Supreme Court of Canada

Industries Providair Inc. v. Kolomeir, [1988] 1 S.C.R. 1132

Date: 1988-06-30

Morton Kolomeir and Nathan Kolomeir Appellants

v.

Les Industries Providair Inc. Respondent

and

Caisse populaire St-Nicholas de Montréal Intervener

and

Club de Raquette et S.P.A. St-Martin Inc. Mis en cause

and

The Registrar for the Registration Division of Laval Mis en cause

INDEXED AS: INDUSTRIES PROVIDAIR INC. v. KOLOMEIR

File No.: 19576.

1987: December 15; 1988: June 30.

Present: Beetz, Lamer, Le Dain, La Forest and L'Heureux-Dubé JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC

Privileges — Workmen's privileges — Leasing of a building to be constructed — Clause in lease providing that lessee had to have a substantial part of the construction work carried out at its own expense — Respondent hired by lessee to carry out its share of the work — Validity of privileges registered by respondent against owner's immovable — Whether agreement between owner and lessee constitutes a construction contract conferring status of a contractor on lessee — Civil Code, arts. 2013e, 2013f.

Appellants signed an "offer to lease" with the mis en cause Club Raquette for premises located in a building to be constructed. Under the offer the lessee, Club Raquette, undertook to carry out and pay for a substantial part of the construction work, including the heating system, air conditioning and plumbing. At the end of the proposed lease, the lessee's improvements were to remain the property of appellants. The lessee hired respondent to carry out the work for which it was responsible and respondent notified appellants accordingly pursuant to the provisions of the Civil Code. Not having been paid for the work performed and materials

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supplied, respondent suspended its work and registered two privileges against appellants' immovable, that of sub-contractor and that of supplier of materials. The work was completed by another contractor and, upon completion of the construction, appellants and the lessee signed a lease, which contained essentially the same clauses as the offer to lease. Respondent subsequently brought an action for a declaration of privilege against appellants. The latter maintained that respondent had contracted with a lessee and could therefore not claim a privilege on their immovable. The Superior Court rejected this argument, allowed respondent's action and declared appellants' immovable subject to two privileges. The Court held that this was not a conventional offer to lease and that the lessee was acting as contractor and the respondent as sub-contractor. The majority of the Court of Appeal upheld the judgment.

Held: The appeal should be allowed.

As a general rule, the lessee of an immovable who carries out construction work or makes improvements to the leased premises does not act as a builder and does not bind the owner of the premises to the contractor or sub-contractor. Those who contract with the lessee in such a way therefore cannot claim a privilege on the immovable unless they contract directly with the owner. However, there is nothing to prevent the owner and the lessee from entering into a construction contract either within the lease or in a separate agreement. The agreement between the parties must be analysed in each case in order to determine its nature.

The agreement between the owner and the lessee contains some of the elements of a contract for services: the work is specified, its cost is readily ascertainable, and the lessee has full discretion in choosing the work methods and selecting the labour. However, it cannot be concluded that there was a construction contract and that the lessee had the status of a contractor where there was no claim between the owner and the lessee, which could be interpreted as an undertaking by the owner to pay the price of construction. The existence of such a claim between the owner and the builder is of the very essence of the privilege mechanism provided for in arts. 2013e and 2013f of the Civil Code. It is from the construction contract price that the owner will withhold the money needed to pay what is owed by the builder to sub-contractors, suppliers of materials and workmen and so avoid having his building encumbered in favour of those who worked on its construction and improvement. The owner will ultimately benefit from this work in the amount of the additional value so given to the building.

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There is nothing in the agreement in this case that could constitute the price of the construction contract from which the owner could have paid the workmen's privileges. Since respondent did not establish that, for the work done on appellants' building, it contracted with a contractor acting for the owner within the meaning of arts. 2013e and 2013f of the Civil Code, it cannot therefore maintain that it has a privilege over appellants' building.

Statutes and Regulations Cited

Civil Code of Lower Canada, arts. 984 et seq., 1060, 2013e,2013f.

Authors Cited

Giroux, Geo.-M. Le privilège ouvrier. Montréal: Albert Lévesque, 1933.

Quebec. Civil Code Revision Office. Report on the Contract of Enterprise. Montréal: Civil Code Revision Office, 1971.

