November 8, 1998 What Did Lee Schroeder Do Wrong? |
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AVweb's aviation law editor uses Dr. Lee Schroeder's bad experience in purchasing a Beechcraft Baron as a case study, and offers specific advice for prospective buyers of used aircraft from a lawyer's point of view.
November 8, 1998
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| About the Author ... |
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Phillip J. Kolczynski
manages his own law firm in Irvine, California. He has a national practice,
concentrating in aviation, product liability and business litigation in federal
and state courts. Phil teaches evidence, product liability and aviation law at
the Aviation Safety Program, School of Engineering, University Of Southern
California. He chaired the 1990 ABA National Institute on Aviation Litigation in
Washington, D.C., and has spoken nationally at numerous aviation litigation
symposia.
Prior to moving to California in 1983, he was a trial attorney in the
Aviation Unit, U.S. Department of Justice, Washington, D.C., and the Litigation
Division, Office of the Chief Counsel, Federal Aviation Administration,
Washington, D.C. Phil graduated from Case Western Reserve School of Law,
Cleveland, Ohio, in December, 1976, and attended college at Marquette
University, Milwaukee, Wisconsin, in 1969 where he held a Navy ROTC Full
Scholarship. Before entering law school, he was a Marine Corps Captain and F-4
Phantom Pilot. He is a Commercial Pilot with instrument and multiengine
ratings.
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 Dr. Schroeder did more than most
purchasers to plan his purchase carefully. He bought from a knowledgeable
and impressive seller who specialized in Beechcraft. He insured that a fresh
annual inspection would be performed before he purchased the aircraft. He flight
tested the aircraft before buying it He brought along a mechanic to check the
aircraft over before he signed on the dotted line.
So where did he go wrong? He failed to arrange for a thorough pre-buy
inspection by a mechanic whose allegiance was to him (the buyer) rather than to
the seller.
Before we get into some of the protective measures the buyer could have
employed, let me emphasize the value of spending the money before the
transaction, rather than attempting to litigate the problem with a lawyer
afterwards.
Most used aircraft are sold "as is." Consequently, if you acquire a "lemon,"
it may be difficult for your lawyer to prove that the seller breached the
contract.
Disgruntled purchasers frequently claim that they have been defrauded.
Unfortunately, fraud is one of the more difficult legal claims to prove.
Moreover, pursuing a lawsuit against the seller of used aircraft may involve
legal fees that may be as high as the amount of money in issue. There is a
common misconception that if you have your lawyer write a threatening letter,
the other side will settle. Frequently, the seller simply hires his own lawyer
and protracted litigation results. The only people that profit from such
escalation are the lawyers.
As an aviation attorney, I rarely take cases on behalf of disgruntled
purchasers of used general aviation aircraft, because I know how much it will
cost my client and how difficult it will be to get an adequate remedy.
In addition to a thorough pre-buy inspection conducted by a mechanic
knowledgeable of the aircraft model involved and selected and hired by the
buyer, there are a number of other things a buyer should do:
- Ensure that a fair sales contract is signed by all parties, and
that a Bill of Sale is completed memorializing the
transaction;
- Comply with FAA Aircraft Registry requirements to record the
purchase of the aircraft, along with any relevant security agreement, if a
loan is involved;
- Perform a thorough title search in connection with the sale to
ascertain prior ownership, security interests and statutory
encumberances;
- Obtain advice on sales, use, and personal property tax
consequences;
- Secure adequate aircraft insurance to protect the aircraft and to
protect you for liability in the event of an accident.
Please understand that this article cannot accurately foresee all the issues
that will arise in your particular transaction. Accordingly, it may be prudent
to hire a lawyer in your state to help you with the legalities of the purchase.
There are also a number of excellent books on the subject that can help prepare
you for the purchase, including Gene Unterman's How To Buy A Used Aircraft
Without Taking A Dive and Brian Jacobson's Purchasing & Evaluating
Airplanes.
Schroeder hired a mechanic and took him on a trip to check out the aircraft
he was buying, but all the mechanic could do on such a short visit was a
"general going over." The mechanic also compared the external appearance of the
aircraft to the notations in the log books. These precautions were good, but
clearly they were not enough.
Prospective purchasers should budget enough money to pay for their own
pre-buy inspection by an A&P licensed mechanic who is selected and paid
by the buyer, and who has no allegiance to the seller. To facilitate this,
the prospective buyer should make arrangements with the seller to have the
aircraft taken to a either the buyer's maintenance shop or at least to a
"neutral" shop where it can be thoroughly examined inside and out.
