Tracey Cheek posted an articleDoes The “As-Is” Language In An Aircraft Purchase Agreement Make A Difference? see more
NAFA member, Greg Reigel, Partner at Shackelford, Bowen, McKinley & Norton, LLP., discusses the "As-Is" Language in Aircraft Purchase Agreements.
It isn’t uncommon in aircraft purchase agreements to see language stating the parties are agreeing that the aircraft is being purchased “as-is” or “as-is, where-is.” Oftentimes the agreement will go on to also say that the seller is not making, nor is the buyer relying upon, any representations or warranties regarding the condition of the aircraft. And it may also specifically state that the buyer is only relying upon its own investigation and evaluation of the aircraft. But what does this really mean?
Well, from the seller’s perspective, the seller wants to sell the aircraft without having to worry that the buyer will claim at a later time that the aircraft has a problem for which the seller is responsible. So, the seller does not want to represent that the aircraft is in any particular condition (e.g. airworthy). When the deal closes, the aircraft is sold to the seller in its existing condition without any promises by the seller about that condition.
Here is an example of how this works: If the first annual inspection of the aircraft after the sale reveals that the aircraft is not in compliance with an airworthiness directive (“AD”) that was applicable to the aircraft at the time of the sale, the buyer could claim that the aircraft was not airworthy at the time of the sale and demand that the seller pay the cost of complying with the AD. But if the purchase agreement has “as is” language, then the chances of the buyer being able to actually force the seller to pay are low.
Not only does this “as-is” language protect the seller, but it also protects other parties involved in the sale transaction such as seller’s aircraft broker. A recent case provides a nice explanation of the legal basis for this result.
Red River Aircraft Leasing, LLC v. Jetbrokers, Inc. involved the sale of a Socata TBM 700 where the aircraft owner/seller was represented by an aircraft broker. The buyer and seller entered into an aircraft purchase agreement that included not only “as-is, where-is” language, but it also provided that the buyer was accepting the aircraft solely based upon buyer’s own investigation of the aircraft.
During the buyer’s pre-purchase inspection of the aircraft, the buyer discovered certain damage to the aircraft. However, the buyer accepted delivery of the aircraft in spite of the damage based upon alleged representations by the broker that the damage was repairable. After closing the buyer learned that certain parts were not repairable. Rather than sue the aircraft seller, presumably because the buyer recognized the legal impact of the “as-is” language in the purchase agreement with the seller, the buyer instead sued the aircraft broker alleging that the broker negligently misrepresented the aircraft.
In order to succeed on a claim of negligent misrepresentation under Texas law (the law applicable to the transaction), the buyer was required to show (1) a representation made by the broker; (2) the representation conveyed false information to buyer; (3) the broker did not exercise reasonable care or competence in obtaining or communicating the information; and (4) the buyer suffers pecuniary loss by justifiably relying on the representation.
In response to the buyer’s claim, the broker argued that the “as-is” language in the purchase agreement waived the buyer’s right to be able to prove that it justifiably relied upon any alleged representations by the broker. The buyer primarily argued that the purchase agreement language did not apply because the broker was not a party to the agreement. But the Court disagreed with the buyer.
The Court found that
the purchase agreement contains clear language evincing Red River’s intent to be bound by a pledge to rely solely on its own investigation. And, because it appears that the parties transacted at arm’s length and were of relatively equal bargaining power and sophistication, the court concludes that the language in the purchase agreement conclusively negates the reliance element of Red River’s negligent misrepresentation claim.
So, even though the broker was not a party to the purchase agreement, the Court still held that the buyer was bound by the statements/obligations to which the buyer agreed in the purchase agreement, even with respect to third-parties. As a result, the Court granted the broker’s summary judgment motion and dismissed the buyer’s claims against it.
“As-is” language will continue to be common in aircraft purchase agreements. Aircraft sellers and those working with them will certainly want to include and enjoy the benefit from this language. Conversely, aircraft buyers need to be aware of the scope and impact of “as-is” disclaimer language in an aircraft purchase agreement. If a buyer is unhappy with the condition of the purchased aircraft, the presence of this language in the purchase agreement will significantly limit the buyer’s remedies and recourse.
