M&I W. State Bank v. Wilson - 172 Wis. 2d 357, 493 N.W.2d 387 (Ct. App. 1992)

Rule:

When the bailor (owner) is under an obligation to return the vehicle to the lienor (mechanic), the lien is revived upon the recovery of the vehicle, subject only to the interests of bona fide purchasers for value and attaching or levying creditors who do not have notice of the lienor's interest. Where a possessory lienor surrenders possession of a chattel to a bailor, the lien is terminated. Where a lienor surrenders possession of a chattel to the bailor under circumstances which impose upon the bailor an obligation to return it, the lienor can recover the chattel from the bailor and others except a bona fide purchaser for value and an officer of the law who has levied on or attached the chattel at the instance of one who has become a creditor without notice of the lienor's interest. Where the chattel is recovered by or returned to the lienor, the lien is revived, subject to superior interests of those third persons.

Facts:

M&I Western State Bank (bank) held a security interest in a truck owned by Marilyn A. Wilson. Wilson brought the truck to the mechanic, Darin Treleven, seven times for repairs. Each time, Treleven released the truck to Wilson so that the latter could go earn money to pay him. Wilson defaulted on her payments to the bank, which commenced a replevin action. The sheriff attempted to enforce the judgment but could not locate the truck. Bank employees saw the truck and followed it to the mechanic's shop. Treleven refused to release the truck, claiming a mechanic's lien. The bank filed a second replevin action to determine who was entitled to possession of the truck and named Treleven as a third-party defendant. The trial court held that Treleven’s release of the truck to Wilson constituted a waiver of his lien as to the bank, whose lien had priority. The trial court ordered the bank to take possession and sell the truck. Treleven appealed, arguing that the conditional release of the truck to Wilson did not amount to a waiver of the lien and, alternatively, that he should be able to recover from the bank on the theory of unjust enrichment.

Issue:

Did the conditional release of the vehicle to the owner amount to a waiver of the mechanic’s lien?

Answer:

No.

Conclusion:

The court rejected the bank's argument that a conditional release of the vehicle destroyed the mechanic’s lien. Instead, the court adopted the Restatement's rule that upon a conditional release, the lien was enforceable against all parties except a bona fide purchaser for value or a subsequent attaching or levying creditor who has no notice of the mechanic's interest. Upon the resumption of possession, the lien was revived and retained its priority as before the release except it was subordinate to the bona fide purchaser or attaching or levying creditor. Applying this rule to the facts of the case, it was apparent that the mechanic's lien was superior to the bank's security interest. The fact that the truck was found at the mechanic's place of business well after the repairs were made supported Treleven’s claim that the release of the vehicle was conditional. Furthermore, the bank was not afforded the protection given to the levying creditor because the sheriff levied upon the vehicle while it was in Treleven's possession, and thus had notice of Treleven's interest.