow-up e-mail with an express subject line, consistent with the manner in which she had communicated the alleged terms by e-mail under the subject line "Mutually Agreed Upon Details of our Renovation Contract.”

[85] Mr. Martin had, from the commencement of his dealings with the Defendants, demonstrated an intention that dealings having contractual effect would be documented formally, as evidenced by the Original Price Quote and the Contract itself. There is no indication that Mr. Martin gave any prior consent to text communications having contractual effect. Mr. Martin testified that he had no recollection of the text message exchange on August 28, 2010 and could find no record of it on the cell phone he utilized at that time. He testified that he had no intention of agreeing that the entire project be completed on other than a time and materials basis.

[86] It is useful to examine the subsequent conduct of the parties which may shed light on what the parties understood to be the terms of the contract, in particular, whether the work and materials for the entire project would be billed by the Plaintiff, and paid for by the Defendants, on a time and materials basis or on the basis of a fixed price contract in respect of the original scope set forth in the plans.

[87] It is accepted that subsequent conduct may be helpful in showing what meaning the parties attached to a contractual document after its execution, and this in turn may suggest that they took the same view at the earlier date (see Waddams, The Law of Contracts, at para. 329). Often, as Thomson J. wrote in Bank of Montreal v. University of Saskatchewan (1953), 1953 166 (SK KB), 9 W.W.R. (N.S.) 193, at p. 199 (Sask. Q.B.), "there is no better way of determining what the parties intended than to look to what they did under it" (see Montreal Trust Co. of Canada v. Birmingham Lodge Ltd. (1995), 1995 438 (ON CA), 24 O.R. (3d) 97 (C.A.) at p. 108).

[88] The Ontario Court of Appeal later confirmed this approach, citing Montreal Trust, in the case of 978011 Ontario Ltd. v. Cornell Engineering Co. (2001) 2001 8522 (ON CA), 198 D.L.R. (4th) 615 (C.A.), stating as follows at para. 50:

In deciding what the expectations of the parties were at the time the contract was signed, the court is entitled to have regard to the parties' actions after the signing of the contract.

[89] The invoices in this case were all prepared by the Plaintiff and presented to the Defendants on the basis that the entire project was to be completed on a time and materials basis. Each invoice listed and appended the bills from each subcontractor and supplier and the 15% markup for the Plaintiff's profit was applied to all of the subcontractor and supplier accounts and the labour component for Messrs. Martin and Dietrich was billed at $55 per hour as set forth in the contract document. Had the base contract been on a fixed price basis, the bills of the subcontractors and suppliers preferable to the original scope of work would have been of no concern to the defendants and would not have been attached. If it had been a fixed price contract, there would have been no obligation on the Plaintiff nor reason to disclose its profit to the Defendants on the invoices.

[90] There was no reference in any of the invoices to any draws at certain milestones as was specifically provided for in the Original Price Quote, which was intended by Mr. Martin to form a fixed price contract if it had been accepted by the Defendants. Indeed there was no reference to the scope of work set forth in the Revised Price Quote anywhere in the invoices.

[91] The first invoice of September 7, 2010, presented on a time and materials basis, was paid by the Defendants without comment or dispute. There was no evidence that the Defendants ever commented on the invoices not being presented on a basis consistent with a fixed-price contract. There was similarly no evidence that the Defendants ever asserted to the Plaintiff that it was a fixed price contract, at least until the meeting referred above after the dispute between the parties had crystallized. Ms. Emelko, in her testimony, confirmed that, in the meetings with Mr. Martin which she attended, she and Mr. Stone never used the term “fixed price”, but rather expressed concern that the total amount charged to them exceeded their “budget.” As indicated above, at no time did either Defendant make reference, in any communication to the Plaintiff, to the August 25, 2010 e-mail purporting to confirm the terms of the collateral agreement that the original scope was to be on a fixed-price basis.

