Except as provided in subdivision (p), whenever a dealer contract is terminated by cancellation or nonrenewal, the supplier shall repurchase the inventory as provided in this section.
(a) The supplier shall repurchase at its fair market value or assume the lease responsibilities of any specific data-processing hardware that the supplier required the dealer to purchase to satisfy the minimum requirements of the dealer contract, including computer systems equipment required and approved by the supplier to communicate with the supplier. The fair market value of property subject to repurchase shall be deemed to be equal to the acquisition cost, including any shipping, handling and set-up fees, less straight line depreciation of that acquisition cost over three years. If the dealer purchased data-processing hardware or software that exceeded the supplier’s minimum requirements, the acquisition cost of that data-processing hardware or software shall be deemed to be the acquisition cost of hardware or software of similar quality that did not exceed the minimum requirements of the supplier.
(b) The supplier shall pay a sum equal to 100 percent of the net equipment cost of all new, unsold, undamaged, and complete equipment.
(c) The supplier shall pay a sum equal to 100 percent of the net equipment cost of all unsold, undamaged demonstrators, less depreciation due to usage of those demonstrators. The depreciation adjustment shall be based on published industry rental rates to the extent those rates are available. For purposes of this subdivision, demonstrators, with hour meters that have less than 50 hours of use shall be considered new, unsold equipment subject to repurchase under this section.
(d) The supplier shall pay a sum equal to 100 percent of the net equipment cost of all unsold and undamaged equipment used in a manufacturer created incentive program, as defined in subdivision (p) of Section 22901, less depreciation due to usage and bonus or volume incentive received by the dealer for the equipment. The depreciation adjustment shall be based on published industry rental rates to the extent these rates are available. For purposes of this subdivision, equipment with hour meters used in a manufacturer created incentive program with less than 50 hours of use will be considered new, unsold equipment subject to repurchase under this section.
(e) The supplier shall pay a sum equal to 95 percent of the current net parts costs on new, unsold, undamaged repair parts that had previously been purchased from the supplier and held by the dealer on the date that the dealer contract terminates or expires.
(f) The supplier shall also pay the dealer 5 percent of the current net parts cost on all new, unused, and undamaged repair parts returned, to cover the cost of handling, packing, and loading of those parts for return to the supplier. The dealer may allow the supplier to perform the handling, packing, and loading of parts instead of receiving the 5 percent payment for these services. When the supplier is chosen to perform these services, the dealer shall make available to the supplier, at the dealer’s address or at the places at which it is located, all equipment previously purchased by the dealer.
(g) The supplier shall pay a sum equal to 75 percent of the net equipment cost, including shipping, handling and set-up fees, of all specialized equipment or repair tools previously purchased pursuant to requirements of the supplier prior to the date of the applicable notification of termination or nonrenewal of the dealer contract. The specialized equipment or repair tools must be unique to the supplier’s product line and must be complete and in operating condition.
(h) Upon the payment or allowance of credit to the dealer’s account of the sums required by this section, the title to all inventory purchased shall pass to the supplier making payment, and the supplier shall be entitled to the possession of the inventory. All payments or allowances of credit due to dealers shall be paid or credited within 90 days after receipt by the supplier of property required to be repurchased. Any payments or allowances of credit due to dealers that are not paid within the 90-day period will accrue interest at the statutory rate. The supplier may withhold payments due under this section during the period of time in which the dealer fails to comply with its contractual obligations to remove any signage indicating that the dealer is an authorized dealer of the supplier.
(i) The supplier and dealer shall each pay 50 percent of the costs of freight to ship equipment to the nearest retail outlet or to ship repair parts to the nearest supplier distribution center.
(j) The provisions of this section shall not require the repurchase from the dealer of any of the following:
(1) Any repair part that is in a broken or damaged package. However, the supplier shall be required to repurchase a repair part in a broken or damaged package, for a repurchase price that is equal to 85 percent of the current net parts cost for the repair part, if the aggregate current price for the entire package of repair parts is seventy-five dollars ($75) or higher.
