Summary judgments can be used to quickly resolve legal conflicts, saving the parties time and money in the process. However, not every situation is appropriate for a summary judgment. In a recent decision from the Court of Queen’s Bench of Alberta, an attempt to obtain summary judgment for a situation involving two separate issues was considered by the court.
The factored invoice
The defendant in the case had engaged a construction company to work on a project. When the construction company became insolvent, it was not able to pay several of the sub-trades who were doing work on the project. As a remedy, it decided to factor one of its receivables owed to it from the defendant in order to raise operating cash flow. Factoring of receivables is a process by which a business sells an invoice owed to it at a discount to a third-party. In exchange, the company selling the account is able to access cash fairly quickly. The company which purchased the invoice was the plaintiff in the matter. The invoice was in the amount of $216,878.92.
The plaintiff eventually discovered that not all of the work for the factored invoice had been completed when the agreement to purchase the invoice was made. It was, however, completed much later. The defendant sought an acknowledgment from the defendant as to the quality of the invoice before closing on the factoring of the transaction. Even though the work was not done, the defendant signed an agreement stating,
“We acknowledge herewith that the account described in the above noted invoice is due and payable without dispute or offset and undertake to make payment directly to Factors Western Inc. at the address indicated above.”
The court stated that on its face, the matter seems simple. The plaintiff claimed to have a contract with the defendant regarding the payment of the factored invoice. It relied on that contract to advance the payment for it to the construction company.
However, the court determined the issue was not one around contract law, stating,
“There is no apparent consideration for the acknowledgement or promise to pay. While (the plaintiff) argues that it was a ‘three-way contract’, no obvious consideration flowed at the request of (the defendant). (The defendant) appears to have simply been trying to cooperatively facilitate completion of its project when faced with an insolvent contractor.”
In addition to a lack of consideration on the part of the defendant, the court also found there may be estoppel issues as a result of signing the acknowledgement.
The lien action
Another issue arose when the defendant realized it may have to pay more than it owed to the construction company. It filed an action referred to as the “lien action” seeking the ability to pay lien funds into the court which would be used to protect against having to pay for the work described in the factored invoice twice. The action requested to exclude the payment of the invoice to the plaintiff as well as to give the plaintiff priority over any other claimants.
The court held that it would not be fair to resolve the matter through summary judgment, stating,
“I do not believe that a fair and just result can be achieved by piecemeal resolution of the issues. In order to grant summary judgment here, I would have to be satisfied that the signing of the acknowledgment by (the defendant) was sufficient to foist liability upon (the defendant), even if the result is that (the defendant) in the end pays more than it owes to (the construction company). I do not think that I can do that on this record while (the plaintiff) maintains its priority claim in the lien action. Whether or not the signing of the acknowledgement may trigger effective payment of the factored invoice twice should be determined in the context of all of the parties, and all of the facts in relation to the project generally. Piecemeal resolution without all parties present would not be fair or just.”
At HMC Lawyers, our highly skilled team of construction law lawyers knows that construction disputes and project delays can have massive impacts on your financial bottom-line as well as your relationships with business partners. We work closely with our clients to understand their business and personal needs. We identify the best potential outcome for our clients and then work diligently to reach those outcomes. To speak with one of our lawyers about a construction contract or delay claim, contact us online or call 1-800-480-3534. We represent construction clients in Calgary, throughout Alberta, and across Western Canada.