[92] It is not necessary for me to make a finding as to whether Ms. Emelko’s email of August 25, 2010 was received by Mr. Martin, nor whether there was an exchange of text messages between them on August 28, 2010 since, based upon the manner in which the parties acted throughout the project, there is no indication that either the Plaintiff or the Defendants regarded the terms set forth in Ms. Emelko’s e-mail to have contractual effect. The conduct of the parties in the performance of the Contract was entirely consistent with it being on a time and materials basis and was inconsistent with it being on a fixed-price basis.

[93] I am therefore not satisfied that the Defendants have discharged the onus on them to prove the existence of a collateral agreement on the terms set forth in Ms. Emelko’s e-mail of August 25, 2010. The terms respecting the manner in which the work and materials supplied to the improvement would be billed by the Plaintiff, namely on a time and materials basis, were as set forth in the Contract executed by Mr. Stone on August 25, 2010.

[94] Nor am I persuaded that enforcement of the terms of the contract on a time and materials basis, without the modifications set forth in Ms. Emelko’s e-mail, would be unfair to the Defendants or would work an injustice to them. There was nothing in the evidence to suggest that the Plaintiff underestimated the cost to complete the scope of work in its Original Price Quote or the Revised Price Quote such that the defendants lost the benefit of a bargain as a result of the contract being determined to be on a time and materials basis. Similarly there was no evidence of unforeseen conditions or complications encountered in the course of completion of the original scope of work which materially increased the cost to the Defendants and which would otherwise have been absorbed by the Plaintiff had it been a fixed price contract.

[95] As indicated above, all of the work performed by the Plaintiff was authorized by the Defendants, subject to an issue respecting the extent of tiling of a bathroom discussed below, and they have received the benefit of that work. The entire cost of the work ordered and authorized by the Defendants was fully disclosed to them in the invoices, as was the amount charged by the Plaintiff for its profit. No unfairness to the Defendants has been demonstrated as a result of the project having been completed and billed on a time and materials basis.

[96] It is now virtually impossible to reconstitute the billing on the project to separate the cost of the scope of work referred to in the Revised Price Quote from the cost of what would have been extras beyond that scope. There is therefore no evidence that the total cost charged to the Defendants in the invoices on a time and materials basis was greater than it would have been had the work been invoiced on the basis of the fixed price for the work set forth in the Revised Price Quote and on a time and material basis for extras authorized by the Defendants beyond that scope.

[97] I also find that there was no enforceable agreement that the Plaintiff would not be entitled to its 15% profit component on all suppliers' and subcontractors' invoices and would therefore be limited to 15% on the original grade of materials contemplated by the Defendants and not on the cost of any "upgrades". As indicated above, the Contract provided that “All subcontractors and material will be charged to you with an addition of 15% on top of each invoice total plus taxes” (emphasis added). The Defendants did not assert that the Plaintiff agreed not to charge its 15% on “upgrades” and in any event, evidence of such a collateral agreement, being inconsistent with the term of the Contract, is inadmissible pursuant to the parol evidence rule. There was no evidence led of any custom or usage of the trade disentitling a contractor to charge its percentage profit on “upgrades” under a time and materials contract.

[98] The Plaintiff alleged in the Statement of Claim that it entered into the Contract with Mr. Stone. It did not allege that Ms. Emelko was a party to the Contract, nor that Mr. Stone was acting an agent of Ms. Emelko in executing it. The Plaintiff’s claim on the Contract is therefore restricted to Mr. Stone.

Issue III: Billing by the Plaintiff and Deficiencies

[99] Having found that the Contract was on a time and materials basis and that the Plaintiff is not disentitled to charge its 15% markup on “upgrades”, the remaining issues are whether the Plaintiff has invoiced for duplicative work, work performed to correct its own deficiencies or for work not authorized by the Defendants and whether there are remaining deficiencies in the Plaintiff’s work which require rectification.

