Donolo Inc. v. Grover et al., [1974] SCR 42

Supreme Court of Canada

Donolo Inc. v. Grover et al., [1974] S.C.R. 42

Date: 1973-04-02

Louis Donolo Inc. (Plaintiff) Appellant;

and

Hyman Grover et al. (Defendants) Respondents.

1973: February 12; 1973: April 2.

Present: Fauteux C.J. and Abbott, Judson, Pigeon and Laskin JJ.

ON APPEAL FROM THE COURT OF QUEEN’S BENCH, APPEAL SIDE, PROVINCE OF QUEBEC

Contract—Lump sum contract—Payment upon architect’s certificate—Issuance of certificate delayed—Interest not due—Faulty materials or workmanship—Defaults becoming apparent during the period set by contract—Hold-backs provided for in architect’s certificate—Corrections after final payment—Civil Code, art. 1069, 1077, 1686.

Respondent Grover awarded a lump sum contract to appellant for construction of a twelve-storey apartment building. Though it had not been completed by the set date, the respondent owner accepted the appellant’s proposal to assume current expenditures and to treat the building as available for rental at a later date. More than one year went by before the architect issued to the owner a full and final certificate for final payment of the balance of the price, such certificate providing that Grover was to hold back an amount of $ 11,000 to cover certain outstanding deficiencies. Appellant instituted an action claiming, in addition to the aforementioned sum of $11,000, an amount for interest said to be due because the partial payments provided for in the contract were not made on time. Respondent claimed in a cross‑demand damages for faulty performance of the work allowing among other things water to seep into the basement and frost to form inside windows, and, in an incidental cross‑demand, he claimed damages for defective installation of spandrels on the exterior walls. The trial judge allowed the principal demand, except for the interest. He also allowed the two cross-demands and ordered set-off. This decision was affirmed by the Court of Appeal. Hence the appeal to this Court.

Held: The appeal should be allowed.

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The Courts below correctly held that as the owner was only required to pay up on the architect’s certificate, interest would not run before the date of that certificate. In absence of any stipulation to the contrary, the rule to be applied is that of art. 1077 of the Civil Code. Even applying the provisions of art. 1069, the owner was not in default to pay before the architect’s certificate was issued since he had no obligation to pay without this certificate. Further, there was no stipulation that interest would begin to run before issuance of the certificate.

Turning now to the cost of the work to be done to prevent frost forming on the windows in winter, one must refer to the general conditions of the contract which provide that neither the final certificate nor payment thereunder, nor any provision in the contract documents shall relieve the contractor from responsibility for faulty materials or workmanship which appear within a period of one year from the date of substantial completion of the work. This was not a partial perishing within the meaning of art. 1686 of the Civil Code, since the stability of the building was not threatened. On the other hand, there is fully conclusive evidence to indicate that this defect resulted from faulty materials or workmanship, and it became apparent during the year following substantial completion of the work. The appearance of the symptom within a year suffices in such a case even though a diagnosis did not come until later.

With regard to the agreement concluded between the appellant and the owner and mentioned in the minutes drawn up by the architect, the balance of the contract price was undoubtedly settled, and what was immediately payable agreed upon, but disagreement persisted on the remainder.

APPEAL from a judgment of the Court of Queen’s Bench, Appeal Side, Province of Quebec, affirming a judgment of the Superior Court. Appeal dismissed.

G.L. Echenberg, for the plaintiff, appellant.

J.J. Robinson, for the defendants, respondents.

The judgment of the Court was delivered by

PIGEON J.—This appeal is against a unanimous decision by the Court of Appeal of Quebec, which upheld the judgment delivered at

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first instance by Yves Leduc J. of the Superior Court. This judgment allowed the principal demand for $ 11,000, the cross-demand and incidental cross-demand for $14,381.20, and ordered set-off. Appellant complains that he was refused the sum of $6,049.96 on the principal demand, claimed in respect of interest, and condemned to pay damages on the cross-demand for defects in construction.

