Do I Have to Buy it Back? Pointers on Repurchasing Equipment from Resellers

01 April 2021 Legal News: Distribution & Franchise Publication
Authors: Trent M. Johnson

“But do I have to buy it back?” After more than a decade of providing legal advice to members, this is the most common question put to me—by far. 

Disagreements between manufacturers and resellers (distributors or dealers) about post-termination equipment repurchase obligations are commonplace. They can blossom into full-blown lawsuits, especially when the underlying termination is not mutual. Indeed, they can be the tail that wags the wrongful termination dog.

A reseller displeased with a manufacturer’s response to a repurchase demand can lead to a claim that the manufacturer did not comply with the statutory termination process. And, coupled with the threat of attorneys’ fees, the dollars at stake can be significant. (I have handled several federal lawsuits about equipment repurchase where the amount in dispute is well into seven figures.) Given this, and because the pandemic will undoubtedly lead to an uptick in terminations, I thought a few repurchase pointers would be helpful. Here are five:

Start with the language in your written contract.

Any question—yes, any question—about a manufacturer’s relationship with a reseller begins with the language in the written contract. It is true that a state dealer statute may supersede the provisions in a contract, but that only happens if the statute applies. Ascertaining the application of a state dealer statute in a given circumstances may be easy, but it may not. On the other hand, if you and your reseller willingly agreed to your contract, then you can be sure its terms apply. 

Most contracts speak to all phases of a relationship: beginning, middle, end, and after the end. Repurchase rights or obligations, if any, will be in or following the provisions addressing termination. Sometimes a manufacturer has a right to repurchase product, which can be exercised at the manufacturer’s option. Sometimes a manufacturer has the obligation to repurchase.

Pay very close attention to the language, as it may include conditions about the circumstances in which this right or obligation can be invoked. Only after you have reviewed your contract should you consult the statute. 

Was there a termination? By whom?

Generally, repurchase obligations in dealer/distributor statutes only apply upon an actual termination of the relationship. Agreed upon reductions in territory, changes in product mix, or other modifications to the relationship generally don’t oblige a manufacturer to repurchase equipment. Who initiates the termination can also matter. At least a handful of state statutes limits a manufacturer’s repurchase obligation to when the manufacturer initiates the termination. If it is the reseller that issues notice of termination, the statutory repurchase obligation may not kick in.

Inventory requirement?

An inventory requirement is another common precondition for a statutory repurchase obligation. Several statutes only require repurchase if the agreement (which can be oral or in writing) mandates that the reseller maintain an inventory of the manufacturer’s equipment. Not having a written contract makes this difficult to determine.

“New, unused, undamaged, complete.”

Even where there is a repurchase requirement, not every piece of equipment must be repurchased. It is virtually unanimous among state statutes that only “new, unused, undamaged and complete” equipment must be repurchased. Now, one could argue that these terms are vague, but commonsense interpretations prevail. “New” means that a piece of equipment could be held out as such on the show room floor. “Unused” means that it is has not been sold, put in the field, and then returned. (Note that statutes often contain carve-outs for demonstrator models, however.)

As a backstop, statutes almost always specify a repurchase shelf life. Even if the equipment is new, unused, undamaged and complete, if it has been on the shelf too long, it does not qualify for repurchase. And remember, as the manufacturer, you have the unilateral right to inspect each and every piece of equipment to confirm it qualifies for repurchase. Horse trading often occurs during the inspection process.

Release.

While getting a written release is always preferable, if the termination and wind-down of the relationship goes smoothly, you may not need one. But if the repurchase is contentious, make sure you ask for one, even if that means putting more on the table than you had planned.  

These are just a few basic pointers to help you successfully navigate post-termination equipment repurchase. If you have more specific questions, please call or email. 

Originally published on AgInnovator.Org.

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