ROBERT STOKES V MILLEN ROOFING CO
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STATE OF MICHIGAN
COURT OF APPEALS
ROBERT STOKES and PATRICIA STOKES,
FOR PUBLICATION
March 9, 2001
9:15 a.m.
Plaintiff-Appellant/CounterDefendant/Cross-Appellee,
v
No. 216334
Kent Circuit Court
LC No. 94-003123
MILLEN ROOFING COMPANY,
Defendant-Appellee/CounterPlaintiff/Cross-Appellant,
and
DOUGLAS SUMNER, COMERICA BANK,
THOMAS DOWLING and GEORGE SCHULER,
Updated Copy
April 27, 2001
Third-Party Defendants.
Before: Doctoroff, P.J., and Holbrook, Jr., and Smolenski, JJ.
DOCTOROFF, P.J.
Plaintiffs appeal as of right from a May 1998 judgment of the Kent Circuit Court that
found no cause of action on defendant's1 counterclaim against plaintiffs, but awarded defendant
equitable relief. Defendant cross appeals, challenging the trial court's grant of partial summary
disposition to plaintiff that dismissed all but two of defendant's claims. We affirm the trial
court's judgment awarding equitable relief because we are bound by MCR 7.215(H)(1) to follow
the precedent of Republic Bank v Modular One LLC, 232 Mich App 444; 591 NW2d 335 (1998).
Were we not bound by Republic Bank, we would reverse and remand for the reasons set forth
below.
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I
In December 1993, plaintiffs contracted with defendant, an unlicensed roofing contractor,
for the construction of a slate roof with appurtenances on plaintiffs' residential property. Shortly
after the work began, the parties developed "artistic differences," and a total breakdown in the
parties' relationship in February 1994 resulted in a suspension of work. The parties renegotiated
their agreement, and defendant resumed work on the roof.
After a dispute arose regarding payment, defendant filed a construction lien on plaintiffs'
property. Thereafter, plaintiffs filed suit against defendant, seeking damages for breach of
contract and removal of the construction lien. Defendant filed a counterclaim, alleging breach of
contract, seeking foreclosure on the construction lien, and requesting recovery based on quantum
meruit and other theories. The trial court dismissed defendant's counterclaim and vacated the
construction lien on the basis that defendant, as an unlicensed residential builder, was prohibited
by MCL 339.2412; MSA 18.425(2412) from recovering compensation for the work performed.
However, the trial court allowed defendant to amend his countercomplaint to add eleven counts.
Upon plaintiffs' motion for summary disposition, the trial court dismissed all claims in
defendant's countercomplaint, except a count alleging an accord and a count for "claim and
delivery" or common-law replevin.
At the conclusion of a bench trial in May 1998, the trial court found that defendant's
accord theory was not supported by the evidence.
However, the court found that the
"extraordinary circumstances" of the case warranted equitable relief. The court fashioned a
complicated remedy that allowed defendant to remove the roofing materials it placed on
plaintiffs' house if defendant paid $52,934 to an escrow agent, who would pay those funds to
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plaintiffs upon defendant's removal of the roofing materials. However, once defendant paid the
funds to the escrow agent, plaintiffs would have twenty-eight days to deposit $113,269 with the
escrow agent. If plaintiffs chose to do so, defendant would not have the right to remove the
roofing materials, but would receive the funds placed in escrow, and the matter would be
resolved.
II
Plaintiffs first argue that the trial court erred in granting equitable relief to defendant and
in failing to dismiss all claims brought by defendant because the residential builders licensing
act, MCL 339.2401 et seq.; MSA 18.425(2401) et seq., bars defendant's claims. Plaintiffs are
correct that defendant is barred from suing to collect for the contracted work by MCL 339.2412;
MSA 18.425(2412), which states:
A person or qualifying officer for a corporation or member of a residential
builder or residential maintenance and alteration contractor shall not bring or
maintain an action in a court of this state for the collection of compensation for
the performance of an act or contract for which a license is required by this article
without alleging and proving that the person was licensed under this article during
the performance of the act or contract.
The statute clearly prohibits a residential builder or contractor from maintaining any
action to collect compensation for its work unless the builder or contractor was licensed at the
time the work was performed. Charles Featherly Constr Co v Property Development Group,
Inc, 400 Mich 198, 203; 253 NW2d 643 (1977). This prohibition has been interpreted as
extending to counterclaims as well as complaints. Republic Bank, supra at 449; Parker v
McQuade Plumbing & Heating, Inc, 124 Mich App 469, 471; 335 NW2d 7 (1983). Because
defendant was unlicensed at the time it performed the work on plaintiffs' roof, defendant had no
right to pursue a claim against plaintiffs.
