Republic Bank v. Modular One LLC

• Decision Date: 03 November 1998
• Docket Number: Docket No. 203358
• Citation: 591 N.W.2d 335,232 Mich.App. 444
• Parties: REPUBLIC BANK, Plaintiff-Appellee, v. MODULAR ONE LLC, Defendant-Appellant, and Eric Adams, Defendant.
• Court: Court of Appeal of Michigan — District of US

Page 335

591 N.W.2d 335

232 Mich.App. 444

REPUBLIC BANK, Plaintiff-Appellee, v. MODULAR ONE LLC, Defendant-Appellant and Eric Adams, Defendant.

Docket No. 203358.

Court of Appeals of Michigan.

Submitted June 2, 1998, at Detroit.

Decided Nov. 3, 1998, at 9:10 a.m.

Released for Publication Feb. 3, 1999.

Miller, Canfield, Paddock and Stone, P.L.C. (by Lawrence M. Dudek and Elisa M. Angeli), Detroit, and Dean, Dean, Segar & Hart, P..C. (by Robert L. Segar), Flint, for plaintiff.

Rosati Associates, P.C. (by A.D. Rosati), West Bloomfield, for defendant.

Before MARKMAN, P.J., and SAAD and HOEKSTRA, JJ.

MARKMAN, P.J.

Defendant Modular One (hereinafter defendant) appeals as of right the trial court's grant of plaintiff's motion for partial summary disposition on the basis that defendant's liens on certain properties were invalid and unenforceable. ¹ We reverse and remand.

I. Facts and Proceedings

This case arises out of plaintiff's action to quiet title to eight residential lots in Flint Township that it purchased through foreclosure. Plaintiff sought to remove defendant's lien claim with respect to each of the properties. Defendant improved each of the lots with the installation of modular houses, then placed a construction lien on each property before the properties were foreclosed and purchased by plaintiff. Plaintiff asserts that defendant's liens were invalid because defendant did not possess a statutorily required residential builder's license at the time that it made the improvements on these properties.

Plaintiff moved for summary disposition, contending that defendant's liens were unenforceable because (1) the lack of a residential builder's license barred defendant from enforcing the liens and (2) the inclusion of nonlienable items in the lien amounts invalidated the liens. Defendant did not file an answer to the motion for summary disposition, but at the hearing regarding the motion it relied on the following defenses: (1) plaintiff lacked standing to challenge the liens and (2) the former owners of the properties had waived the statutory licensing requirement. The trial court granted plaintiff's motion for summary disposition, reasoning that the liens were unenforceable because defendant did not have a builder's license. The court also determined that plaintiff did have standing to challenge the liens because it was the owner of the properties. We reverse the trial court's grant of summary disposition.

II. Analysis

This Court reviews decisions concerning motions for summary disposition de novo to determine if the moving party was entitled to judgment as a matter of law. Stehlik v. Johnson (On Rehearing), 206 Mich.App. 83, 85, 520 N.W.2d 633 (1994).

MCR 2.116(C)(10) permits summary disposition when, except for the amount of damages, there is no genuine issue concerning any material fact and the moving party is entitled to [judgment] as a matter of law. A court reviewing such a motion must consider the pleadings, affidavits, depositions, admissions, and any other evidence in favor of the opposing party and grant the benefit of any reasonable doubt to the opposing party. [Id.]

First, we address defendant's argument that plaintiff did not have standing to challenge the validity of the liens because it was not a party to the construction contract and it did not obtain the rights of the original owners by virtue of its purchase through foreclosure. A construction lien gives the lienor an in rem interest in the property that it has improved. Old Kent Bank of Kalamazoo v. Whitaker Constr. Co., 222 Mich.App. 436, 439, 566 N.W.2d 1 (1997). "Although the proceeding to foreclose on the construction lien originates from the contract, it is an action directed at the property rather than the person or entity who contracted for the services." Dane Constr., Inc. v. Royal's Wine & Deli, Inc., 192 Mich.App. 287, 292-293, 480 N.W.2d 343 (1991). Thus, while an action seeking to enforce the provisions of a construction contract would take place between the contracting parties, an action seeking to enforce or to attack a construction lien that arose out of such a contract must take place among those with an interest in the property. Here, plaintiff acquired title to the properties at issue through foreclosure. Pursuant to M.C.L. § 600.3236; MSA 27A.3236, a foreclosure sale vests in the purchaser "all the right, title, and interest which the mortgagor had at the time of the execution of the mortgage, or at any time thereafter...." Further, the Legislature codified actions to quiet title and authorized suits to determine competing parties' respective interests in land in M.C.L. § 600.2932(1); MSA 27A.2932(1). VanAlstine v. Swanson, 164 Mich.App. 396, 400, 417 N.W.2d 516 (1987). Subsection 2932(1) provides as follows:

Any person, whether he is in possession of the land in question or not, who claims any right in, title to, equitable title to, interest in, or right to possession of land, may bring an action in the circuit courts against any other person who claims or might claim any interest inconsistent with the interest claimed by the plaintiff....

