As some of you may know, the governor signed a bill into law on December 28, 2006, which made some changes to our Construction Lien Act. I will not take the time right now to detail the minutia of each and every possible change, but let me at least point out a couple of important ones.
A. Legal Update. First, they have added a section stating that any homeowner who owns property upon which a lien has been recorded by an unlicensed contractor may bring an action to discharge that lien. If an unlicensed individual does file a lien on a homeowner’s property, the unlicensed person is liable to the homeowner for “all damages that result from the recording and any attempts to enforce the lien, including actual costs and attorney fees.” See MCLA 570.1114(A)(2). Of course, our members are required to be licensed, but the contractors in the field are in constant contact with unlicensed subcontractors and contractors, and it would probably be beneficial to our trade to encourage these individuals to get licensed. If they do not, it is going to be a very expensive lesson if they ever file a lien.
Additionally, the new Act requires licensed contractors to affirmatively prove that fact if they ever bring a complaint in court. This is a frequently overlooked item.
B. “Magic Language.” I have advised contractors for many years about MCLA 570.1114. Most recently, I spoke to a group in regards to perfecting construction liens, and that section (MCLA 570.1114) has what I generally call the “magic language” requirement. Specifically, it states that “the contract required by this section shall contain a statement ...” whereupon the statute goes on to talk about further licensing requirements that must be listed in the contract. It is a one-paragraph, rather wordy section that must be included. Recently, I had a contractor that failed to put this language in his contract and ended up in court trying to perfect his lien. The homeowner brought a motion to dismiss the contractor’s case based on the fact that the contract lacked these required words. Interestingly, one of our local circuit court judges refused to enforce that requirement in that particular case. Specifically, he stated that he thought the statute was “remedial” in nature, and did not demand that type of perfection in a contractor’s legal work to still be able to benefit from his lien.
Although this was good news for the contractor, it is extremely risky business to fail to comply with the lien statute. It is unknown if the judges will continue to follow this. Furthermore, the Court of Appeals in our state is almost certainly going to overturn any such ruling. Please be on the safe side and include the “magic language” of MCLA 570.1114 in your contract.
C. Failed performance. This summer the Court of Appeals published a case that stood for the proposition that a homeowner could not sue a subcontractor for failed performance. They base this on a doctrine lawyers know as “third party beneficiary” contract law. To put it succinctly, if you did not sign the contract, you cannot enforce the obligations of the contract. In that particular case, a homeowner was attempting to have a subcontractor fix their faulty performance. The Court held that since the subcontractor’s contract was between the general contractor and the subcontractor, the homeowner basically lacked standing to enforce the contract and could not bring an action. This was certainly good news for the subcontractor.
It remains to be tested, however, to see if that same logic could now be used as a tool against subcontractors. By that I mean: Assume a homeowner owes money on a contract or subcontract and refuses to pay. If a subcontractor only has a written agreement with the general contractor, which is certainly the way we normally work, then assumedly if the logic holds then the subcontractor cannot get monetary damages from the homeowner for these unpaid bills. This does not take into account the lien law. I would be curious to see if anyone attempts to bar a subcontractor’s recovery based on that theory, but I will keep you posted if and when I come across such a thing.
Besides being a past President of the Home Builders Association of the Grand Traverse Area and a licensed contractor, Robert Whims is an attorney at Whims Legal Group, PLC, located at 12935 S. West Bay Shore Drive, Traverse City, MI 49684. Telephone: 231-938-6099; Facsimile: 231-421-6686; E-mail: rwhims@whimslaw.com