[100] Ms. Emelko prepared a spreadsheet of items in respect of which she believed that the Plaintiff had overbilled for, or which the Defendants were entitled to credit (the “Defendants’ spreadsheet”).

[101] The first number of items relate to the Defendants’ claim that the Plaintiff that was not entitled to charge 15% for profit on the first $170,600 of the Plaintiff’s costs nor on upgrades of materials. For the reasons set forth above, no credit is owed to the Defendants for these items.

[102] The Defendants’ spreadsheet also claims credit for the Plaintiff's 15% charge on the accounts of a subcontractor Casa Bella, which supplied and installed tile for the bathrooms, on the basis that the Defendants dealt with this company directly and paid its account directly. Casa Bella invoiced the Plaintiff for its work and materials and the Plaintiff was required to process these invoices and, as with all of the subcontractors, was required to coordinate the work of Casa Bella with the other relevant subcontractors and suppliers. I find that the Defendants unilaterally chose to make direct payment to Casa Bella, without the agreement of the Plaintiff. There was no agreement that the Plaintiff would not be entitled to charge its markup for profit on the invoices of this subcontractor. In any event, the Plaintiff issued a revision to its December 1, 2010 invoice eliminating its 15% charge on the Casa Bella invoices.

[103] The Defendants' spreadsheet claims credit for the charge to repair damage to a bathtub cause during the course of construction. Mr. Martin agreed in testimony to credit the Defendants with this amount in the sum of $207.19.

[104] The Defendants’ spreadsheet also claims credit for 50% of the Plaintiff's 15% charge on the accounts of Grahame Brunning, the Plaintiff’s carpentry subcontractor, who was on site through much of the project, on the basis that Mr. Brunning was performing coordination work which Mr. Martin should have been responsible for.

[105] Mr. Brunning, in his testimony, denied that he performed coordination work for Mr. Martin and also denied that he commented to the Defendants that he was distracted or delayed from performing his work because he was performing coordination duties for which he should not have been responsible.

[106] I find that the Plaintiff, as the general contractor, was entitled to organize the job and to marshal its resources as it saw fit within reason and in accordance with good contracting practice. There was nothing unreasonable in the manner in which the plaintiff utilized the services of Mr. Brunning and no credit is due to the Defendants for this item.

[107] The Defendants’ spreadsheet also claims a credit of $40.26 for a miscalculation of HST on Mr. Brunning’s invoice of November 30, 2010. This credit is not allowed as the amount of Mr. Brunning’s invoice which was carried forward to the Plaintiff’s invoice of December 1, 2010 in the sum of $6,498 did not include the HST charge.

[108] Ms. Emelko testified that, although she instructed the Plaintiff to retile the downstairs bathroom floor, she did not instruct it to tile the shower and the defendants' spreadsheet claims credit for $555.69, being an estimate of 50% of the time and materials and tax related to this work. Mr. Martin testified that Ms. Emelko instructed the work to be carried out in the same fashion as was done in an earlier renovation he performed for Ms. Emelko on the Dorset Street house and the work was carried out accordingly. Ms. Emelko denies this.

[109] This issue obviously arises from a misunderstanding or miscommunication. In the circumstances it is the responsibility of the contractor to ensure that the instructions from the owners are clear, and not proceed with work in the absence of clear instructions. I would give credit to the plaintiffs for this item in the sum of $555.69, even though the work was completed. It is largely an aesthetic matter and not something that the Defendants have benefited from in a functional way.

[110] I would not allow credit to the Defendants for the Plaintiff's 15% markup on the cost of replacing the shingles on the existing home. That work was authorized by the Defendants and the roofing subcontractor’s invoice was rendered to and paid by the Plaintiff. There was no agreement by the Plaintiff to exclude this item from the amount subject to its 15% charge pursuant to the Contract.

