What is a Dealer Purchase Agreement
A dealer purchase agreement is the legal contract giving a dealer possession of the unit or the first two or three pages of the contract document. It is the necessary first step to complete its acquisition of the unit. Although it can be a short form confirming a prior handshake agreement between a dealer and a manufacturer, the dealer purchase agreement will almost always be the document required in any dealer transaction. It is sometimes referred to as a "DPA."
A dealer purchase agreement can run several dozen pages or longer in complex transactions . Its terms will reflect the parties’ agreement on the price to be paid by the dealer for the unit, financing of the unit from the factory, the engine or other equipment to be installed and its cost, and terms for the shipment of the unit, modification of the unit, and completion and performance testing of the equipment by the manufacturer. Later in the life cycle of the dealer-manufacturer relationship, the dealer purchase agreement will be the document that controls a dealer’s order and the manufacturer’s delivery obligations.
Because the dealer purchase agreement is the document that sets forth the parties’ agreement, it is vital that the dealers read every word and understand them before signing or otherwise accepting them.
Essential Components of a Dealer Purchase Agreement
A dealer purchase agreement is a document evidencing the sale of goods from a manufacturer or supplier to a dealer. The key components of the agreement would generally include:
Description of goods. A dealer agreement should set forth the type/quantity of goods being sold. Where goods are not captured in a schedule, the agreement should incorporate by reference an attachment that describes the good at issue.
Pricing. The agreement should specify the amount to be paid by the dealer for the goods. The agreement should also provide that the agreed price may change depending on contingencies, such as a rebate program offered by the manufacturer/supplier. Most importantly, the agreement should set forth the method of determining price if a price list is changed subsequent to the execution of the agreement.
Terms of sale. In addition to price, terms of sale should be spelled out in the agreement. The agreement should provide when payment is due (e.g., upon receipt of an invoice, on terms of net 30 days, etc.).
The agreement should also set forth the timing and manner of shipment. Where practical, the agreement should incorporate a shipping schedule by reference setting forth the date of shipment and the amount to be shipped. The agreement should likewise set forth when ownership of the goods transfers.
The agreement should also set forth how costs associated with returned goods will be allocated. However, a reasonable procedure should be set in place for a dealer to return defective goods.
Payment terms. A dealer purchase agreement should specify when the purchase price is due. In addition, the agreement should set forth whether payments will be made as goods are delivered or on some pre-determined date.
Interest. The agreement should specify a contractual or statutory rate of interest to be charged. The agreement should also provide for the special damages reasonably incurred by the aggrieved party by reason of the breach, such as collection fees, reasonable attorneys’ fees and costs of collection.
Delivery. The agreement should also set forth a schedule for the delivery of goods subject to the agreement.
How to Write a Dealer Purchase Agreement
Step one: Understand the need for a dealer purchase agreement form
In simple terms, the dealer purchase agreement form sets out the parties’ obligations with respect to an agreement under which a dealer purchases products from vendors for resale. The agreement must set out the terms of the purchase or be incorporated by reference. The dealer purchase agreement form will usually specify the products to be purchased, whether there is an exclusivity period, and what happens if there is market discontinuation. The agreement will likely also include any warranty disclaimers, as well other terms that the parties may want to address.
Step two: Draft the form
The first consideration is defining the parties. If the dealer is a corporation, the dealer purchase agreement form can name the company or, alternatively, use a description such as "Company A (the Purchaser)". If the dealer is an individual, the name change should not be necessary.
Next, consider the choice of law and forum selection. It is important to remember that Canada is vastly different from a legal perspective. Every province has different laws and legal traditions. Even civil law and common law are vastly different from a substantive law perspective. Accordingly, a dispute in Quebec may have a very different outcome than a dispute in Ontario. The dealer purchase agreement form should contain a schedule of products that the dealer is purchasing from the vendor. This schedule is incredibly useful when there is a dispute between the parties as it eliminates various problems that could arise with how a product is categorised.
The method and timing of payment should also be included in the purchase agreement. Many dealers either pay upon receipt of the goods, or finance their purchases through an outside financier. Of course, there is also the trade credit option, whereby the vendor will allow the dealer to pay up to 90 days after receiving the products. The dealer purchase agreement form should also outline the delivery terms for the products. Will the vendor be responsible for delivery, or will the dealer come and pick them up? Who bears the risks during delivery? Alternatively, if the dealer picks up the products, is it responsible for the risk of loss or damage once the dealer takes possession of the products? (i.e. Do the goods remain the property of the vendor until they are paid in full? Perhaps a retention of title clause should be contemplated.) Are trade-in items included?
Further, it is important to think about whether the purchase agreement is going to be exclusive, or whether the vendor can sell to other dealers. The method and timing of payment are also important issues to include in your dealer purchase agreement form.
Related to this, what happens if the dealer becomes insolvent or bankrupt (or issues a notice of intention to become insolvent)?
The dealer purchase agreement form should also consider whether this is an exclusive dealer purchase agreement for a defined territory. If so, who is handling distribution in the rest of country or the continent for that matter?