Rousseau-Houle, Thérèse. Les contrats de construction en droit public et privé. Montréal: Wilson & Lafleur/ SOREJ, 1982.

APPEAL from a judgment of the Quebec Court of Appeal, [1985] C.A. 538, affirming a judgment of the Superior Court, [1982] C.S. 871, allowing an action for a declaration of privilege. Appeal allowed.

Sydney Sederoff, for the appellants.

Alain-Claude Desforges, for the respondent.

Normand Saint-Amour, for the intervener.

English version of the judgment of the Court delivered by

L'HEUREUX-DUBE J.—The Quebec Superior Court, [1982] C.S. 871, in a judgment, affirmed by a majority of the Quebec Court of Appeal, [1985] C.A. 538, declared appellants' immovable subject to two privileges, that of sub-contractor and that of supplier of materials. These privileges were registered by respondent Les Industries Providair Inc., for work performed on appellant's immovable at the request of the lessee Club Raquette et S.P.A. St-Martin Inc. (Club Raquette), the mis en cause herein. (The intervener, Caisse populaire St-Nicholas de Montréal, is

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the assignee of all respondent's accounts and claims.)

Appellants (hereinafter generally referred to as "the owner") stated the issue before this Court in the following terms:

Whether a Privilege lies against an immoveable property of a Landlord for work done by a Contractor who contracts with a Tenant.

The issue is quite different according to respondent, namely:

[TRANSLATION] Whether a privilege may be registered by a contractor who has done business with a lessee is a question of fact determined by the nature of the contract between the owner-lessor and the lessee.

Respondent did not dispute the fact that, as a general rule, a contractor who contracts with a lessee cannot claim a privilege on the leased immovable. What respondent argued instead was that [TRANSLATION] "in the instant case it is possible to regard the lessee as a contractor, owing primarily to the terms of the lease offer between the latter and the owner". It was this argument that was accepted by both the Superior Court and the Court of Appeal, although for somewhat different reasons.

This leads us to set out the facts of the case and to examine the agreements between the owner and the lessee.

Facts

On December 12, 1979 the owner and the lessee, Club Raquette, signed an [TRANSLATION] "offer to lease … premises in a building to be constructed" to be used as an [TRANSLATION] "extension for the Studio de Santé Silhouette and as racquet ball and squash courts". This agreement contains the following clause:

[TRANSLATION] DESCRIPTION:

(F) The Lessee, at its own expense, shall supply, install and maintain an adequate heating and air conditioning system for the said premises as well as any necessary plumbing equipment and fittings and drains. Everything must be approved by the Lessor. The Lessee's improvements shall

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remain the property of the Lessor when the lease expires.

The term of the proposed lease is twenty years [TRANSLATION] "beginning sixty days from the date of completion of the work determined by the Lessor's architect but no later than June 1, 1980". The rent [TRANSLATION] "shall be net to the Lessor" for a set price and other conditions. The other relevant clauses read as follows:

[TRANSLATION] FINISHING AT THE LESSEE'S EXPENSE

Interior finishing of the premises, except what has already been described. All finishing, alterations or repairs done or made by the LESSEE shall be completed pursuant to the plans and specifications approved by the LESSOR and in accordance with the National Building Code, the Building Code of the City of Laval and the Code of the Régie du Travail du Québec. When the lease expires, all alterations or repairs made by the LESSEE, both movable and immovable, shall become the property of the LESSOR without any charge to the LESSOR or, at the LESSOR's option, the LESSEE shall remove all of the LESSEE'S improvements which the LESSOR asks it to remove, and the LESSEE shall at its own expense restore the premises to the condition they were in when the lease was signed.

J: When the lease expires, all alterations, repairs and installations, including the air conditioning and heating system, done or made by the LESSEE, both movable and immovable, except the equipment and furniture common to this business, shall become the property of the LESSOR or, at the latter's option, upon written request to the LESSEE, the LESSEE shall at its own expense restore the premises to the condition they were in when the lease was signed.

4. The undersigned Henri Girard guarantees jointly and severally with the Studio de Santé Silhouette de Cho-medey Ltée all obligations of this offer and waives the benefits of division and discussion. When the LESSEE takes possession of the new leased premises, and we receive a RELEASE establishing that the building constructed on the LESSOR's land has been paid for, and is free and clear of all debts, privileges and liens, the building shall be sold to the LESSOR for the sum of $1.00 by notarial deed, we shall then remove the personal guarantee of Henri Girard and Silhouette shall remain solely liable for the lease and its terms and conditions.

