Can a Construction Lien Be Based on a Pre-Incorporation Contract?

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What happens when a pre-incorporation construction contract is made in the name of a company which does not do the work, and then the construction lien is filed in the name of the company that was later incorporated and did the work?

The Alberta Court of Appeal held that the lien was valid and that the contract had been effectively adopted by the company that did the work.

This decision is a reminder of two important principles. One relates to construction liens. Construction liens are a creature of statute, not contract law. They protect those who improve lands, by virtue of that improvement and not by virtue of a contract. The owner must request the work or materials, but the lien arises from the request and the subsequent improvement, not a contract.

The second principle relates to pre-incorporation contracts.

Those involved in pre-incorporation contracts should make both elements very clear: that the contract was made in the future corporation's name or on its behalf, and also that there is a clear adoption of the pre-incorporation contract, by an express corporate resolution or written document to that effect. Absent that sort of clarity, pre-incorporation contracts can lead to litigation.

Construction Lien, Pre-incorporation contracts, Construction action, agreement, contract, contractors

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Heintzman, Arbitration Place | Attorney Advertising

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