The Icon A5 is a sleek, two-person amphibious light-sport aircraft manufactured and sold by Icon Aircraft, with a price tag between $250,000 and $400,000. This futuristic-looking plane can land on your favorite lake or runway, and with foldable wings, can be towed behind your truck or car. While the plane’s design seems well thought out, the purchase documents are not. To buy an A5, you must sign both a Purchase Agreement and an Operating Agreement. In this episode of the Contract Teardown show, corporate attorney Chad Busk shows the rocky relationship between the two documents and explains why some companies might take on more liability than usual.
Questions in this episode
- What should you do with archaic contract language?
- How to handle unnecessary liability clauses?
- Why are there separate Purchase and Operating agreements?
- When should you increase liability in a contract?
- Why is the Operating Agreement never-ending?
Why Two Agreements?
Icon decided to require the buyer to sign two separate agreements before they can take ownership of the A5 aircraft. The first is the ICON A5 Aircraft Purchase Agreement, which is between the buyer and ICON. The second required document is the Aircraft Operating Agreement, a three-party contract between Icon, the buyer, and the “Managing Pilot”, who might be the buyer or the buyer’s pilot.
Making the pilot a party to the Operating Agreement gives Icon more control of who is authorized to fly the plane. If the buyer and the pilot are not the same person, the pilot would not be a party to the Purchase Agreement – but they must be a party to the Operating Agreement. Since the Operating Agreement is in effect for the life of the aircraft, Icon can make sure that only qualified pilots fly the plane.
Archaic Contract Language
Before analyzing the substance of the agreements, attorney Busk believes the archaic and confusing language should be changed.
For example, you don’t need the recitations at the beginning of the Purchase Agreement. The language is redundant and confusing for the reader. Instead of the poorly written recitals, attorney Busk explains that you should just make simple statements like, “Icon is in the business of selling aircraft” and “The buyer is interested in buying the aircraft,” and then go to the agreement.
An Unnecessary Consideration Clause
As an example of poor contract construction, attorney Busk explains the consideration clause in the Purchase Agreement is not necessary at all.
Most contract drafters will recognize the archaically worded clause, “NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Icon and the buyer agree as follows:”
Not only is this wasteful language, but in this case the clause is not necessary at all. Just reciting consideration in a contract does not mean there is consideration. It is not the words that form the consideration. Here the purchaser is buying an aircraft and paying money for it. You don’t need to say there is consideration when it is obvious, explains attorney Busk.
The Confusing Indemnity Clause
The Operating Agreement has an unusual indemnity clause, which attorney Busk says is interesting and that he doesn’t understand Icon’s reasoning for using it.
The indemnity clause and covenant not to sue are very one-sided. But for an additional $10,000, the buyer and managing pilot can elect to opt-out of the paragraph.
Attorney Busk explains that the amount is only 3% of the purchase price of the plane. He recommends avoiding this complicated provision in the contract by adding the $10,000 to the purchase price of the aircraft instead of charging an extra premium. This change will make things less confusing and end up with an easier sale.
The One-Sided Closing Clause
Section 6A of the Purchase Agreement defines the closing of the transaction. Simply put, Icon can change the date, but the buyer cannot. While this may be so Icon can maximize their production schedule of the aircraft, attorney Busk says this further shows the agreement is one-sided. But Icon is the only one that makes the A5, so the buyer cannot go anywhere else.
You have no right to delay the closing. That shows that it's one sided...Basically, they have bargaining chips on their table. Avoid what I call deal fatigue. Have a contract that's easy to grasp. #ContractTeardown Click To Tweet
Inspection and Termination
Section 6D of the Purchase Agreement states the buyer may inspect the aircraft during the closing window. Before closing, the buyer must give notice to Icon of any items that “do not conform to Icon’s internal quality specifications.”
The problem with this clause is that the buyer does not know Icon’s internal quality specifications. They can be anything Icon says they are.
As an ordinary person with enough disposable income to buy the A5, you are not going to be qualified to go into the aircraft, thoroughly inspect it, and tell whether it conforms to the internal quality standards or not. This again puts all the chips on Icon’s side of the table.
The Shouting Warranty and Disclaimer Language
Icon tries to make their Warranty and Disclaimer language, in Section 11 of the Purchase Agreement, conspicuous by formatting it in all caps. This formatting hurts the readability and comprehension of the contract. It’s also unnecessary under the UCC. To make it conspicuous you should just bold upper and lower case type.
(As an update, since the airing of this Contract Teardown, Icon changed the warranty and disclaimer language. It is now in simply bold type in upper and lower case.)