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An addendum to this "offer to lease", entitled [TRANSLATION] "Terms and Conditions for Lease of Additional Premises" and signed on the same day, reads as follows:

[TRANSLATION]

SITE — Behind the existing Silhouette and behind the new extension which will be built for Silhouette.

AREA — 110 linear feet east-west (width) by 80 linear feet north-south (depth) or 8800 square feet in area.

TERM OF LEASE — 20 years.

RENT —After the building is completed by Silhouette and transferred to Trans-Provincial and/or M & N KOLOMEIR for the sum of $ 1.00 by notarial deed, the rent shall be included in the price of $33,750.00 net/net/net with all clauses and obligations stipulated in this offer. (See page 1 TERM OF RENT.)

SPECIAL CONDITIONS

A— —The LESSEE, at its own expense, shall construct on it a building used solely as an extension to the existing Silhouette and as racquet ball and squash courts, including any opening required between the original building, the new building constructed by us and the one constructed by Silhouette shall be constructed at Silhouette's expense.

B— —All plans and specifications shall be approved by the City of Laval or any other construction authority and by the LESSOR.

C— —The building shall be paid for in full by the LESSEE before it assumes possession thereof or the LESSEE shall have in its possession a RELEASE showing that the said building is free and clear of all debts, privileges and liens.

D— —Before beginning construction, the LESSEE shall file with the LESSOR an irrevocable bank letter of credit or any other form of security approved by the LESSOR for an amount equal

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to the price for constructing the said building, including air conditioning, heating equipment and fittings, plumbing, drains, electricity and gas, and the LESSOR, upon the instructions of the LESSEE and with the approval of the LESSOR'S architect, shall have the right to withdraw funds against this Letter of Credit to make the following payments on behalf of the LESSEE:

1 — To the builders and sub-contrac tors

2 — All labour

3 — To pay for building materials

E— —When the construction has been completely finished and fully paid for, and is free and clear of all debts, privileges and liens, Silhouette and Henri Girard shall then sell the said building including the heating, air conditioning and plumbing systems for the sum of $1.00 by notarial deed to M & N KOLOMEIR and the said building shall then become the property of the LESSOR and part of the leased premises.

F— —All parking lots considered necessary by the LESSOR behind the existing building and behind and beside the new extension shall be constructed at the LESSEE'S expense. The parking lots shall be completed by June 1, 1980.

SPECIAL NOTE—All plans and specifications, land verifications, subdivision changes, site plans, location plans, etc. shall be at the LESSEE'S expense and must be approved by the LESSOR.

—All operating costs of the said building constructed by Silhouette and the building constructed by Trans-Provincial for Silhouette shall be borne entirely by Henri Girard and Silhouette and the LESSOR of the land shall at no time have to pay these costs.

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—The existing lease shall be amended to extend the term to 20 years as above.

LEASE —This land and the building constructed thereon as described herein shall be leased to the LESSEE as an integral part and forming part of the leases between the parties (Lessor or its assigns) for the existing premises and the new extension, subject to the same terms and conditions that apply. The rights of the LESSOR under any leases between the parties (the Lessor or its assigns) may be exercised at the same time and against all premises leased under the said leases. Any defects in each lease shall be regarded as defects in the other leases.

If the assessors for the City of Laval refuse to make a separate assessment of the new extension (approx. 14,730 sq. ft.), plus the land of which the building forms a part and which is occupied by the LESSEE, the LESSOR shall hire a private assessor to assess the said building at the LESSEE'S expense.

I the undersigned Henri Girard guarantee jointly and severally with Studio de Santé Silhouette de Chomedey Ltée all the above obligations and renounce the benefits of division and discussion.

Respondent's tender to Club Raquette for the work or part thereof which the latter had undertaken to carry out under the terms of the "offer to lease" was submitted on June 9, 1980 and approved on June 16, 1980. The work began in August 1980 and was suspended in late September or early October 1980, on default of payment. Negotiations, with respect to this matter, took place but without result and respondent registered its privilege on March 9, 1981. The work seems to have been completed by another contractor.

