Alan Custom Homes, Inc v. Krol

• Decision Date: 08 May 2003
• Docket Number: Docket No. 237138.
• Citation: 256 Mich. App. 505,667 N.W.2d 379
• Parties: ALAN CUSTOM HOMES, INC., Plaintiff/Counterdefendant-Appellee, v. Kenneth KROL and Karen Krol, Defendants/Counterplaintiffs-Appellants.
• Court: Court of Appeal of Michigan — District of US

667 N.W.2d 379

256 Mich. App. 505

ALAN CUSTOM HOMES, INC., Plaintiff/Counterdefendant-Appellee, v. Kenneth KROL and Karen Krol, Defendants/Counterplaintiffs-Appellants.

Docket No. 237138.

Court of Appeals of Michigan.

Submitted March 5, 2003, at Detroit.

Decided May 8, 2003, at 9:00 a.m.

Released for Publication July 1, 2003.

David R. Kratze, Pontiac, for the plaintiff.

Powers, Chapman, DeAgostino, Meyers & Milia, P.C. (by Michael S. Holmes), Troy, for the defendants.

Before HOEKSTRA, P.J., and SMOLENSKI and FORT HOOD, JJ.

SMOLENSKI, J.

In this case involving breach of contract and a construction lien, defendants Kenneth and Karen Krol appeal as of right the judgment entered in favor of plaintiff Alan Custom Homes, Inc., following a bench trial. Plaintiff was awarded $42,763 plus interest, fees, and costs, for a total judgment of $57,512.62 against defendants. We affirm.

On October 24, 1998, defendants and plaintiff entered into a cost-plus contract¹ for plaintiff to build a custom home for defendants, at a cost of $262,466. Construction was delayed by waiting for permits, inclement weather, problems with draws, and changes in design. On January 4, 2000, defendants locked plaintiff's workers out of the house, alleging that plaintiff had breached their contract by not completing the house in a timely manner. On January 18, 2000, defendants formally terminated plaintiff's services by letter. At that time, the house was ninety-five percent complete. Defendants acted as a general contractor to complete the house themselves.

On appeal, defendants claim that the trial court erred by denying their motion for summary disposition regarding plaintiff's claim for foreclosure of the construction lien. We disagree. This Court reviews a trial court's grant or denial of summary disposition de novo. Spiek v. Dep't of Transportation, 456 Mich. 331, 337, 572 N.W.2d 201 (1998). Likewise, this Court reviews questions of statutory construction de novo. Roberts v. Mecosta Co. Gen. Hosp., 466 Mich. 57, 62, 642 N.W.2d 663 (2002).

The trial court apparently considered both MCR 2.116(C)(8) and (C)(10) as grounds for its summary-disposition decision. A motion for summary disposition under MCR 2.116(C)(8) tests the legal sufficiency of the claim on the pleadings alone to determine whether the plaintiff has stated a claim on which relief may be granted. Spiek, supra at 337, 572 N.W.2d 201. A court must accept all factual allegations in the pleadings in support of the claim as true, as well as any reasonable inferences or conclusions that can be drawn from the facts, and construe those facts in the light most favorable to the nonmoving party. Maiden v. Rozwood, 461 Mich. 109, 119, 597 N.W.2d 817 (1999). A motion under MCR 2.116(C)(10) tests the factual support of a plaintiff's claim. Spiek, supra at 337, 572 N.W.2d 201. When deciding a motion under MCR 2.116(C)(10), a court must consider the pleadings, affidavits, depositions, admissions, and other documentary evidence submitted in the light most favorable to the nonmoving party. Ritchie-Gamester v. Berkley, 461 Mich. 73, 76, 597 N.W.2d 517 (1999).

Resolution of this issue requires us to interpret § 110 of the Construction Lien Act (CLA), M.C.L. § 570.1101 et seq. In Vugterveen Sys., Inc. v. Olde Millpond Corp., 454 Mich. 119, 121, 560 N.W.2d 43 (1997), our Supreme Court discussed the purpose and interpretation of the CLA and stated that the act "was intended to protect the interests of contractors, workers, and suppliers through construction liens, while protecting owners from excessive costs." The Court further stated that the act is to be "liberally construed to effectuate these purposes." Id.

MCL 570.1110(8) states:

If a contractor fails to provide a sworn statement to the owner or lessee before recording the contractor's claim of lien, the contractor's construction lien is not invalid. However, the contractor is not entitled to any payment, and a complaint, cross-claim, or counterclaim may not be filed to enforce the construction lien, until the sworn statement has been provided.

Defendants contend that this provision bars plaintiff's foreclosure claim.

