Retain Possession to Get Paid
“Possession is 9/10ths of the law” means that ownership is easier to establish if one has possession of something, and more difficult to prove if one does not. Possession is also critical to payment, and several Michigan laws support the right to retain possession until paid. Perhaps the broadest example of a possessory lien in Michigan is found at MCL 570.185-186. Under those provisions, any “mechanic, artisan, or tradesman” who takes possession of an “article of value” and constructs, completes, alters, fits, or repairs such “article of value”, may retain possession of that article until all charges for the “labor and skill applied” to the article are paid.
Under MCL 570.187, if the artisan, mechanic or tradesman is not paid for a period of nine months, the property may be sold at public sale with the same notice and proceedings as a sheriff selling personal property seized to satisfy a judgment. The statute does require that, at least 30 days before the date of the sale, the mechanic, artisan or tradesman give written notice of the time and place of the sale to the customer. The item may be sold to the highest bidder, and the mechanic, artisan or tradesman may bid, using as a “credit” the amounts owed.
This possessory lien trumps all secured creditors of record pursuant to MCL 440.9333(2), effectively giving the mechanic, artisan or tradesman a “secret” lien that may frustrate secured creditors. For example, if a vehicle owner owes a finance company an outstanding balance comparable to the value of the vehicle, and the owner directs a mechanic to make substantial repairs to the vehicle, the mechanic will be paid first, even though the mechanic is not listed on the certificate of title of the vehicle.
Can the mechanic, artisan or tradesman charge a storage fee for the nine months prior to sale? The statute is not clear, and there is no case law that addresses the issue. MCL 570.187 does state that the proceeds of sale shall first be applied to the payment of the lien, plus “costs and expenses”. If the mechanic, artisan or tradesman actually incurs out of pocket expenses to retain possession, the statute would support reimbursement of those actual dollar outlays. If, on the other hand, the mechanic, artisan or tradesman stores the “article of value” on the business premises, it is an open question as to whether any “storage fees” may be charged.
In summary, any business constructing, completing, altering, fitting or repairing any “article of value” has every right to demand payment in full before delivery of the article of value to the customer. If you should have any further questions regarding this possessory lien, or the rights of creditors generally to collect and recover amounts due, please call one of our Business Services Practice Group members for further information.