Michigan Builders Trust Fund Act: Protecting Subcontractors and Material Suppliers

Are you treating funds paid to you by the owner for the products and services provided under the construction contracts for the project as trust funds? In Michigan, private construction contracts are governed by the Michigan Builders Trust Fund Act (MBTFA). This Act was passed in 1931 as a depression-era measure to afford additional protection to subcontractors and materialmen by outlawing contractors from juggling funds between unrelated projects. 

o   The current statute states that money paid for a construction project “shall be considered by this act to be a trust fund, for the benefit of the person making the payment, contractors, laborers, subcontractors, or materialmen.”    

o   The courts have ruled that a trust is also imposed as to anticipated future costs of a particular project.

o    Under the MBTFA, appropriation (i.e., use) by the contractor of money received before using those funds for the project and “payment by him of all moneys due or so to become due laborers, subcontractors, materialmen or others entitled to payment” is evidence of intent to defraud.

o   Corporate employees or officials can be criminally or civilly liable under the MBTFA for their personal participation in the violation of the Act. 

Learn more about understanding the rights of general contractors here.

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For more information or to speak to a construction lawyer in Ann Arbor, Michigan, please contact Matthew Jane at 734-665-4441 or fill out our contact form.