On October 20, 1959, respondent Grover awarded a lump sum contract to appellant for construction of CHEQUERS PLACE, a handsome twelve storey apartment building on Sherbrooke Street, in Westmount. The building was to be delivered by February 28, 1961. Though it had not been completed by that date appellant, which wanted to free itself from current expenditures as early as possible, asked the owner to assume them and treat the building as available for rental on February 6. The owner accepted this proposal effective March 1st, and the contractor set the completion date at March 15. Difficulties were encountered and more than a year went by before the architect issued a certificate for final payment of the balance of the price. This certificate is dated May 23, 1962, and was issued following a lengthy discussion between the owner and representatives of the contractor, in the presence of the architect. As complete agreement could not be reached, the architect wrote the owner the following letter:

Further to the meeting held Tuesday, May 22nd, we are hereby issuing a full and final certificate in the amount of $36,000.00.

Please be advised, however, that of the amount of dollars certified, you are to holdback an amount of $11,000.00 to cover certain outstanding deficiencies and certain items which are under discussion. Once the items referred to in the above-mentioned meeting are resolved, to the mutual satisfaction of all parties, you may then release the final $11,000.00 or such portions thereof as may be applicable.

The principal action, instituted on October 25, 1963, claimed in addition to the aforementioned sum of $11,000, an amount of $6,049.96 for

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interest said to be due because the partial payments provided for in the contract were not made on time. A plea was entered to this action, denying that interest was due, and claiming damages in the amount of $63,000 for faulty performance of the work. These damages were also claimed in a cross-demand which was followed, on November 30, 1964, by an incidental cross-demand claiming the sum of $13,375 for damages resulting from defective installation of more than two hundred spandrels on the exterior walls. Two of these spandrels had broken away from the façade early in the summer of 1964.

As we have seen, the trial judge allowed the principal demand, except for the interest. He also allowed the two cross-demands: the first for an amount of $14,073, that is $800 for defects in construction allowing water to seep into the basement, and $13,273 for work necessary to prevent frost forming inside windows; the second for $308.20, being the cost of replacing the two spandrels which broke away from the façade in 1964, and not all of them, as the contractor had replaced the three which broke away in 1961 at his own expense.

On the question of interest, art. III of the contract contains the following provision regarding partial payments made while work is in progress:

The Owner will:

…

(b) make payments on account …upon the Architect’s certificate, as follows:—

on or before the tenth day of each month eighty-five per cent (85%) of the value, proportionate to the amount of the Contract, of labour and materials incorporated in the work or delivered at the site up to the first day of that month as estimated by the Contractor and approved by the Architect, less the aggregate of previous payments;

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We then find the following provisions in art. 25 and 26 of the General Conditions of the contract:

Article 25. Applications for Payments.—The Contractor shall submit to the Architect an application for each payment and, if required, receipts or other vouchers showing his payments for labour and for material including material on the site but not then incorporated in the work and payments to sub-contractors and for any liability for which he is responsible and which if not paid might fall upon the Owner.

If payments are made on valuation of work done, such applications shall be submitted at least five days before each payment falls due, …

Article 26. Certificates and Payments.—If the Contractor has made application as above, the Architect shall, not later than the date when each payment falls due, issue to the Contractor a certificate in accordance with Article III of the Agreement but such certificate may provide for hold-backs sufficient to protect the Owner against all liens and may be withheld if the Architect has received information that payments due to sub‑contractors have not been made.

The parties entered on the record a document in which they agreed as follows:

(a) If interest runs from the 10th day of each month without regard to the date of the Architect’s Certificate then, in such case, Defendant is truly indebted to Plaintiff for the amount claimed i.e. $6,049.69; or

(b) If interest runs from the 10th day after the contractors date of application for payment without regard to the Architect’s Certificate, then, in such case, the Defendant is truly indebted to Plaintiff for the amount claimed i.e. $6,049.69, but

(c) If, on the contrary, interest only begins to run from the 10th day of the month following the date of the Architect’s Certificate then, in such case, the Defendant is not indebted to Plaintiff for any interest and Plaintiff’s claim for interest in the amount of $6,049.69 should be dismissed.

