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Supreme Court of Canada

Mechanics’ liens—Validity of lien—Statement of lien filed in firm name instead of names of individual partners—Allocation of payment—The Mechanics Lien Act, 1960 (Alta.), c. 64, ss. 27, 28.

In a mechanics’ lien action the trial judge held that the appellants were entitled to a declaration that they had a valid and subsisting lien for $8,662.72 and interest under The Mechanics Lien Act, 1960 (Alta.), c. 64, on certain lands. On appeal, the Appellate Division allowed the respondent’s appeal and dismissed the appellants’ cross-appeal, which asked that the amount found by the trial judge should be increased by $5,000. The Appellate Division gave effect to the respondent’s submission, which had not been made at trial, that the lien was invalid because the statement of lien was filed in the firm name under which the appellants carried on business instead of in the names of the individual partners. An appeal from the judgment of the Appellate Division was brought to this Court.

Held: The appeal should be allowed.

While it is true that a firm as such is not a legal entity, the use of the firm name is a convenient and usual way of describing the individual members who collectively make up the firm, and in the circumstances of this case its use was equivalent to naming the partners. No one was in any way misled or prejudiced and if the statement of lien was not a perfect compliance with the requirements of s. 27 of the Act, it fell within the curative provisions of s. 28.

The cross-appeal should have been allowed. The finding by the trial judge that a payment of $5,000 had been applied to the lien indebtedness in the books of the plaintiff firm was not questioned but

[Page 554]

there was nothing in the record to suggest that this allocation was communicated to the debtor, and, in accordance with the applicable principle, the plaintiffs were not bound by such allocation. When the statement of lien was registered and later the statement of claim was delivered it was clear that the credit of $5,000 had not been given on the lien indebtedness and this constituted notice to the debtor that the payment had been allocated to other indebtedness.

Corry Brothers & Co. v. Owners of Turkish Steamship “Mecca”, [1897] A.C. 286, referred to.

APPEAL from a judgment of the Supreme Court of Alberta, Appellate Division[1], allowing respondent’s appeal and dismissing appellants’ cross-appeal from a judgment of Greschuk J. Appeal allowed.

M.V. McDill, for the plaintiffs, appellants.

J.L. MacPherson, for the defendant, respondent.

The judgment of the Court was delivered by

THE CHIEF JUSTICE—This is an appeal from a judgment of the Appellate Division of the Supreme Court of Alberta1, pronounced on December 5, 1968, allowing the appeal of the respondent and dismissing the cross-appeal of the appellants from the judgment of Greschuk J. pronounced on October 23, 1967. The last-mentioned judgment declared the appellants to have a valid and subsisting lien for $8,662.72 and interest under The Mechanics Lien Act, 1960 (Alta.), c. 64, on certain lands in the City of Red Deer. The cross-appeal asked that the amount found by the learned trial judge should be increased by $5,000.

There were several defendants named in the statement of claim but the action was defended at trial by only the respondent and the Huron and Erie Mortgage Corporation. The respondent alone appealed to the Appellate Division.

At the trial the respondent raised the following defences, (i) that the respondent and those for

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whom the lands against which the lien was filed were purchasers for value without notice of the existence of the lien and so held the lands free from the lien, (ii) that the lien was not filed in time and (iii) that the appellants were not entitled to any fees as they were not duly registered or licensed in Alberta. The defendant Huron and Erie Mortgage Corporation also raised a plea of estoppel but this was rejected by the learned trial judge and as this defendant did not appeal it need not be further considered.

In the Appellate Division, for the first time, the respondent submitted that the lien was invalid because the statement of lien was filed in the firm name under which the appellants carried on business instead of in the names of the individual partners. The Appellate Division gave effect to this submission, allowed the appeal and dismissed the claim without finding it necessary to consider any other ground of appeal or defence.

The relevant facts are set out clearly and in detail in the reasons of the learned trial judge and it is unnecessary to restate them.