In my opinion, the pre-buy inspection should involve a thorough examination
by an FAA licensed A & P mechanic, and should be of comparable detail to an
annual inspection. Note that I'm talking only about the "inspection part" of an
annual inspection here, not the "squawk-fixing part" which generally consumes
the lion's share of the time and cost of what most owners refer to as an annual
inspection. What does the FAA require to be included in the annual inspection of
a typical general aviation aircraft? See Appendix D of FAR
Part 43.
It is important that a pre-buy inspection be performed by someone who is
knowledgeable about the particular model of aircraft you intend to purchase. It
is also important that you control that inspection. Never rely on the seller's
mechanic or the seller's authorized inspector, no matter how immaculate their
credentials appear to be. If necessary, fly in your own mechanic, or hire a
competent individual in a shop at another airport to avoid those who do a lot of
business with the seller. If you live in a rural area, make arrangements as part
of the planned purchase contract to have the aircraft flown to a nearby town or
city where an inspection can be performed at a neutral venue. I recognize this
can involve a significant amount of time and expense, but as Dr. Schroeder
learned, it's nothing compared with the time and expense involved if you
discover you've purchased an unairworthy aircraft.
Another thing — if you're going to hire an A&P mechanic, enter into a
written separate contract with him. It doesn't have to be fancy, just a written
agreement reciting what he will do. Besides, providing you some measure of legal
protection, it will let the mechanic know that you're a serious buyer who is
depending on his expertise. As part of this inspection contract, have the
mechanic agree to provide you with a detailed written report of what he finds.
(If the mechanic is hesitant to submit his findings to you in writing, what does
that tell you?)
In Dr. Schroeder's case, the seller allegedly promised to have a fresh annual
performed before the sale...by the seller's A&P/IA. Schroeder relied on that
inspection, but now acknowledges that his reliance was misplaced. The "fresh"
annual was signed off by an inspector paid by the seller, who allegedly missed a
number of important items.
I've often heard aircraft owners and aircraft brokers tell me that it is hard
to find good general aviation mechanics. If this is true in your area, that's
all the more reason to search for someone good before you buy.
However, recognize that there are seldom any absolutes when it comes to
inspections. You are dealing with a mechanic or inspector's opinion about
whether a component is airworthy or not. One person may find numerous squawks
after an inspection, while another will give the same aircraft a clean bill of
health. Be sure to get the inspector's evaluation in writing, and discuss each
item on the discrepancy list verbally with the inspector. Such a "debriefing"
will help you get the straight scoop on the aircraft, and separate the serious
discrepancies from the trivial ones.
Can you rely on what the seller or his broker tells you about the aircraft?
In a strict legal sense, maybe, sometimes.
Sellers may have liability if they misrepresent the condition of the aircraft
or make any promises (warranties) in the sales contract. If the aircraft is a
lemon, you may be able to sue the seller in an attempt to rescind the contract,
retrieve your payments, and give back the aircraft. In this context the most
common basis for rescission is fraud. But as I mentioned earlier, fraud is one
of the most difficult torts (civil wrongs) to prove, because under most states'
laws a buyer would have to prove that the seller "intended" to deceive the buyer
by making false misrepresentations of material fact. People rarely put their
false statements in writing, much less their intentions, and proving what was in
the seller's mind (intent) is difficult.
What about a lawsuit for Breach of Contract? Usually sellers of used aircraft
do not provide any warranties with the sale of the aircraft. Thus, under the
typical "as is" sales contract, a buyer has little recourse. (However, read my
negotiation recommendations in the next section).
What about your legal recourse against the A&P mechanic or inspector who
did the annual or pre-buy inspection? First of all, if you didn't hire them
(e.g., the seller did), you have no contract with them and it may be difficult
to successfully sue them for breach of contract. (Under some states' laws, you
may be able to claim to be a "third party beneficiary" to the contract between
the seller and the mechanic or inspector).
Another possible legal claim is Intentional or Negligent Misrepresentation.
This may be an actionable theory if the mechanic or inspector made false
promises directly to you (the buyer) and you have evidence of what was said. You
may even be able to argue a case of ordinary negligence against a mechanic or
inspector, if you can prove that they should have foreseen that the substandard
performance of their duties would harm you.
But, even if you win your case against a mechanic or inspector, can you
collect from them? Do they have insurance?
With all these difficulties, it should be apparent that the best answer to
the question "Whom can you rely on?" is that YOU SHOULD RELY ON YOURSELF to
acquire a safe and airworthy used aircraft. Your pocketbook and even perhaps
your life may depend on it.
Some "legal eagles" may point out that if you arrange for your own pre-buy
inspection, you may have limited your legal recourse against sellers, mechanics
and inspectors for negligent misrepresentation. The reason is that you didn't
completely rely on their representations, you relied on your own inspection. To
this, I say: So what! Your objective should be to buy a good, safe, airworthy
aircraft...not to win a lawsuit!
