Almost every state in the U.S. has laws which regulate the relationship between dealers and manufacturers/suppliers of farm equipment to at least some extent. These laws vary by state, and the differences between states may create problems and confusion. A dealership contract used in one state may have provisions that violate the law of a neighboring state. If provisions of a dealership agreement violate the law of the state in which the dealer is located, the provisions are typically void and unenforceable.
If you are a manufacturer/supplier or dealer of agricultural equipment (particularly if you conduct business in more than one state), here are 7 key issues to evaluate before you enter into a dealership agreement, keeping in mind the law in one state may not apply in another state:
(1) Choice of Law, Jurisdiction & Venue. Many states prohibit provisions in farm equipment dealership agreements which attempt to dictate the law which applies to the agreement, or which attempt to force a dealer to fight any contract disputes with the supplier outside the dealer’s state, such as where the manufacturer/supplier is located.
(2) Transfer of a Dealership Interest. States place varying limitations on the transfer of a dealership to heirs or outside persons. For example, state laws regulate how much notice a dealer must provide to a supplier, establish deadlines for a supplier to consider a dealer’s request (typically varying from 30 to 90 days), and outline the circumstances under which a supplier may withhold its consent.
(3) Termination Requirements. A supplier typically cannot terminate a dealer without “good cause.” However, states define “good cause” in varying ways. In addition, some states allow a supplier to terminate a dealer immediately under some circumstances, while other states require the supplier to give the dealer an opportunity to cure deficiencies under the same circumstances.
(4) Equipment Availability & Surplus Return. Dealership laws in some states obligate a supplier to ensure the availability of farm equipment, and allow a dealer to return surplus parts on an annual basis. At the same time, the laws can vary dramatically from one state to another.
(5) Inventory Repurchase upon Termination. In most (but not all) states, a supplier must repurchase farm equipment from a dealer if the dealer is terminated. The timeline for doing so varies, typically from 45 to 90 days, as do the penalties for failure to timely repurchase the inventory.
(6) Remedies & Statutes of Limitations. Dealership laws typically provide broad remedies to dealers if the manufacturer/supplier violates the law. These remedies can include, among other things, injunctive relief, monetary damages and attorney fees. However, the remedies vary from state to state. In addition, the time period (statute of limitations) for bringing a claim for violation of a farm equipment statute varies, typically between 2 and 5 years.
(7) Prohibited Conduct. States have varying laws regarding the type of conduct which is prohibited for either a dealer or a supplier. For example, a supplier cannot typically impose onerous conditions on the renewal or extension of a dealership. However, the law varies significantly from one state to another.