The statement of lien was registered on July 29, 1963; it commenced with the words:

Waisman, Ross & Associates, Architects of No. 10 Donald Street, Winnipeg, Manitoba, under “the Mechanics’ Lien Act,” claims a lien…

and was signed:

WAISMAN, ROSS & ASSOCIATES
By: “HWR McMillan”.

It was verified by affidavit of HWR McMillan described as “the agent of the above named claimant”.

The statement of claim in the action, which was issued on March 10, 1966, commenced with the following paragraph:

1. The Plaintiffs, Allan H. Waisman and Jack M. Ross are architects, both resident at the City of

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Winnipeg, in the Province of Manitoba, where they carry on business under the firm name and style of Waisman, Ross & Associates. At all times material to this action the Plaintiffs carried on business in the Province of Alberta through their agent H.W.R. McMillan, an architect registered in the Province of Alberta, under the firm name and style of McMillan, Long & Associates.

That the statements in this paragraph were true was proved at the trial.

The unanimous judgment of the Appellate Division was delivered by Allen J.A. The basis of the decision is found in the following passages in his reasons:

…I am satisfied that the individual members of the firm would have been entitled to claim a lien for architectural services.

But in this case the statement of lien filed makes it clear that the lien claimant is the firm known as “Waisman, Ross & Associates” and not the members of that firm.

There can be no question that under our law a firm as such is not a legal entity and has no real existence.

* * *

Here the lien claimants are not the individual members of the firm—the name and address of the lien claimant or the “lienholder” (s. 27) is set out in the statement of lien filed as “Waisman, Ross & Associates, Architects of No. 10 Donald Street, Winnipeg, Manitoba” and the statement is signed “Waisman, Ross & Associates By: H.W.R. McMillan”.

In the affidavit verifying the lien Hugh W.R. McMillan of Calgary, Architect, swears that he is the agent “of the above named claimant” and has full knowledge of the facts set forth in the above claim. There are no references in the statement of lien to the persons who constitute the firm of Waisman, Ross & Associates and their names are not disclosed.

On the face of it therefore it appears that the claim of lien is made by or on behalf of a legal non-entity and must therefore fail.

* * *

It is my view that the filing of the statement of lien in the name of the firm was a nullity and not a

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defect curable under s. 28 of The Mechanics Lien Act and that consequently the lien and the claim based thereon must fail.

Allen J.A. relied on the following passage from the unanimous judgment of this Court delivered by my brother Ritchie in Clarkson Co. Ltd. et al. v. Ace Lumber Ltd. et al.[2], at p. 114:

The above excerpts from the reasons for judgment of the majority of the Court of Appeal indicate to me that the conclusion there reached is predicated in large measure on the assumption that the provisions of The Mechanics’ Lien Act which describe and delimit the classes of persons entitled to a lien thereunder are to be liberally construed and that their language is to be adapted to meet the circumstances here disclosed.

With the greatest respect, I am, however, of opinion that the proper approach to the interpretation of this statute is expressed in the dissenting opinion of Kelly J.A. where he says that:

The lien commonly known as the mechanics’ lien was unknown to the common law and owes its existence in Ontario to a series of statutes, the latest of which is R.S.O. 1960, c. 233. It constitutes an abrogation of the common law to the extent that it creates, in the specified circumstances, a charge upon the owner’s lands which would not exist but for the Act, and grants to one class of creditors a security or preference not enjoyed by all creditors of the same debtor; accordingly, while the statute may merit a liberal interpretation with respect to the rights it confers upon those to whom it applies, it must be given a strict interpretation in determining whether any lien-claimant is a person to whom a lien is given by it.

I agree that this passage is applicable to the circumstances of the case at bar but I respectfully differ from the view of the Appellate Division as to the result of its application. In the view of both Greschuk J. and the Appellate Division, with which I agree, the statute, however strictly construed, did give the right to a lien to Allan

[Page 558]

H. Waisman and Jack M. Ross. The ground on which the Appellate Division has rejected their claim is that the form in which the statement of lien was filed was fatally defective.

