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Presence Of Unrepaired Squawks Does Not Overcome Sale Contract’s Allocated Risk Of Loss

In a recent decision in the case of Eagle Jets, LLC v. Atlanta Jet, Inc., the Georgia Court of Appeals considered the claim of an unfortunate buyer whose aircraft crashed during the ferry flight from the seller’s locale to the buyer’s.  The case illustrates the importance of including a clear allocation of the risk of loss in any aircraft sale contract.

Under the Eagle Jets Purchase Agreement, the buyer bore the risk of loss beginning when it paid the agreed purchase price.  In this transaction, the purchase price was paid and a pre-purchase inspection was performed at the aircraft owner’s location in Bolivia.  Of the two squawks discovered during the pre-purchase inspection, the parties decided to remedy one on site in Bolivia, while postponing the second for repair in Florida following the ferry flight.  The aircraft crashed before ever arriving in Florida.

Section 2-510 of the Uniform Commercial Code provides:

Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance.

Eagle Jets argued that this statute assigned the risk of loss to the seller so long as squawks were present that, if not repaired, would permit the buyer to reject the tendered aircraft.

The Georgia Court of Appeals rejected the buyer’s argument and ruled that the contractual allocation of the risk of loss would prevail.  The court noted that the buyer’s agent had taken possession of the aircraft after the pre-purchase inspection and that this signified “acceptance” of the aircraft for purposes of Section 2-510.

Risk of loss is one of the issues that any Aircraft Sale Agreement should carefully address.  Spencer Fane routinely assists and advises clients in drafting such clauses and similar provisions in sales agreements and related contracts.