General Contractor’s Promise of Payment Makes it Directly Liable to Sub-Subcontractor

On September 28, 2005, the Ontario Superior Court of Justice released its decision in 1379691 Ontario Ltd. v. Appugliesi.

The plaintiff was a sub-subcontractor who did masonry work on a school project. When the plaintiff was not paid by the subcontractor on time, it complained to the general contractor and threatened to walk off the job if it was not paid. At a meeting, the subcontractor said it didn’t have the funds to make the payment. The general contractor wanted the plaintiff to complete their work and asked them not to walk off the job. The general told them that it would pay them “whatever is owing, both past and future” and would pay it out of the subcontractor’s holdback account. The holdback account at that time contained $75,000, more than enough to pay the plaintiff. The general contractor told the plaintiff that the payment would be made by the end of the month. It promised that no other bricklayers would be paid before the plaintiff received their payment. The plaintiff accepted the offer and agreed to continue working.

When the plaintiff remained unpaid, it brought an action against the general and the sub for payment. The general contractor argued that the amount owing should be paid by the subcontractor. The general contractor argued that its promise to pay the plaintiff directly was at most an oral guarantee, and as such was unenforceable under section 4 of the Statute of Frauds. It also argued that the promise made by its president at the meeting that if the plaintiff agreed to stay on the job, the general contractor would pay them what they were owed by the end of the month, was at most a gratuitous promise, made without any consideration and missing essential terms. Again, the Court disagreed. By the general contractor’s own admission this was intended to be a binding promise. The benefit to the general contractor of having the plaintiff stay on the job so that they could complete their work was recognized and acknowledged by the general contractor. There was ample consideration. The general contractor did not promise to pay the plaintiff only if the subcontractor failed to do so – it was clear at the meeting that the subcontractor was unable to make the payment. The plaintiff was looking to the general contractor for immediate payment and the latter agreed to pay them directly. This was not a third party guarantee, but a direct, first party promise. Based on this promise, the general contractor was liable to pay the sub-subcontractor directly.