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A
Although unlicensed residential builders or contractors are prohibited by statute from
suing for compensation, case law has provided for recovery in certain circumstances under
equitable principles.
An unlicensed residential builder's or contractor's right to equitable
compensation was first addressed in Kirkendall v Heckinger, 403 Mich 371; 269 NW2d 184
(1978). In Kirkendall, the plaintiff property owner approached the defendant builder to construct
a house for plaintiff 's son on plaintiff 's property. The plaintiff owed $1,250 on the property
pursuant to a land contract. The defendant agreed to pay off the land contract and the back taxes
and to provide the labor and materials to construct the house in exchange for a disputed amount
of money. The plaintiff conveyed the property to the defendant, who was to convey the property
to the plaintiff 's son upon the completion of the house.
However, when the house was
completed, a dispute arose regarding the amount owed to the defendant.
The plaintiff filed suit, requesting a conveyance of the property to the plaintiff 's son in
exchange for $9,250 paid to the defendant, or in the alternative, an award of $7,000 on a theory
of unjust enrichment. The defendant filed a counterclaim seeking an award of money damages,
which included the value of the labor and materials used in the construction of the house. The
trial court ruled that legal title to the property should go to the plaintiff 's son upon the payment
of approximately $1500 to the defendant as reimbursement for his payment of the land contract
and back taxes. The trial court dismissed the defendant's counterclaim on the basis of the
provision in the residential builders licensing act prohibiting unlicensed builders from bringing a
claim to collect for work performed.
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On appeal, after noting the maxim that "he who seeks equity must be prepared to do
equity," our Supreme Court concluded:
The plaintiffs sought an equitable remedy.
Before ordering the
conveyance to Dennis Kirkendall, the trial court was obliged to determine the
amount the plaintiffs were required to pay the defendants in order to do equity.
As the equitable mortgagee, Heckinger was entitled as a condition to
reconveyance to reasonable expenditures for improvements on the property made
with the Kirkendall's consent (and in fact with Dennis Kirkendall's active
participation) while Heckinger had title to the property. [Id. at 374.]
Although the holding of Kirkendall would appear to be controlling and dictate a result
similar to that reached by the trial court, Kirkendall is distinguishable from the case at bar. First,
the circumstances under which the trial court's equitable powers were invoked in the present case
is significantly different. In Kirkendall, the trial court found that an equitable mortgage existed
between the parties. Id. at 373. The circumstance that gave rise to the equitable mortgage,
namely, the contractor's promise to transfer title to the property to the original owner's son,
existed before the parties' dispute arose and was premised upon the property owner's promise to
pay the contractor. Further, although the contractor had no right to pursue payment against the
property owner because of his unlicensed status, there was nothing invalid or illegal about the
manner in which the contractor obtained title to the property, and, accordingly, an equitable
remedy for the contractor was appropriate.
By contrast, in the present case, there was no predispute agreement whereby plaintiffs
agreed to pay defendant in exchange for receiving clear title to their property. In fact, the
circumstance that compelled plaintiffs to seek an equitable remedy, defendant's lien on plaintiffs'
property, was not a term of the parties' agreement and did not arise until after the relationship
between the parties had broken down. In addition, as an unlicensed residential builder, defendant
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had no legal right to claim a lien on plaintiffs' property. MCL 570.1114; MSA 26.316(114).2
Although the lien was invalid and unenforceable, plaintiffs were compelled to seek an equitable
remedy, not to unjustly enrich themselves at defendant's expense, but to clear the clouded title on
their property. These clear distinctions lead to the conclusion that the equitable exception to
MCL 339.2412; MSA 18.425(2412) created by the Kirkendall Court should be limited to the
facts of that case and need not be applied to the present case.
B
Although the facts of Kirkendall are clearly distinguishable from this case, this Court has
applied the Kirkendall holding in similar circumstances. In Green v Ingersoll, 89 Mich App 228,
237; 280 NW2d 496 (1979), this Court found that an unlicensed contractor was entitled to
compensation for the value of improvements on residential property where the property owner
invoked the equity powers of the court to remove the contractor's lien on the property. The same
analysis was applied by this Court in two subsequent cases, Parker, supra, and Barbour v
Handlos Real Estate & Building Corp, 152 Mich App 174; 393 NW2d 581 (1986), that also had
fact patterns similar to the present case.
