Wood Lumber Co. (Ontario) Ltd. v. Eng et al. [Indexed as: Wood Lumber Co. (Ontario) v. Eng]

45 O.R. (3d) 795

[1999] O.J. No. 3404

Div. Ct. File No. 551/99

Ontario Superior Court of Justice

(Divisional Court)

O'Driscoll, Lane and Whalen JJ.

September 17, 1999

Construction liens -- Validity -- Prevenient arrangement -- Arrangement between material supplier and owner that materials be supplied under one continuing contract -- Deemed completion provisions of Construction Lien Act not applicable to prevenient arrangement -- Time limit for filing claim for lien running from date of last delivery of materials -- Construction Lien Act, R.S.O. 1990, c. C.30, s. 2(3).

Where materials are supplied under a prevenient arrangement between the material supplier and the owner, that is, an arrangement under which the materials are supplied under one continuing contract even if the materials are not ordered at one time, the time limit for filing the claim for lien begins to run from the date of the last delivery of materials. The "deemed completion" rule under s. 2(3) of the Construction Lien Act does not apply to a prevenient arrangement.

APPEAL pursuant to s. 19(1)(c) of the Courts of Justice Act, R.S.O. 1990, c. C-43 from a final order of a master.

Cases referred to Dufferin Concrete Products v. Waterbrooke Development Ltd., [1992] O.J. No. 2602 (Gen. Div.); Oaks Precast v. G.L. Trenching Ltd., [1996] O.J. No. 2234 (Gen. Div.); Rocky Mountain School Division No. 15 v. Atlas Lumber Co., 1954 61 (SCC), [1954] S.C.R. 589, [1955] 1 D.L.R. 161 (sub nom. Menzies & Herbert Ltd. v. Rocky Mountain House School District No. 2590) Statutes referred to Construction Lien Act, R.S.O. 1990, c. C.30, ss. 1(1), 2(3), 31(1), (2)(b), 36(1), (2) Courts of Justice Act, R.S.O. 1990, c. C.43, s. 19(1)(c) Authorities referred to Macklem and Bristow, Construction, Builders' and Mechanics' Lien in Canada, 6th ed. (Toronto: Carswell (looseleaf)), p. 3-40.8

Maurice J. Neirinck, for appellant/plaintiff. Hans J. Saamen, for respondents/defendants, Gordon Eng and Margaret Eng.

The judgment of the court was delivered by

O'DRISCOLL J.: --

I. Nature of the Proceedings

[1] Under the provisions of s. 19(1)(c) of the Courts of Justice Act, R.S.O. 1990, c. C.43, Wood Lumber Co. (Ontario) Ltd. ("Wood") appeals to this court from the final order of Master Clark, dated August 17, 1999. The impugned order discharged a construction claim for lien and vacated a certificate of action registered by Wood against the property of the respondents, Gordon Fat Eng and Margaret Ann Eng ("the Engs").

[2] The issue on this appeal: does the "deemed completion" provision (s. 2(3)) of the Construction Lien Act, R.S.O. 1990, c. C.30 ("CLA") apply to a prevenient arrangement?

[3] The appeal succeeds.

II. History and Chronology

[4] On or about August 31, 1995, Wood entered into a prevenient arrangement with the Engs who were building a new house in the Township of Uxbridge, Regional Municipality of Durham. Wood was to supply building materials. The Engs purchased building materials from time to time as needed. Individual invoices were issued for each purchase and a running account was kept by Wood.

[5] Under the arrangement, the Engs were to pay the total of each month's purchases by the 15th day of the following month.

[6] There was no fixed amount contract between Wood and the Engs. The Engs were free to stop buying from Wood at any time and were also free to purchase from other suppliers.

[7] From August 31, 1995 to February 14, 1996, Wood supplied the Engs with various building materials based on the prevenient arrangement. The materials were used in the construction of the new house.