On February 16, 1981, after the buildings had been constructed and the work for which respondent registered its privilege had been carried out, the owner and the lessee signed a notarial lease for the premises, including those described in the

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addendum. The lease, while it incorporated most of the clauses of the "offer to lease", did not include the clause relating to the bank letter of credit provided for in the addendum (and reproduced earlier) because the work provided for in it had been carried out previously. The lease also did not include clause 4 of the offer to lease (reproduced under the heading "Rent" in the addendum).

This lease took effect [TRANSLATION] "as of September 1, 1980" and states that the lessee was in possession from December 12, 1979. Under the clause entitled [TRANSLATION] "Price" the rent is described as follows:

[TRANSLATION] PRICE:

Moreover, this lease is made for and in consideration of payment of "net net net" rent of the sum of SIX HUNDRED AND SEVENTY-FIVE THOUSAND CANADIAN DOLLARS ($675,000.00), based on a cost of $2.29228 per square foot plus fifty per cent (50%) of the cost of living increase as established hereinafter, payable as follows:

(a) TWO THOUSAND EIGHT HUNDRED AND TWELVE DOLLARS AND FIFTY CENTS ($2,812.50) per month from the first of November nineteen hundred and eighty (1980) for a period of TWENTY-FOUR (24) MONTHS;

(b) TWO THOUSAND EIGHT HUNDRED AND TWELVE DOLLARS AND FIFTY CENTS ($2,812.50) per month increased by fifty per cent (50%) of the cumulative percentage increase in the cost of living as established by Statistics Canada or any other recognized authority during the first TWO (2) years of the lease, from the first of September nineteen hundred and eighty-two (1982) for a period of TWENTY-FOUR (24) MONTHS;

(c) The base rent for the TWO (2) preceding YEARS as established under (b) increased in the same manner for the following period of TWENTY-FOUR (24) MONTHS and so on every TWO (2) YEARS until the end of the said lease;

(d) In addition, for the TWELVE (12) MONTHS between April 1, 1981 and March 31, 1982, an additional rent of $3,411.49 per month representing the total of the arrears plus construction costs (materials and labour) owed to the Lessor shall be payable to the latter on the first day of each month.

Clauses 5 and 12 of the lease should also be reproduced:

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[TRANSLATION]

5. — Any improvements made to the building, its structure or the surrounding land that would be likely to become immovable by nature or by destination shall be paid for by the Lessee, and the Lessee shall ensure that no privilege of sub-contractors or workmen or others is registered against the immovable remaining the property of the Lessor, and the Lessee undertakes to take up the cause of the latter with respect to any such privilege that is thus registered. At the time of such work, the Lessee undertakes to obtain the usual renunciations of privileges from the sub-contractors, workmen or others;

6. — … The Lessee shall, at the end of the lease or renewals, restore the premises currently leased to the condition they were in when it occupied them; any movable or immovable improvements made by the Lessee, including heating and air conditioning equipment installed by it, shall become the property of the Lessor wholly or in part, as it wishes, unless the Lessor, by notice in writing to the Lessee, requires the latter to restore the premises to the condition they were in at the time of assumption of possession of the said premises, at no cost to the Lessor;

These are essentially the relevant facts arising from the evidence.

Submissions

Appellants argued solely in law and submitted, relying on the authorities, that a contractor who contracts with a lessee cannot claim a privilege on the leased property.

Respondent for its part stressed factors likely to show that the lessee acted here as a contractor. These factors all pertain to the "offer to lease", in particular to the extent of the work and to the lessee's undertaking to carry it out, to the surrender of ownership without compensation at the expiry of the lease, to the obtaining of an irrevocable letter of credit in favour of the owner to cover the cost of this work, and to the notification of the owner of the existence of the contract in due course. Respondent also emphasized the owner's authorization, knowledge and approval of the work, and his involvement in preparing the plans and specifications, in carrying out the work and in negotiating payment.

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Judgments

The Superior Court drew the following findings of fact from the evidence and, in particular, from the agreements between the owner and the lessee:

—The lessee's firm commitment to carry out large-scale work and improvements, the vast majority of which was immovable by nature.

—The lessee's undertaking to "ensure that no privilege of sub-contractors … is registered against the immovable" and to obtain "the usual renunciations of privileges from the subcontractors" found in clause 5 of the notarial lease reproduced above.

—The potential benefit to the owner who could retain the work without compensation on the expiry of the lease.