The information contained in this web-site is intended for the education and benefit of those visiting the Aero Legal Services site. The information should not be relied upon as advice to help you with your specific issue. Each case is unique and must be analyzed by an attorney licensed to practice in your area with respect to the particular facts and applicable current law before any advice can be given. Sending an e-mail to Aero Legal Services or Gregory J. Reigel does not create an attorney-client relationship. Advice will not be given by e-mail until an attorney-client relationship has been established.
This article was originally published by Shackelford, Bowen, McKinley & Norton, LLP, on July 1, 2018.
Tracey Cheek posted an articleThe Importance of Consent and Joinder Language in Aircraft Purchase Agreements see more
NAFA member, Debbie Mercer-Erwin of Wright Brothers Aircraft Title discusses the importance of consent and joinder language in aircraft purchase agreements.
In the 15+ years we’ve been in business, we have witnessed the good, the bad, and the ugly when it comes to private aircraft purchases and sales. Whenever possible, we like to share experiences with our customers and readers to prevent you from having an unpleasant transaction.
Prior to preparing a sales agreement, there will be an offer letter. While the terms of the offer letter are not binding, pay close attention as it does represent a commitment and is often used to draw up the sales agreement. The terms of a sales agreement are binding barring a legal reason for being enforceable. It’s important that you understand what is and what is not included. Most likely, buyers and sellers are having agreements drawn up by professionals, but it is still prudent to understand what you’re signing. Surely this sounds like common sense, but it’s worth pointing out.
Before you find yourself preparing for an aircraft closing – either as a buyer or seller – we’d like to help you understand the intricacies of aircraft purchase agreements; in particular, the importance of including Consent and Joinder language.
What is the purpose of a purchase agreement?
A purchase agreement outlines the terms and conditions of the sale. It lets the seller know that you are serious about purchasing the aircraft, and if it meets all the requirements of the agreement (it’s everything it’s represented to be), the aircraft should not be sold to someone else during this time. To protect you from the unforeseen, a buyer should be sure that the deposit given when the purchase agreement is signed is refundable or the trigger for nonrefundable treatment of the deposit.
Whichever party you are in the transaction, understand that the terms are negotiable. Do not agree to or sign anything that makes you uncomfortable. Even if a contract format has worked numerous times in the past, that doesn’t mean it contends with the specific terms and conditions of the current transaction in which you are involved. What has worked in the past could be a trap for the unwary in the present. Don’t sign a contract until it’s revised to meet your needs.
Sales and Purchase problems
Consider this possible scenario without clarity as to the deposit in a purchase agreement:
A buyer puts money in escrow as a deposit on an aircraft. At this point, there are no rules guiding what the escrow agent is supposed to do with the buyer’s funds, because the escrow agent has not been made a party to the agreement.
The buyer changes his mind and decides he doesn’t want to make the purchase. He asks for his money back. Because the escrow agent who is holding the funds is not a party to any of the agreements that exist, there is no clear obligation to anyone except for the depositor of the funds.
When there’s an aircraft purchase agreement, it is often a trigger that obligates the purchaser and makes the deposit nonrefundable. Otherwise there is no direction to an escrow company that says the funds are nonrefundable.
Consent and Joinder language in a sales agreement will help guide an escrow company. It would then be up to a court to determine who gets the deposit money through an interpleader action.
Avoid Problems with Consent and Joinder Language
When aircraft purchase agreements are written or put together by either the legal counsel or the sellers or the buyers, they should include what is known as Consent and Joinder by escrow agent so that they become a party to the agreement.
If you don’t take the time to include this information, you could find yourself in an unexpected situation.
- Under what circumstances does the deposit become nonrefundable?
- What is the seller responsible for with regard to the condition of the aircraft?
- What is each party responsible to do prior to closing?
At minimum, Consent and Joinder language included in your purchase agreement should include the following:
- The Escrow Agent accepts appointment by the Purchaser and Seller hereby as document holder and stakeholder for the sale and purchase of the Aircraft
- The Escrow Agent is acting as a document holder and stakeholder only
- They are not the agent or trustee for either of the parties
- They are not liable to either of the parties for any act or omission unless it involves willful misconduct or negligence on its part.
- The deposit is held exclusively for the sale of the aircraft based on the terms of the Agreement only
These observations are merely points to consider and should not be construed as legal advice or guidance to take or refrain from a particular position. As we discussed in our blog, Can’t I Handle my own Aircraft Closing, parties to an aircraft transaction should seek the advice of legal counsel.
This article was originally published in Wright Brothers Aircraft Title Blog on July 23, 2018.