While a strict reading of M.C.L. § 570.1110(8) supports defendants' argument that plaintiff's claim is barred, only "substantial compliance" with this provision is required. In Northern Concrete Pipe, Inc. v. Sinacola Cos-Midwest, Inc., 461 Mich. 316, 603 N.W.2d 257 (1999), our Supreme Court recently addressed when it is appropriate to use the CLA's "substantial compliance" provision.² The Court recognized that in Vugterveen, supra, it stated that the "substantial compliance" provision applied to part one of the CLA, but noted that Vugterveen did not examine whether the provision was applicable to "every word of every provision within part one." Id. at 321, n. 15, 603 N.W.2d 257 (internal citations omitted). Therefore, the Court in Northern Concrete Pipe instructed that

[t]he scope of a statutory "substantial compliance" provision requires an analysis, on a case-by-case basis, of the following logically relevant factors among others: the overall purpose of the statute; the potential for prejudice or unfairness when the apparent clarity of a statutory provision is replaced by the uncertainty of a "substantial compliance" clause; the interests of future litigants and the public; the extent to which a court can reasonably determine what constitutes "substantial compliance" within a particular context; and, of course, the specific language of the "substantial compliance" and other provisions of the statute. [Id. at 321-322, 603 N.W.2d 257.]

While Northern Concrete Pipe dealt with the applicability of the substantial compliance provision to the filing requirement of M.C.L. § 570.1111(1), the Supreme Court noted that application of the substantial compliance provision was well suited to notice provisions where the purpose of the requirement is to ensure that notice was received, citing Vugterveen's application of the substantial compliance provision to the notice requirement in M.C.L. § 570.1109. Id. at 323, 603 N.W.2d 257. Likewise, we hold that the CLA's substantial compliance provision is applicable to the notice requirement in M.C.L. § 570.1110(8).

In this case, application of the CLA's "substantial compliance" provision supports plaintiff's contention that its provision of unverified statements to the title company during construction and of a verified sworn statement to defendants before the summary-disposition hearing satisfied the notice requirement of M.C.L. § 570.1110(8). The purpose of the contractor providing the property owner with a sworn statement is "to enable the homeowner `to retain out of any money due or to become due to the contractor an amount sufficient to pay the subcontractors....'" Erb Lumber, Inc. v. Gidley, 234 Mich.App. 387, 399, n. 5, 594 N.W.2d 81 (1999), quoting Nurmi v. Beardsley, 275 Mich. 328, 329, 266 N.W. 368 (1936). That a statement is not sworn before a notary does not defeat the notice purpose of the statement. It still gives the owner notice of who the subcontractors are and the amount owing to each for the materials and labor supplied.

Therefore, we find that the unverified statements plaintiff gave to the title company to obtain draws substantially complied with the statutory notice requirement of M.C.L. § 570.1110(8). Moreover, we find that although plaintiff filed the present cause of action, including its claim for foreclosure of the lien, before giving defendants a verified sworn statement, plaintiff's provision of the verified sworn statement to them in February 2001, before the summary-disposition hearing was held,³ also constituted substantial compliance with M.C.L. § 570.1110(8).

In addition, plaintiff was entitled to maintain a cause of action against defendants for breach of contract, independent of any claim for foreclosure of the lien. MCL 570.1302(2).⁴ Although plaintiff's inclusion of the lien-foreclosure claim in plaintiff's complaint and first amended complaint was premature under M.C.L. § 570.1110(8), the trial court could have allowed plaintiff to amend the complaint to include the lien-foreclosure claim after the verified sworn statement was delivered to defendants, but before the summary-disposition motion was heard. Because the claim was properly before the trial court when the summary disposition motion was heard, we hold that the trial court did not err in denying defendants' motion under MCR 2.116(C)(8). We further hold that because there were genuine issues of material fact regarding whether defendants requested a sworn statement from plaintiff at an earlier date, summary disposition was properly denied under MCR 2.116(C)(10).

Defendants next contend that the trial court erred by dismissing their counterclaim for breach of contract without evaluating whether plaintiff's failure to provide accountings to them was a material breach. Again, we disagree. This Court reviews a trial court's findings of fact in a bench trial for clear error and its conclusions of law de novo. MCR 2.613 (C); Chapdelaine v. Sochocki, 247 Mich.App. 167, 169, 635 N.W.2d 339 (2001). A finding is clearly erroneous where, after reviewing the entire record, this Court is left with a definite and firm conviction that a mistake has been made. Walters v. Snyder, 239 Mich.App. 453, 456, 608 N.W.2d 97 (2000).

A careful reading of the trial court's findings indicates that the court did not find it necessary to decide whether plaintiff materially breached the contract before defendants locked plaintiff out, because defendants did not prove any damages from plaintiff's alleged breach. The party asserting a breach of contract has the burden of proving its damages with reasonable certainty, and may recover only those damages that are the direct, natural, and proximate result of the breach. In re F Yeager Bridge Culvert Co., 150 Mich.App. 386, 401, 389 N.W.2d 99 (1986). Here, the trial...