Kirkendall v. Heckinger

• Decision Date: 22 April 1981
• Docket Number: Docket No. 48967
• Citation: 307 N.W.2d 699,105 Mich.App. 621
• Parties: Dennis KIRKENDALL and Barbara Kirkendall, husband and wife, Plaintiffs-Appellants, and Frank Kirkendall and Marcella Kirkendall, husband and wife, Plaintiffs, v. Carl HECKINGER and Ila Heckinger, husband and wife, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 699

307 N.W.2d 699

105 Mich.App. 621

Dennis KIRKENDALL and Barbara Kirkendall, husband and wife Plaintiffs-Appellants and Frank Kirkendall and Marcella Kirkendall, husband and wife, Plaintiffs, v. Carl HECKINGER and Ila Heckinger, husband and wife Defendants-Appellees.

Docket No. 48967.

Court of Appeals of Michigan.

April 22, 1981.

Released for Publication July 13, 1981.

Dan Robert Bruggeman, Adrian, for plaintiffs-appellants.

Thomas Rasmusson, Lansing, for defendants-appellees.

Before CYNAR, P. J., and J. H. GILLIS and ALLEN, JJ.

CYNAR, Presiding Judge.

On November 22, 1974, plaintiffs filed an action seeking, in pertinent part, damages or specific performance of an agreement to convey certain property located in Lenawee County. Defendants counterclaimed on November 17, 1975, and sought recovery for the value of labor and materials used in the construction of a house located on this property. A bench trial was held in the Lenawee County Circuit Court in February of 1976, and specific performance was awarded to plaintiffs upon the payment of $1,558.12 to defendants. The trial court dismissed defendants' counterclaim, holding that Carl Heckinger, as an unlicensed building contractor, was precluded from recovery under section 16 of the residential builders licensing act. M.C.L. § 338.1516; M.S.A. § 18.86(116). Judgment was affirmed by this Court in an unpublished per curiam opinion, but was subsequently reversed by the Supreme Court in Kirkendall v. Heckinger, 403 Mich. 371, 269 N.W.2d 184 (1978). The Supreme Court held that defendants, as equitable mortgagees, were entitled "as a condition to reconveyance to reasonable expenditures for improvements on the property made with the (plaintiffs') consent". Id., 374, 269 N.W.2d 184. Pursuant to the reversal and remand ordered by the Supreme Court, further proceedings were held to determine this amount. Following hearings held April 17 and 18, 1979, the trial court ruled that defendants were entitled to recover $20,000. A judgment to that effect was filed on June 13, 1979.

On June 28, 1979, plaintiffs filed a motion to alter or amend judgment. This motion was denied by an order filed December 10, 1979, and plaintiffs appeal as of right.

Plaintiffs first argue that the court erred in awarding defendants $20,000 in compensation for improvements made on the property. They contend that the correct measure of defendants' recovery would be limited to the value added to the lot by the improvements rather than the cost of improvements and, further, that the trial court erred in considering the value of Carl Heckinger's labor and the costs of materials in determining the amount of recovery.

Accordingly, we must decide the correct measure of defendants' recovery. The remand order from the Michigan Supreme Court read in pertinent part:

"As the equitable mortgagee, Heckinger was entitled as a condition to reconveyance to reasonable expenditures for improvements on the property made with the Kirkendalls' consent * * * while (Carl) Heckinger had (equitable) title to the property * * *.

" * * * (W)e reverse * * * and remand the case to the circuit court for a determination of the amount of reasonable expenditures the plaintiffs must pay the defendants on conveyance of the property for the improvements made with the consent of the Kirkendalls while the defendants had (equitable) title to the property." Kirkendall v. Heckinger, supra, 374-375, 269 N.W.2d 184.