Because these three cases were decided before
November 1, 1990, they are not binding on this Court. MCR 7.215(H)(1).
However, this Court is bound by the holding of Republic Bank, which applied the
Kirkendall equitable remedy to a factually similar situation. In Republic Bank, the defendant
builder installed modular homes on several residential lots, then placed construction liens on the
properties. The plaintiff purchased the properties through foreclosure and filed suit to remove
the defendant's liens. The plaintiff moved for summary disposition on the ground that the
defendant's liens were invalid because the defendant did not have a residential builder's license.
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The trial court granted the plaintiff 's motion for summary disposition and the defendant
appealed.
This Court held that, while the defendant unlicensed residential builder could not bring
suit to enforce the liens, because the plaintiff requested equitable relief, i.e., the removal of the
cloud on its title, the plaintiff was required to compensate the defendant:
Where one party seeks an equitable remedy against an unlicensed builder
who has performed residential construction work on property, and circumstances
indicate that equity requires that the builder be paid for that work, the party
seeking equity must first do equity by compensating the builder. [Id. at 453.]
This Court further held that the requirement to do equity is not dependent on the existence of a
contractual relationship, a mortgagor/mortgagee relationship, or a buyer/seller relationship. Id. at
451-453. This Court concluded that, before resolving the plaintiff 's action to quiet title by
invalidating the defendant's liens, the court should have determined whether the defendant was
entitled to payment for the work performed on the property. Id. at 455.
This Court's decision in Republic Bank relies on the accepted principle that one who
seeks equity must first do equity. However, it appears to ignore an equally important equitable
principle, the doctrine of clean hands. The clean hands doctrine closes the doors of a court of
equity to a party tainted by inequitable conduct or bad faith relative to the matter for which equity
is sought, however improper the behavior of the other party. Stachnik v Winkel, 394 Mich 375,
382; 230 NW2d 529 (1975). The doctrine is intended to protect the integrity of the court, and
any wilful act that transgresses equitable standards of conduct is sufficient cause to invoke the
doctrine of clean hands. Id. at 386.
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In both Republic Bank and the present case, the defendant residential builder had unclean
hands. Both defendants violated the law by engaging in the practice of residential construction or
improvement without a license.
MCL 339.601(1); MSA 18.425(601)(1).
The defendants'
misconduct not only demonstrated bad faith, but constituted a misdemeanor, punishable by a fine
of $500, or imprisonment for ninety days, or both. MCL 339.601(3); MSA 18.425(601)(3). In
addition, both the defendant in Republic Bank and the defendant in the instant case ignored the
law by recording invalid construction liens on the residential properties at issue.
MCL
570.1114(b); MSA 26.316(114)(b). Clearly, these defendants came to the court with unclean
hands and, as such, were not entitled to equitable relief.
Further, we are deeply concerned with the precedent created by the holding of Republic
Bank. Our Legislature created the residential builders licensing act for the express purpose of
protecting homeowners. Featherly Constr, supra at 202; Utica Equipment Co v Ray W Malow
Co, 204 Mich App 476, 477; 516 NW2d 99 (1994). The licensing requirement allows the state
to monitor and control the conduct of residential builders and contractors by establishing
infractions subject to penalties. MCL 339.2411; MSA 18.425(2411).3 In order to discourage
residential builders and contractors from operating without a license, the act establishes the
severe penalty of divesting a builder or contractor of the power to sue to collect compensation for
their work unless the builder or contractor is licensed. MCL 339.2412; MSA 18.425(2412);
Featherly Constr, supra at 203.
Through its decision in Republic Bank, this Court drew a road map for residential
builders and contractors who want to avoid the licensing requirements of the act.
If the
homeowner does not pay the unlicensed builder or contractor, the builder or contractor need only
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file a lien on residential property. Even though the lien is invalid and unenforceable, the
homeowner or, as in the case of Republic Bank, the subsequent purchaser of the property is
forced to file suit to remove the cloud that the lien has placed on the title. Because an action to
quiet title invokes the equitable powers of the court, the homeowner or subsequent purchaser
must now "do equity" by paying the contractor, thereby defeating the statutory licensing scheme
and its resultant penalties.
