Rights and Obligations for Parties Involved in the Improvement of Personal Property Written By: Michael Geib, Associate & Jessica Figley, Articling Student This is the first of two articles dealing with the rights and obligations of parties involved in the improvement or alteration of personal property (chattels). The first article explores two pieces of legislation that provide specific forms of relief – liens – to parties who apply their time, money or skill to improve someone else’s property. The second article provides a short introduction to considerations around how to create effective work orders and effective invoices. In this article we will explore two statutory regimes that deal with the rights and obligations of parties involved in the improvement of personal property. The Possessory Liens Act, RSA 2000, c P-19 and the Garage Keepers’ Lien Act, RSA 2000, c G-2, which each, in their own ways confer lien rights on the chattel holder; the party that has provided a service to improve a piece of personal property (for the purpose of this article the “Lien Claimant”). There are numerous instances where property owners provide their property to another entity for the purpose of changing their property in some way, whether it be adding something to the property, enhancing the property or otherwise improving the property. Perhaps the most obvious example is the owner of a motor vehicle who puts their vehicle in the care of a repair shop for the purpose of having work done to it. Most of the time the transaction closes, payment is made and the parties move on. However, sometimes the chattel owner, for various reasons, will refuse to pay their bill in full, or at all. When such situations materialize there are multiple remedies that may be available to the “Lien Claimant”. It should be noted that the remedies discussed in this article are not the only options available when someone refuses to pay a bill, but they do provide unique rights and are worth exploring in some detail. It must also be noted that property owners also have legal rights to dispute charges and other issues arising in the context of improvements made to their chattels. Part 1 – Possessory Liens Act I. Introduction The first regime to explore is enabled by a piece of legislation identified as the Possessory Liens Act, RSA 2000, c P-19 (the “PLA”). The PLA codifies liens already available in common law. That means the PLA effectively takes existing lien rights and puts them into a clear and concise piece of legislation that preserves, and in some cases modifies or alters, rights already available to a person who has expended its money, labour or skill to improve the value of a chattel at the request of a chattel owner. II. Important Aspects of the PLA (Section 2) A person has a particular lien for the payment of the person’s debt on a chattel on which the person has expended the person’s money, labour or skill at the request of the owner of it and in so doing enhanced its value [emphasis added]. Section 2 of the PLA is worded very broadly and typically, parties to a dispute will need to look to case law in order to help contextualize the general requirements that a Lien Claimant must meet in order to maintain a valid possessory lien. Generally, the Lien Claimant must be able to show: That the provision of money, labour or skill was applied or incorporated directly into the property that is the subject of the alleged lien. If the improvement or alteration does not change the chattel itself the prospect of successfully maintaining a possessory lien is significantly diminished. That the provision of the money, labour or skill enhance the value of the chattel itself. Evidence that their provision of money, labour or skill was requested by the chattel owner. So, for example, if the owner of a vintage soda dispenser provides the dispenser to a restoration company and requests new paint, new lights, and the replacement of mechanical parts, then the restoration company’s performance and provision of paint, lights, and the new mechanical parts would satisfy the first element of a lien claim. Those services were incorporations applied directly to the subject chattel. Additionally, the requested improvements likely enhanced the value, thereby satisfying the second element of a lien claim. So long as the property restoration company can prove that the changes made to the dispenser were requested by the owner, the third and final element of a possessory lien claim would be satisfied. Bearing in mind any other statutory requirements that must be satisfied, and paying attention to the unique circumstances of the transaction, the restoration company in this situation would have a strong argument to assert a possessory lien in the event the chattel owner failed to pay. It is important to note that the improvement or alteration must change the chattel itself. Where the work performed does not change the chattel itself, the prospect of successfully maintaining a possessory lien is significantly diminished. Using the example of a vintage soda dispenser, if the restoration company displayed the dispenser in its showroom with special lighting to make the dispenser look more attractive to potential buyers, it is unlikely the restoration company will be able to establish a possessory lien in the event the chattel owner failed to pay. The restoration company in this instance is unlikely to satisfy the legal requirements of section 2 of the PLA because showrooming (arguably) does not directly add value to the dispenser itself. Section 5 of the PLA (Section 5) Actual or constructive and continued possession of the property that is the subject‑matter of the debt is essential to the existence of the lien[emphasis added]. Section 5 of the PLA requires that some form of direct or indirect possession of the property be maintained in order for a possessory lien to exist. In other words, if a property owner provides its property to a person to perform some kind of work and then subsequently refuses