## Facts

- Commercial landlords leased office space to a tenant’s predecessors and received a contractual “landlord’s lien” on personal property located on the premises to secure lease performance.
- Thomas Bonthuis executed two personal guaranties to secure the tenant-predecessors’ performance under the leases.
- The landlords did not file or otherwise perfect their security interest in the tenant’s personal property.
- Market Place Media, Inc. (MPM) acquired the business of the tenant-predecessors and later defaulted on rent.
- The landlords obtained a judgment of possession and a money judgment against MPM and Bonthuis.
- In later litigation for additional damages, MPM and Bonthuis filed Chapter 7 bankruptcy petitions and the state case was stayed.
- In MPM’s bankruptcy, the trustee sold MPM’s personal property; because the landlords’ lien was unperfected, the bankruptcy court treated the landlords as unsecured and they received no sale proceeds.
- After Bonthuis dismissed his bankruptcy petition, he sought summary disposition in state court, arguing the landlords’ failure to perfect impaired collateral and discharged him as guarantor.

## Issues

1. Whether a contractual landlord’s lien on a tenant’s personal property securing lease obligations is a security interest governed by UCC Article 9, requiring perfection by filing.
2. If Article 9 applies, whether the landlords’ failure to perfect constitutes “impairment of collateral” under UCC § 9-207 that discharges the guarantor’s obligations.

## Decision

- The court held that the contractual landlord’s lien was a security interest within UCC Article 9 and subject to Article 9 perfection requirements.
- The court held that UCC § 9-207 did not discharge the guarantor based solely on the landlords’ failure to perfect.
- The court affirmed in part and reversed in part the lower appellate decision and remanded for further proceedings.

## Legal Principles

- A consensual lien in personal property created by a lease to secure payment or performance functions as a security interest governed by UCC Article 9.
- Article 9 perfection rules apply to such a security interest; failure to perfect may affect priority against third parties (including a bankruptcy trustee).
- UCC § 9-207 addresses a secured party’s duties regarding collateral in its possession and does not create an automatic guarantor-discharge remedy for failure to perfect.
- A guarantor’s liability turns on the guaranty contract and is not automatically extinguished because the creditor failed to perfect collateral securing the principal obligation.

## Conclusion

The court treated the lease-created landlord’s lien as an Article 9 security interest requiring perfection, but rejected the argument that an unperfected security interest, without more, discharges a guarantor under UCC § 9-207; the guarantor could still be liable on remand.


Shurlow v. Bonthuis, 456 Mich. 730, 576 N.W.2d 159 (Mich. 1998)