In re Craft
| Decision Date | 30 June 1989 |
| Docket Number | Adv. No. 88-9112.,Bankruptcy No. 88-09570 |
| Citation | 120 BR 84 |
| Parties | In re Robert Lee CRAFT and Judy Kay Craft, Debtor. Robert Lee CRAFT and Judy Kay Craft, Plaintiff, v. Gary RATTI d/b/a Ratti Builders, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Jack A. Weinstein, Saginaw, Mich., for plaintiff.
Douglas W. Taylor, Saginaw, Mich., for defendant.
Robert Lee and Judy Kay Craft ("the debtors" or "the plaintiffs") filed their voluntary petition for relief under Chapter 13 of the Bankruptcy Code on July 29, 1988. At the time they filed, their home was in jeopardy of foreclosure of a construction lien asserted by Gary Ratti d/b/a Ratti Builders ("the defendant"). Mr. Ratti objected to the confirmation of the debtors' Chapter 13 plan on the ground that it failed to provide for the payment in full of his secured claim (11 U.S.C. § 1325(a)(5)) and for the reason that the plaintiffs filed the plan in bad faith (11 U.S.C. § 1325(a)(3)). The debtors claimed that Mr. Ratti had no secured claim because he had allegedly failed to perfect his construction lien. The debtors filed this adversary proceeding to determine the invalidity of the Ratti lien and to set it aside. The plaintiffs also argued that the rate of interest contained in the contract was usurious, and therefore, that they are entitled to deduct their own attorney's fees from the lien amount. As to the major issue, the validity of the lien, the question is: Did Mr. Ratti perfect his construction lien for purposes of the Construction Lien Act, as amended, Mich. Comp.Laws § 570.1101 et seq.; Mich.Stat. Ann. § 26.316(101), et seq.?1 The following constitute my findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, incorporating F.R.Civ.P. 52.
The adversary proceeding is a core proceeding, pursuant to 28 U.S.C. § 157(b)(2)(K).
On May 11, 1987, Mrs. Craft signed a contract with the defendant for a major remodeling of the plaintiffs' home at 7949 Ditch Road, Chesaning, Michigan. The defendant started work that very day. No money was paid at the beginning of the job as the plaintiffs had represented to Mr. Ratti before the defendant began work that they had applied for a mortgage loan and that the financing was forthcoming. The defendant relied on this representation and began the work. By May 27, the defendant had a large part of the job done and learned that no loan had yet been obtained. He became justifiably insecure as to payment, and so drafted an addendum to the contract which the defendant and both plaintiffs signed on May 28, 1987. The addendum (Exhibit A) provided a contract price of $24,530 and that the entire amount would be due "within twenty (20) days of bank appraisel (sic)". On that day the bulk of the work was completed. However, the defendant's contention is that two of his subcontractors had not yet finished their tasks and that he personally had to return to complete one small item during the months which followed. The plaintiffs dispute each of these contentions.
Jack Armstrong, the plumber retained by the defendant for the Craft job, testified that he returned to the home on July 24 to hook up an icemaker kit and to work in the sump room at the defendant's direction. He claimed the house was unlocked when he got there. He did that work and never returned. While there, however, he noticed that some work still needed to be done to the basement and to the exterior of the home.
Mrs. Craft rebutted this testimony. She said that she was not working in July, 1987 and so, if anyone would have given Mr. Armstrong entrance to her home, it would have been she, yet she had never laid eyes on him before. Furthermore, it was not her habit to leave the house with the doors unlocked. She also intimated that Mr. Armstrong may have been confused with a visit made by a man earlier identified as Mr. Armstrong's elderly father to the Craft home in response to Mrs. Craft's call to fix a leaky refrigerator. She admitted, however, that she had never paid for this plumbing service and so the possibility exists that the work had been billed to Mr. Ratti as part of the contract. On her cross-examination, she stated that indeed she might have been back at work on July 24 when Mr. Armstrong said he was at the home, and that she did leave the doors unlocked while workmen were at the house in May.
Ray Cornford, the electrician retained by the defendant for the Craft job, testified that he came to the home on July 1 to install fixtures, receptacles and covers. The work took most of that day. His testimony was corroborated by Exhibit C, which is his (R.C. Electric's) July 1 invoice for $1,070 addressed to the defendant for the electrical work he did at the Craft home; he testified that he prepared and dated the bill the same day he finished the work — July 1.
