The Case of the Missing Boeing

| October 16, 2015

PROJECT 2

(20 Points/20% of Final Grade)

Question

Due to the loss of the 737-800 aircraft at Kennedy Airport, Soar Airlines was required to WET lease another aircraft for six months[1]. The Director of Flight Operations (FltOps) for Soar made an oral agreement with the Director of Sales (DirSales) of Rent-a-Plane Company for an aircraft on the following terms:

Aircraft is a Boeing 737-800

$2500 per block hour minimum 100 hours per month for 6 months

Aircraft provided with crew (including 1 flight attendant), maintenance and hull insurance

Payment of $250,000 (one month rent) as security deposit to Rent-a-Plane

Soar provide 3rd party liability insurance

Soar provide hotel accommodations and per diem to crew

Soar to provide additional flight attendants as required

Soar responsible for fuel, landing and handling fees

The DirSales told FltOps he would send a hard copy of the contract for the WET lease immediately, but in the meantime, once confirmation of the transfer of the security deposit was received, he would position the aircraft for delivery at Kennedy. FltOps was happy with the deal because the block hour rate was well below the rate for the 737-800. As FltOps and DirSales had done business before, FltOps felt that he was being given a good deal due to his being a regular customer.

The security deposit was paid and the aircraft was delivered and began operations. Three days after delivery, FltOps received the contract. It was signed by DirSales. In addition to the agreed terms, were the following additional terms:

 

  • “Any changes, revisions or alterations to this contract shall be in writing and will be subject to the prior agreement thereto between the Parties. Such changes shall be incorporated into this contract as amendments and shall have immediate effect upon incorporation.”
  • “Upon default or breach by lessee (Soar), for whatever reason, Lessor (Rent-a-Plane) shall have the right, without notice, to take immediate repossession of the aircraft.”
  • “This contract represents the entire agreement between the Parties herein and supersedes and replaces all prior written or oral agreements between the Parties.”

FltOps signed and returned the contract to DirSales and kept a copy.

About two weeks later, FltOps received a letter from DirSales stating that he (DirSales) had made an error in calculating the block hour rate, and that the rate should be $4000 instead of the $2500 as agreed to. He asked that the contract be amended to reflect that change. There was no response to DirSales from FltOps on this request.

After a month of operations, FltOps received an invoice for the month’s operations. The amount reflected a block hour rate based on $4000 per hour. In addition an additional security deposit was required incorporating the adjusted rate.

FltOps did not pay the full amount of the invoice but paid an amount based on the original signed contract ($2500 per block hour). Upon receipt of FltOps payment, DirSales declared default on the contract, advised FltOps that he was repossessing the aircraft, and called the Rent-a-Plane crew of the 737-800 and told them not to fly. The aircraft at the time was loading passengers for an outbound flight. As a result of the repossession of the aircraft, Soar was required to rebook passengers on other flights. In addition, Soar started looking for another 737-800 on a temporary basis from another company.

Soar has filed suit against Rent-a-Plane on a breach of contract in that Rent-a-Plane amended the lease price of the contract without the prior agreement of Soar. Soar has requested compensatory and consequential damages. Soar is also seeking an order of specific performance. Soar also claims that the repossession without notice clause is unconscionable and that Rent-a-Plane was unreasonable in including such a vaguely written clause in the contract.

Rent-a-Plane responded by denying its breach and claimed that Soar breached or defaulted because it did not pay the correct rate. It claimed that the contract rate was a genuine mistake on its part and that Soar should have known that it was a mistake because it knows very well the going rate for a 737-800. Rent-a-Plane also stated that its repossession clause was not unfair as it is needed to prevent the airplane being taken out of its jurisdiction in the event of breach or default.

You are the Judge. How would you handle this case and who wins and why? Be sure to cover each issue raised by the parties to the lawsuit. Write the judge’s decision. 2-3 pages, include references in APA format if applicable.

[1] A WET Lease is a special type of aircraft lease where an airline (or any company that has an operating license) leases an aircraft to another airline. It is partly a service contract as well as a lease contract.

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