Potential Pitfalls of Buying Used Equipment

Issue: 
July-August 2011

 

I AM PRETTY WELL VERSED on this situation as I recently did just this – jumped on an “excellent” deal. In retrospect, it was a really stupid move. I bought a small tractor. My downfall was that the seller was dishonest and my desire for a good price stopped the queries I should have made. After I paid for the tractor and took possession, I discovered that the seller was in bankruptcy proceedings and the tractor was not only the subject of a lien but was being sought for nonpayment of the loan. Because I had paid the seller, who did not legally own the tractor, I could be held liable for the outstanding loan amount. Sure enough, the police became involved and informed me I was legally in the wrong, not the seller. The goods were not mine, no matter what I paid, as the loan company still owned the tractor.

Purchasing used equipment can raise a number of issues beyond simple value and condition. The pervasiveness of the internet has allowed scam artists to proliferate and employ new tricks preying on those in search of a good deal, sight unseen. Popular sites like Ebay, Craigslist and Kijiji are often used. Lost in the online world is the identity and location of these sellers and delivery of goods is not assured. Stolen equipment has always existed, but it has never been more readily available. 

Before purchasing any piece of equipment, buyers should do their due diligence and ensure that not only is the purchase a good value but is also being acquired legally. Unfortunately, unlike a car, most equipment has no formal tracking system and as such, extra time needs to be taken to determine legal ownership and that transfer of the equipment ensures that you become the rightful legal owner.

In situations where it is crystal clear that the seller does not rightfully own the equipment, walk away – fast. In North Toronto, a gentleman drives around with a vanload of small tools offering deals, cash only. (Pity the poor landscaper who left their hand-tools unattended for a couple of minutes.) Other times the situation is a little less clear and you need to exercise some basic rules.

Cyber Sales
If you must buy from a seller on the internet, a few basic rules should be followed.
•  If the deal is too good to be true, it probably is. 
•  Payments made through Paypal, etc. do not guarantee a transaction. Only sellers guarantee transactions.
•  Promises to mail or courier the goods after funds are received are obvious red flags. This system works for small items (again, buyer beware) but not for expensive pieces of equipment.
•  If you can only deal with the seller via email be extremely cautious. First request a phone number. If still not satisfied, ask to meet face-to-face. If the seller refuses to meet you at their business or house, walk away (and faster than from the North Toronto tool man!).
•  Ask to see the original bill of sale.

It is far better to deal with individuals you know (or know of through a solid reputation or referral), and always face-to-face. If you don’t want any headaches, buy from an established dealer. Familiarity with the seller can add a degree of safety to the transaction but that still does not always guarantee that they own the equipment.

Searching Serial Numbers
Luckily, many pieces of equipment are stamped with serial numbers. If they are missing or damaged, that is clear evidence that equipment may be stolen. Intact serial numbers can sometimes be used to investigate history and ownership. Equipment dealers may search these numbers and provide some history. For larger pieces of equipment bought through a leasing company, dealers can point you to the company in question. If you think the piece is stolen, the police can also sometimes search by serial number.

Tracking Liens
Many buyers will have taken loans to purchase the equipment or they may have used larger equipment to help secure the loans. Leasing and loan companies will often register the equipment pursuant to the PPSA (Personal Property Securities Act). This act, or similar ones, is found in most provinces of Canada. A number of websites (like www.ppsa.ca and www.ppsaontario.com) allow you to search for liens against the seller. It is also worth searching the name of the seller’s spouse. Any liens that mention the piece you are buying, or a similar piece, should be investigated thoroughly and discussed with the seller.

If you find the equipment does have a lien against it, you need proof that the holder of the lien is paid and the lien is discharged before you rightfully own the equipment. Paying cash leaves no evidence/paper trail. It is far better to pay by cheque, credit card or bank draft that can be used as proof of payment and to whom. 

Dubious Bargains
It is commonly thought that you can get a good deal by purchasing from somebody selling because of the three big “Ds”: debt, death or divorce. Unfortunately, in all these cases you may be purchasing from somebody who does not have the legal right to the equipment. Sometimes, particularly if the equipment is valuable, it may be worth hiring a lawyer to ensure that the transfer of funds and property is done legally. Another choice may be to have a leasing company carry out the transaction and you can pay for a lease rather than hand over the entire amount to the seller. Both lawyers and leasing companies have a heavy burden on them to ensure that the equipment they deal with is free and clear of liens and that the seller is entitled to be selling the equipment.

Finally, no matter how, or where, you buy used equipment, always get a written bill of sale. This should include both the names and addresses of the buyer and seller, a full description of the equipment along with all serial numbers, method of payment and delivery date. This can provide solid evidence of your honesty/good faith in purchasing equipment should it ever be found the piece was not sold legally.

Purchasing used equipment is one way to save money in your tree care business. Gathering information, searching for liens and spending time on due diligence may pay for itself in the near future.

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