(2) Any repair part that, because of its condition, is not resalable as a new part without reconditioning.
(3) Any inventory for which the dealer is unable to furnish evidence, satisfactory to the supplier, of clear title, free and clear of all claims, liens and encumbrances.
(4) Any inventory that the dealer desires to keep if the dealer has a contractual right to do so.
(5) Any equipment or repair parts that are not in new, unsold, undamaged, complete condition; subject to the provisions of this act relating to demonstrators.
(6) Any equipment or repair parts acquired by the dealer from any source other than the supplier unless that equipment or those repair parts were ordered from, or invoiced to, the dealer by the supplier.
(7) Any equipment or repair parts that are not returned to the supplier within 90 days after the latter of (A) the effective date of termination of a dealer contract or (B) the date the dealer receives from the supplier all information, documents or supporting materials required by the supplier to comply with the supplier’s return policy. However, this paragraph shall not be applicable to a dealer if the supplier did not give the dealer notice of the 90-day deadline at the time the applicable notice of termination was sent to the dealer.
(k) If any supplier fails or refuses to repurchase any inventory covered under this section within 90 days after termination of a dealer contract, the supplier shall be liable for the total amount of 110 percent of the current net equipment cost of the inventory, plus any freight charges paid by the dealer, interest accrued at the statutory rate from the date of shipment to the supplier until the date of payment, 5 percent for handling, packing, and loading, and actual costs for any court or arbitration proceedings, including costs for attorney’s fees and arbitrators.
(l) Notwithstanding any provision to the contrary in the Commercial Code, the dealer shall retain a first and prior lien against all inventory returned by the dealer to the supplier under this act until the dealer has paid all amounts owed by the supplier for the repurchase of inventory required under this act.
(m) This section shall not be construed to affect any security interest that the supplier may have in the inventory of the dealer, and any repurchase shall not be subject to the provisions of the bulk sales law or to the claims of any secured or unsecured creditors of the supplier or any assignee of the supplier until such time as the dealer has received full payment or credit.
(n) The dealer may not cancel a dealer contract to avoid a payment obligation to the supplier for equipment or parts.
(o) If a dealer has more than one business location covered by the same dealer contract, the repurchase requirements of this section shall apply only to the repurchase of a dealer’s inventory obtained from the supplier or the supplier’s distributor by the particular business location or locations involved in the dealer contract termination and shall not apply to any other business locations covered by the same contract.
(p) If a supplier’s product represents the lesser of 10 percent or three hundred fifty thousand dollars ($350,000) of the dealer’s total gross annual revenue that includes, but is not limited to, the sales, service, rental, or repair for each dealer location, then the supplier shall repurchase the inventory only if a dealer contract is canceled or not renewed by the dealer for any of the following reasons:
(1) The supplier consistently failed to provide adequate product support for the type and use of the product, which includes, but is not limited to, technical assistance, operators and repair manuals, and parts lists and diagrams.
(2) The supplier consistently failed to provide adequate training, required by the supplier, for maintenance, repair, or usage of the supplier’s product.
(3) The supplier consistently failed to provide marketing and marketing support for the supplier’s product if marketing is a requirement of the dealer contract.
(4) The supplier’s product is defective and breaches the implied warranty of merchantability as defined in Section 1791.1 of the Civil Code.
(5) The supplier consistently failed to meet its warranty obligations to the dealer.
(6) The supplier abandons the market thereby failing to provide parts and services necessary for a dealer to perform warranty obligations.
(7) The supplier engaged in conduct that is injurious or detrimental to the dealer’s customers, the public welfare, or the reputation of the dealer.
(8) The supplier made a material misrepresentation or falsification of any record.
(9) The supplier violated any provision of this chapter.
(q) Notwithstanding subdivision (p), nothing in this section shall be construed to limit the supplier’s responsibility to repurchase a dealer’s inventory as provided in this section when the supplier cancels or fails to renew a dealer contract.
(Amended by Stats. 2005, Ch. 712, Sec. 11. Effective October 7, 2005.)
Last modified: October 25, 2018