Barbour v. Handlos Real Estate and Bldg. Corp.

• Decision Date: 08 October 1986
• Docket Number: Docket No. 74303
• Citation: 393 N.W.2d 581,152 Mich.App. 174,2 U.C.C.Rep.Serv.2d 963
• Parties: , 2 UCC Rep.Serv.2d 963 George T. BARBOUR, Plaintiff-Appellant, v. HANDLOS REAL ESTATE AND BUILDING CORP., Thomas A. Handlos, Alphonse A. Handlos, Lucile M. Handlos, individually and d/b/a Handlos Real Estate, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 581

393 N.W.2d 581

152 Mich.App. 174, 2 UCC Rep.Serv.2d 963

George T. BARBOUR, Plaintiff-Appellant, v. HANDLOS REAL ESTATE AND BUILDING CORP., Thomas A. Handlos,

Alphonse A. Handlos, Lucile M. Handlos,

individually and d/b/a Handlos Real

Estate, Defendants-Appellees.

Docket No. 74303.

Court of Appeals of Michigan.

Submitted July 8, 1985.

Decided June 2, 1986.

Released for Publication Oct. 8, 1986.

Bauchan Law Offices, P.C. by Michael L. Bauchan, Houghton Lake, for plaintiff-appellant.

Thomas P. Swanson, Houghton Lake, and Gromek, Bendure, & Thomas by Daniel J. Wright, Detroit, for defendants-appellees.

Before WAHLS, P.J., and ALLEN, and RAVITZ ^*, JJ.

WAHLS, Presiding Judge.

Plaintiff commenced an action on October 28, 1980, seeking equitable relief, a declaration relieving him of liability on a mortgage note and mortgage, and money damages. Following a bench trial, the circuit court granted plaintiff partial relief but declined to invalidate the mortgage or its interest payment provisions. Plaintiff appeals as of right, and we affirm.

Defendant Thomas A. Handlos was licensed both as a real estate broker and a residential builder. In 1976, he joined his mother's Grosse Pointe Woods real estate office as an associate broker and subsequently did business as a residential builder at her office. In 1978, his mother, Lucile M. Handlos, opened a branch office of Handlos Real Estate in Houghton Lake, Roscommon County, and placed Thomas in charge of the office. Thomas commenced doing business as a residential builder out of the new office and named his business Handlos Building Company. Lucile registered the name Handlos Real Estate in Wayne County and Roscommon County, and Thomas likewise registered the name Handlos Building Company. Lucile was not involved in the operation of the Houghton Lake office. Defendant Alphonse A. Handlos, Thomas's father and Lucile's husband, was only minimally involved in the real estate and building businesses, on occasion having answered the phone at his wife's office and having prepared a few blueprint drawings for his son.

Thomas combined his real estate and building activities under the name of Handlos Real Estate and Building Company and adopted a unique logo, which he used in conjunction with the National Association of Realtors registered trademark which was licensed to Handlos Real Estate. Thomas was unable to register the new business name because of its similarity to the name Handlos Real Estate registered by his mother. On May 15, 1979, Thomas incorporated Handlos Real Estate and Building Corporation. The corporation was never licensed as a residential builder as required by statute but continued doing the building work begun by Thomas as an individual. The corporation also continued using the same logo, stationery and checking accounts used by the unincorporated business. Thomas was the sole shareholder, officer and director of the corporation.

In the spring of 1979, Thomas circulated a general advertising flier to Higgins Lake Forest Estates property owners and touted the advantages of building on property "up north". Plaintiff received a flier, called the Handlos Real Estate and Building Corporation and spoke with Robert Wieland, a broker licensed in Flint but operating out of Thomas's office, about the possibility of having a home built on his Higgins Lake property. On June 8, 1979, plaintiff signed a building agreement to have a chalet built by the corporation for $24,990. The agreement required a $3,000 down payment and was contingent on a mortgage for $21,990. On the same date, plaintiff applied for a mortgage from the corporation. Plaintiff paid the $3,000 deposit and Thomas then used his individual residential builder's license to obtain a building permit.

On July 2, 1979, Thomas notified plaintiff by letter that he had accepted plaintiff's mortgage application. The letter stated that the mortgage would be subject to a 12% annual interest rate and a $5 charge for late payment and would be finalized upon payment of closing costs of $533 as itemized in the letter. A subsequent letter indicated that the interest rate was lowered to 11% "due to regulations of the government". On August 15, 1979, plaintiff signed the mortgage and mortgage note. As written, the mortgage papers indicated the mortgagee as Thomas A. Handlos. Plaintiff commenced payment on the mortgage in October, 1979, to an account at Roscommon State Bank.

