A bank is planning to sell equipment collateral – either repossessed equipment taken after a borrower’s default or leased equipment that has been returned by a lessee at the end of the lease term. [In this article, the term “bank” is used as short-hand for any equipment finance company.] The proposed sale agreement includes the standard disclaimer that the bank is selling the equipment “as-is, where-is” and the bank feels confident that it does not have to worry about any mechanical or other problems with the condition of the equipment once the buyer pays the purchase price. However, two cases dealing with aircraft may give the seller reason to question its confidence.

In the case of Luig v. North Bay Enterprises, Inc., the court considered a sale contract for a Bell helicopter which included both an “as-is, where-is” disclaimer and a requirement that the seller deliver an “airworthy” aircraft. After the buyer inspected the helicopter, the seller made repairs that the buyer requested and the buyer paid the sale price and accepted the helicopter. Sometime after delivery, the buyer learned that the helicopter did not comply with an FAA airworthiness directive and the helicopter’s original engine had been replaced with a non-compliant engine. The court ruled that: (a) the disclaimer terms of the sale contract disclaimed only implied warranties; (b) the terms of the sale contract regarding airworthiness constituted an express warranty that the helicopter was to be delivered in an airworthy condition; and (c) the condition of the helicopter breached the seller’s express warranties about its airworthiness.