[8] The Engs:

1. purchased and took delivery of $63,261.82 worth of building materials during the time period;

2. paid only $8,900 on account;

3. received credits of $1,044.02;

4. owe $53,317.80 plus interest.

[9] When the last purchase was made on February 14, 1996, the new house had not been completed and Wood estimated that at least $15,000 worth of materials and perhaps as much as $25,000 worth of materials were needed to complete the building.

[10] On February 23, 1996, Wood registered lien No. 466592 against the property. The lien is dated February 22, 1996.

[11] On May 8, 1996, Wood registered a certificate of action as No. D470208.

[12] No other lien or certificate of action has been registered against the property.

III. Reasons of Master Clark

[13] In his reasons, Master Clark said, in part:

The plaintiff is a contractor as defined in the Construction Lien Act by virtue of the fact that it dealt directly with the owner. The evidence is clear on that point, and both counsel agree that the arrangement between the plaintiff and the defendants Eng was a prevenient one.

That being the case, s. 31(2)(b)(i) applies for purposes of determining when the 45-day period starts and ends for preserving the contractor's lien. It is the date the contract is completed, or the date the contract is abandoned. I was not referred to any allegation of abandonment but it is clear that the contract ended, and, from the Engs' point of view was completed. The question of when it was completed is answered by s. 2(3)(a) "services or materials shall be deemed to be last supplied when the price of the last supply is more than the lesser of (a) 1 per cent of the contract price" which in this case is $632.61 (s. 2(3)(b) does not apply because $1,000 is more than $632.61).

Counsel agree that after January 30, 1996, the total of the material supplied is $648.38 or roughly 1 per cent of the contract price. On that basis, the defendant argues that January 30 is the date on which the 90-day period leading to perfection of the lien commences. The end of that period would be April 29 but this lien was not perfected until May 8, 1996 and as such is out of time.

Notwithstanding that such a line of reasoning has harsh consequences for suppliers who deal directly with owners, I accept that reasoning.

As Mr. Saamen points out, how else, but by virtue of s. 2(3), could a contractor-to-owner prevenient arrangement ever be said to have ended? It is for the supplier to beware.

I find that this lien was not perfected in time and must be discharged, as must the certificate be vacated and I so order.

IV. Relevant Sections of the Construction Lien Act

1(1) In this Act,

"contract" means the contract between the owner and the contractor, and includes any amendment to that contract;

"contractor" means a person contracting with or employed directly by the owner or an agent of the owner to supply services or materials to an improvement;

"improvement" means,

(a) any alteration, addition or repair to, or

(b) any construction, erection or installation on,

any land . . .

"price" means the contract or subcontract price,

(a) agreed upon between the parties, or

(b) where no specific price has been agreed upon between them, the actual value of the services or materials that have been supplied to the improvement under the contract or subcontract;

2(3) For the purposes of this Act, a contract shall be deemed to be completed and services or materials shall be deemed to be last supplied to the improvement 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.

31(1) Unless preserved under section 34, the liens arising from the supply of services or materials to an improvement expire as provided in this section.

(2) Subject to subsection (4), the lien of a contractor,

(b) for services or materials supplied to the improvement where there is no certification or declaration of the substantial performance of the contract, or for services or materials supplied to the improvement after the date certified or declared to be the date of substantial performance, expires at the conclusion of the forty-five-day period next following the occurrence of the earlier of,

(i) the date the contract is completed, and

(ii) the date the contract is abandoned.

36(1) A lien may not be perfected unless it is preserved.

(2) A lien that has been preserved expires unless it is perfected prior to the end of the forty-five-day period next following the last day, under section 31, on which the lien could have been preserved.

V. Conclusions of Master Clark

[14] Counsel agree and the master found that there was a "prevenient arrangement" between Wood and the Engs.

[15] Counsel agree and the master found that the last material was delivered/received on February 14, 1996.

[16] There was "a contract" and it was "deemed substantially completed" (s. 2(3) of the CLA) on January 30, 1996.

