The threat of lawsuits may be one of those nagging dangers of doing business that wakes you up in the middle of the night. Even with the best intentions, a great staff, excellent products and good business practices, a sale to a customer can go awry and place you in court.
I recently discussed this dealer issue with Travis Elliott, an attorney with a farm background who teaches agricultural law at Missouri State University and is a rural lifestyle customer. He understands various ways that dealer actions could end up in litigation.
In the “Managing the Store” column in the spring 2018 issue, we discussed the importance of properly training customers in the safety aspects of owning equipment. Elliott says that most dealers perceive this area as the biggest risk for lawsuits. However, he says it’s not the one that represents the most legal exposure to a rural lifestyle dealer.
Elliott feels the greatest litigation threat is customers not getting what they were expecting, especially with used equipment, and taking you to court over it. The risk is greater because in most cases, if a customer is injured by a new product, the primary target of litigation will be the manufacturer. Litigants, in those situations, will likely name the dealer in the lawsuit. However, attorneys understand that equipment companies generally have deeper pockets than dealers and, therefore, the OEM would be the primary target and bear more potential legal exposure.
Develop Clear Documentation
In selling used equipment, the dealership stands alone. If the customer has a real or perceived mechanical problem with used equipment, they will likely come after the dealer, possibly with claims of “implied warranties.” Elliott advises having good, basic documentation for signing at the time of the sale. He says that many court decisions have ruled against documents with fine print. While it is possible to fill up a page with thousands of words that cover almost every possible negative scenario, no reasonable person would be expected by a judge or jury to read it all.
Elliott says the first step is to craft sales documents with simple and easy to understand provisions, such as these.
1. Make it abundantly clear to the customer that used equipment has no warranty. You probably have a checkbox on the sales invoice or other document that says the machine is sold “as is.” Adding more detail could prevent future problems. For instance, Elliott recommends having verbiage that clearly states, in plain English and on a separate form, that used pieces have no warranty, and then have customers initial the provision to acknowledge it. When selling used equipment, it’s important for a customer to know, “If it breaks in two, both pieces are yours.”
2. Along the same lines, it’s wise to include a provision, initialed by the customer, which clearly negates anything a customer may claim a salesperson or other dealership representative said during the buying process. A provision that states that the product is not covered by an unwritten or VERBALLY GIVEN warranty by any employee of the dealership is appropriate.
3. If there are mechanical issues when the equipment is sold, but the customer agreed to purchase it “as is” at a lower price, be sure to note that on the sales agreement. If the tractor is delivered with faulty brakes, but the customer has verbally agreed that they accept that fact and plan to repair the issue themselves, get it in writing.
4. Avoid the temptation of making modifications to equipment outside of the normal reconditioning process that can shift all liability to your dealership. That especially applies to roll bars or other safety devices, and can also include new equipment modifications that the customer requested. There can also be an issue if different brands of new equipment are sold together. The customer may feel covered by the individual warranties on each machine. However, in the event one might cause the failure of another, neither manufacturer will cover the repair. The dealer and the customer will be caught in the middle. If any of those scenarios exist, ensure that the customer is aware of the danger and signs forms clearly acknowledging the situation.
Elliott recommends investing in good legal counsel when crafting all documentation. He says his very best advice is to have a superior commercial liability insurance policy. Taking it one step further, he strongly recommends an insurance attorney examine the policy to make sure it adequately covers the dealership and assets of the owner. The reality, he says, is if you’re in business, there’s no way to completely prevent litigation.