The Sales Contract or Purchase Agreement is the document which will control
whether you have any contractual legal recourse, if the used aircraft you buy
proves to be a lemon. If you develop a serious interest in an aircraft, ask the
seller to show you a copy of the sales contract or purchase agreement he plans
to use for the transaction. Perhaps you can negotiate better terms...or perhaps
not. It may depend on how anxious the seller is to sell, versus how anxious you
are to buy.
It also may depend on whom you are dealing with. If the seller is in the
business of selling aircraft, he undoubtedly has a standard sales contract
crafted by his lawyer and favorable to the seller. On the other hand, if the
seller is a private party who doesn't have an agreement ready to use, you might
be wise for you to pay a lawyer to draft an agreement that will be fair to you.
Sellers of used aircraft will not normally not give any warranty with the
sale of the aircraft. In fact, their lawyer will probably put a "disclaimer" in
the contract which states "no warranties are conveyed with the sale" or words to
that effect. There will usually be language which specifically disclaims any
implied warranties of fitness for a particular purpose or merchantability. In
plain English, this means you are buying the aircraft "as is." You should
understand that "as is" equates to "caveat emptor" (Buyer Beware)!
Typically, people selling used aircraft offer their opinions as to the
quality of the aircraft. They like to point out some of its better features
including any repairs, improvements, or overhaul that has taken place. General
puffing in connection with the sale of a used item of personal property such as
an airplane is generally permissible under the law. However, it is wrong for the
seller to make misrepresentations of material fact concerning the condition of
the aircraft.
What if the seller makes representations about the condition of any of the
components of the aircraft, while at the same time expecting you to sign an "as
is" contract? Ask the seller if he will back up his statements about the
condition of the components he bragged about with a promise (in writing) good
for a certain number of calendar days or flying hours. Perhaps you can negotiate
an express warranty for D days or H hours, whichever comes first.
Ask the seller whether the aircraft which is being sold is "airworthy"? If he
says "yes," ask him to put it in writing. Don't simply rely on the entries in
the log books. Ask for written assurances that any inspections commissioned by
the seller or his broker are incorporated by reference as part of the sales
contract.
Some sellers might agree to make written promises of the kind I've suggested
here, while others might not. It can't hurt to try. (I can only make
suggestions, I can't level the playing field).
If you're buying from a dealer or broker, keep in mind that the salesman or
broker probably didn't commission most of the maintenance work described in the
log books. He may not even be that familiar with the aircraft. Understandably,
he may be reluctant to give any assurances beyond what he did personally. In
post-sale litigation, such sellers may claim that they had no personal knowledge
as to the true condition of the aircraft and are not responsible for the
accuracy of entries made in the log book by persons who were not their
employees. But if the seller can't stand behind the aircraft's history, what
does that tell you? If you can't get any assurances in writing, Caveat
Emptor!
Usually any representations made by the seller must be in the sales contract
to be enforceable. However, in some states, evidence outside the contract is
admissible to prove whether promises were made that were consistent with the
terms of the sale. In such circumstances, it is helpful to "just happen to have"
a neutral witness along (such as a pilot or mechanic) who can verify what the
seller told you. These precautions may put you on better legal footing if a
dispute arises after the sale of the aircraft.
Be especially careful if you are buying an aircraft at a location outside of
the community in which you live. Will you be doing business with someone that
you do not know personally? Can you rely on the seller based on references from
trusted friends? As Dr. Schroeder discovered, if you have a problem after an
out-of-state purchase, it will usually be necessary to hire a lawyer in the
state of purchase to sue the culprits where they have assets. Many of the people
with whom you deal may not have insurance to cover their work. Find out ahead of
time whether a dealer, maintenance shop, or other business has financial
responsibility to compensate you for its mistakes. Realize that the FAA will not
normally intervene in private business disputes.
Speaking of our Favorite Aviation Administration, be careful before taking
your complaint about a mechanic or inspector to the FAA lest you be implicated
for flying an unairworthy aircraft (as happened to Dr. Schroeder). You may want
to consult an aviation lawyer before calling the Feds.
Finally do not hesitate to spend the money necessary to hire an A&P and
have a thorough pre-buy inspection performed on the aircraft and get a written
report of the inspection results. Failure to do this was responsible for all the
cost, downtime and aggravation that Dr. Schroeder encountered in the purchase of
his Beechcraft Baron.
Carpenters have a saying, "Measure twice, cut once." Yours should be,
"Inspect thoroughly, own happily."
NOTE: The issues and recommendations discussed in this article do not
constitute legal advice. My objective is to alert you to some common issues so
that you can avoid or minimize legal trouble. Anyone with an aviation law
problem should be guided by the advice of his or her lawyer, under applicable
federal and state laws, after a full and confidential disclosure of all
relevant facts.
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