Can an old debt be included in a new contract price and thereby effectively revive the expired lien rights associated with that old debt?
That was the question presented to the Superior Court in Trillium Masonry Group Inc. v Marydel Homes (Beaverton) Inc. et al, 2025 ONSC 4194, which involved a situation where a contract price included unpaid amounts from a previous contract that could not be liened due to the expiry of lien rights, and were therefore rolled into the "price" of a subsequent contract. The Court answered this question in the affirmative, concluding that old debts could be rolled into a new agreement and could be the subject of a lien on that basis, notwithstanding that the inclusion of the old debt produced a price that was not reflective of the true cost or value of work under the subsequent contract.
Below, we review the decision.
Factual Background
Marydel Holmes (Beaverton) Inc. ("Marydel") retained Trillium Masonry Group Inc. ("Trillium") for the supply of masonry services and materials in the development of several lots within a subdivision (the "First Contract"). Notably, the First Contract excluded one lot in the subdivision, Lot 121, which was scheduled for completion after the other lots. Trillium subsequently alleged that Marydel owed an outstanding balance under the First Contract, but despite this, did not lien.
After the work under the First Contract was complete, Marydel requested that Trillium begin work on Lot 121. Accordingly, the parties executed another contract (the "Second Contract"). Notably, though, the Second Contract stipulated that "the balance owed [from the First Contract] shall be forwarded to Lot 121 andshall form part of the contract price [emphasis added]" (the "Contract Price Provision"). Following this, Trillium issued an invoice for Lot 121, which included the outstanding balance associated with the First Contract. A dispute arose in relation to the Second Contract, in response to which Trillium liened for an amount which included the balance owed from the First Contract as part of the "price" of the services and materials supplied by Trillium to the improvement of Lot 121.
Marydel then vacated the lien and brought a motion to discharge the lien or, alternatively, reduce security. Marydel argued that a lien cannot include a debt that is no longer lienable, as s. 14(1) of the Construction Act only provides a right to a lien for a person who has supplied services or materials that have improved a premises (and the debt was just that – a debt, and not part of the improvement provided under the Second Contract). Marydel argued that its interpretation was consistent with s. 17 of the Construction Act, which requires a connection between the lien amount and work supplied to the improvement. Based on these propositions, Marydel argued that "the outstanding balance ...was for services supplied under the First Contract" which were therefore not lienable.
Trillium, on the other hand, argued that parties are free to contract for any price for lienable services they deem appropriate. Under that logic, the Second Contract clearly stipulated that the price for the improvement of Lot 121 included the amount of the unpaid balance from the First Contract. With that in mind, it would be inappropriate for the Court to undermine the parties' agreement on price. Since the work on Lot 121 was unquestionably completed, there was no doubt that the masonry services enhanced the lot.
The Application Judge's Decision
In ruling in Trillium's favour, the Court began by considering a number of relevant provisions of the Construction Act as they pertain to (1) the Court's powers on a motion brought pursuant to ss. 44(5) or 47 of the Act, as well as (2) the concept of "price".
With respect to the Court's powers on a motion, the Court was careful to repeat the usual observation that although such motions are similar to summary judgment motions, the Court does not have the same enhanced fact-finding powers available to a judge on a summary judgment motion. As a result, significant factual controversies should be left to trial.
With respect to price, and as readers are aware, a lien is for the "price" of the service or materials that improved the premises; in that regard, section 1 of the Act defined "price" as follows:
- the contract or subcontract price,
- agreed on between the parties, or
- if no specific price has been agreed on between them, the actual market value of the services or materials that have been supplied to the improvement under the contract or subcontract, and
- any direct costs incurred as a result of an extension of the duration of the supply of services or materials to the improvement for which the contractor or subcontractor as the case may be, is not responsible.
With that in mind, the Court observed that where the contract price for lienable services has been "agreed upon by the parties," that is the "price" of the lienable services. In this case, the "price" was (1) the outstanding balance, plus (2) the per-brick price of the masonry service. In this regard, the Court emphasized that parties are entitled to set their own "price" for lienable services – which in this included the old debt – and which can then be enforced through the lien regime. If the Act was meant to limit the parties' freedom to contract on this issue, it needed to explicitly do so; it did not.
Conversely, the Court rejected certain policy concerns expressed by Marydel if Trillium's positions were to succeed, as follows:
- A party could secure any debt with a lien, regardless of what the nature and extent of the debt actually was;
- An agreement could be used to circumvent s. 48 of the Act, which makes the discharge of a lien irrevocable; and
- Other lien claimants could be prejudiced if one contractor "forwarded" an old unrelated debt into a new contract and then liened that forwarded debt. In that situation, the contractor who "forwarded" the debt could artificially increase their share of the available funds, which would operate to the detriment of a contractor who did not engage in the same scheme.
The Court dismissed these concerns as speculative, noting that they were "premised on the unlikely event that an owner or general contractor would contract with a person to effectively revive expired or discharged liens". Rather, the Court concluded that such a scenario would be rare.
Ultimately, the Court recognized the unlikelihood of Marydel having agreed to the Contract Price Provision, given that it significantly increased its exposure to Trillium and appeared to be especially improvident insofar as it drastically increased the price of the work performed on Lot 121. However, deciding this factual issue would ultimately be for the trial judge, and as such the Court on this motion refrained from making a finding on this point.
Commentary
Trillium presents a somewhat unusual scenario, and the most apparent takeaway in this case is, of course, the need for parties to exercise caution in what they decide to include as part of their agreed contract price. As observed by the Court, it appeared odd that Marydel would agree to what appeared on its face to be an excessive and improvident amount for the scope of work in question, but that is seemingly what it did.
In that regard, Trillium suggests that form is, in some sense, as important as substance when it comes to lien rights. In substance, it was clear that the old debt included within the Second Contract price was for services previously rendered under the First Contract (for which lien rights had expired). In form, though, this old debt was incorporated into the price of services and materials to be supplied under the Second Contract, leading the Court to conclude that this was simply a voluntary agreement to an improvident price for services and materials supplied under the Second Contract.
From a policy perspective, however, it would have been helpful if the Court had engaged in a somewhat more sustained analysis of Marydel's policy arguments. Although the Court observed that Marydel's concerns were speculative because it would be rare for a payer to, in effect, agree to revive expired lien rights, this conclusion is somewhat difficult to reconcile with the fact that this was the exact scenario before the Court.
It would also have been worthwhile for the Court to consider the extent to which such an arrangement could undermine the Construction Act since, insofar as the de facto revival of expired lien rights could be used as an inducement in relation to other projects (thus giving rise to an inflated entitlement to holdback funds and prejudice to other contractors, as noted by Marydel). As readers are aware, it is common for owner, contractors, and subcontractors to have ongoing commercial relationships that are not isolated to a single project, such that it is plausible to envision a scenario where "forwarding" a debt (thus reviving a payee's lien rights) is used by a payer in order to relieve pressure on one project to the detriment of a subsequent one.
At the same time. However, it appears that Court's attention may not have been drawn to the effect of section 5(1), which constrains the ability of parties to contract out of the Act, and deems any contract that is inconsistent with the Act to be amended to the extent that is required to bring it into conformity. Here, it would appear to have been arguable that the Act provides for a lien in the only in the amount of the price of the actual services and materials supplied to the improvement and that inflating the "price" to include a past due debt does not conform with the Act. Should a similar fact pattern arise again, it is to be anticipated that this argument may be brought to the attention of the Court, along with the policy arguments raised by Marydel in support.
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