The trial judge held that as the owner was only required to pay up on the architect’s certificate, interest would not run before the date

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of that certificate. The Court of Appeal took the same view and I do not see how we could hold otherwise. In the absence of any stipulation to the contrary, the rule to be applied is that of art. 1077 C.C., which reads as follows:

Art. 1077. The damages resulting from delay in the payment of money, to which the debtor is liable, consist only of interest at the rate legally agreed upon by the parties, or, in the absence of such agreement, at the rate fixed by law.

These damages are due without the creditor being obliged to prove any loss. They are due from the day of the default only, except in the case where by law they are due from the nature of the obligation.

This article does not affect the special rules applicable to bills of exchange and contracts of suretyship.

Art. 1069 states that:

Art. 1069. In all contracts of a commercial nature in which the time of performance is fixed the debtor is put in default by the mere lapse of such time.

Even applying this provision, the owner was certainly not in default to pay before the architect’s certificate was issued, since under the contract he had no obligation to pay without this certificate. Article III is perfectly clear in itself on this point. I am quite unable to find in the General Conditions anything that would warrant holding that the owner was obliged to pay before issuance of the architect’s certificate. Further, there was no stipulation that interest would begin to run before issuance of the certificate. The Court of Appeal therefore correctly upheld the trial judge’s decision on this point. In the light of this conclusion, it is not necessary to consider whether the appeal was validly brought without special leave against the judgment on the principal demand, in which the amount in dispute was less than $10,000. It is true that the Court adjudged on the cross-demand at the same time, but it is not certain that this was not a separate issue under the Code of Civil Procedure then in effect.

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Turning now to the cost of the work to be done to prevent frost forming on the windows in winter, the evidence showed that it resulted in serious inconvenience to the occupants of these luxury apartments. The architect Freedlander testified that at any rate in 1961, 1962 and 1963, he examined the situation in this connection and worked on various ways of correcting it. He made tests and called in engineers as consultants. The latter recommended improving air circulation between the interior glass of the windows and the exterior glass on which frost was forming.

The owner finally called in a specialist named Beer. The latter first tried to place in certain windows the device recommended to improve air circulation. This produced no result. Then, in 1964, in an empty apartment, he removed the radiators placed under the windows, dismantled the panel behind them and examined the insulation installed against the exterior wall. In doing so he discovered that this insulation was not properly installed and was loose all around. He therefore cemented the insulation and repaired the panel behind the radiators which he then re-installed. Having done this, he found by careful observation for a thirty-day period that frost was no longer forming on any of the six windows in this apartment, while it continued to do so elsewhere. The evidence presented at trial showed that the improvement was maintained the following winter, when the apartment was in normal use, whereas windows elsewhere continued to frost over. The trial judge found this proof conclusive and rightly so. For this, he allowed not only the cost of repairs in the apartment where the test was made, but also the estimated cost of work to be done in about sixty other apartments where there was a problem with frost in winter, and it seemed logical to assume that it was due to the same cause.

Challenging this decision, counsel for the appellant argued first that, in the circumstances, there was no need to allow respondents compensation for this work which was not really

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essential since when the action was heard they had not yet thought it advisable to have it done. On June 13 last, in Donolo v. St. Michel Realties, this Court had no hesitation in dismissing an appeal brought against a decision of the Court of Appeal[1] which awarded a considerable sum for the cost of repairs to a defective building, although most of the work had not yet been carried out.