This Court is also concerned with the apparent lack of deference to our Legislature
demonstrated by the Republic Bank decision. The penalty contained in MCL 339.2412; MSA
18.425(2412), was enacted more than forty years ago, and the language of the statute has not
changed significantly during that time.4 See Alexander v Neal, 364 Mich 485, 486-487; 110
NW2d 797 (1961).5 Regardless of how unjust the statutory penalty might seem to this Court, it
is not our place to create an equitable remedy for a hardship created by an unambiguous, validly
enacted, legislative decree. Where the meaning of the language of a statute is clear, this Court
should refrain from adding judicial gloss.
Thrifty Rent-A-Car Systems, Inc v Dep't of
Transportation, 236 Mich App 674, 678; 601 NW2d 420 (1999). Further, this Court should not
depart from the literal construction of a statute unless application of the statute as written is
inconsistent with the purpose of the legislation. Id. Although the holding of Republic Bank did
not involve direct interpretation of a statute, this Court's extension of the equitable exception of
Kirkendall to all situations where a property owner attempts to remove an invalid construction
lien from the property's title had the same result as inappropriate judicial interpretation in that it
subverted the clear intent of the Legislature.
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For the foregoing reasons, we believe that this Court's decision in Republic Bank was
incorrectly decided and should be overruled. However, pursuant to MCR 7.215(H)(1), this Court
must follow that precedent. Therefore, we hold that the trial court in the present case did not err
in granting defendant equitable relief or in refusing to dismiss defendant's claims.
III
Defendant raises three issues in its cross appeal. Defendant first argues that the trial court
erred in dismissing its countercomplaint against plaintiffs and dissolving its construction lien on
plaintiffs' property. We disagree. Under MCL 339.2412; MSA 18.425(2412), as an unlicensed
builder, defendant had no legal right to bring or maintain an action against plaintiffs, including
filing a countercomplaint. Republic Bank, supra at 449; Parker, supra at 471. Likewise,
defendant's construction lien was invalid because defendant was unlicensed at the time it
performed the work on plaintiff 's property. MCL 570.1114(b); MSA 26.316(114)(b). Further,
the trial court allowed defendant to amend its countercomplaint and proceed with equitable
claims. We find no error in the trial court's decision to dismiss defendant's legal claims and
dissolve its construction lien.
Defendant also argues that it is exempt from the requirements of the residential builders
licensing act because it contracted with plaintiff Patricia Stokes, who was acting as a general
contractor and who was not subject to the licensing requirement. Defendant bases this argument
on MCL 339.2403(b); MSA 18.425(2403)(b), which allows a property owner to act as a
residential contractor with respect to the owner's own residential property without obtaining a
license. According to defendant's theory, it was a subcontractor to the unlicensed general
contractor, Patricia Stokes, and because the general contractor was not required to be licensed, it
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was not required to be licensed either. When defendant advanced this theory at trial, the court
found that Patricia Stokes was not acting as a general contractor and that, even if she was
assuming that role, it would not eliminate defendant's licensing requirement. We find no error in
the trial court's conclusion with respect to this issue.
Although defendant is correct that a property owner may act as a residential contractor
with respect to the owner's own property without the benefit of a license, defendant is unable to
cite any authority supporting its position that because the general contractor has no requirement
for a license, the subcontractor is also exempt from the licensing requirements. The act lists
several exceptions to the licensing requirement; however, there is no exception for
subcontractors to unlicensed property owners within the plain language of MCL 339.2403; MSA
18.425(2403). Because the Legislature did not see fit to include an exception for defendant's
situation, we will not read such an exception into the statute. The Legislature is presumed to be
aware of the consequences of the use or omission of language when it enacts the laws that govern
our behavior. Lumley v Univ of Michigan Bd of Regents, 215 Mich App 125, 129-130; 544
NW2d 692 (1996).
Defendant's last argument is that the trial court erred in dismissing George Schuler and
Thomas Dowling as third-party defendants. Defendant claims that Schuler, a journeyman sheet
metal worker and roofer, and Dowling, an architect, were acting as agents of plaintiffs and,
during the course of that agency, violated the Michigan Consumer Protection Act, MCL 445.901
et seq.; MSA 19.418(1) et seq., by engaging in unfair and deceptive practices. We find this
allegation to be without merit.
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An agency relationship may arise where there is a manifestation by the principal that the
agent may act on the principal's behalf. Meretta v Peach, 195 Mich App 695, 697; 491 NW2d
278 (1992). Where no actual agency exists, a principal may be bound by the actions of an agent
under the doctrine of apparent authority. Alar v Mercy Memorial Hosp, 208 Mich App 518, 528;
529 NW2d 318 (1995). Apparent authority arises where the acts of the purported agent lead a
third party to reasonably believe that an agency relationship exists. However, apparent authority
must be traced to the principal and cannot be established only through the acts of the agent. Id.