—Consent, approval and involvement of the owner [TRANSLATION] "both in this construction and in the negotiations regarding terms of payment" of respondent.

—The notice to the owner in due time which [TRANSLATION] "contained all the essential elements" required.

—The additional value given to the immovable fixed in the amount of $39,353.20.

On the basis of these findings of fact, the Superior Court judge held that [TRANSLATION] "this was not a conventional offer to lease" and concluded that the lessee was acting as contractor and the respondent as sub-contractor. He wondered whether it should not be found, in accordance with Giroux, that the lessee enjoyed [TRANSLATION] "a temporary real right in the immovable" (Le privilège ouvrier (1933), at p. 196). He allowed the action for a declaration of privilege in the amount of $39,353.20.

The majority of the Court of Appeal upheld the judgment, but without adopting all the reasons.

McCarthy J.A., in clear and concise reasons for judgment in which Monet J.A. concurred, did not question the trial judge's findings of fact regarding

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the nature of the agreement between the owner and the lessee, at p. 551:

The accepted offer to lease provided that the Kolomeirs and SPA would become, respectively, lessors and lessee of the new premises. It also provided that SPA would install the heating, air conditioning and plumbing systems. In other words, the accepted offer to lease included a construction contract, with the Kolomeirs being the owners and SPA the contractor. Obviously, the rental to be payable by SPA as lessee took into account the fact that it was responsible, partly if not completely, for the construction of the premises to be leased to it.

It follows that the two contracts between SPA and Providair were sub-contracts, with Providair being supplier of materials in one and sub-contractor in the other. It also follows that, subject to the provisions of articles 2013 et seq. C.C., Providair can claim a privilege on the immoveable.

Nichols J.A., dissenting, was instead of the view that [TRANSLATION] "the lease under consideration does not contain the elements of a contract for services. The work is not specified. Its cost is not assessed in any way" (p. 544). Given these premises, Nichols J.A. undertook in a thorough opinion which canvassed the authorities to demonstrate that a sub-contractor who does not contract, either with the owner or the builder but rather solely with a lessee, could not claim a privilege on the leased property.

Analysis

Although the point raised by appellants may be of great interest, it is clear that the issue, both here and in the dissenting opinion of Nichols J.A., was concerned only with the characterization of the agreements between the owner and the lessee. If respondent contracted with the builder, as the Superior Court and a majority of the Court of Appeal found, its right to a privilege as a subcontractor and supplier of materials is beyond dispute under arts. 2013e and 2013f C.C.L.C. subject to the notice provided for therein. Only if this were not the case would the issue have to be dealt with in the terms proposed by appellants, and discussed more particularly by Nichols J.A.

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Respondent, to succeed, given the uncontested fact that it had not contracted with the owner of the leased premises, had to establish that it had contracted with the builder for the work for which it registered a privilege.

As a general rule, the lessee of an immovable who, for his own benefit, carries out construction work or makes improvements to the leased premises does not act as a builder and does not bind the owner of the premises to the contractor or subcontractor. Those who contract with the lessee in such a way cannot claim a privilege on the immovable unless they contract directly with the owner. It is the contractor's responsibility to make sure that the lessee is able to meet the cost of the work done at its request and on its behalf.

However, nothing beyond the "conventional" lease, to use the trial judge's expression, prevents the owner and the lessee from entering into a construction contract either within the lease or in a separate agreement. The agreement between the parties is binding and there is no legal provision prohibiting such agreements. The agreement between the parties must therefore be analysed in each case in order to determine its nature.

Does a construction contract exist in the present circumstances?

Preliminary Remarks

Before moving on to this issue, one preliminary remark should be made. Both the Superior Court and respondent seem to characterize the agreement between the owner and the lessee on the following factors: the nature and extent of the work undertaken by the lessee, the authorization and approval of the owner, as well as his knowledge of and involvement in the work and his retention of the work without compensation at the expiry of the lease and, finally, the notice sent to the owner by the supplier of materials.

None of these factors, either individually or jointly, could per se be conclusive in this regard. When a lessee, in a "conventional" lease, under-

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takes to do work on leased premises, of whatever scale, it is not unusual and is entirely legitimate for the lease to contain a description of the work, an obligation to obtain prior approval of the plans and specifications from the lessor— which implies his knowledge and approval of the work — and the clause — which I would describe as usual — providing for the lessor's right to retain such work, at his option, on the expiry of the lease. The facts that the owner visits the work site and is involved himself and that the supplier of materials or the workman has notified the owner of the contract and of the materials and labour supplied are irrelevant. None of these elements per se could turn a simple lease into a construction contract. Nothing prevents against the inclusion of any one or all of these clauses in a lease.