In the case at bar, the principal contention was that this was not a partial perishing of the work within the meaning of art. 1686 C.C., but only a case of faulty workmanship for which the owner had no recourse, because the defects were covered by acceptance of the work. Both sides conducted an elaborate review of the cases on this question. Counsel for the respondents maintained that the weight of judicial opinion was against the view of the majority in Lapointe v. Perkins[2], a decision which was, so to speak, the principal basis of appellant’s argument. There is undoubtedly much that could be said on this question, but I feel that, in the circumstances, the Court must decide not on general principles but, as did the trial judge, by applying the specific provisions of the contract concluded between the parties. In particular one must refer to the following article of the general conditions:

Article 16. Correction after Final Payment.—Neither the final certificate nor payment thereunder, nor any provision in the contract documents shall relieve the Contractor from responsibility for faulty materials or workmanship, which appear within a period of one year from the date of substantial completion of the work, and he shall remedy any defects due thereto and pay for any damage to other work resulting therefrom which appear within such period of one year. The Owner shall give notice of observed defects promptly. Questions arising under this article shall be decided as provided in Articles 10 and 42. Notwithstanding the provisions of this Article, if any statute in force in the province where the work is being performed, or any section of the Quebec Civil Code in the case of work performed in the Province of Quebec, creates a more extended liability for faulty

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materials or workmanship, then the provisions of such statute or section of the Civil Code shall apply.

The evidence shows without contradiction that the excessive frosting developed inside the windows during the very first winter after substantial completion of the work, the completion date having been set at March 15, 1961. The cause of the trouble, however, was only discovered much later, early in 1964. Because we are faced with a defect concealed within the walls, can the contractor shelter behind the fact that it was only discovered three years later, while the inconvenience it caused developed during the period set by the contract? I think not.

I readily concede that this was not a partial perishing within the meaning of art. 1686 C.C., since the stability of the building was not threatened. The situation is not the same as with the two spandrels which broke away from the façade. The evidence does not show that the frost on the windows did more than cause some inconvenience. On the other hand, there is fully conclusive evidence to indicate that this defect resulted from what the contract calls “faulty materials or workmanship”, and it became apparent during the year following substantial completion of the work. Because it was concealed within the walls, however, its exact nature was not discovered during that period. In my view, the appearance of the symptom within a year should suffice in such a case to warrant application of the above-cited clause, even though a diagnosis did not come until later.

One final objection must be considered. This is the effect of the agreement concluded in the presence of the architect on May 22, 1962, and followed by his letter of the next day. Appellant maintains that it was agreed at that time that the owner would only have a recourse for what is mentioned in the informal minutes drawn up by the architect, and titled “Memorandum of spe-

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cial meeting”. They contain the following sentence:

It has been agreed by all parties that the architect will issue a full and final certificate closing out the job and attach a letter to the owner advising him to holdback an amount of $11,000.00 from this final certificate, to cover all items which are in dispute, according to this memo.

The document is drawn up in the form of paragraphs numbered 1 to 14. Each records the decision taken with regard to the corresponding paragraph of a memorandum prepared by the owner for the meeting, and titled “Highlights for the final meeting”. Several paragraphs of this memorandum describe the object of the complaint merely by reference to an earlier list of defects. As these earlier lists are not in the record, a complete enumeration is not available.

Moreover, there definitely was no complete agreement between the parties. The balance of the contract price was undoubtedly settled, and what was immediately payable agreed upon, but disagreement persisted on the remainder. So little attention was given to placing set limits on the owner’s claims, that the final paragraph of the memorandum of the meeting on May 22, 1962, reads as follows:

No discussion took place on these issues as it was the feeling of those present that most of these items had been previously discussed and to the best of our knowledge mostly resolved.

For these reasons I see no error in the decision of the Superior Court, upheld by the Court of Appeal, and would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the plaintiff, appellant: Chait, Salomon, Gelber, Reis & Bronstein, Montreal.

Solicitors for the defendants, respondents: Robinson, Sheppard & Shapiro, Montreal.