The legislative change, effective March 1, is valuable to mold-makers because, for the first time, it gives the law real teeth — and Michigan is the first state to give its lien law some bite.
The original lien statute enacted in 1982 was nearly useless to mold makers. It provided the mold builder with a potential means of recovery if the molder, the one who uses the mold to manufacture a product for a customer, didn’t pay for the mold.
But Alan Bennett, a partner in Law, Weathers & Richardson, and specialist in environmental and commercial law, explained that the statute was limited because it applied only if the mold-builder possessed the mold, die or form in question.
“It was a lien that was possessory only, and once you gave up possession you lost your lien,” he explained.
Since molds and dies are usually sold on an open account type system, mold-makers were rarely in possession of the mold by the time they discovered the molder’s breach of contract.
About the only time a mold-builder could make use of the old lien statute was on the rare occasion when a mold was returned to his shop for repairs and, thus, returned to his possession.
So if the mold-maker discovered when the bill came due 30, or 60 or 90 days later that the molder using the mold wasn’t paying his bill, the mold-maker’s only recourse was to file a lawsuit, get in line and wait.
“That’s not much of a remedy when the molder is busy making parts every day, selling them and collecting the cash,” Bennett said. “There was not an effective remedy other than a lawsuit, which takes a long time and is costly.”
Under the amended law the mold-builder has secured status and the right to repossess the mold or die. The statute gives the mold-builder the same kind of lien a car dealer has: If you don’t pay for your car, the dealer repossesses it.
It’s a built-in protection that doesn’t require a security agreement document.
“I think the most significant thing is that this potentially gives the mold-builder a lien without even getting the consent of a customer,” Bennett said.
To benefit from the new statute, the law requires that the mold-builder “permanently record” his name and address on every die, mold or form he fabricates, Bennett said.
With that permanent record in place, the mold builder may file a Uniform Commercial Code (UCC-1) Financing Statement, which perfects a security interest and provides a public notice of a security agreement between a debtor and a secured party.
With the filing, the mold maker automatically acquires a lien on the mold, even when the mold is no longer in his possession.
In that regard, the amended law dramatically alters the bargaining power of the unpaid mold-maker, Bennett said. The mold maker even has the right to go and retrieve the mold for himself if he can do it peaceably.
Bennett predicts the actual cases of repossession of molds will be rare, as customized molds are only of value to the particular molder and the end customer for whom it was built.
But the potential threat of bringing some customer’s assembly line to a halt can provide the incentive to pay up.
“The threat of repossession is far more important here than the actual repossession,” Bennett said. “Taking someone to court to try to collect a judgment isn’t nearly as good a remedy as saying, ‘We’re here to repossess the mold,’ which would shut down the presses.”
“If General Motors, for instance, were to find out that the molder is about to lose his mold and can’t ship the parts, something will happen very quickly. Payments will be made.”