In this case, the evidence does not support defendant's theory that Schuler and Dowling
were acting under either the actual or apparent authority of plaintiffs. Plaintiffs, Schuler, and
Dowling each denied the existence of any actual agency relationship or that any of them ever
informed defendant that Schuler and Dowling were agents of plaintiffs. Further, this Court was
unable to find any evidence in the record supporting defendant's allegations of unfair or deceptive
practices. We find no error in the trial court's decision to dismiss Schuler and Dowling.
IV
In conclusion, we affirm the trial court's decision to grant defendant equitable relief
because of this Court's duty under MCR 7.215(H)(1) to follow the precedent of Republic Bank,
supra. Were it not for the holding of Republic Bank, we would reverse and remand with the
instruction that the trial court should dismiss defendant's equitable claims against plaintiff. We
also affirm the trial court's decision to dismiss defendant's countercomplaint, dissolve the
construction lien on plaintiffs' property, and dismiss defendant's claims against Schuler and
Dowling.
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Affirmed.
/s/ Martin M. Doctoroff
/s/ Donald E. Holbrook, Jr.
/s/ Michael R. Smolenski
1
Third-party Douglas Sumner, Comerica Bank, Thomas Dowling, and George Schuler are not
parties to this appeal. For purposes of this opinion, the term "defendant" will be used to refer to
Millen Roofing Company exclusively.
2
The Construction Lien Act, MCL 570.1101 et seq.; MSA 26.316(101) et seq., prevents a
contractor from asserting a construction lien on a residential property unless the contractor was
licensed. MCL 570.1114(b); MSA 26.316(114)(b)
3
MCL 339.2411(2); MSA 18.425(2411)(2) proscribes various types of misconduct on the part of
licensed contractors, including the following that may be applicable to the present case:
(a) Abandonment without legal excuse of a contract, construction project,
or operation engaged in or undertaken by the licensee.
* * *
(d) A willful departure from or disregard of plans or specifications in a
material respect and prejudicial to another, without consent of the owner or an
authorized representative and without the consent of the person entitled to have
the particular construction project or operation completed in accordance with the
plans and specifications.
(e) A willful violation of the building laws of the state or of a political
subdivision of the state.
* * *
(h) Failure to deliver to the purchaser the entire agreement of the parties
including finance and any other charge arising out of or incidental to the
agreement when the agreement involves repair, alteration, or addition to,
subtraction from, improvement of, wrecking of, or demolition of a residential
structure or combination of residential and commercial structure, or building of a
garage, or laying of concrete on residential property, or manufacture, assembly,
construction, sale, or distribution of a residential or combination residential and
commercial structure which is prefabricated, preassembled, precut, packaged, or
shell housing.
* * *
(j) Aiding or abetting an unlicensed person to evade this article, or
knowingly combining or conspiring with, or acting as agent, partner, or associate
for an unlicensed person, or allowing one’s license to be used by an unlicensed
person, or acting as or being an ostensible licensed residential builder or licensed
residential maintenance and alteration contractor for an undisclosed person who
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does or shall control or direct, or who may have the right to control or direct,
directly or indirectly, the operations of a licensee.
* * *
(m) Poor workmanship or workmanship not meeting the standards of the
custom or trade verified by a building code enforcement official.
4
The statute was last amended by 1980 PA 496. The amendment deleted a sentence that had
been included in § 2412 when it had been enacted in 1980 PA 299, § 2412 and that had been
included in substantially the same language in the predecessor provisions of 1965 PA 383, § 16,
and 1953 PA 208, § 16, which read:
This section shall not defeat the right of a mechanic’s lien on the part of a
person who in good faith sells material or performs labor for a residential builder
or residential maintenance and alteration contractor.
5
The Court in Alexander cited 1953 PA 208, § 16, a precursor to MCL 339.2412; MSA
18.425(2412), which stated:
No person engaged in the business or acting in the capacity of a residential
builder and/or residential maintenance and alteration contractor may bring or
maintain any action in any court of this state for the collection of compensation
for the performance of any act or contract for which a license is required by this
act without alleging and proving that he was duly licensed under this act at all
times during the performance of such act or contract . . . .
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