Contractor appropriating funds for its own use inconsistent with trust

TRUST

Contractor appropriating funds for its own use inconsistent with trust

Contractor and project owners entered into fixed price construction agreement relating to construction of aircraft hangar. Project owners paid contractor deposit for commencement of fabrication of pre-engineered metal building components for hangar. Contractor retained plaintiff to fabricate and furnish pre-engineered metal building components but failed to make any payments pursuant to plaintiff’s invoice. Plaintiff registered claim for lien on improved property. Project owners made direct partial payment to plaintiff but over $50,000 remained outstanding. Contractor maintained that project owners owe over $120,000 to contractor. Plaintiff applied for summary judgment on basis that moneys received by contractor were subject to trust and against individual defendants for breach of trust committed by contractor. To prove existence of trust, claimant must demonstrate that contractor received moneys on account of contract price for particular project, that claimant supplied services or materials on project and that contractor owes money to claimant for those services or materials. Evidence established that deposit moneys received by contractor were on account of contract with project owners, that plaintiff supplied services and materials to project and that plaintiff was still owed over $50,000 for those services and materials; deposit moneys therefore subject to trust. Obligations of trustee apply to both deposit and monies due and owing. Defendants failed to raise any kind of meaningful defence. Fact that contractor may have right to bring third party proceedings against project owners of no relevance. Contractor appropriated or converted funds for its own use inconsistent with trust; contractor therefore breached its obligation as trustee. Both defendants, as directors or officers, knew or ought to have known that payments were made out of trust funds in contravention of trust; defendants jointly and severally liable for breach of trust.

Varco Pruden Buildings v. Thom Win Construction Ltd. (Feb. 22, 2013, Ont. S.C.J., McCarthy J., File No. Barrie CV-12-0196 SR) 226 A.C.W.S. (3d) 397.