All these factors, while irrelevant per se in determining the nature of the agreement between an owner and a lessee may, however, be useful to confirm or negate the true nature of the agreement between the parties.

There is no doubt that the owner intended to lease to the lessee a building to be constructed by the lessee at its expense on the lessor's land as well as another adjacent building to be constructed by the owner but to which the lessee was to make immovable improvements at its expense. This is the gist of the "offer to lease" signed between them on December 12, 1979. It specifies the rent and the term in addition to other terms and conditions of a lease.

The issue, however, is whether the parties to that lease agreed to enter into a construction contract, regardless of what they called it.

Construction Contract

A construction contract is subject to the ordinary rules of contract: capacity to contract, lawful object, cause or consideration and a meeting of the minds are the essential components (arts. 984 et

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seq. C.C.L.C.) No one disputes that all these elements of a contract are found here.

A construction contract, is defined as a [TRANSLATION] "bilateral and reciprocal" contract whereby one of the parties, the contractor, undertakes to carry out work described therein on behalf of the other party, for a determinate or ascertainable price (art. 1060 C.C.L.C.) (Giroux, op. cit,; Thérèse Rousseau-Houle, Les contrats de construction en droit public et privé (1982)).

As Nichols J.A. points out in his dissenting opinion, the [TRANSLATION] "main attribute [of a contract for services] consists in the contractor's independence, particularly in the choice of work methods, and in the selection he makes of the labour used, where applicable" (p. 544). He cites the Report of the Contract of Enterprise (1971) of the Civil Code Revision Office, report No. XIII.

On examination, the agreement contains some of the elements of a contract for services; the work is specified, its cost is readily ascertainable, and Club Raquette has full discretion in choosing the work methods and selecting the labour.

The work description is found in article F and in the addendum to the "offer to lease" reproduced above. This work was to be subject to plans and specifications approved by both parties, and consequently further details were to be provided. The cost is represented by the irrevocable letter of credit which the lessee undertook to give to the lessor "[b]efore beginning construction … for an amount equal to the price for constructing the … building". It was therefore readily ascertainable if not determined before the work began. The cause or consideration was the twenty-year lease on the terms agreed between the parties. Nothing in the contract provided that the lessee was subject to the instructions or control of the owner with respect to the choice of work methods, suppliers of materials, workmen, contractors or sub-contractors. The testimonial evidence confirmed the complete independence of the lessee in this regard. It could there-

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fore be concluded that all these elements present here, which are essential attributes of a contract for services, give the lessee the status of a contractor, bringing into play arts. 2013 et seq. C.C.L.C.

If that were the case, every lease contract by which the lessee undertakes to do any work on the leased premises at its expense, provided the work is briefly described therein and its cost known or ascertainable, would be likely to bring into play arts. 2013e and 2013f C.C.L.C., which are relevant here.

These articles read as follows:

2013e. The supplier of materials has a privilege on the immoveable in the construction of which the materials supplied to the proprietor or builder have been used, or for the construction of which they have been specially prepared.

However, in the case where the supplier of materials contracts with the proprietor himself, such privilege is conserved only by registration, before the expiration of thirty days after the end of the work, of a notice containing:

1. The names, surname and domicile of the creditor and of the debtor;

2. The description of the immoveable affected by the privilege;

3. A statement of the claim specifying the nature and price of the materials supplied to the proprietor or specially prepared to be supplied to him.

In the case where the supplier of materials contracts with the builder, he must notify the proprietor of the immoveable in writing that he has made a contract with the builder for the delivery of materials. His privilege is conserved for all the materials supplied after such notice provided he registers, within thirty days after the end of the work, a notice similar to that mentioned in the preceding paragraph.

In order to meet the privileged claims of the supplier of materials, the proprietor of the immoveable is entitled to retain on the contract price an amount sufficient to pay them, until the builder has handed to him either a discharge or a renunciation of their privileges, signed by them.