[17] Thus, the lien was not perfected within 90 days of January 30, 1996 and is "out of time".

VI. Decisions and a Text Regarding "Prevenient Arrangements"

[18] In Rocky Mountain School Division No. 15 v. Atlas Lumber Co., 1954 61 (SCC), [1954] S.C.R. 589 at pp. 604-05, [1955] 1 D.L.R. 161, per Locke J.:

Further support for the view which I have expressed is to be found in the statement of the law adopted by Lamont J. in Whitlock v. Loney (1917), 1917 234 (SC EnBanc), 38 D.L.R. 52, to which reference is made in the reasons for judgment of the Appellate Division. In that case Lamont J. adopted the following statement taken from 27 Cyc. 114: --

Where labour or materials are furnished under separate contracts, even though such contracts are between the same persons and relate to the same building or improvement, the contracts cannot be tacked together so as to enlarge the time for filing a lien for what was done or furnished under either, but a lien must be filed for what was done or furnished under each contract within the statutory period after its compliance. Where, however, all the work is done or all the materials are furnished under one entire continuing contract, although at different times, a lien claim or statement filed within the statutory period after the last item was done or finished is sufficient as to all the items; and in order that the contract may be a continuing one within this rule it is not necessary that all the work or materials should be ordered at one time, that the amount of work or materials should be determined at the time of the first order, or that the prices should be then agreed upon, or the time of payment fixed; but a mere general arrangement to furnish labour or materials for a particular building or improvement is sufficient, if complied with, even though the original arrangement was not legally binding.

[19] In Macklem and Bristow, Construction, Builders' and Mechanics' Lien in Canada, 6th ed. (Toronto: Carswell (looseleaf)), at p. 3-40.8, the authors state:

Where materials are supplied under a prevenient arrangement, the time limit for filing the claim for lien by the materialman will commence to run from the date of the last delivery of materials, and it is, of course, unnecessary to file a lien within 45 days after each delivery is made. The agreement to supply need not be binding on the owner or subcontractor. It may be terminated by him at any time. However, there must be the preliminary understanding that, until the material supplier is notified to the contrary, he is to supply materials as requested.

[20] In Dufferin Concrete Products v. Waterbrooke Development Ltd., [1992] O.J. No. 2602 (Gen. Div.), McWilliam J. said at p. 2:

Prevenient arrangements are not binding contractually. They are understandings, and lien dates run from the last delivery of materials so long as one project only is involved: Trail Building Supplies Ltd. v. Dean et al. (1990), 37 C.L.R. 270.

[21] In Oaks Precast v. G.L. Trenching Ltd., [1996] O.J. No. 2234 (Gen. Div.), Boyko J. applied the Rocky Mountain case, supra, in a prevenient arrangement situation.

VII. Conclusions

[22] In my view, the prevenient arrangement law enunciated by the Supreme Court of Canada in the Rocky Mountain case was not repealed, altered or varied by the enactment of s. 2(3) of the CLA in 1983 nor has there been any derogation from the Rocky Mountain decision since 1983. Legislators are deemed to know the law. Counsel for the Engs did not point out anything in the CLA or in any binding authority that renders the Rocky Mountain case obsolete.

[23] In my view, the deeming provisions of s. 2(3) of the CLA do not apply to a prevenient arrangement.

[24] In my view, because a "prevenient arrangement" exists in this case, the time periods set out in s. 31 and s. 36 of the CLA do not commence until the last materials were supplied, namely February 14, 1996.

[25] It follows from this conclusion that the appellant's lien was perfected in time.

VIII. Result

[26] The appeal is allowed, the order of Master Clark, dated May 17, 1999, is set aside and the motion brought by the Engs is dismissed.

[27] Gordon Fat Eng and Margaret Ann Eng shall pay to Wood its fixed costs before Master Clark and on this appeal in the total fixed amount of $3,500.

Order accordingly.