Step three: Review, sign and file
Finally, it should be noted that the dealer purchase agreement form must be duly signed by the relevant parties (usually the directors and officers). Similarly to any other contract or agreement, if it is not duly signed, it may be unenforceable and the person signing without authority may be personally liable.
Common Errors in Dealer Purchase Agreements
The dealer purchase agreement is a standard form purchase and sale agreement typically used when there is one dealer-to-dealer transaction. Both parties use the dealer purchase agreement to detail the specific terms of the purchase, including the price and any other contingencies to closing. However, there are several mistakes commonly made when filling out the dealer purchase agreement. Interestingly, many of those mistakes deal with the most common tasks – managing the straightforward details of a deal. Here are some of the most common mistakes people make in filling out dealer purchase agreements and how to avoid making them yourself:
To avoid these mistakes, always confirm the information contained in your dealer purchase agreement before signing and initialing it.
Legal Issues Related to Dealer Purchase Agreements
The legal considerations relating to the Dealer Purchase Agreement Form are not designed with the consumer in mind. These are largely unknown to consumers and take on an even greater significance when a defective vehicle is concerned.
Deleting "As Is" language in the contract is not enough about which to be aware. For instance, most dealers including ones from other countries selling vehicles in the United States will have terms and conditions that are actually applicable to the dealership in their country but for which they want U. S. consumers to agree, such as getting paid in a different currency.
There are also issues relating to jurisdiction which require a careful review of a state’s laws as they pertain to the type of purchase you are making. For instance , in Michigan, there are laws that govern how a dealer is to treat a customer when a vehicle is being purchased. Most of these are implied warranties unless called out in a dealer’s disclosure statement. Not knowing what state’s laws apply can be a problem when you move.
While there are significant advantages to buying a vehicle with a Dealer Purchase Agreement Form already in place, it is imperative that you understand the laws of your state and their applicability to what you are buying, as well as the legal ramifications that can be borne by signing a document you do not understand or have not read.
When to Employ a Dealer Purchase Agreement
There are a number of situations in which a dealer purchase agreement is necessary. In the energy sector, renewable energy projects often require the preparation of a dealer purchase agreement. This can be true for large wind and solar array projects, including residential and smaller scale projects. When a landowner enters into an agreement with a renewable energy company, generally the landowner sells the renewable energy provider their developer interest. A dealer purchase agreement should be used in these types of transactions to ensure the transaction is valid and binding under the Internal Revenue Code and state sales tax regulations.
Similar scenarios are likely to occur when selling pipeline or storage rights to a natural gas producer. A sales tax agreement can also be useful in solid mineral and timber transactions. In these areas, the method of extraction from the property can trigger the need for a dealer purchase agreement.
Brokers and dealers in tangible personal property must use a dealer purchase agreement as well, or they may be subject to the seller’s use tax. A seller’s use tax is imposed on a seller’s taxable retail sales of tangible personal property to a dealer that is not for resale but rather for the dealer’s business use or consumption. The seller’s use tax rate is equal to the physical location of the dealer. Most commonly this is 6.5 percent but some municipalities and localities charge a higher rate. A dealer purchase agreement alleviates the need for the seller to pay the seller’s use tax.
Dealer Purchase Agreement Templates and Resources
Several manufacturers or other groups have templates for dealer purchase agreements available on-line. Some of the templates might require a fee in order to obtain but there are a few that have free templates available. In addition, some manufacturers have dealer guides with sample forms of dealer agreements and sample financing agreements available on their websites. While these forms provide a useful starting point and can help ensure consistency in dealer agreements, some versions may not be appropriate in every case. You often must apply for membership or agree to certain terms and conditions prior to accessing some of these resources and forms. Obtaining a template may be helpful to avoid any start-up mistakes and to consider many of the issues which you may not have considered prior to employing such a template.
Following is a brief description of a few examples of such forms:
• The National Automobile Dealers Association has developed an extensive template for dealer agreements and other related documents which is available on-line. The NADA also has an extensive series of "guides" covering issues ranging from taxation and data privacy to environmental liability and antitrust concerns. The guides set forth recent trends and provide detailed suggestions on the top legal issues a manufacturer , and by extension the dealer, should consider.
• The Association of International Automobile Manufacturers’ has a template dealer agreement document available for download on its website, which sets forth language addressing some issues that are not directly addressed in the NADA form.
• The National R.V. Dealers Association has a guide for new class "A" dealers which contains a form dealer purchase agreement as well as sample sales and management agreements. It is important to note that the NRVD has reworked its handbook and form dealer agreement on an annual basis. While revisions have generally been made on a consensus basis and reflect the input of dealers and manufacturers, the revision in 2007 shifted more of the risk on the dealer with respect to how terms such as delivery dates were to be interpreted.
• Some manufacturers’ dealer agreements are available from their websites or from applicable Regional Offices. Ford has an example service sale agreement on its website and Harley Davidson has a sample dealer purchase agreement available on its website. While the sample agreements provide a template for consideration, these agreements have been drafted with the specific manufacturer’s needs in mind, so make sure to modify any form agreements as appropriate to reflect the dealer’s business practices.
