Aircraft Buy/Sale Agreements
The purchase of an aircraft is a big investment and professional counsel from an aviation lawyer should be sought before finalizing the transaction. This article is intended as an overview and is not specific legal advice. It is simply a summary of the laws covering aircraft sales agreements.
The Uniform Commercial Code (UCC) has been adopted by all 50 states to harmonize the sale of personal property. Generally, personal property is that which is movable and tangible; an aircraft is personal property and therefore falls under the purview of the UCC. The UCC is divided into articles, each dealing with a specific area of commercial transactions. Article 2 is devoted to the selling of products or goods. A sale takes place when goods are transfered from a seller to a buying in exchange for money or other compensation. Therefore, when you are buying or selling an aircraft, you will be subject to the detailed laws of UCC Article 2.
The Official Code of Georgia Title 11 covers the commercial code for the state of Georgia. The code starts off with some definitions. In the sale of an aircraft, the transactions does not have to take place between a professional merchant and you, but can be a conveyance between two ordinary persons. No matter the status of the buyer and seller, the UCC will control the transaction.
OCGA § 11-2-201(1) states that a contract for the sale of goods for the price of $500.00 or more is not enforceable unless there is a written contract between the parties. Unfortunately, many transactions are carried out without such a contract and rely on the bill of sale as proof of purchase. This is fool-hearty and should be avoided at all cost. Although the bill of sale is required by the FAA to transfer the title of the aircraft from the seller to the buyer, a detailed purchase/sales agreement should be entered into to define the scope of the aircraft purchase.
The agreement is defined vaguely as "some writing" between the parties, signed by the party against whom enforcement is sought, and mentions the quantity of goods sold. However, in the buying and selling of an aircraft where many imponderables can take place, a more detailed agreement must be in order. The formality of an agreement defines the intentions and expectations of the parties. A well drafted agreement considers the possible hazards of an aircraft buy/sale transaction.
Although this article does not attempt to address every issue and contingency of the agreement, some of the following elements of the agreement should be considered when drafting the written contract. Generally, the agreement begins with recitals stating the date signed and the names and addresses of the parties to the contract. The parties can be individuals, corporations, limited liability companies or other legal entities. A description of the aircraft follows the recitals; this clause identifies the plane as to make, model, year, serial and registration number. The sales agreement might also include a detailed description of the accessories or other equipment included with the aircraft.
The sale price agreed upon for the aircraft should be written out in detail. Whether cash, financing or other method of payment is made, an escrow agent is usually employed to smoothly transfer title between the seller and buyer. If a deposit is made, details about refunding should be included. Additionally, certain financing contingencies such as ability to obtain a loan might be included. Who pays the taxes is another important consideration.
A very important part of the contract deals with warranties. Again, the UCC provides guidance on this issue. A warranty is defined as an assurance of a fact upon which a party may rely and amounts to a promise. Either the buyer or seller may make or modify promises as to the sale of an aircraft. There are three types of warranties covered by the UCC- warranties of title, express, and implied. Warranty of title (OCGA 11-2-312) is a promise that the title passed from the seller to the buyer is good and authorized and that there are no security interests attached to it. Express warranties (OCGA 11-2-313) are words or actions made by the aircraft seller concerning affirmations, promises, or samples and are relied upon by the buyer in the completion of the transaction. There are two types of implied warranties (OCGA 11-2-314/315): merchantibility and fitness. The warranty of merchantibility applies only to merchants (generally professionals that regularly deal in aircraft sales); in essence, this is a promise that the aircraft is airworthy. The implied warranty of fitness is a promise that the goods sold will meet the particular purpose required by the buyer.
The buyer and seller of the aircraft will each want to emphasis different aspects and requirements of the warranties. The seller may want to disclaim some of the warranties in an attempt to limit liability. This can be accomplished only if strict procedures are followed (OCGA 11-2-361). The buyer may want to include as many warranties as possible to insure coverage of any unforeseen contingencies. Both parties should make sure warranties are discussed in detail and the standards agreed upon are included in the agreement.
The right of pre-purchase inspection should be included in the contract. The buyer should have the inspection made by a qualified and certificated airframe and powerplant mechanic. The purchase of the aircraft should be contingent upon the repair by the seller of any discrepancies found during the inspection; if the discrepancies are not fixed, the buyer should be able to terminate the sale and have any deposits refunded in full.
The place and time of aircraft and logbook delivery should be detailed. This is important in order to transfer the title and insurance risks from seller to buyer at a particular time. If the aircraft cannot be delivered by the seller or the buyer cannot perform, a liquidated damages clause describing reasonable costs should be discussed and included in the agreement.
Finally, clauses dealing with modifications, legal fees, governing laws, and dispute resolution should be addressed. The agreement should then be signed by both the seller and buyer and notarized.
The purchase/sales agreement is an extremely important document in an aircraft sales transaction. Whether you are buying or selling your aircraft from or to a friend or a dealer, cover your risks by having a well drafted agreement. Do not depend upon verbal agreements or merely shaking of hands. It is worth the time and expense to have an aviation attorney negotiate and draft this important legal document. Please contact my office should you have any questions about an aircraft sales transaction.
