Greg Reigel's Aero Legal Services

The Value Of An Aircraft Purchase Agreement

By Gregory J. Reigel

© November, 2007 All rights reserved.

A recent unpublished decision from the Eleventh Circuit Court of Appeals provides a shining example of a properly drafted aircraft purchase agreement's value in an aircraft purchase/sale transaction.

The Deals

The case arose out of a transaction for the sale of a Learjet 60 in Florida. The Seller and Buyer signed a purchase agreement to document the sale of the aircraft for $6,700,000.00. The Buyer deposited $200,000.00 earnest money with an escrow agent in connection with the transaction.

Shortly after entering into the first purchase transaction, the Buyer then executed a separate purchase agreement with a different party under which the Buyer agreed to sell the aircraft to that party for $7,000,000.00. Although the Court does not mention it, the second transaction was presumably, and as a practical matter necessarily, contingent upon the Buyer closing on the first transaction with the Seller. Upon completion of both of these transactions, the Buyer's net profit would have been approximately $300,000.00. (This transaction structure is frequently used by aircraft brokers. However, as this case will show, by placing themselves in between the aircraft owner and ultimate purchaser of the aircraft, brokers may find themselves in an uncomfortable and, ultimately, an costly position.)

The Seller Fails To Deliver The Aircraft

Unfortunately for the Buyer, the Seller encountered problems with the lender holding a secured interest or lien against the aircraft. As a result, the Seller notified the Buyer that it would be unable to deliver the aircraft and close on the transaction with the Buyer. The Seller then returned the Buyer's earnest money and also reimbursed the Buyer for the expenses the Buyer incurred in having a pre-purchase inspection performed on the aircraft.

As you might imagine, the Buyer was not too happy with the prospect of losing its $300,000.00 profit on the transactions, not to mention any additional expenses for which the Buyer may have been obligated under the second purchase agreement. So the Buyer sued the Seller.

The Buyer Sues The Seller, And Loses

At the trial court level in Florida, the Buyer asked the court to order the Seller to complete the transaction with the Buyer. In response, the Seller asked the trial court to dismiss the case based upon its performance in accordance with the clear language of the purchase agreement. The trial court judge agreed with the Seller and held that by returning the earnest money and paying Buyer's inspection expenses, the Seller complied with its obligations under the purchase agreement. Accordingly, the judge granted summary judgment against the Buyer and dismissed its action. The Buyer then appealed to the Eleventh Circuit Court of Appeals.

On appeal, the Court began its analysis by reviewing the language in the aircraft purchase agreement. The agreement provided a specific remedy for the Buyer in the event of the Seller's non-delivery of the aircraft: In the event of breach, the Seller was permitted to terminate all of its obligations under the purchase agreement and Seller had to return the earnest money as well as pay the Buyer's inspection costs.

The Buyer argued that broad, more general language in the purchase agreement made this remedy "optional" and thus, it should not be bound to the limited remedy. However, the Court disagreed. The Court noted that the parties had not only detailed a remedy in the aircraft purchase agreement, but they had also stated that upon compliance with that remedy the parties would have no other or further liability to each other. The Court then concluded that the language in the purchase agreement clearly expressed the Seller's and Buyer's intent to limit the Buyer's remedy for non-delivery of the aircraft to recovery of its earnest money and inspection costs.

Conclusion

Although the case was surely a disappointing loss for the Buyer, the Court's decision was proper. Parties are free to negotiate the terms of an aircraft purchase agreement. In this case, whether the Seller intended it that way or not, the agreement included language that protected the Seller if it was unable to deliver the aircraft to the Buyer. Conversely, the agreement could just have easily contained language providing the Buyer with the ability to seek specific performance and force the Seller to deliver the aircraft and close the transaction, regardless of any issue the Seller may have had with its lender.

As this case shows, courts will hold the parties to the terms of their agreement, whether negotiated or not. Better to make sure the purchase agreement contains language which protects you and with which you are satisfied. If you are presented with a "pre-printed" or "form" purchase agreement, recognize that such an agreement is a place to start, not a place to finish. Have an aviation attorney assist you to include language in the agreement that addresses your specific situation and protects your interests. In the absence of such protections, you may find yourself in an uncomfortable and expensive position if your aircraft transaction fails to close.