to pay the resulting bill, the person who performed the work has the right to hold on to that property until the account is settled, or until the Court makes a determination about the validity of the alleged lien. If the Lien Claimant gives up the chattel, unconditionally, the basis for the lien under the PLA disappears. (Section 6) A lien extends over all the property on which the lienholder has expended the lienholder’s money, labour or skill, but no lien arises on account of a general balance due from the owner of the property to the lienholder [emphasis added]. Section 6 of the PLA is important in the context of persons who manage a series of chattels owned by an individual or where multiple transactions occur. For example, if a vehicle maintenance and repair shop services a fleet of vehicles for another company the repair shop likely has a general account with the fleet owner. In order to successfully claim a possessory lien, the Lien Claimant (the repair shop in this instance) must be able to demonstrate that it expended its money, labour or skill over each chattel that it intends to claim a lien for each piece of property. Said another way, if a Lien Claimant possesses ten chattels owned by a property owner, yet only performed work on two of the ten items, the Lien Claimant can only assert possessory liens over two of the chattels even if all ten are subject to the same collective account. (Section 8) A person entitled to a lien on any property pursuant to this Act may detain the property in the person’s possession until the amount of the person’s debt has been paid [emphasis added]. Fitting in with the possession requirement provided in section 5 of the PLA, section 8 of the PLA allows a Lien Claimant to hold the chattel until the account is paid, or until the Court orders otherwise. For property owners whose chattel(s) are subject to detention on the grounds of an alleged possessory lien, it is possible to bring an Application in the Court of Queen’s Bench of Alberta to ask for the return of the detained property. This type of relief is known in law as Replevin. While the nature of Replevin is outside the scope of this article it is worth noting that under such an Application, written evidence must generally be produced by both the chattel owner and the Lien Claimant speaking to the relationship between the parties, the term(s) of any agreement(s) to alter the property, and the basis of the lien claim or refuting the lien claim. (Section 14) This Act (a) applies only to cases of lien where (i) there is no provision for realizing by sale in any other statute, and (ii) no provision is made in any other statute for determining the rights of the owner of the goods and chattels and the bailee, and (b) in particular, does not apply to a lien given under the Innkeepers Act, the Animal Keepers Act or the Warehousers’ Liens Act. Section 14 of the PLA provides that a Lien Claimant can rely on the PLA only where no other statutes provide remedies for the parties. In other words, where another law allows for or provides the chattel owner or Lien Claimant a set of rights or obligations, that law should be looked to first. For example, and as will be discussed in the next part of this article, mechanics can assert a garage keepers lien. Other important components of the PLA There are other important sections in the PLA including sections dealing with storage costs and mechanisms for Lien Claimants to provide notice to debtor and instigate legal proceedings after three months. It is also important to note that the PLA and other pieces of legislation providing lien rights do not reduce or take away the parties’ rights to commence or defend an action relating to the property. Part 2 – Garage Keepers’ Lien Act I. Introduction While the Possessory Liens Act, RSA 2000, c P-19 (the “PLA”) provides a lien over a wide array of goods and chattels, there is a specific piece of legislation dealing with improvements to motor vehicles – the Garage Keepers’ Lien Act, RSA 2000, c G-2 (the “GKLA”). II. Important Aspects of the GKLA The lien requirements under the GKLA are stricter than the lien requirements under the PLA. In this part we will examine some of the lien requirements under the GKLA and provide brief commentary on considerations relating to each requirement. (Section 1) Definitions: (d) “garage keeper” means a person who keeps a place of business for the housing, storage or repair of a motor vehicle or farm vehicle and who receives compensation for that housing, storage or repair (e) “motor vehicle” (i) means a vehicle propelled by any power other than muscular power, and (ii) includes an airplane, but (iii) does not include a motor vehicle that runs only on rails; Section 1 of the GKLA provides the definitions for actions and actors falling within its statutory regime. Generally, a lien claim will be valid under the GKLA if: The subject chattel(s) fit within the definition of motor vehicle, and The Lien Claimant fits within the definition of a garage keeper. The definition of “motor vehicle” provided under the GKLA includes more than just automobiles. As such, this legislation can have significant implications across a variety of industries. The definition of “garage keeper” in the GKLA does not explicitly require that a garage keeper hold trade certificates or other qualifications to work on motor vehicles. Other legislation in Alberta may provide such requirements and should be consulted as well. (Section 2) (1) In addition to every other remedy that a garage keeper has for the recovery of money owing to the garage keeper for (a) the storage, repair or maintenance of a motor vehicle or a farm vehicle or of any part of a motor vehicle or farm vehicle, or (b) the price of accessories or parts furnished for a motor vehicle, farm vehicle or part of a motor vehicle or farm vehicle, a garage keeper who is entitled to payment of a sum for the storage, repair or maintenance or the price of accessories or parts furnished, has a lien on the motor