Legal Blog

Consideration

One person says to another, “Do the work; if the person with whom you have contracted does not pay you, I will.” The other person, does not pay. Is the person who made the promise liable to pay? This was the main issue in 1379691 Ontario Ltd. v. Appugliese, a 2005 decision of the Ontario Superior Court of Justice.

Promises Promises 

A masonry sub wanted the subsub to supply the masonry labour for a project. The masonry subsub did not want to do the job because it had had a bad experience with the sub on a previous job. However, relying on the assurances of the general’s president that there was enough money in the masonry subcontract so that payment to the subsub would not be a problem, the subsub took the job.

Unfortunately, payment was a problem. The sub continually underpaid the subsub. In May 2003, the subsub met with the sub and the general. The general told the subsub not to worry; it would be paid. In July 2003, the subsub was owed $50,000 and said that it would walk off the job if it were not paid. The general said that it would pay the subsub whatever was owing, past and future, and would pay it out of the sub’s holdback. At that time, the holdback was $75,000, sufficient to pay the money owing.

In September 2003, the sub liened the project. In May 2004, the general settled with the sub on the basis that the sub would complete the second phase of the work without charge and the general would pay $100,000 to the subsub’s lawyer to be disbursed once the sub supplied a statutory declaration that the sub had paid all material and labour suppliers.

The sub supplied that statutory declaration. It was false; the sub had not paid the subsub in full. There was a dispute as to the exact quantum that was owed, but there was no doubt that money was owed.

The subsub commenced an action against the sub, the subs’s principal, the general, and the general’s president.

Against Sub 

The judge held that the subsub’s state of accounts was accurate. He discounted the sub’s block count number. The sub had used cheques for blocks delivered to projects other than the project in issue. He held that the sub owed the subsub $47,000, not the $20,000 that the sub admittedly owed.

Against Sub’s Principal 

The principal knew or ought to have known that his statutory declaration was not true and therefore was personally liable under the trust fund provisions of the Construction Lien Act. Based on recent decisions, we suggest that the principal’s liability would survive any subsequent bankruptcy. Given the history of the project, the execution of the statutory declaration was fraudulent.

Against General 

The general argued that its representations of payment were no more than oral guarantees of the sub’s obligations and, since they were not in writing, were not enforceable due to the provisions of the Statute of Frauds. The judge disagreed. He held that the statements of the general were akin to a separate contract by which the subsub agreed that it would not walk off the job and the general agreed to pay the subsub. It was not a guarantee; it was a direct obligation to pay. Accordingly, the general was liable to pay the full amount that was due to the subsub.

Against General’s President 

The judge never specifically ruled whether the general’s president was or was not liable to the subsub. Perhaps he thought that it was unnecessary to give reasons to dismiss the action against the president. The president would not have been liable because the president was always acting in his capacity as president of the general. There was no contract that was formed with him personally, just a contract with the general.

Crossclaim 

The judge allowed the general’s crossclaim against the sub. He held that although the general agreed to pay the subsub, this did not mean that the sub suddenly was absolved of its obligation to pay its own subsub.

The general had also claimed against the sub’s principal on the basis that the principal had delivered the false statutory declaration. For whatever reason, in its pleadings the general had not claimed that the effect of the false declaration was a fraudulent or negligent representation and, therefore, had not adequately set out its cause of action. Accordingly, the judge refused to grant judgment against the principal. We suggest that this aspect of the decision was unduly technical and that the judge ought to have allowed the general leave to amend its pleadings. Certainly, the principal was not taken by surprise. 

Context 

The facts were not as bad as they seem to be. The sub’s solicitor had retained $39,000 of the original $100,000. It was almost enough to cover the full judgment and it was a reasonable holdback considering that the sub had disputed $27,000 of the amount ultimately found to be due. The fact that the sub had not immediately paid the subsub the $20,000 that it admittedly owed was objectionable; the sub was using that money as a bargaining chip.