Mrs. Craft testified that she had called him to come to the home to correct some electrical problems, that she paid for the services by her own check on June 25, the day the work was done, and that no other work was done by Mr. Cornford after that date. Indeed Exhibit # 9, a billing statement for $40 for a "service call" from R.C. Electric addressed to the plaintiffs (and not to the defendant) and dated June 25, 1987, corroborates her statement. However, on cross-examination she admitted that neither she nor her husband kept a record of the dates that work was done on the home, that she left financial matters generally, and this remodeling project specifically, to her husband, who was working full time during the relevant period, and that she did not remember what she was doing on July 1 when Mr. Cornford stated he came to the home.
Kevin Kenne, who was formerly employed by the defendant, testified that he and the defendant returned to the Craft home in mid-August to caulk the windows and to finish some outside trim work. The whole job took not more than an hour. The defendant testified that the caulk and trim were actually done on September 24th.
On the other hand, Mrs. Craft testified that except for the plumber who returned to hook up the refrigerator, no work was ever done on this remodeling contract after May 28, 1987. Mr. Craft confirmed that as of May 28, no further work appeared necessary. He also said that although the defendant came by at various times throughout the summer to discuss payment, he never said he was planning to return to finish any work. Finally, the plaintiffs' friend, Paul Lerash, testified that he visited the home on June 20, 1987. He said he could tell that the house had been remodeled but that he could not see that anything had been left undone.
The defendant testified that he visited the plaintiffs' home on various occasions to try to collect the balance owed him or at least to learn of the plaintiffs' progress in obtaining a loan. On August 11, 1987, Douglas W. Taylor, the defendant's attorney, sent the plaintiffs a letter (Exhibit 7) requesting them to execute a note and mortgage to the defendant. The plaintiffs did not comply with this request. In September, when it seemed to him that the plaintiffs were now avoiding him, the defendant decided to place a construction lien on the home. At roughly the same time, the defendant learned that the plaintiffs had finally obtained bank financing, yet they tendered to him only $4,000 of the $24,530 balance due him.
With respect to the question of financing, Mrs. Craft testified that in May, they had told Mr. Ratti that they were applying for financing in order to pay for the remodeling job, but that they had been unexpectedly turned down. They tried all summer to obtain the money from other institutions and finally got approval from NBD Mortgage Company. However, Mr. Craft felt it was necessary to purposely omit certain information from the loan application in order to deceive the bank into granting them the loan. Specifically, they did not disclose that they owed Mr. Ratti over $24,000 or that they owed a carpet supplier $2,000 and Mrs. Craft's mother another $2,000. They also lied to the bank by representing that no improvements had been made to their home within the past 120 days. In fact, she submitted an affidavit to the bank falsely attesting that as of September 18, 1987 "no improvements or alterations had been made to their property within the last 4 months and that there were no claims of laborers or material(men) that remained unpaid." Furthermore, she admitted that they had borrowed the $2,000 from her mother in order to falsely show NBD that they had $2,000 of their own money to pay for closing costs.
When the proceeds of the loan were finally paid out by the bank, all the plaintiffs received was $8,000, she said. The bank, she claimed, disbursed $13,000 to pay off the outstanding debt on their 1985 Blazer pick-up truck and $10,000 to various charge card issuers. This, she said, without corroborating testimony from a bank employee or documentary evidence, was required by the bank. The remaining $8,000 which the plaintiffs received, they disbursed as follows: $4,000 to the defendant; $2,000 to an unsecured creditor, their carpet supplier; and $2,000 to Mrs. Craft's mother.
On September 28, 1987, the defendant recorded with the Saginaw County Register of Deeds a construction lien on the Craft home. He subsequently brought suit to foreclose on the lien which action was automatically stayed when the debtors filed their petition for relief. These dates are important because the plaintiffs' strongest attack on the validity of the defendant's lien is that the lien was recorded more than 90 days after the last work was performed. Act § 111(1).2 As the lien was recorded on September 28, 1987, if no work was performed after June 29, 1987, the lien is invalid. This issue, therefore, boils down strictly to a credibility contest. For the plaintiffs to prevail,...
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