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Are contractors allowed to use customers money on THEIR business operations?

MichiganConstruction Contract

The construction company i hired to replace my fence is claiming they can’t refund me because they were struggling and used my money i paid for their business operations and not all on my project. Is it legal for them to use customers money on anything other than the project at hand?

9 replies

May 18, 2021
Hi there, no that is not legal : ) Is the company saying that there are in breach of their contract, but will perform soon, or not at all? You should send a demand letter explaining the facts and law for your side (though it is obvious) setting forth want you want in writing (i.e. refund, and / or specific performance, timeline, you consider them in anticipatory breach, and demanding a written response on some tight timeline, etc.). It is best to avoid court if at all possible, but there perhaps have given you little choice (and who would trust them on their property at this point anywho). If the company is licensed, you also have leverage and recourse through the State of Michigan in terms of the threat or actual filing of an administrative complaint for restitution, censure, fines, etc. relative to their license through the state. Good luck, feel free to reach out. My best.
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May 19, 2021
Oh ok thank you. They have offered to do a payment plan to pay me back but I still have yet to see anything from them. I had asked for a copy of the contract I signed and they keep making excuses as to why they can't get that to me right now. What I would really like to do is have the company investigated to make sure that for one, they are up to code on their licensing, and I think they need to be looked at internally to make sure they are running their operations lawfully and using customers money like they are supposed to. I just don't know who exactly to reach out to that will do that. Is it LARA or the BBB?
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May 19, 2021
First, I agree with John Robertson... its not legal for a contractor to use your deposit for other purposes. In fact advance payments to contractors can be considered trust funds its considered fraud if the funds are used elsewhere (and not earned) and the debt is not dischargeable in bankruptcy -- it can also fall through personally to become a debt of the principals of the contractor company. If the contractor has a builders license (it should) it can be a big black mark on his or her personal and corporate license if you make a complaint to LARA. While not completely useless a complaint to the BBB is less useful in this situation.
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May 19, 2021
Morning ... LARA (I tend to think the BBB is a bunch of bluster and fluff). It looks like your heading down the path to court. Write the demand letter (it will be a useful exhibit), then called the company's bluff by offering a "pocket judgment" which is basically an admission of guilt and payment plan, that keeps the company from being a defendant of public record and stays any licensure administrative action unless there is a default upon which you can record it and expeditiously proceed to enforcement without the normal court process. I agree with James Weiner that the Builder's Trust Fund Act offers additional fiduciary leverage as part of any (consent) judgment / legal action ... Good luck.
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May 19, 2021
Ok all of this information is extremely helpful. I don't know if this is ok to ask but does anyone here have a recommendation for a lawyer in Michigan who knows construction laws that can help me with this. I don't want to go to court, but it sounds like I might have some kind of case. Any recommendations?
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May 19, 2021
Hi there, I would defer to the LevelSet procedure in such a need or request. There is also the Michigan Bar Journal and website (for non-members) to assist you.
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May 19, 2021
I do not know LevelSet's procedure for attorney referrals. Both John and I know construction law .. we are both Michigan attorneys.
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May 19, 2021
Hi there, no that is not legal : ) Is the company saying that there are in breach of their contract, but will perform soon, or not at all? You should send a demand letter explaining the facts and law for your side (though it is obvious) setting forth want you want in writing (i.e. refund, and / or specific performance, timeline, you consider them in anticipatory breach, and demanding a written response on some tight timeline, etc.). It is best to avoid court if at all possible, but there perhaps have given you little choice (and who would trust them on their property at this point anywho). If the company is licensed, you also have leverage and recourse through the State of Michigan in terms of the threat or actual filing of an administrative complaint for restitution, censure, fines, etc. relative to their license through the state. Good luck, feel free to reach out. My best.
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May 19, 2021
Hi there, I would defer to the LevelSet procedure in such a need or request. There is also the Michigan Bar Journal and website (for non-members) to assist you. Thanks — John K. Robertson
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