M & I Western State Bank v. Wilson
493 N.W.2d 387, 172 Wis. 2d 357 (1992)
Rule of Law:
A mechanic who holds a statutory lien with priority over a pre-existing security interest does not lose that priority by conditionally releasing the property to the owner. Upon the mechanic's resumption of possession, the lien and its priority are revived and are enforceable against the prior secured creditor.
Facts:
- M&I Western State Bank (bank) held a perfected security interest in a 1978 Peterbilt truck owned by Marilyn A. Wilson.
- Between November 1990 and April 1991, Darin Treleven performed repairs on the truck on seven separate occasions.
- Each time, Treleven released the truck back to Wilson to allow her to work and earn money to pay for the repairs.
- Wilson defaulted on her loan payments to the bank.
- Wilson also failed to pay Treleven for the repairs, leaving an outstanding balance of $3,497.26.
- After the final repair, the truck was again in Treleven's possession at his repair shop, D.T. Truck Repair, Inc.
Procedural Posture:
- M&I Western State Bank commenced a replevin action against Marilyn A. Wilson in the trial court after she defaulted on her loan payments.
- The bank obtained a judgment of replevin, but the sheriff could not locate the truck to enforce it.
- After the bank located the truck at Darin Treleven's repair shop, the sheriff attempted to serve a writ of execution, but Treleven asserted a mechanic's lien and refused to release the vehicle.
- The bank filed a second replevin action in the trial court, naming Treleven as a third-party defendant to determine possessory rights.
- The trial court held that Treleven had waived his lien as to the bank by releasing the vehicle to Wilson and granted priority to the bank's lien.
- The trial court ordered that possession of the truck be awarded to the bank.
- Treleven (appellant) appealed the trial court's judgment to the Court of Appeals of Wisconsin.
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Issue:
Does a mechanic who conditionally releases a vehicle to its owner, and later regains possession, waive the priority of their statutory mechanic's lien over a pre-existing perfected security interest?
Opinions:
Majority - Anderson, J.
No. A mechanic does not waive the priority of a statutory mechanic's lien over a pre-existing security interest by conditionally releasing the vehicle to its owner and later regaining possession. The court adopted the rule from the Restatement of Security § 80, which states that when a lienor surrenders possession to the owner under an obligation for the property to be returned, the lien is revived upon its return. This revived lien is enforceable against all parties except for bona fide purchasers for value or subsequent levying creditors who acted without notice of the mechanic's interest. Here, the bank was a prior creditor, not a subsequent one, and it had actual notice of Treleven's possessory lien when it attempted to levy on the truck at Treleven's shop. Furthermore, under sec. 409.310, Stats., priority is granted to a mechanic 'in possession' of the goods; the statute does not require 'continuous possession.' Reading the statute liberally to protect mechanics, the court held that Treleven's resumption of possession was sufficient to re-establish the priority of his lien over the bank's earlier security interest.
Analysis:
This decision clarifies the 'possession' requirement for the priority of mechanic's liens under U.C.C. § 9-310, rejecting a strict 'continuous possession' standard in favor of a more flexible approach. By adopting the Restatement rule, the court protects mechanics who make commercially reasonable arrangements, such as allowing an owner to use a vehicle to earn money for repairs. This precedent establishes that a temporary, conditional release of property does not subordinate the mechanic's lien to prior security interests, thereby promoting the equitable purpose of lien statutes without unfairly prejudicing pre-existing creditors.
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