News & Information

A recent Michigan Court of Appeals case resolved an ambiguity under the Molder’s Lien Act in favor of the “molder” and against a secured creditor. In Delta Engineered Plastics LLC v Autolign Manufacturing Group Inc, 286 Mich App 115 (2009), the “molder,” defined under the Act as any person who uses a die or mold to make plastic parts, produced plastic parts using molds owned by the defendant. When the defendant failed to pay, the plaintiff asserted a statutory lien on the molds in its possession.

It was important that the molder had possession of the molds, because the statutory lien of a molder requires possession.

A secured creditor of the defendant also became a party to the litigation, and obtained a court order requiring the molder to turn over the molds to the secured creditor. The molder appealed.
The Court of Appeals resolved the priority dispute in the molder’s favor, citing a provision in the Uniform Commercial Code, which states, “A possessory lien on goods has priority over a security interest in the goods unless the lien is created by a statute that expressly provides otherwise.”

The secured creditor claimed that the Molder’s Lien Act did, in fact, “expressly provide otherwise,” citing other provisions of the Molder’s Lien Act that require a molder to notify “any person whose security interest is perfected by filing” of the molder’s intent to sell the mold. Further, the statute reads, “If the sale is for a sum greater than the amount of the lien, the proceeds shall first be paid to the prior lienholder who has a perfected lien in an amount sufficient to extinguish that interest. Any excess shall next be paid to the molder who possesses a lien under this act in an amount sufficient to extinguish that interest. Any remainder shall then be paid to the customer.”

Despite what appears to be a statutory intent to give the secured creditor priority, the Court of Appeals found that those provisions only apply if the molder actually sells the mold and only if the sale is for a sum greater than the amount due to the molder for the unpaid product. In this case, by court order, the secured creditor took possession of the molds and sold them – not the molder. Thus, the Court found that the provisions did not apply and, further, that there was no other “express provision” in the Molder’s Lien Act stating that the secured creditor’s interest had priority.

The opinion is troubling from a secured creditor’s perspective, because it suggests that priority is determined by who disposes of the collateral – a concept not found in the Uniform Commercial Code. The Delta Engineered Plastics, LLC case suggests that a molder should “lay in the weeds,” let the secured creditor obtain a court order granting it possession and liquidate the mold, with the molder then claiming priority.

There is parallel language in the statute when a moldbuilder asserting a lien seeks the right to possess and sell the mold constructed by the moldbuilder. However, a moldbuilder’s lien is not dependent on possession, and a moldbuilder will not be able to rely on the analysis in the Delta Engineered Plastics case to claim priority.

Finally, the Delta Engineered Plastics case may also be viewed as precedent under the Special Tools Lien Act, relating to metal fabrication tools and dies.

The bottom line: Both specialty lien statutes are poorly drafted, and need to be amended to clarify their priority provisions.