The case of a deed of sale
Question: I sell new and used equipment. Usually, buyers don’t sign a separate contract or deed of sale because I have a provision in my rental agreement that I think covers sales. Is this sufficient or is there a reason why I need to use a separate document?
Reply: Technically, you can rely on a brief provision in your rental agreement, but I wouldn’t recommend doing this for anything other than small incidental items, like belts, hats, boots, gloves, etc. Trying to sell equipment using this type of layout It’s a bit like trying to build a skyscraper using a ladder – you can try it, but it probably won’t be enough. A recent ruling by a federal judge in Indiana underscores this.
What happened. General Motors has been sued by two plaintiffs, Ron Shea and Robert Kelly, in a proposed class action lawsuit – a claim that can include hundreds or even thousands of plaintiffs, typically combining small individual claims into one, potentially colossal, lawsuit – accusing General Motors sell vehicles that included faulty engines that consume excessive amounts of oil in Shea et al. v. General Motors LLC; Case 3: 21-cv-00086, US District Court, N. Dist. from IN. GM responded, in part, by saying that it had never had the opportunity to repair the engines in question because Shea and Kelly had never requested repairs, which made the claim itself moot.
The federal court accepted and dismissed the case, stating:
“Vehicle owners are really offering but one assumption – that if they had requested repairs within the warranty period, GM would not have repaired the defect,” Judge Damon Leichty wrote in his ruling. “The court only decides real controversies, not hypotheses. “
The judge also added: “These owners never presented their vehicles to GM for repair; by definition, they cannot claim that an appeal has failed when they have never requested the appeal.
Why it matters. Class actions are a major threat. By combining multitudes of claims, class actions tend to turn small cases – which by themselves often would not be worth pursuing – into huge combined claims that attract swarms of class action lawyers from plaintiffs seeking to recover massive verdicts against companies, many of which simply didn’t know they were doing anything wrong. Over the past few years, a number of well-known class actions and consumer protection lawsuits accusing equipment dealers and lessors of inappropriate and / or illegal damage waiver, fuel levy and tax practices. , environmental charges, taxes and other problems have already cost them tens of millions of dollars. Therefore, eliminating or even just limiting these types of complaints to the extent possible has become a major goal for us as a
as well as for our customers.
Why the provisions of the rental agreement are not enough. Most of the sales provisions included in leases simply extend the protections of the lease to sales, to the extent permitted by law. It’s a good start, but consider Justice Leichty’s decision in this context:
“They (the plaintiffs of the class action) cannot claim that a lawsuit failed when they never requested the action.”
Few of the provisions relating to the sale of a rental agreement would go so far as to mention a specific remedy for a defective part – for example, the extension of a manufacturer’s warranty. Why? First, there is simply no place in most rental agreements due to the need to include so many critical rental specific legal provisions. Second, the primary purpose of a rental agreement is, of course, to process a rental transaction. Remedies for product defects are inherently creatures of sales transactions – tenants hardly need them other than making sure the equipment they rent is working while they are rented. . This makes the inclusion of issues such as warranty transfer provisions, which extend original equipment manufacturer (OEM) warranties to buyers, largely irrelevant – the reason you hardly ever see this language. in a rental agreement.
A properly drafted bill of sale, on the other hand, would expressly extend OEM warranties to the buyer to the extent possible, offer to make it easier to pursue claims on those warranties, and perhaps even provide an additional limited warranty made by the seller. direct. For example, “This equipment is covered by a limited warranty providing for the replacement by the seller of parts which prove to be defective within 90 days immediately following your purchase …”
Subject, of course, to applicable laws – state laws vary with respect to limited warranties and warranty limitations – these types of provisions generally limit not only seller’s liability for repairs and replacements, but also their liability. potential liability for class actions.
In other words, while it may seem counterintuitive, offering a limited warranty, or at least an extension of OEM warranties, if they can be extended under applicable supply agreements with OEMs, does create a problem. security mechanism for handling customer complaints. It creates a legal hurdle by forcing them first to exercise the remedies available under their contract – the deed of sale – before filing a potentially devastating class action lawsuit against the seller (you).
This is not all that is needed, not far. A proper bill of sale should also include a number of other provisions, including:
- Price, down payments and terms of payment.
- Acknowledgment of receipt, examination, inspection, testing and acceptance by the buyer.
- Language “as is” and waiver of warranty.
- Security / lien grant and right to file a UCC-1 financing statement, particularly if the seller will finance part of the purchase, even for a short period.
- Shipping and delivery provision identifying which party is responsible for insurance and damage in transit.
- Force majeure / force majeure provision, which exempts the seller from timely performance in the event of delay related to transport, customs clearance, taxes, supplier delays, strikes, epidemics or pandemics, government-imposed closures and list of additional uncontrollable events, such as fire, flood, storm, earthquake, tsunami, etc.
- Upper limit of seller’s liability – generally up to the purchase price.
- Default provision, which includes the seller’s right to recover the full purchase price or seller’s anticipated profit and any other damage the seller may suffer as a result of the buyer’s violation, as well as interest, attorney fees and court costs.
- Arbitration clause.
- Waiver of class action.
- Integration provision incorporating all of the parties’ agreements into the deed of sale and eliminating the need for representations, warranties, advertisements, etc.
Surprisingly enough, the decision of Leichty J.in Shea v. GM also stresses the importance of the often overlooked integration provision. In addition to their defect claims, the plaintiffs alleged that GM had misrepresented the vehicles in question in its advertising material. In response, Leichty J. noted that:
“[The plaintiffs] never sufficiently alleged that they relied on these materials to make their purchases.
The point to remember here for equipment sellers is that while non-use of advertising material can be used to push back additional claims, such as those involving violations of consumer protection law, such as claims of false advertising, as turned out to be the case in Shea v. GM, then a bill of sale should always include an embedding provision that recognizes the non-use of advertising and other outside material – and thus waives such claims to the extent possible from the outset.
Selling new and used equipment can be a hugely profitable business, but even a single defect can lead to catastrophic legal liability if not handled carefully and correctly from the start. As with any job, starting with the right tools can save you time, money, and headaches, literally and legally. When it comes to sales of new and used equipment, this tool is a properly drafted bill of sale.
James Waite is a business lawyer with over 25 years of experience in the equipment rental industry. He is the author of the American Rental Association’s Book on Rental Agreements and represents equipment lessors across North America on a wide range of issues. He can be reached at 866-582-2586 or [email protected]