• Unlicensed Contractors Unable To Recover For Residential Improvements
  • September 24, 2003
  • Law Firm: Plunkett & Cooney, P.C. - Detroit Office
  • The Michigan Supreme Court recently addressed whether an unlicensed contractor, who provided the materials and labor for work on a residential structure pursuant to a written contract with the homeowner, could recover the outstanding balance owed for the completed work.

    The court ruled that the unlicensed contractor had no remedy available in the courts, regardless of the legal theory. As a result of this case, contractors should be on notice that unless they are duly licensed in accordance with Michigan law, they will not have a remedy before Michigan courts to recover money owed for construction work performed on a residential structure.

    In Stokes v Millen Roofing Co, ____ Mich ____; _____NW2d____, the plaintiff homeowners entered into a contract with an unlicensed roofer for the roofer to provide the materials and labor for the construction of a slate roof on their home. Upon completion of the work, the contractor had not been paid in full.

    The roofer then placed a construction lien on the homeowners' property after they refused to pay the amount he claimed was due. The homeowners sued to clear title, alleging that the lien was not valid and that the Residential Builder's Act barred the contractor from recovery under the contract. The contractor filed a claim in the same lawsuit for breach of contract, quantum meruit, and foreclosure of the construction lien.

    The evidence demonstrated that the homeowners entered into the contract with full knowledge that the contractor was required to be licensed and was not. In fact, the homeowners sought out the contractor and assisted in drafting the contract. Also, the homeowners had full knowledge that, as result of the contractor's unlicensed status, they would be able to avoid paying him for his work, as evidenced by the fact that the homeowners had recently prevailed in another lawsuit against an unlicensed contractor they had hired to do other home improvement work. This was not the case of an alleged "fly-by-night" contractor. The homeowners did not claim that the contractor was incompetent, inexperienced or that his work was of inferior quality.

    Following motions heard prior to trial, the trial court found that the construction lien filed by the contractor was invalid because he was not licensed. However, the court determined that the contractor was entitled to equitable relief. The court ruled that the homeowners could either pay the contractor the full amount of the original contract, or if they chose not to do so, the contractor could reimburse them for payments made and reclaim the slate it had installed on their roof.

    On appeal, the Michigan Supreme Court agreed with the trial court that the unlicensed contractor did not have a valid lien against the homeowners' property, but reversed the trial court's decision granting the contractor an equitable remedy. The supreme court reiterated that pursuant to the Residential Builder's Act, MCL 339.2412(1), a builder may not bring an action to collect on an unpaid contract unless it can prove that it possesses the necessary license required by the act.

    The supreme court also found that the portions of the contract involving the supply of materials to be used in the construction process, for which a license is not required, could not be separated from the portion of the contract involving the actual construction work, for which a license is required. The court determined that the contract could only be separated if the agreement to install the materials was independent of the agreement to supply them. In this case, the agreements were not independent of one another because the contract required the roofer to furnish and install the roofing components and did not specify the portion of the total cost attributable solely to materials.

    The supreme court also reiterated that under the Construction Lien Act, MCL 570.1114, a contractor for residential improvements is required to state in the contract that it is required to be licensed, that the particular contractor is, in fact, licensed, and to set forth its license number in the contract. Absent the foregoing, the contractor has no right to lien a homeowner's property. Accordingly, because the contractor was not licensed, he did not have an enforceable lien under the Michigan Construction Lien Act.

    Finally, the court held that the contractor was not entitled to equitable relief. The supreme court refused to provide an equitable remedy because to do so would nullify the protections against unlicensed contractors doing work on residential homes provided by the Residential Builder's Act. The court stated:

    If [equity were allowed in this case], any unlicensed contractor could defy the Residential Builder's Act and the Construction Lien Act by refusing to obtain a Michigan residential builder's license. He could contract with a residential homeowner to perform the work on the owner's home. Then, if a dispute arose over money due, it could cloud title with a lien and wait until the owner brought suit to clear title. It could then recover the amount due in an equity judgment.

    This decision sets an important precedent that completely limits the rights of an unlicensed contractor to recover monies owed for improvements made to residential property. It is therefore imperative that contractors make sure they are properly licensed in accordance with the Michigan Residential Builder's Act before entering into a contract with an individual homeowner. A failure to do so will mean that the individual homeowner will receive the benefit of your work without having to pay for it.