Legal Blog

Who’s Who

For many years we have been harping on the necessity of contractors knowing the exact name of the person with whom they are contracting. Contracting with names and styles, rather than correct corporate names, can lead to disaster. As a corollary to this thesis, general contractors (who, by definition are contractors who are contracting with an owner) have to ensure that the “owner” is really the registered owner of the land upon which the contractor is to supply goods and services. In J. Lepera Contracting Inc. v. Royal Timbers Inc., a 2016 decision of the Ontario Divisional Court, the general learned this lesson the hard way.

Development

The registered owner of a parcel of land decided that it would be beneficial to sell one part of its land and use the proceeds to develop the other. To effect that strategy, it entered into an “agreement in principle” with an American hotelier in which the hotelier would purchase a portion of the land.

Correctly assuming that the agreement in principle would translate into a firm agreement, the registered owner retained an architectural firm to design the servicing for the land that the registered owner was to develop (phase 2) and the hotelier retained the same architectural firm to design the servicing for the land on which the hotel was to be built (phase 1). In each case, the registered owner and the hotelier also retained the architectural firm as their project manager.

The architectural firm issued one request for tenders on behalf of both the registered owner and the hotelier to service the land. The request for tenders specified that, although the overall project would only be awarded to one contractor, there would be two separate contracts: one for phase 1 and one for phase 2.

The general, who was the successful tenderer, submitted two separate tenders: one to the registered owner and one to the hotelier. The hotelier was obviously not going to accept the tender until it was certain that it had a firm agreement of purchase and sale for the phase 1 land. It ultimately entered into a firm agreement with the registered owner that provided for a deposit of $25,000 and a purchase price of $1.1 million for the phase 1 land. Shortly thereafter, the general entered into two site servicing contracts. The first was with the registered owner for phase 2 and the second was with the hotelier for phase 1.

With its general contracts signed and delivered, the general leaped into action and commenced its work. For phase 2, it knew that its contract was with the registered owner of the land. For phase 1, who knows what it knew. What we do know is that the hotelier was not the owner of the hotel land; it merely had the right to become the owner of the hotel land.

Problem

There was no problem with the work that the general performed for the registered owner and we will not comment on it further. Conversely, an immediate problem arose relating to the hotel land. In June 2007 the architectural firm certified that the hotelier was to pay the general $385,000 for the first work that it performed on phase 1. Unfortunately, the 2008 economic crisis hit and the hotelier aborted the purchase and forfeited its insignificant $25,000 deposit. The hotelier never paid for the certified work.

The general placed a lien on the hotel land and commenced an action against the registered owner and the hotelier for payment of the money due to it. The general obtained default judgment against the hotelier, a judgment that, we assume, was worthless. However, not surprisingly, the general had a battle on its hands with the registered owner. The registered owner, whose plan to sell the hotel lands and raise cash was dashed by the hotelier, was already disappointed by the aborted sale and was not keen on paying for the phase 1 site servicing.

Owner

The first issue was whether the registered owner was an “owner” of phase 1 pursuant to the Construction Lien Act. As defined, an owner means any person having an interest in the premises at whose request and either (i) upon whose credit; (ii) on whose behalf, or (iii) for whose direct benefit, an improvement is made to the premises.

There was no doubt that the registered owner had an interest in phase 1, but the court held that it did not meet any of the other three criteria in the definition. There were no direct dealings between the registered owner and the general; the registered owner never requested the general to perform the work; the general entered into the contract with the hotelier, not the registered owner; the work was not done for the direct benefit of the registered owner because of the pending sale of phase 1 to the hotelier; and the general’s invoice and all its demands for payment were made to the hotelier, not the registered owner.

Accordingly, for purposes of the Act, the registered owner was not an “owner” as defined in the Act and the general had no right to lien the phase 1 land. It was irrelevant for purposes of the invalidity of the lien that the phase 1 land benefited from the general’s work. This is similar in result to a contractor working for a tenant, without giving appropriate notice to the landlord, and finding that it has no right to lien the freehold portion of the land.

Unjust

In the alternative, the general claimed that the owner had been unjustly enriched. In order to prove that claim, the general had to prove that the owner was enriched, the general was deprived because of that enrichment, and there was no juristic reason for the enrichment.

The court had no problem in finding that there had been an enrichment and deprivation. Certainly, the registered owner had received a benefit to the phase 1 lands; they had received $385,000 worth of servicing. Similarly, the unpaid general was deprived by that enrichment. It mattered not that the registered owner caused the enrichment and deprivation; they existed and their causation was irrelevant.

The key issue for this claim was the absence or existence of a juristic reason for the enrichment. In simple English, was there an explanation based on law for the enrichment of the registered owner to the detriment of the general? For example, the enrichment might be based on a contract, there might have been a donation, or there might have been some other valid reason based on statute, common law, or equitable obligation.

The court held that the general’s claim for the money owing for the work arose from its contract with the hotelier and that contract constituted a juristic reason sufficient to defeat the general’s claim for unjust enrichment against the registered owner. Further, the court found that, even if there were no juristic reason, the parties reasonably expected at the time the work began that the hotelier would pay the general for the work that the general performed on phase 1 in accordance with their contract and that the registered owner, with whom the general had a separate contract for phase 2 work, would not be paying the general for phase 1 work. The unjust enrichment claim was contrary to the reasonable expectations of the parties at the time the work began and therefore, could not succeed.

 

Image courtesy of DodgertonSkillhause.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.