[111] The Defendants' spreadsheet claims credit in the total sum of $396.35 for work that was charged for but consisted of correction of deficiencies in the electrical work. I am not satisfied on the evidence that the Defendants have proven that they were charged for correction of electrical work in this amount.

[112] I would not allow any credit for items listed in the Defendants’ spreadsheet under the heading “incomplete but included in quote" in light of the finding that the Contract between the parties was on a time and materials basis. Had the Plaintiff performed this work it would have been entitled to charge for it in accordance with the terms of the Contract.

[113] For the same reason I would not allow the claims for credit under the heading "credits owed" in relation to the two fireplaces purchased by the Defendants and existing kitchen cabinets from the home which were utilized in the basement, and in relation to work which was originally within the scope of the Revised Price Quote and not proceeded with. Had the Plaintiff supplied these materials and proceeded with this work, it would have been entitled to charge for it, in accordance with the terms of the Contract.

[114] The Defendants claim credit for the cost of repairing damage in the basement as result of water entering through a basement window. Responsibility for the water entry is disputed. Regardless of that, the Defendants have not proven the repair cost, producing only a written estimate from a restoration contractor. This contractor was not called to testify. In my view the estimate is hearsay and is not admissible in evidence and accordingly the claim for this item has not been proven.

[115] The Defendants alleged that the heating and cooling system still does not work properly. Ms. Emelko testified that she did not know how much it will cost to repair. She calculated the claim for credit in the sum of $6,137.25, by taking 50% of the total accounts of the original heating and ventilating subcontractor DRW and those of Delta Air Systems, excluding the cost of the air conditioner. No independent expert evidence was led with respect to whether the heating and cooling system is deficient, and if so, what it will cost to repair. This deficiency claim has not been proven. Moreover, I find that the Defendants have not proven, on a balance of probabilities, that there was any duplication of work by Delta Air Systems correcting deficiencies in the work of the original HVAC subcontractor.

[116] I similarly do not allow the Defendant’s claim for the cost of repair to the air-conditioning unit. The existence of a deficiency has not been satisfactorily proven, and moreover Ms. Emelko testified that she made no attempt to contact the manufacturer of the air conditioning unit to make a claim for correction under warranty.

[117] On the basis of the foregoing, the Defendant Mr. Stone is entitled to credit against the Plaintiff's contract claim against him in the sum of $762.88, reducing the amount owing to the Plaintiff to the sum of $ $39,030.15.

[118] In light of this finding, it is not necessary to deal with the Plaintiff's quantum meruit and unjust enrichment claims.

[119] The Defendants led no evidence with respect to their Counterclaim and indicated that it was not being pursued. As no Notice of Discontinuance was filed in respect of the Counterclaim, it is appropriate that it be dismissed.

Disposition

[120] For the foregoing reasons there will be Judgment as follows:

(a) the Defendant Michael Stone shall pay to the Plaintiff the sum of $39,030.15;

(b) the Defendant Michael Stone shall pay to the Plaintiff prejudgment interest on the said sum of $39,030.15 at the rate of 1.3% per annum pursuant to section 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, calculated from April 13, 2011;

(c) the Plaintiff's claim against the Defendant Monica Emelko is dismissed;

(d) the Plaintiff's Claim for Lien and Certificate of Action registered against the title to the Property are discharged.

(e) The Counterclaim of the Defendants is dismissed.

[121] If the parties cannot agree on costs, the Plaintiff may make written submissions as to costs within 21 days of the release of these reasons for decision. The Defendants have 14 days after receipt of the Plaintiff’s submissions to respond. All such written submissions are to be forwarded to me at my chambers at 85 Frederick Street, 7th Floor, Kitchener, Ontario N2H 0A7. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

D. A. Broad J.

Released: January 22, 2014

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

MARTIN CREEK CONSTRUCTION LTD.
Plaintiff

– and –

MONICA EMELKO and MICHAEL STONE
Defendants

REASONS FOR JUDGMENT

D. A. Broad J.

Released: January 22, 2014