Legal Blog

Representations

Under normal circumstances, the law does not allow someone to represent something to another and later renege on that representation. Often the fight is not over the law, which is known, but the facts (e.g. was there a representation, was it relied upon, was it false etc.). Such was the case in Matrix Contractors Building Services Inc. v. National Bank of Canada, a 2005 decision of the Ontario Court of Appeal.

Caution 

The owner wanted to renovate a small plaza at a cost of $150,000. The general was happy to do the work, but wanted an assurance that the owner had a bank commitment to finance the project. The general spoke to the bank’s representative and was assured that financing was arranged, but that the bank was awaiting one more signature. Accordingly, the general started to work on the project. After the work had started, the general again spoke to the bank’s representative, who informed it that the bank was still waiting for the final signature, but that the person whose signature was needed travelled a lot.

Of course, the bank never obtained the signature, the bank never advanced the funds, and the owner did not pay the general. The general sued the bank.

The trial judge dismissed the action, holding that the bank never promised unconditional financing. The Court of Appeal reversed. It held that, “There is a significant difference between needing the signature of a guarantor not yet requested and awaiting the formality of a signature of a person who has already agreed to sign.” The person whose signature the bank was awaiting had never agreed to guarantee the loan.

The court also held that bank had represented to the general that the loan was a sure thing, knew that representation was untrue, and knew that the general would rely on the representation. Further, the bank had a reason to give that assurance. It considered that its original loan against the plaza was in jeopardy and knew that the renovations were necessary to secure a major tenant and put the owner on a better financial footing.

The court held that the bank had to pay the general.

Moral

Contractors should check out the ability of the persons with whom they are contracting to pay the contract price. Because the general was cautious, the general did not have to rely on a lien or trust claim. It had the bank’s deep pocket from which it was ultimately paid.