Such privilege is extinguished on failure of the supplier of materials to sue his debtor within three months after the end of the work and to call the registrar into the case, in order to have him make an entry of the

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action in the index of immoveables. In the case where the action is directed against the builder, he must also call the proprietor into the case.

The supplier of materials is also entitled, in case of the insolvency of the proprietor or builder, or in case of failure to make payment at the periods agreed upon, to revendicate the materials he has supplied, but which have not yet been incorporated into the building.

The registration of these notices is effected by deposit.

2013f. The builder, or the architect, has a privilege on the immoveable for the work he has done as such, provided that before the expiration of thirty days after the end of the work, he registers at the registry office of the division in which the property is situated, a statement of his claim. Notice of such registration must be given, within the same delay, to the proprietor.

Such privilege is extinguished after six months following the date of the end of the work, unless the creditor take an action against the proprietor to preserve it. In such action the registrar must be called into the case, in order to give him notice of such action, and to cause him to note the same in his index of immoveables.

In the case where the builder has had the work done, either wholly or in part, by sub-contract, if the sub-contractor has notified the proprietor of his contract, such sub-contractor shall have a privilege upon the immoveable for all work done after such notification, provided that before the expiration of thirty days after the end of the work he registers a statement of his claim. Such privilege is subject to the same formalities as that of the builder or architect, in so far as concerns its creation and extinction. The proprietor, in case the sub-contractor has notified him of his sub-contract, is entitled to retain, on the contract price, an amount sufficient to meet the privileged claim of the sub-contractor; and any amount fixed by a certificate given in compliance with the formalities contained in article 2013d, shall be deemed sufficient.

The registration of these statements is effected by deposit.

It will be noted that the existence of a claim between the owner and the builder is of the very essence of the privilege mechanism. It is from the construction contract price that the owner will withhold the money needed to pay what is owed by the builder to sub-contractors, suppliers of materials and workmen and so avoid having his building encumbered in favour of those who worked on its construction and improvement. The owner will

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ultimately benefit from this work in the amount of the additional value so given to the building.

I must pause for a moment to clear up any ambiguity between the terms "cost" of the work and "price" of the construction contract. In the context of this discussion these terms relate to two quite distinct concepts. If the cost of the work to be done by the lessee under the agreement between the parties is ascertainable, if not determined, this does not mean that the owner is thereby required to pay it or that the lessee is entitled to claim payment of it from the owner. The undertaking to pay the price of the construction contract is the duty undertaken by the person requesting the work, whether the owner, lessee or otherwise, to the person doing it, the builder.

Giroux, op. cit., explains this aspect of the workman's privilege as follows (at pp. 88-89):

[TRANSLATION] 82 — The owner also has a duty. A contract for services is a bilateral and reciprocal contract, it necessarily gives rise to mutual obligations, each party has undertaken a duty to the other to perform and provide the agreed services: the contractor must make the specified improvement and the owner must pay the price stipulated in the contract. Ordinarily, one party does not have the power to terminate the consequences of a contract of its own volition; however, art. 1691 gives the owner this right.

83 — The owner must pay the builder a price. The builder's privilege is security for a claim (art. 2013f, p. 1), and of course the price of one or more construction contracts (art. 2013d, p. 4 and 2013f, p. 3); this claim can only result from a contract for services (art. 1602). As in general any type of contract is allowed, we can assume that a contractor undertakes to do work for some consideration other than money, for example the transfer of other property, and so on. Such agreements are innominate contracts, not contracts for services: a person who is a party to them therefore cannot claim to benefit from the privilege in art. 2013, as in that case he will not have against the owner the claim referred to in art. 2013f. However, a contract for services will exist even if part of the price can be paid by a transfer of property (art. 1592).

The contract here makes no mention of the price, and there is no evidence of a "transfer of property".

[Page 1150]

The trial judge does not appear to have examined this aspect of the matter. He concluded that a construction contract existed based on the criteria that I have indicated — factors which, in my opinion, are not relevant to the classification of a construction contract though they may be a means of confirming that it exists.

The majority on the Court of Appeal, for its part, preferred to base its conclusion on a presumption that the rent payable by the lessee "took into account the fact that it [the lessee] was responsible, partly if not completely, for the construction of the premises to be leased to it [the lessee]" (p. 551). Even if this is quite correct, it does not follow that the price of the construction contract corresponds to an amount equivalent to the reduction in rent allegedly given the lessee by the owner, that this price can be liquidated and that the owner was in a position to pay the building cost from this consideration.

