Ownership of molds has been a long-standing issue faced by the custom molding industry. Even though molders may build and use the mold to produce parts for a customer, they usually do not retain ownership of that mold. So when a customer doesn't pay for services rendered, what leverage do you have for seeking payment when the only bargaining weapon you have is a mold that you don't even own? Do you know your options when dealing with a defaulting customer? Or with a customer that left a mold in your shop five years ago?
You've actually got a few weapons in your arsenal that you may not be familiar with. They are mold lien and mold retention laws ordinarily enacted by an individual state. Here are the basics.
Mold lien laws give leverage to molders by providing a procedure for them to take possession of and sell a customer's mold for nonpayment. For instance, in the event that a molder ships parts to a customer and the customer demands the return of the mold, even though the molder has not been paid, the molder is protected.
This is similar to the repair or construction industry, where a provider of goods and services has the right to file a mechanic's lien against property because of nonpayment. If the debt remains unpaid, the property is sold to satisfy the debt.
Mold retention laws provide a legal method of disposing of inactive molds. While statutory language may vary, most state laws provide similar protection to molders and their customers. The laws basically provide that, absent any binding written contract, molders must hold these molds for at least three years. If at any time they desire to destroy these molds, they must notify their customers by registered mail at their last known address. The customer then has a specified amount of time, usually 120 days, to claim possession of the mold. If the customer does not claim possession within the time allotted, the molder may destroy the mold without any liability risk.
How to Get Involved
Mack Molding (Inman, SC) is a molding company that knows about such laws. Mack was stiffed $800,000 by a customer who ultimately filed for bankruptcy protection. Mack never saw payment from the customer because it had no legal grounds on which to collect. If at that time South Carolina had had a mold lien law, Mack could have sold the mold to help satisfy the debt.
So instead of dwelling on the past, Mack strove to make sure it didn't happen again. Ray Burns, Mack's vice president/general manager of Southern operations, called SPI and asked how to go about getting mold lien/retention legislation in South Carolina. Burns, who had previously worked in Vermont-which has a mold retention law-knew the benefits of the law. With the help of SPI, which conducts grassroots campaigns for getting such laws enacted in states that don't have them, he began a movement.
Burns began by writing letters to state senators and representatives from surrounding counties, inviting them to visit the plant and to listen to why legislation was needed. A handful showed up, and SPI was there to help. After listening to Burns' plight, two senators agreed to cosponsor a bill, as did a state representative. Burns then twice went to address the subcommittee that handles the legislation and gave his testimony. The bill for mold lien and retention laws was written, and ultimately signed by the governor, only about six months after Burns and SPI initiated interest. Now the whole state of South Carolina reaps the benefits.
"Legislators don't like to plot new ground," Burns says. "But if you can show them the same legislation is already in place in this state and that state, they are more open. SPI has all that information and it has all the language for legislation already written. It would have taken years without SPI. We are now a secured creditor."
There are a few other options. One is to develop a written contract between the two parties, requiring partial or full prepayment for fabrication work or provide for periodic payments during the work. Two parties can also agree on joint title in property, such as a plastics mold, in a contract. A security interest, similar to that enjoyed by a bank or other commercial financier of property, can be created by contract where a creditor-debtor relationship arises. However, as a general practice, molding companies-especially small businesses-have often operated without written contracts because their customers are usually much larger firms who have superior bargaining power. Business is also often done on a handshake.
|This chart shows which of the 50 states has either a mold lien or mold retention law (or both). If your state isn't called out here, you may want to contact state officals and get the ball rolling on legislation.
Another option exists in the form of a principle in the Uniform Commercial Code that governs business-to-business transactions. This "bulk transfer" provision provides that if a molder's customer tries to sell or otherwise dispose of a large portion of its business, and the sale or disposal is not in the ordinary business, that customer must list its creditors to potential buyers or transferees. This remedy, however, requires legal counsel.
Other protections include legal action in which the molder must prove that property was fraudulently conveyed to someone else to avoid debt payment, sureties in which customers have a guarantor of their debts-written promises to pay debts if the debtor cannot-and lawsuits.
If you have questions about legislation in your state, contact Shari Jackson at the SPI/APC State of Government Affairs office at (202) 974-5283.