A Supplier’s Secret Weapon - The Unpaid Seller’s Lien

Article By Tim Mavko, Partner
and Member of RMRF’s Construction Law Team

Those who supply materials to construction projects occasionally have to chase their money. Sadly, sometimes a supplier takes an order, delivers the goods, but then doesn’t get paid. An unpaid supplier might then try to sue — if the customer has any money. Or call on a labour and material payment bond — if there is one. Or file a builders’ lien — if time has not run out. But in addition to these more common remedies, unpaid suppliers sometimes have a further weapon in their arsenal: the unpaid seller’s lien.

This is a little known and seldom used legal tool. (Some call it an “unpaid vendor’s lien” rather than an “unpaid seller’s lien”. Either term is correct.) But when it is available, it may put the unpaid supplier ahead of other creditors. It may even let the supplier seize the goods, so long as the materials have been delivered to the site but have not been physically incorporated into the project.
The legal term “lien” comes directly from the French lien, which in turn came from the Latin ligamen (“a bond” or “a tie”) and ligare (“to tie” or “to bind”). A lien, then, is the legal right to tie up or bind – or, as we more commonly say, to charge – certain property. And to charge property means to claim certain legal rights against that property.

Different liens give different rights and follow different rules. An unpaid seller’s lien, for example, is not the same as a builders’ lien. While they are both created and governed by the same law (Alberta’s Builders’ Lien Act), they are separate and distinct things.

An unpaid seller’s lien gives the supplier a charge against the goods he supplied. This means that the supplier has certain legal rights against the things he delivered to the site, be it a single box of bolts or a massive pressure vessel. This seller’s lien is separate and distinct from the charge the same unpaid supplier might have under a builders’ lien, where the property charged is the land itself rather than the materials. Indeed, our courts have said that a supplier can claim and pursue both an unpaid seller’s lien and a builders’ lien for the same debt for the same goods on the same project.
Unlike a builders’ lien, an unpaid seller’s lien does not require registration. There is no document to fill out and no form to file. It exists without paper.

Further unlike a builders’ lien, the claim under an unpaid seller’s in not limited by either the holdback or the lien fund, if any. Since the claim is against the goods themselves, it is the value of the goods that governs the value of the lien.

Still further, there is no time limit. The right to claim an unpaid vendor’s lien does not expire 45 days after the goods are delivered. Rather, the lien arises automatically when the goods arrive on site, and ends automatically when they are incorporated into the project. So long as the goods sit stockpiled on or near the site waiting to be installed, the supplier can pursue the unpaid seller’s lien. But the moment the bolts get used or the pressure vessel gets mounted on its base, the unpaid seller’s lien ends for that item (though the right to a builders’ lien may continue – but that’s a different matter).

While it exists, the unpaid seller’s lien gives the supplier several rights. Significantly, it gives him priority over others who might try to claim or seize those same goods from the site. This is important, for example, when the owner goes bankrupt and various creditors jockey to carve up the assets. Or when a general contractor goes under, mid-job, and the owner wants to hand the goods to another contractor to finish the project. An unpaid seller’s lien can boost the supplier’s claim to the goods ahead of others’.

Perhaps more valuable is the right it gives the supplier to seize and remove the goods. This does not mean an unpaid supplier can simply storm in and grab the stuff. It doesn’t work that way. Rather, he has to follow the proper process – which usually involves hiring a lawyer, getting a court order, and then engaging a civil enforcement agency to physically remove the goods. But in the end, if it all works out, the supplier gets his goods back, and he has something where he might have had nothing.∎

This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.