Selling a used jet “As Is, Where Is, With All Faults” is an age-old practice. It is the plain English version of caveat emptor: Let the buyer beware. The tradition in aviation is that the seller allows the buyer to inspect the airplane prior to purchase. The buyer pays for the inspection. The seller pays to repair the airworthiness discrepancies found. The shop “returns the aircraft to service” and the buyer flies it home. If the buyer discovers an Airworthiness Directive (AD) a month later that the shop missed: too bad. The idea of selling “As Is” is to keep the seller out of the warranty business. Typically, the only warranty that the seller will make is that the seller owned the aircraft and that there were no liens (debt) attached to it at the time of the sale. If aircraft were sold with a one-page contract that stated the price and contained the terms, “As Is, Where Is, With All Faults” and nothing else, then there would be little chance of confusion or mischief. Inevitably, legal documents increase in complexity and length in proportion to the value of the item being purchased. Selling a 1979 Ford Pinto with a one-page “As Is” agreement will work. But when the ride is a multi-million-dollar aircraft, a 30-page contract is the norm today.
Selling a 50-year-old Bell helicopter for $110,000 should be the aviation equivalent of a used Pinto and involve maybe a two-page contract, right? It could have been, but the Aircraft Purchase Agreement said: “The Aircraft will be delivered with Fresh Annual Inspection with all systems in an airworthy condition and a current Certificate of Airworthiness.”
The same agreement also clearly stated: “At the time of delivery Purchaser agrees to accept the Aircraft in an ‘as is, where is’ condition [NO WARRANTY].” [emphasis in original]
But an AD was missed in the pre-purchase inspection, and the two-page purchase agreement ended up as the focus of a Texas court last year.
There are two categories of warranties: “implied” and “express.” Implied warranties stem from the buyer’s assumptions when the seller is silent. Thus, if a helicopter is sold with nothing more than a handshake and a check, the buyer — and a court — would assume an implied warranty that the helicopter will work: that it will be fit for the particular purpose of being a helicopter.
The court had no trouble deciding that the “As Is, Where Is [NO WARRANTY]” provision of the agreement precluded any “implied” warranty.
However, that was not the end of the decision. The buyer argued that he would not have purchased the helicopter if the seller had not given the “express” warranty that the helicopter would have “all systems in an airworthy condition and a current Certificate of Airworthiness.” The buyer argued that, regardless of what the pre-purchase inspection did or did not discover, he had a right to believe that the helicopter was airworthy and that all ADs on the aircraft had been complied with.
The court found that, in addition to a missing AD, the “current Certificate of Airworthiness” was also incorrect because a change to the helicopter’s engine had changed the type description of the aircraft.
Contract issues such as these are determined under state law. This particular case was decided under Texas law, but the result could have been the same in many states. To the court, the agreement contained two provisions that were in direct opposition. The “express” assurance about airworthiness contradicted the all caps words “NO WARRANTY.” Many purchase agreement negotiations dwell on “choice of law and venue” and lawyers worry about “home field advantage” if a case has to be tried in the other party’s state. These are legitimate worries, and from an aviation perspective, Kansas and California might as well be different countries. However, when a contract gives an assurance on page one and takes it away on page two, choice of law may not make a difference.
Could all of this have been avoided? Yes. For years, aircraft brokers have used a simple phrase when describing the specs on aircraft for sale: “subject to verification by the buyer.” Those same words should have been used in the helicopter purchase agreement to put the burden and risk of reviewing 50 years’ worth of maintenance logs on the buyer.
So, when selling an aircraft, if you are going to state anything about it, even the type, add this simple protection/warning/advice/prayer: “subject to verification by the buyer.”
B&CA
Kent S. Jackson | Business & Commercial Aviation
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