I think two observations must be made in this connection. First, there is no evidence in the record that the owner gave the lessee a reduction in rent, and a fortiori, there is no evidence as to the quantum of that reduction which could cover the total cost of the work. The offer to lease, the notarial lease and the oral evidence do not contain the slightest suggestion of this. Accordingly, I do not think it is possible to base any presumption whatever on it. Second, even admitting, for the purposes of argument that such a presumption can be deduced from the evidence, the reduction in rent which the lessee would thus receive is necessarily offset by the cost of the work which it undertook to do on the building at its own expense. Looking at this presumption from the owner's standpoint, the owner would suffer a reduction in rent to compensate for the benefit it derived from the construction of the building and the improvements to the leased building which the lessee had undertaken to make. It is clear that the mutual benefits balance each other and that such a presumption cannot be made, even if it were possible on the evidence, in order to arrive at the construction contract price from which the owner could have retained the money needed to pay subcontractors and workmen. Once this presumption

[Page 1151]

has been rejected, nothing in the agreement of the parties can be found that could constitute the price of the construction contract from which the owner could have paid the workmen's privileges. It must be borne in mind that [TRANSLATION] "being a sub-contractor means doing work at the request of a lessee, not for the latter's benefit, but for the benefit of another person, the person having the improvements made to the immovable" (Giroux, op. cit., at pp. 96-97). Here the work was for the lessee, at its request, for its own purposes and at its own cost. The lease stipulated that when the twenty-year lease expired the building and its improvements would remain the property of the owner. However, this does not mean, first, that the owner would have done this work if the special needs of the lessee had not existed, and second, that these improvements would still have had any commercial or other value, depending on the needs of the business and depreciation at this distant point in time. If there was any benefit to the owner, which is only a matter of speculation, such a benefit is neither obvious nor immediate.

There is another aspect of the problem to be considered. If the lessee is a builder he is himself entitled to a privilege to secure his claim against the owner. What claim can the lessee here put forward other than requiring possession of the premises for the duration of the lease in consideration of payment of the rental? Such a right cannot be accompanied by a builder's privilege. Another avenue of approach, which neither of the lower courts, quite properly, considered, concerns the duty undertaken by the lessee to deposit with the owner an "irrevocable bank letter of credit or any other form of security approved by the LESSOR", from which the owner could pay sub-contractors and workmen. This instrument was not requested. The owner accordingly spent nothing except the amount offset by the additional rental of $3,411.19 a month between April 1, 19, 1 and March 31, 1982, as provided in the notarial lease. It is because this duty to build on the part of the lessee can probably be regarded as part of the rent that the stipulation of additional rent tends to negate the existence of a claim by the lessee against the owner. The letter of credit "or any

[Page 1152]

other form of security" which could have been required before work began but was not, was a means by which the owner could ensure that the work would be done by the lessee and avoid having privileges registered against his building. However, this letter of credit cannot constitute a claim by the lessee against the owner as the lessee was responsible for paying for the work. If the owner had had money from which he undertook to pay at his own expense the sub-contractors and workmen, the situation could have been quite different. That, however, is not the undertaking of the parties in the case at bar.

The Superior Court judge wondered whether the lessee did not have "a temporary real right in the immovable", which might have been a basis for the registration of a workman's privilege by the respondent. The Court of Appeal did not accept this argument, and rightly so, and it was not repeated by respondent in this Court. It therefore does not have to be discussed.

It may accordingly be concluded that there was no claim between the owner and the lessee, which could be interpreted as an undertaking by the owner to pay the price of construction. Such an undertaking did not exist in the case at bar. Respondent did not establish that, for the work done on appellants' building, it contracted with a contractor acting for the owner within the meaning of arts. 2013f and 2013e C.C.L.C. It cannot therefore maintain that it has a privilege over appellants' building.

For these reasons, the appeal should be allowed, the judgments of the Court of Appeal and of the Superior Court set aside and the action on a privilege brought by respondent against appellants dismissed, the whole with costs in all courts.

Appeal allowed with costs.

Solicitor for the appellants: Sydney Sederoff, Montréal.

Solicitors for the respondent: Bélanger, Sauvé, Montréal.

Solicitors for the intervener: Saint-Amour & Pauze, Montréal.