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Nov 2012
09
November 09, 2012

Can a Supplier "Blackmail" You?

Often a supplier has possession of tooling or other equipment that belongs to the buyer. If the buyer decides to end its relationship with the supplier and asks the supplier to turn over the equipment, it is not unusual for the supplier to refuse to do so until the buyer pays the supplier additional money or buys raw materials, work-in-process or finished goods that the supplier has on hand or on order. Occasionally the supplier claims that it—and not the buyer—owns the equipment. Sometimes the supplier claims a statutory lien on the equipment.

This can create a very difficult situation for the buyer, because it often has an urgent need to transfer the tooling or other equipment to a new supplier to produce much-needed parts. Unfortunately, the only way to force the supplier to turn over the equipment is to obtain a court order directing it to do so.

There is not a fool-proof way to prevent an unscrupulous supplier from using its possession of a buyer's equipment to "blackmail" the buyer. But a well-drafted "tooling agreement" with the supplier can be very helpful. Such an agreement specifically describes the equipment and includes the supplier's acknowledgment that the equipment belongs to the buyer, the supplier's waiver of any lien on the equipment and the supplier's agreement to turn it over to the buyer on demand, even if the buyer then owes money to the supplier.

If you own tooling or other equipment that a supplier uses to produce inventory for you, then you should have a well-drafted "tooling agreement" with the supplier. It can save time and expense in retrieving your equipment when you are going to switch suppliers. Warner Norcross & Judd LLP can help you prepare an effective tooling agreement. If you need assistance, contact Jim Breay, chair of the Commercial Transactions Group, at 616.752.2114 or jbreay@wnj.com.

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