vehicle or part of it or the farm vehicle or part of it for the sum to which the garage keeper is entitled (3) No garage keeper is entitled to a lien under this Act unless the garage keeper retains possession of the motor vehicle or farm vehicle or the garage keeper obtains from (a) the person who authorized the storage, repair or maintenance or the person’s authorized agent, or (b) the person who ordered that accessories or parts be furnished for the motor vehicle or farm vehicle or the person’s authorized agent, an acknowledgment of indebtedness by requiring that person or that person’s agent to sign an invoice or other statement of account. Section 2 provides the foundation of the lien right under the GKLA – namely, that a Lien Claimant (satisfying the definition of garage keeper) has a lien over a motor vehicle for the storage, repair, or maintenance applied to an applicable vehicle. Under the GKLA the Lien Claimant can also claim a lien for the price of the parts furnished to improve a vehicle meeting the applicable definitions of the GKLA. It is important to note that according to section 2 of the GKLA, a Lien Claimant is not entitled to make a lien claim without possession unless the property owner signs an acknowledgment of indebtedness. The case law says that such an endorsement must be made after performance of the work. This represents an important difference from the PLA as there is a mechanism in the GKLA for surrendering possession while maintaining (for a time) the lien rights under the GKLA, provided specific technical requirements are met. Section 3 (1) A lien referred to in section 2 terminates on the 21st day after the day (a) on which possession of the motor vehicle or farm vehicle is surrendered to the owner or the owner’s agent, (b) on which repairs were completed to the motor vehicle or farm vehicle or any part of the motor vehicle or farm vehicle if the vehicle was not at the time of repair in the possession of the garage keeper, or (c) on which the accessories or parts for the motor vehicle or farm vehicle were furnished, as the case may be, unless on or before the 21st day the garage keeper registers in the Registry a financing statement indicating a claim of lien on the motor vehicle or farm vehicle. (2) A financing statement referred to in subsection (1) must be signed by the garage keeper or by a person authorized by the garage keeper. Section 3 of the GKLA provides that if the Lien Claimant surrenders possession of the subject chattel(s) then they will have 21 days from the date of surrender to file a financing statement. It is also important to note that the financing statement must be acknowledged, but not necessarily signed or affirmed, by the property owner. Where the Lien Claimant maintains possession of the subject chattel(s), section 3 of the GKLA is of less importance. Other important sections of the GKLA On the issue of possession, the main difference between the PLA and the GKLA is the opportunity for the Lien Claimant under the GKLA to file a financing statement against each chattel in the Personal Property Registry. There are other important sections in the GKLA including sections dealing with seizure of vehicles, and specific rules around the discharge of liens. It is important to note that this legislation and any other pieces of legislation providing lien rights do not abrogate against the right to commence or defend an Action in Court. Part 3 – General Commentary Liens in the context of personal property confer several benefits on the Lien Claimant. In the case of both possessory and garage keepers’ liens, a Lien Claimant is provided with leverage through the right to maintain possession of the subject chattel. This is arguably a more effective mechanism to redress for lack of payment because it requires the property owner to deal with the claim immediately. While the Lien Claimant has the right to commence an action in Court for up to two years from the date of the failed payment, the ability to hold property puts pressure on the chattel owner and it can often instigate a quicker and more cost effective resolution process. Conversely, for parties on the other side of a possessory or garage keepers’ lien dispute, it is important to understand the requirements of each situation providing the potential lien. Simply because a Lien Claimant asserts that they have a lien does not, in law, guarantee that they have a valid lien. Both possessory liens and garage keepers’ liens can be defeated by the Lien Claimant’s failure to satisfy the technical requirements set out in the applicable legislation. Lien claims generally, including possessory and garage keepers’ liens, are unique remedies and the legislation creating them provide strict requirements. Where a Statement of Claim can make broad (but founded) sweeping allegations and then later be amended, or parts of a claim abandoned, lien claims are specific. The most important thing to be cognizant of when asserting or defending against a possessory lien or a garage keepers’ lien claim is satisfying (or attacking) the statutory requirements; however, in order to do that there are several practical considerations, some of which will be discussed in the second article – Key Considerations for Owners of Personal Property and Entities Performing Work on Personal Property. Part 4 – Conclusion Resolving lien claims requires looking to legislation, decisions from the courts and the specific circumstances of the relationship between the parties. Should you find yourself involved in a situation where there has been an alleged failure to pay for work done, or if you feel that a claim is being unfairly made against you, contact our Commercial Litigation group for more information. Disclaimer: This article is to be used for educational and non-commercial purposes only. Parlee McLaws LLP does not intend for this article to be a source of legal advice. Please seek the advice of a lawyer before choosing to act on any of the information contained in this article.