The Uniform Commercial Code (UCC) has been adopted by all 50 states to harmonize the sale of personal property. Generally, personal property is that which is movable and tangible; an aircraft is personal property and therefore falls under the purview of the UCC. The UCC is divided into articles, each dealing with a specific area of commercial transactions. Article 2 is devoted to the selling of products or goods. A sale takes place when goods are transfered from a seller to a buying in exchange for money or other compensation. Therefore, when you are buying or selling an aircraft, you will be subject to the detailed laws of UCC Article 2.
The Official Code of Georgia Title 11 covers the commercial code for the state of Georgia. The code starts off with some definitions. In the sale of an aircraft, the transactions does not have to take place between a professional merchant and you, but can be a conveyance between two ordinary persons. No matter the status of the buyer and seller, the UCC will control the transaction.
OCGA § 11-2-201(1) states that a contract for the sale of goods for the price of $500.00 or more is not enforceable unless there is a written contract between the parties. Unfortunately, many transactions are carried out without such a contract and rely on the bill of sale as proof of purchase. This is fool-hearty and should be avoided at all cost. Although the bill of sale is required by the FAA to transfer the title of the aircraft from the seller to the buyer, a detailed purchase/sales agreement should be entered into to define the scope of the aircraft purchase.
The agreement is defined vaguely as "some writing" between the parties, signed by the party against whom enforcement is sought, and mentions the quantity of goods sold. However, in the buying and selling of an aircraft where many imponderables can take place, a more detailed agreement must be in order. The formality of an agreement defines the intentions and expectations of the parties. A well drafted agreement considers the possible hazards of an aircraft buy/sale transaction.
Although this article does not attempt to address every issue and contingency of the agreement, some of the following elements of the agreement should be considered when drafting the written contract. Generally, the agreement begins with recitals stating the date signed and the names and addresses of the parties to the contract. The parties can be individuals, corporations, limited liability companies or other legal entities. A description of the aircraft follows the recitals; this clause identifies the plane as to make, model, year, serial and registration number. The sales agreement might also include a detailed description of the accessories or other equipment included with the aircraft.
The sale price agreed upon for the aircraft should be written out in detail. Whether cash, financing or other method of payment is made, an escrow agent is usually employed to smoothly transfer title between the seller and buyer. If a deposit is made, details about refunding should be included. Additionally, certain financing contingencies such as ability to obtain a loan might be included. Who pays the taxes is another important consideration.
A very important part of the contract deals with warranties. Again, the UCC provides guidance on this issue. A warranty is defined as an assurance of a fact upon which a party may rely and amounts to a promise. Either the buyer or seller may make or modify promises as to the sale of an aircraft. There are three types of warranties covered by the UCC- warranties of title, express, and implied. Warranty of title (OCGA 11-2-312) is a promise that the title passed from the seller to the buyer is good and authorized and that there are no security interests attached to it. Express warranties (OCGA 11-2-313) are words or actions made by the aircraft seller concerning affirmations, promises, or samples and are relied upon by the buyer in the completion of the transaction. There are two types of implied warranties (OCGA 11-2-314/315): merchantibility and fitness. The warranty of merchantibility applies only to merchants (generally professionals that regularly deal in aircraft sales); in essence, this is a promise that the aircraft is airworthy. The implied warranty of fitness is a promise that the goods sold will meet the particular purpose required by the buyer.
The buyer and seller of the aircraft will each want to emphasis different aspects and requirements of the warranties. The seller may want to disclaim some of the warranties in an attempt to limit liability. This can be accomplished only if strict procedures are followed (OCGA 11-2-361). The buyer may want to include as many warranties as possible to insure coverage of any unforeseen contingencies. Both parties should make sure warranties are discussed in detail and the standards agreed upon are included in the agreement.
The right of pre-purchase inspection should be included in the contract. The buyer should have the inspection made by a qualified and certificated airframe and powerplant mechanic. The purchase of the aircraft should be contingent upon the repair by the seller of any discrepancies found during the inspection; if the discrepancies are not fixed, the buyer should be able to terminate the sale and have any deposits refunded in full.
The place and time of aircraft and logbook delivery should be detailed. This is important in order to transfer the title and insurance risks from seller to buyer at a particular time. If the aircraft cannot be delivered by the seller or the buyer cannot perform, a liquidated damages clause describing reasonable costs should be discussed and included in the agreement.
Finally, clauses dealing with modifications, legal fees, governing laws, and dispute resolution should be addressed. The agreement should then be signed by both the seller and buyer and notarized.
The purchase/sales agreement is an extremely important document in an aircraft sales transaction. Whether you are buying or selling your aircraft from or to a friend or a dealer, cover your risks by having a well drafted agreement. Do not depend upon verbal agreements or merely shaking of hands. It is worth the time and expense to have an aviation attorney negotiate and draft this important legal document. Please contact my office should you have any questions about an aircraft sales transaction.
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