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Liability For The Sale Of Used Equipment

Sellers of used equipment may be held to the same legal standards as distributors of new equipment.

Most material handling dealers sell used equipment from forklifts and aerial platforms to agricultural tractors and construction dozers. For example, forklifts returning from long-term rental or taken in as trade on new equipment usually go into a pool to be sold as used forklifts. The material handling dealer may sell the equipment out of a showroom or over the Internet, wholesale or retail, nearby or across the country. How a dealer approaches and warrants the sale of used product can make a significant difference in his or her liability exposure.

Liability exposure is extremely sensitive to the jurisdiction where the lawsuit is filed and the facts of the individual case. The examples cited in this article are generalizations. For a specific case, you should contact an attorney for assistance.

If you sell to a wholesaler as scrap, you should remove the data plate and grind off the serial number stamped into the frame of the truck.

How you sell your used equipment makes a difference. Before selling your used equipment, you can take a number of steps to maximize safety and minimize accidents. Following the four steps outlined below will go far toward promoting the maximum degree of safety in the operation of the used trucks you sell.

Step 1: Verify that the truck you sell conforms to current standards and manufacturer’s specs. Standards and specifications change over time. Overhead guards may have been an option and restraint systems not yet invented when the truck was originally manufactured. Selling that used truck today requires an overhead guard and possibly a restraint system.

Example 1: Dealer sells a used 1980’s vintage forklift that was subject to a manufacturer‘s restraint system retrofit, without the seatbelt, to a retail customer. The customer’s employee is injured in a lateral turnover. The dealer may be liable.

 

Step 2: Perform a complete maintenance evaluation for safety. The evaluation should include a visual inspection, as well as an operational and maintenance check. Confirm that documentation is adequate. Most manufacturers provide a Preventive Maintenance (PM) Checklist, which is a good starting point. The requirements include:

Visual Inspection
All guards present and secure
No unauthorized modifications
Excessive wear and leaks
Axle Stops
Operational Check
Brakes functioning
Upright operating smoothly
Steering operating properly
Accelerator linkage
Documentation
Warning Decals present
Operator’s Manual
Service campaigns
Data plate accurate


Example 2: Dealer sells used truck without warning decals to a retail customer. Employee of customer is hurt as a result of not following the warnings on the decal. Dealer may be liable. Example 3: Manufacturer notifies dealer of a recall on the brakes of a model XX. Several years later, dealer obtains the model XX in trade, fails to perform the recall and sells the truck to a retail customer. Employee of customer hurts a bystander because of no brakes. Bystander sues dealer and manufacturer. Dealer may be liable. Manufacturer may not be liable.

 

Step 3: Inform customer of currently available safety equipment and training. One of the areas of vulnerability often overlooked by the dealer is the sale of accessories, particularly “safety” accessories. Manufacturers depend on their dealers to communicate the availability of such equipment to the customer to enable the customer to evaluate the need for and selection of such equipment. This requirement of communication is applicable to the sale of new as well as used equipment. OSHA has added requirements for operator training. The dealer should inform the purchaser of these new operator-training requirements, and possibly sell him training. The dealer should add language to the invoice to document these communications.


Example 4: Dealer sells a used truck to a retail customer without informing him of the availability of “safety” accessories. The customer’s employee hits a pedestrian, and the pedestrian sues the dealer. Dealer may be liable.

 

Step 4: Scrap any truck (sell to wholesaler) that cannot be brought into compliance with these requirements. If you sell to a wholesaler as scrap, you should remove the data plate and grind off the serial number stamped into the frame of the truck. The data plate signifies a complete unit; scrap is merely a collection of parts.

Example 5: Dealer sells five trucks to a dishonest and uninsured wholesaler with the data plates attached. The wholesaler makes one truck out of the parts and sells to a retail customer. An employee of customer is injured. Dealer may be liable.

 

Selling Used Equipment with Written Warranty Makes a Difference
The Uniform Commercial Code (UCC) adds to every sale of goods an implied warranty of merchantability (certifies that the goods are fit to sell) and a warranty for fitness for a particular purpose. Warranty arises when the seller knows the particular purpose for which the buyer intends to use the goods, and the buyer relies on the seller’s judgment.

The prevailing view by a small margin is that a seller of used equipment may not be held strictly liable, but will be required to exercise reasonable care.

The UCC also provides remedies to buyers such as incidental and consequential damages. The UCC does allow the seller to disclaim implied warranties and limit buyer’s remedies through a written warranty. Dealers should take advantage of the UCC and provide retail customers with a written warranty with proper disclaimers and limitations. If a written warranty is provided, the language should be scrutinized to insure that there are no express warranties regarding safety.

Example 6: Dealer sells used truck without a written warranty. Truck malfunctions two months after the sale and shuts down customer’s entire facility. Dealer may be liable for the repair of truck. Dealer may be liable for the consequential damages of the malfunctioning truck, including the customer’s expenses and lost profits caused by the shut down. Example 7: Same facts as example 6, except dealer sells truck with a written warranty with proper limitation and disclaimer language. Dealer may not be liable for the repair of the truck. Dealer may not be liable for the consequential damages caused by the malfunctioning truck.

Example 8: Dealer sells used truck with a written warranty that says in part, “Carefully inspected by our service technicians to assure safe and reliable operation.” Dealer has made an express warranty that the truck is safe.

 

Where You Sell Used Equipment Makes a Difference
While a few dealers may thoroughly examine their used equipment, ensure it has been serviced and updated according to the manufacturer’s maintenance instructions, and provide a written warranty, most do not. Most dealers rely on “As Is” for protection. The law is clear that disclaimers, limitations and exculpatory clauses (“As Is”) are not valid in the sale of new equipment.

States have agonized over the question of whether to hold sellers of used equipment to the same legal standards as distributors of new equipment. The prevailing view by a small margin is that a seller of used equipment may not be held strictly liable, but will be required to exercise reasonable care. Therefore, in a majority of states “As Is” sales will be considered relevant but not conclusive in limiting seller’s liability. In those states that hold a used equipment seller strictly liable, an “As Is” sale is simply not valid. The rationale used by these states is such:

  1. The dealer, by marketing his equipment, has assumed a special responsibility to the public, who may be injured by it.
  2. Certain losses are better distributed in our society not on the basis of fault, but rather with regard to the ability to pay.
  3. This rule deters the sale of defective equipment, and thus saves lives.
  4. The doctrine of caveat emptor (Buyer Beware) makes no sense when the injury occurs to a third party or bystander injured by a defective used product.
Example 9: Dealer sells a used truck “As Is” in California to a retail customer without any brakes. Employee of customer hurts a bystander with truck because of no brakes. Bystander sues dealer. Dealer may not be liable. Example 10: Same facts as example 9, except sale of used truck takes place in Connecticut. Dealer may be liable.

 Protect Yourself from Liability
The best approach to protect your material handling dealership from liability is to develop a checklist of safety requirements and a procedure to scrupulously follow those requirements during the sale of used equipment. The dealer should document the sale with a written warranty and not always rely on “As Is” to protect himself from the vulgarities of the judicial system.

Material Handling Equipment Distributors Association
David C. Field Meet the Author
David C. Field is president of Product Liability Solutions, LLC in Lexington, Kentucky.


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