Thus, the Supreme Court held that the parties stood in a mortgagor-mortgagee relationship. Where improvements on property are made with the consent of a mortgagor (here plaintiffs-appellants) the mortgagee is allowed to recover the amount reasonably expended thereon. Accordingly, plaintiffs must pay the costs of the improvements and not simply the property's enhanced value. The policy behind this rule was explained in Osborne, Mortgages (2d ed), § 170, p. 295, as follows:

"The amount to be allowed to the mortgagee for improvements depends upon the basis for allowing them at all. Where they are allowed because of consent by the mortgagor or in order to make or keep the property tenantable or productive, the amount reasonably expended is the criterion. Just as in the analogous case of necessary or authorized repairs. However, where the mortgagee acted under an honest belief that he was the owner, or that the redemption interest was barred or would never be exercised a belief to which the mortgagor's conduct usually contributes an entirely different principle is operative. Its purpose is the prevention of unjust enrichment due to justifiable misreliance because of mistake. Consequently the value added to the property by the improvements, not to exceed its actual cost is the proper measure of recovery and the one recognized by the courts in such case." (Footnotes omitted.)

See also Buchta v. Lehmann, 263 Mich. 41, 248 N.W. 542 (1933).

Since the correct measure of defendants' recovery would be the costs of the improvements rather than the value added to the property, it must be determined whether the trial judge's award of $20,000 was proper.

The trial court initially calculated the defendants' allowable recovery for constructing the subject house at $15,428.67. This included $8,000 for the value of defendant's labor and $1,372.79 for payments on the land contract and back taxes (the $1,372.29 figure was awarded at the first trial and was apparently affirmed by the Supreme Court). The court also deducted $1,600 which defendant received from renting the property after the house was completed in October of 1975. Simple interest at six percent was allowed from November 17, 1975, which was the date on which defendant filed his counterclaim. (It should be noted that the trial court inadvertently stated that interest would run from November 7, 1975, to May 7, 1979.) Moreover, it appears that the interest was calculated on an $18,000 figure, the figure the trial court set as the value added to the lot by defendants' effort, as the court awarded defendants $3,780 in interest for the three-and-a-half-year period noted above, which is exactly six percent per annum simple on an amount of $18,000, the interest apparently to be added to the figure of $15,428.67.

However, the court then increased its award to $20,000, reasoning that:

"We feel the $15,000.00 really is not a fair value in 1974-75 for the defendant's share of the improvements made to the lot by placing the house thereon. We would set the defendant's portion at $18,000.00 when the house was completed in 1975. We do believe Dennis Kirkendall worked on the house and paid some bills.

"Taking into consideration interest and the deduction for rental, we would say the plaintiffs up to May 1, 1979, should pay the defendant $20,000.00."

It is apparent from the lower court's opinion and its award of interest that the trial judge was attempting to compensate defendants for the value added to the lot by the improvements placed thereon. Such an award would not be appropriate under the facts of this case, and, even if the value added was a proper consideration, there was no competent evidence to support the court's conclusion that the value added was $18,000. Accordingly, we affirm the trial court's original determination that defendants' allowable recovery amounted to $15,428.67. ¹

Plaintiffs argue, however, that even if the court properly considered the costs of improvements in determining defendants' recovery, the court improperly allowed defendants to recover the fair value of Carl Heckinger's labor. We disagree.

The case was remanded by the Supreme Court for a determination of the amount of reasonable expenditures the plaintiffs must pay defendants. We conclude that the Supreme Court's directive would allow compensation for Heckinger's expenditure of his own time and effort, as well as for sums paid to others for their labor, the latter clearly being allowed. Although the majority of American courts hold that a mortgagee (here an equitable mortgagee) cannot charge the mortgagor for labor performed by himself, the better view allows compensation for the reasonable value of such services. Osborne, Mortgages (2d ed), § 171, pp 296-297. Here, it would seem incongruous that Heckinger would be allowed to recover for amounts expended in employing others but would have no right to recover for his own services.

Plaintiffs, however, contend that defendants' recovery should not include the value of Heckinger's labor because his acts were done in violation of section 16 of the residential builders licensing act. This is without merit. The Supreme Court specifically held that the statute would not bar recovery in equity, at least in this case. The circuit court was ordered to "determine the amount of reasonable expenditures plaintiffs must pay" for improvements made on the property with their consent. The directive did not preclude the trial court from awarding defendants the fair value of Heckinger's labor. Plaintiffs further argue that the award ordered was equitable in nature and correctly note that "equity will not generally allow that to be done indirectly which because of public policy, cannot be done directly". Corkins v. Ritter, 326 Mich. 563, 40 N.W.2d 726 (1950); Daley v. City of Melvindale, 271 Mich. 431, 260...