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Can An Agent Claim Damages As An Owner Under A Building Contract?

Agents of contractors and subcontractors often play a role and assert rights during construction projects. This is because contractors often use agents to perform the work, and construction lien legislation recognizes their right to assert a lien for the improvement of the land.

But agents of owners do not often assert rights under a building contract. Can they do so? And if they can, can they be sued as parties to the building contract?

These issues were recently addressed in the decision of the Nova Scotia Supreme Court in Ross v. Garnett. That court held that the agent could assert a claim for damage for breach of the building contract. This decision is significant because it could dramatically widen the scope of persons who can sue or be sued through the owner’s rights under a building contract.

The background

Ross entered into a contract with Garnett to purchase a log home kit manufactured by Riverbend and to have Garnett build the home. The home was built on a lot formerly owned by Ross but transferred by him to his mother shortly before the contract with Garnett was made. The transfer occurred because Ross’s mother could obtain mortgage financing and he could not. He paid all the mortgage payments, and the other expenses relating to the construction of the home. The lot was to be re-transferred to Ross once the mortgage was paid.

Ross claimed that the home kit and construction were defective and he sued Riverbend and Garnett. The defendants asserted that Ross had not suffered damage as he was not the owner of the lot. They brought a summary judgment motion to dismiss Ross’ claim.

The decision

The motion proceeded on the basis that Ross had entered into the contract with Garnett as agent for his mother. The motion judge concluded that a contract made by an agent can be enforced by and against the agent if the agent had a demonstrable intent to be personally bound by the contract and the other party elected to so deal with the agent. The motion judge concluded that Ross could not succeed in establishing those elements at trial. Ross’ own evidence demonstrated that he acted only as trustee and agent for his mother and did not intend to be personally bound by the contract.

However, the motion judge held that there was a second exception to the rule that an agent cannot sue on a contract made by the agent’s principal. Under this exception, the agent can sue on the contract if he has a “special interest” in the contract. A special interest could be shown if the agent has “some special property in the subject matter of the contract, or a lien upon it, or some special interest in the completion of the contract”, citing Fridman on The Law of Agency. The motion judge held that Ross had an arguable “special interest” in the contract between Ross’ mother and Garnett and therefore his claim could not be dismissed on a summary judgment motion.

The importance of this decision

This decision is important for those interested in building contracts because it has the potential to significantly widen the scope of the contracting parties on the owner’s side of the contract. The decision seems problematic from several standpoints.

First, the concept of “special interest” seems to be suitable to determine whether the agent has suffered damage, but it seems unsuitable to determine whether the agent is a party to the building contract. Without a “special interest” it would seem difficult for the agent to assert any loss. Combined with an initial entitlement to sue based upon a demonstrated intention to be a party to the contract from the inception, a “special interest” may provide the necessary loss which will give rise to a claim to damages. But it is more difficult to understand how a “special interest” can make the agent a party to the owner’s contract and entitle the agent to sue on that contact.

Second, if a “special interest” of an agent gives rise to a separate entitlement by the agent to enforce the building contract, then the contract should be as enforceable against the agent as by the agent. So the concept of “special interest” may create a whole new and dangerous basis of liability for owner’s agents.

Third, “special interest” appears to be an imprecise basis to create a pool of persons who have rights or obligations under a building contract. Who falls within the pool? Do the architects, engineers and consultants of the owner fall within it? Do they fall within it if they have an interest in the property? Do they have a “special interest” if they have a contingent interest in the success of the project, for example if the price of their services is influenced by the ultimate cost of the project? If so, is it advisable or inadvisable for a consultant to take an interest in the property or in the project, if that interest may allow rights to be asserted by or against the consultant under the building contract? And is it necessary for the contractor to inquire as to what agents of the owner have a “special interest” in the building contract?

The answer to these questions will await future cases about the rights or obligations of owners’ agents under building contracts.

Ross v. Garnett, 2012 NSSC 132

Building contract – consultants – enforcement – third parties

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                               May 20, 2012