Corporate & Business/Oct 26, 2015

Are Contracts With Unlicensed Builders Void Or Voidable? The Michigan Supreme Court Provides Definitive Answer

In Epps v 4 Quarters Restoration, LLC, Docket No. 147727 (September 28, 2015), the Michigan Supreme Court held that homeowner contracts with unlicensed builders are voidable, thus putting existing murky law to rest.

In Epps, Mr. and Mrs. Epps’ Detroit home suffered flood damage. The innocent homeowners’ insurance company, Auto Owners, employed an adjusting service that referred the Epps to unlicensed builder, 4 Quarters Restoration, to perform remediation services. The parties ended up signing a written contract pursuant to which the Epps assigned the insurance proceeds to the builder who agreed to do the work.

The insurance company issued a number of checks, some of which were made payable to the builder alone and some of which were made payable to the homeowner and the builder jointly. The builder endorsed the checks and deposited them into its account. At some point the builder stopped work claiming the project had been completed. But the homeowners alleged that the agreed on work had not been completed.

The Epps filed suit claiming that (i) the builder was unlicensed and not entitled to receive any money, (ii) the contract was void, and (iii) the builder had “converted” their insurance checks, thus entitling the Epps to triple damages. The parties filed cross-motions for summary disposition. The trial court ruled in favor of the Epps, and the builder appealed. The Michigan Court of Appeals affirmed the trial court’s decision, but on different grounds.

The builder then appealed to the Michigan Supreme Court, which enunciated several important rules in its opinion.

First, the Supreme Court held that MCL 339.2412 prevents unlicensed builders from bringing or maintaining claims against homeowners. The statute, however, does not prevent an unlicensed builder from defending claims brought by homeowners. The Supreme Court stated that the statute is a “shield” for the public and not a “sword.”

Second, the Supreme Court made clear that injured homeowners cannot maintain a private cause of action for a violation of MCL 339.2412. The Court found that the statute did not provide homeowners with any express cause of action or claim. Further, the Court held that the statute did not “infer” a private cause of action.

Third, the Supreme Court held that homeowner contracts with unlicensed builders are “voidable” – not “void.” The distinction had been muddled by varying opinions from numerous courts that had previously interpreted the statute. This distinction, however, had profound ramifications in the Epps case. If the contract was in fact void (meaning invalid from the outset), the builder had no right whatsoever to endorse and cash the insurance checks, thereby exposing itself to triple damages for conversion. The remedy involving void contracts is to put the parties back to where they were originally – return them to the status quo ante. On the other hand, if the contract was only “voidable,” the contract was legally valid until the homeowners exercised their option to rescind the contract and declare it void. Because the Epps’ contract was only voidable, the unlicensed builder was granted the right to endorse and deposit checks until the homeowners rescinded the contract. Thus, all checks cashed prior to the declaration of rescission were not subject to the Epps’ claims of conversion and triple damages.

The Supreme Court made it abundantly clear that the legal status other “illegal” contracts (meaning whether such contracts are void or voidable), should be decided by other courts according to the specific facts and circumstances presented in each case.

Consequently, injured homeowners who discover that their builders are not licensed should consult with an attorney to determine whether the contract should be rescinded or ratified.

News and blog articles presented in this website are distributed for general information purposes only with the understanding that the author, publisher and distributor of articles is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, GGTM assumes no liability whatsoever in connection with the use of any article. Pursuant to applicable rules of professional conduct, this communication may constitute Attorney Advertising.