The Michigan Court of Appeals recently affirmed personal liability for violations under the Michigan Builders Trust Fund Act, MCL 570.151 et seq. (“MBTFA”) in Windrush, Inc, v Lee Van Poppering, Shagbark Development, Inc, and Northland Management, Inc, unpublished opinion per curiam of the Court of Appeals, issued September 10, 2015 (Docket No. 315958). The building contractor’s sole shareholder was responsible for financial decisions, and regardless of his “subjective intent to defraud or obtain personal financial benefit,” the individual was held personally liable for the debt due his subcontractor. The building contractor received funds due to the subcontractor for proper work performed and materials supplied, but utilized those funds for purposes other than to pay the subcontractor. The sole shareholder was held personally liable because “he managed all of the relevant transactions and accounts,” and he was responsible for the building contractor’s “financial decisions and actions.”

The Court explained that, under the MBTFA, building contractors hold funds received in trust on private projects for their subcontractors and suppliers. Contractors violate the MBTFA by utilizing funds held in trust for purposes other than paying subcontractors and suppliers entitled to payment for proper work performed and materials supplied. The Court found that an individual need not benefit personally or be involved on a day-to-day basis with a company’s operations on a project for liability to be imposed under the MBTFA, even where the individual has no subjective intent to defraud the subcontractor or supplier. “It is participation in the decision to act in violation of the MBTFA that controls…” Obviously, individuals making financial decisions on a construction project must ensure that strong, accurate accounting systems are in place so that payments are properly allocated to subcontractors, laborers, and material suppliers. Contractors should not improperly direct payments received in trust for purposes other than to pay its subcontractors or suppliers entitled to payment for work performed, and for which the trust funds were received.

Posted in Construction Contracts