The only defect alleged is failure to comply with s. 27(2)(a)(i) of The Mechanics Lien Act which is as follows:

(2) The statement of lien shall set out

(a) the name and residence of

(i) the lienholder.

As appears from the excerpts from its reasons quoted above the Appellate Division took the view that stating the name of the lienholder as “Waisman, Ross and Associates” rendered the statement a nullity. It is quite true, as pointed out by Allen J.A., that a firm as such is not a legal entity, but the use of the firm name is a convenient and usual way of describing the individual members who collectively make up the firm, and, in my view, in the circumstances of this case its use was equivalent to naming the partners. There is no suggestion that anyone was in any way misled or prejudiced and it is significant that the point was not even thought of at the trial. If the statement of lien as filed was not a perfect compliance with the requirements of s. 27 I am of opinion that it fell within the words of s. 28:

28. (1) A substantial compliance with section 27 is sufficient and a lien shall not be invalidated by failure to comply with any requirements of section 27 unless, in the opinion of the court, the owner, contractor, sub-contractor, mortgagee or some other person is prejudiced thereby.

(2) Where, in the opinion of the court a person is prejudiced by a failure to comply with section 27, the lien shall be invalidated only to the extent that such person is prejudiced by the default.

(3) Nothing in this section dispenses with the requirement of registration of a lien.

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With regard to the other defences relied on by the respondent, I agree that these were properly rejected by the learned trial judge and I am in substantial agreement with his reasons.

It remains to consider the cross-appeal with which the Appellate Division did not find it necessary to deal. The learned trial judge after stating that a payment of $5,000 was received by the plaintiff firm continued:

…At this time the amount owing in respect to the lien was $13,662.72 and the total amount owing in respect to all projects was about $19,000.00. The payor did not designate or direct how the $5,000.00 was to be applied, but the evidence I accept, convinces me that the accountant of the plaintiff firm applied it on the lien indebtedness, so that, the balance owing to the plaintiff, as I have indicated on the lien is $8,662.72.

The finding of the learned trial judge that the accountant of the plaintiff firm applied the $5,000 to the lien indebtedness in the books of the firm is not questioned but there is nothing in the record to suggest that this allocation was communicated to the debtor. When the statement of lien was registered and later when the statement of claim was delivered it was clear that credit for the $5,000 had not been given on the lien indebtedness and this constituted notice to the debtor that the payment had been allocated to the other indebtedness.

The applicable principle is stated in the following two passages from the speeches in Cory Brothers & Co. v. Owners of Turkish Steamship “Mecca”[3],

Lord Herschell at p. 292:

…It is clear that if the appellants had merely entered in their own books an account such as was transmitted, it would not have amounted to any appropriation by them, and they would still have been at liberty to appropriate the payment as they pleased. It is equally clear, however, that when once

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they had made an appropriation and communicated it to their debtors, they would have no right to appropriate it otherwise.

Lord Macnaghten at pp. 293 and 294:

Now, my Lords, there can be no doubt what the law of England is on this subject. When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor. In 1816, when Clayton’s Case (1 Mer. 585, 608) was decided, there seems to have been authority for saying that the creditor was bound to make his election at once according to the rule of the civil law, or at any rate, within a reasonable time, whatever that expression in such a connection may be taken to mean. But it has long been held and it is now quite settled that the creditor has the right of election “up to the very last moment,” and he is not bound to declare his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain.

In my view the cross-appeal should have been allowed.

I would allow the appeal with costs throughout, direct that the judgment at trial be varied, by substituting the figure $13,662.72 for the figure $8,662.72 and making the changes in the calculation of interest consequent on this variation, and direct that the judgment at trial as so varied be restored.

Appeal allowed with costs.

Solicitors for the plaintiffs, appellants: Ballem, McDill, Maclnnes & Eden, Calgary.

Solicitors for the defendant, respondent: MacPherson, Kelly, O’Neil & MacLeod, Calgary.

 



[1] (1969), 67 W.W.R. 61, 2 D.L.R. (3d) 416.

[2] [1963] S.C.R. 110.

[3] [1897] A.C. 286.

 

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