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Part 1: Protect Yourself: The legal risks of selling the aircraft you built
By Pete Axelrod, EAA Legal Advisory Council (originally published in EAA Sport Aviation, November 1999)
The short answer is that you can't absolutely avoid the possibility of litigation. However, there are steps the homebuilder can take that reduce the risk of being sued in the first place, and, in the event that it fails, to reduce the chances the suit will succeed.
Because this subject concerns the membership more than any other, the EAA Legal Advisory Council will address it in six articles over the coming year. Here, we'll address the risks a person faces when selling a homebuilt, and we'll take a realistic look at the magnitude of those risks.
In the December issue, we'll discuss the written contract homebuilders should use when selling their aircraft, why it's necessary, what should be in it, and what it can and can't do. The third article will expand on a key part of the sales contract-the release or hold harmless agreement. It will explain what a hold harmless agreement is, what protection it affords and, as importantly, what it cannot do It will also discuss the lack of certainty in predicting the effect given the range of differences in the la from state to state. The fourth article will talk about insurance, what's available, what protection it affords, and what risks are not covered. The fifth article will address other means of possible protection, such as disassembly, "deregistration," incorporation, and the impact of the Genera; Aviation Revitalization Act. The final article in this important series will offer advice to people buying homebuilts and the differences between owning a homebuilt you built and one you bought.
When selling a homebuilt, you face two categories of risk: contract risks and tort liability. Contract risks are the possibility that you won't get paid, and that the buyer will claim he didn't get what he paid for, or that the seller misrepresented the quality or condition or performance of the product. These risks are relatively small and manageable, and you can largely control them with the contract of sale, which we'll cover in the next article.
Tort liability is the second sales risk. It concerns most EAAers because it's the risk that someone will be killed or injured in the aircraft you built, which leads to the risk that you'll get sued for millions and incur thousands for lawyers' fees.
There is good and bad news regarding tort liability. The good news is that it's a low probability risk. While a few such suits have been filed, EAA has not heard of even one of them being successful. Most aircraft accidents are caused by pilot error. If a homebuilt has any serious defects, the builder will be the victim because he usually flies it for some time before selling the aircraft.
The bad news is that-win or lose-defending a tort liability suit is expensive, unless you've insurance to pay the legal fees. And if you lose, it can be ruinous. Tort liability suits against homebuilders are much like the chances of an asteroid hitting the Earth. The possibility of it happening is remote, but it's really bad news if it does happen.
What these risks mean is that you should take reasonable precautions when selling your homebuilt but the risks shouldn't, in most cases, deter you from selling your aircraft.
Most lawsuits over the sale of goods arise when the buyer believes he did not get what he paid for, or when the seller fails to receive the purchase price. Whether it's factory- or amateur-built, in the sale of any used aircraft the largest source of problems arises from how the seller represents the aircraft's condition. Many ads in Trade-A-Plane boast of "fresh annual" or "low time." Problems arise when a ballpoint pen is the only tool used to perform the annual, or where "low time" means something different to buyer and seller.
The factory-built aircraft have a standard to which they can be compared-the type certificate. The aircraft either does or does not conform, and the manufacturer is usually the one making the performance claims, not the seller.
Everything is up for grabs with a homebuilt aircraft. The aircraft might conform to its published plans, and it might not. A finished kit may be what the manufacturer intended-or it may not. The builder's skill can vary from AirVenture grand champion perfection to marginal at best. When selling a homebuilt, difficulties arise if the seller leads the buyer to believe that the aircraft is better than it really is. In the article on sales contracts we'll discuss in detail the importance of prepurchase inspections by buyers and the seller refraining from making any claims or representations about the quality or condition of the aircraft. If the airplane truly disappoints a buyer, he can seek various remedies from the court. Recision is the first remedy. Basically, it means everything is put back the way they were. The buyer returns the aircraft and the seller returns the money.
If recision isn't possible, the buyer may seek damages-the difference between what he paid and what the aircraft was really worth. In an extreme case the buyer can sue for fraud, claiming that the seller deliberately lied about the aircraft. In this case, the buyer may win his actual damages-and punitive damages. With a good sales contract you can reduce these risks to a minimum, and it would then be highly unlikely that a suit would follow the sale.
The law holds each of us responsible for our own negligence or carelessness in the event someone is hurt because of it. The law also passes this responsibility to our estate if we subsequently die, or to the partners we worked with on the project that caused the harm. When building aircraft the opportunities for negligence are many-from failing to follow the plans or assembling the kit improperly, to improperly engineering that clever modification we invented. Homebuilders have almost unlimited freedom to make mistakes because the FAA imposes few, if any, constraints on them. If a mistake causes a crash, the homebuilder, or his estate, can be sued. Because homebuilders often wear two hats-builder and mechanic-they can also make mistakes after they've built the aircraft. Poor or improper maintenance can also lead to a crash-and a lawsuit-even if we build the aircraft properly.
Even a perfectly assembled kit or plans-built aircraft can lead to a lawsuit if the kit or plans have a design defect. The injured parties may well sue the kit manufacturer or the plan's creator, and they will almost certainly sue the builder, too. Even if that suit ultimately fails (our assumption is the builder did nothing wrong), the legal fees could be huge. This is particularly true if the kit manufacturer or plan designer has no insurance, no assets, or is out of business.
Let us stress again that the risk of actually being sued is small, but because the potential harm can be large it is worth the trouble to do all you reasonably can to protect yourself when you sell your homebuilt. You can build protection into the sales contract that can contain a release or hold-harmless agreement. We'll address these forms of protection, and others, in subsequent articles.
That we cannot predict outcomes with certainty - or guarantee results - frustrates EAA members (and us lawyers). The reason for this lies not with lawyers but with the legal system, which in the end comes down to human judgments and decisions made by juries and judges. Because these opinions are always given in hindsight, the most a lawyer can do is offer advice that will increase your chances for a good result and a successful sale. Our aim is to provide advice that will put the odds in your favor. With apologies to Ecclesiastes, while the race is not always to the swift, nor the battle to the strong, that is sure how to bet.