The Michigan Court of Appeals recently analyzed the ability of a molder to discharge a moldbuilder’s lien even if the moldbuilder has not yet been paid for its work.
Frequently, the production of plastic parts involves three parties:
- The Customer who orders the parts;
- The Molder who makes the parts; and
- The moldbuilder who manufactures the mold used to make the parts.
By statute, the moldbuilder may assert a lien against both the Customer and molder on the molds it manufactures. The issue in Sejasmi Industries, Inc. v. Quality Cavity, Inc., Case No. 328292 (April 5, 2016), was the extent to which a molder may be able to discharge that lien. The Court of Appeals ruled that payment by the Molder to its customer of the amount owed for the mold was sufficient to discharge the moldbuilder’s lien as to the molder, even if the moldbuilder has not yet been paid.
In the case, Takumi Manufacturing Company was the customer, who contracted with Quality Cavity, the moldbuilder, to manufacture molds to make plastic parts. The molds made by Quality Cavity were placed with Sejasmi Industries, the molder, who used the molds to make parts for Takumi. Quality Cavity manufactured the molds and perfected its moldbuilder’s lien. Quality Cavity was ultimately not paid for the molds and sought to enforce its lien against both Takumi, as customer, and Sajasmi, as Molder. Sejasmi argued that the lien, as it related to it, had been discharged because Sejasmi paid Takumi for the molds and served a verified statement on Takumi stating that Sajasmi had paid Takumi the amount for which Quality Cavity claimed a lien.
MCL 445.619(5) provides that a moldbuilder’s lien remains valid until one of three events occurs:
(a) The moldbuilder is paid the amount owed by the customer or molder.(b) The customer receives a verified statement from the molder that the molder has paid the amount for which the lien is claimed.(c) The financing statement is terminated.
Sejasmi argued that the lien as to it had been extinguished because it had provided to Takumi a verified statement that Sejasmi had “paid the amount for which the lien is claimed.” Takumi, however, failed to pay Quality Cavity. Quality Cavity disputed the discharge of the lien, arguing that the statute should be read to require that the payment by the molder of the “amount for which the lien is claimed” must be paid to the moldbuilder to extinguish the lien.
The Court of Appeals agreed with Sejasmi and found that by paying the customer, Takumi, and providing the verified statement, Sejasmi had extinguished the lien as to Sejasmi. In a 2-1 decision, the Court of Appeals refused to “read into the statutory provision language that is absent.” The Court of Appeals found that if it adopted Quality Cavity’s reading of the statute, MCL 445.619(5)(b) would be a “duplication of and additional step effectuating subjection 5(a) rather than a separate and distinct mechanism to invalidate the lien . . . .” MCL 445.619(5)(a) extinguishes a lien if the customer or the molder pay the moldbuilder, which is what Quality Cavity argued should also be required in subjection 5(b).
Reading into the statute the language Quality Cavity suggested would place great risk on the molder, who could be liable to the moldbuilder even after it had paid the customer. The Court of Appeals would not construe the statute to impose that hardship, especially where the customer was the entity that actually contracted for construction of the molds. In sum, the Court of Appeals noted that “[w]hile MCL 445.619 is intended as a protection for moldbuilders, it is not a cure all for every possible wrong within a commercial interaction. In other words, although the molder’s lien act is a shield for moldbuilders, Quality is attempting to use it as a sword.”
What this means
Molders and Moldbuilders should carefully consider their dealings in the wake of this opinion. Molders should always serve a verified statement on the customer when the molder pays the customer (or the moldbuilder directly) for a mold. Molders should consider paying the moldbuilder directly for molds if the molder is concerned the customer may not pay. Moldbuilders should contract with both the customer and the molder and require that payment be made directly to the moldbuilder whenever possible.
Additionally, this ruling may affect more than those in the plastics industry. The metal parts industry has a similar lien statute, the Special Tools Lien Act. That Act contains an identical provision allowing liens perfected by special tool builders to be extinguished if an end user provides a verified statement to the customer.