During construction of plaintiff's chalet, a dispute arose between Thomas and Wickes Corporation, doing business as Wickes Lumber, regarding payment for some defective materials which Thomas had purchased. On November 14, 1979, plaintiff received a notice from Wickes of its intention to claim a lien on his property. Plaintiff called defendants about the lien and was apparently assured by Thomas not to worry about it. Plaintiff received the keys to his chalet in February, 1980, although it was not quite completed. The chalet was subsequently completed and plaintiff was satisfied with the work.

On February 27, 1980, Wickes recorded its lien. On August 21, 1980, Wickes's attorney wrote to Thomas, with copy to plaintiff, stating that foreclosure proceedings would be initiated if arrangements for settlement of the debt and discharge of the mechanic's lien were not made within ten days. In the meantime, plaintiff had engaged counsel and withheld his mortgage payment for August, 1980. Plaintiff also withheld payment for September, 1980, and demanded that Thomas discharge the Wickes lien.

On September 29, 1980, Wickes executed a full and final waiver of the lien. On October 4, 1980, Thomas informed plaintiff that the mortgage and note had been assigned, but he refused to disclose the identity of the assignees. On October 17, 1980, Lucile and Alphonse, as assignees, sent plaintiff a letter demanding payment and imposing a late fee of $15 per overdue monthly installment. Lucile and Alphonse also had their attorney send plaintiff a letter warning that foreclosure proceedings would be instituted if payment was not made.

Thomas had assigned plaintiff's mortgage and note to his parents on January 31, 1980, along with two other mortgages. Lucile drafted the assignments, which were signed by Thomas individually. The assignments constituted repayment for several personal loans, of the sum total of $72,640, made to Thomas by his parents. The loans generally were made to Thomas for his business affairs, although one was for the purpose of investing in a condominium project.

Given the above set of facts, plaintiff makes the claim that his building agreement with Handlos Real Estate and Building Corporation is void because the corporation was not licensed as a residential builder as required by M.C.L. Sec. 338.1501; M.S.A. Sec. 18.86(101), repealed by 1980 PA 299. Because the building agreement is void, the mortgage and mortgage note must also be void, plaintiff asserts. Even if the mortgage and note are not void, plaintiff argues that the interest rate is usurious and he is entitled to actual attorney fees and costs provided by M.C.L. Sec. 438.32; M.S.A. Sec. 19.15(2). Plaintiff argues that defendants are not protected by the mortgage assignment because Alphonse and Lucile are not holders in due course. Plaintiff further argues that the assignment of the mortgage violated M.C.L. Secs. 570.152, 570.153; M.S.A. Secs. 26.332, 26.333, and he is therefore entitled to statutory damages, actual damages for lost work and expenses, and attorney fees and costs.

The trial court upheld the building agreement, mortgage and note, found no usury question and concluded that the mortgage assignment was a business deal and that Alphonse and Lucile were holders in due course. The court awarded plaintiff $270 which had been estimated and then charged by Thomas as part of the mortgage closing fee even though Thomas had not incurred the cost, $170 for phone calls and travel expenses incurred by plaintiff relative to the Wickes lien problem, and $500 for reasonable attorney fees incurred by plaintiff in trying to discharge the Wickes lien.

We note that our review is not based on transcripts of the trial but on a stipulated statement of facts. Whether the actual trial testimony would tell another story we cannot say, but the necessarily condensed statement of facts simply does not suggest the conspiracy, collusion and bad faith by defendants that plaintiff alleges on appeal. To the best that we can discern, this is not a case where defendants are guilty of any fraud, malice, shady dealing or ill intentions toward plaintiff. The circuit court summed up the matter as follows:

"The Court finds that the controversy between these parties was caused by the action of Wickes Lumber to obtain payment for the material it furnished for the construction of the chalet. * * * To state the same finding another way, there never would have been any litigation if the Wickes matter had not been injected. The Wickes claim was settled on November 12, 1980, by the filing of a release of mechanics lien. * * * However, the Plaintiff had already filed a law suit, and, to use the vernacular, the horse was out of the barn."

It appears in this case that plaintiff is seeking to take advantage of several mistakes made by Thomas Handlos through ignorance. While it is commonly said that ignorance of the law is no excuse, our decision in this case reveals that the civil law is not without its limits in imposing penalties on the ignorant.

In the following parts of our opinion, we address plaintiff's defenses to the note and mortgage held by the Handloses and we conclude that the alleged defenses are either no defense or that the Handloses take free of them as holders in due course.

I

M.C.L. Sec. 338.1516; M.S.A. Sec. 18.86(116), repealed by 1980 P.A. 299, provided in part:

"No person engaged in the business or acting in the capacity of a residential builder and/or residential maintenance and...