As the owner through foreclosure, plaintiff had title to the property. Because any encumbrance on the property would cloud its title to the property, plaintiff could challenge the validity of any liens clouding its title. Accordingly, the trial court correctly determined that plaintiff could bring this suit to quiet title.

We next turn to the propriety of the trial court's grant of summary disposition because defendant's liens were unenforceable. MCL 339.2412; MSA 18.425(2412) provides:

A person or qualifying officer for a corporation or member of a residential builder or residential maintenance and alteration contractor shall not bring or maintain an action in a court of this state for the collection of compensation for the performance of an act or contract for which a license is required by this article without alleging and proving that the person was licensed under this article during the performance of the act or contract.

By its terms, M.C.L. § 339.2412; MSA 18.425(2412) prevents an unlicensed contractor from suing to collect a money judgment. Parker v. McQuade Plumbing & Heating, Inc., 124 Mich.App. 469, 471, 335 N.W.2d 7 (1983). An unlicensed contractor also cannot collect on a counterclaim. Id. However, this statutory language does not deprive an unlicensed builder of all rights. Barbour v. Handlos Real Estate & Building Corp., 152 Mich.App. 174, 184, 393 N.W.2d 581 (1986). In Parker, supra at 471, 335 N.W.2d 7, this Court held that the statute was intended to protect the public as a shield, not as a sword, and, therefore, does not prohibit an unlicensed contractor from defending a breach of contract suit on its merits. The statute removes only an unlicensed contractor's power to sue, not its power to defend. Id.

Further, the Supreme Court determined in Kirkendall v. Heckinger, 403 Mich. 371, 374, 269 N.W.2d 184 (1978), that, although an unlicensed contractor may not be able to recover on a contract, equity mandated that a contractor be compensated for work that has been performed:

"It is a cardinal principle that equity will not aid a party in doing that which is not equitable. He who seeks equity must be prepared to do equity." Goodenow v. Curtis, 33 Mich. 505, 509 (1876).

See, also, Bonninghausen v. Hansen, 305 Mich. 595, 9 N.W.2d 856 (1943).

The plaintiffs sought an equitable remedy. Before ordering the conveyance to [plaintiff Dennis Kirkendall], the trial court was obliged to determine the amount the plaintiffs were required to pay the defendants in order to do equity. As the equitable mortgagee, [defendant Carl] Heckinger was entitled as a condition to reconveyance to reasonable expenditures for improvements on the property made with the [plaintiffs'] consent (and in fact with [one plaintiff's] active participation) while [defendant Carl] Heckinger had title to the property.

This Court also applied this equitable principle to an equitable suit against an unlicensed builder in Green v. Ingersoll, 89 Mich.App. 228, 231-232, 280 N.W.2d 496 (1979). Relying on Kirkendall, this Court stated:

So too in this case, as noted by the trial judge, it was plaintiffs who first invoked the equity powers of the court.... Although we ... hold that the court was precluded, under the statute, from granting defendants any relief on their counterclaim, he [sic] was bound to determine the relative equitable rights of all parties in fashioning the appropriate relief.

... If the court determines that plaintiffs are entitled to the equitable relief which they seek, it shall also determine what plaintiffs must pay defendants in order to do equity. [Id. at 237, 280 N.W.2d 496.]

Although defendant here could not maintain an action to enforce its lien because it was unlicensed, M.C.L. § 339.2412; MSA 18.425(2412), on the basis of the reasoning of Green and Kirkendall, it appears that plaintiff may nevertheless be required to compensate defendant for its work on the properties. In other words, in order to receive the equitable relief of an unclouded title, Michigan Nat'l Bank & Trust Co. v. Morren, 194 Mich.App. 407, 410, 487 N.W.2d 784 (1992), plaintiff must first do equity. Plaintiff argues that this case is distinguishable from Green and Kirkendall because in those cases, unlike this case: (1) the parties were in contractual privity with each other and therefore had consented to the improvements, (2) a mortgagor/mortgagee relationship existed between the parties, and (3) the parties were in a buyer/seller relationship, Utica Equipment Co. v. Ray W Malow Co., 204 Mich.App. 476, 479, n. 1, 516 N.W.2d 99 (1994). However, in our judgment, a thorough reading of Kirkendall, supra, Green, supra, and Barbour, supra, indicates that none of these factors acts as a bar to requiring that plaintiff first do equity in this case.

First, although the plaintiffs in Kirkendall...