The Never-Ending Operating Agreement
The Operating Agreement gives Icon unprecedented control over the aircraft and owner, compared to most aircraft purchases. You cannot purchase the A5 without a signed Operating agreement between you, Icon, and the Managing Pilot.
And, you cannot sell or transfer your aircraft unless Icon approves the new purchaser, who must agree to abide by the terms of the Operating Agreement. Attorney Busk believes Icon is trying to reduce its liability by telling the owner what they must do to maintain the aircraft.
But, Icon puts specific dollar amounts the owner must spend for both fixed and operating costs. Attorney Busk suggests that Icon provide a link to a site where the prospective owner can see how much money they will spend to maintain the aircraft.
But What About The Pilot’s Rights?
The pilot must be a natural person and qualified and licensed to fly the airplane. The owner may be the pilot if they are qualified. But if the pilot is a different person, there are some unresolved issues.
The pilot does not sign the Purchase Agreement but must sign the Operating Agreement. Attorney Busk believes there is no consideration between the pilot and Icon. The consideration between the buyer and Icon is taken care of in the Purchase Agreement. But where is the consideration between the pilot and Icon? According to attorney Busk, this issue is not appropriately addressed and could impact the validity of the agreement.
Control the Pilot – Control the Aircraft
The Operating Agreement gives Icon approval authority for the pilot. Attorney Busk believes Icon’s reason for the separate Operating Agreement is to make the pilot a party to an agreement with Icon. For the life of the aircraft, Icon will know who the pilot is and can make sure they are licensed and qualified.
But what if the pilot quits or leaves? If there is no Icon-approved managing pilot, the owner agrees in the contract to keep the plane grounded until there is an approved managing pilot who is a party to the Operating Agreement.
Why Add Obligations and Liability?
The never-ending Operating Agreement adds the obligation to Icon to keep track of all the pilots flying all the aircraft they have ever sold.
Icon is creating a continuing responsibility and perhaps increasing their liability.
Attorney Busk agrees that Icon needs to track all the Purchase Agreements and Operating Agreements carefully. In addition to being a challenge for accurate contract administration, Icon has added a continuing obligation. Why would they do this?
Icon is balancing its increased liability against the ability to protect its reputation.
Airplane crashes are bad for business. By trying to increase the safety record of the A5, through administering the Operational Agreement, Icon is protecting its reputation and, hopefully, its bottom line.
Icon Owns the Black Box
Every A5 comes equipped with a flight data recorder, known to the public as “the Black Box.” Icon owns the data recorder and, more importantly, the data. Icon also has the right to replace or upgrade the data recorder at its own expense. The owner and pilot agree they will not fly the plane without a fully functional flight data recorder.
Attorney Busk explains that in case of a crash, Icon wants to retrieve the data recorder to find out what the pilot was, or was not, doing when things went wrong.
If Icon can show that the pilot flew the aircraft outside of the performance parameters before the crash, they can say they are sorry for the crash, but they are not liable for it.
Takeaways
Attorney Busk’s review of the Purchase Agreement and Operational Agreement gives us several takeaways to improve our contract drafting skills when dealing with a purchase agreement for larger purchases, like the Icon A5 aircraft.
Simple to read, at an 8th grade level. Make the contract simple and avoid archaic contract language and terms. Avoid unnecessary recitations at the beginning of the contract. This makes the contract easier for the buyer to read and understand.
Avoid needless liability clauses. Build extra liability protection into the cost of the aircraft or product, like the discussion about the $10,000 liability opt-out fee in the Icon Purchase Agreement. Don’t complicate things when you don’t have to.
Save your emphasis for when it really matters. Make the contract visually simple. Don’t have clauses in all caps, and don’t bold unnecessarily. If too many things are emphasized, nothing will stand out at all.
Don’t include a dictionary of definitions. Put the definitions toward the front of the contract, not buried in the middle or the end. Instead of a definition list and making the reader look up terms like a dictionary, define and capitalize on the first use. Then they are defined terms throughout the rest of the contract.
Create an environment with less deal fatigue. “Streamline the contract just like your Icon aircraft is streamlined. Design your contract like you design your aircraft, and you have less deal fatigue, you’ll sell more airplanes, and the owners will be pleased. That’s what I recommend.”
Show Notes
THE CONTRACT: Aircraft Purchase Agreement, Aircraft Operating Agreement
THE GUEST: Chad Busk specializes in information technology acquisitions and many other commercial transactions. He drafts new contracts, analyzes existing contracts, negotiates new agreements, and advises decision-makers on how to achieve their business goals. He can be found at www.busklaw.com and reached at busklaw@charter.net.
THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.
If you are interested in being a guest on Contract Teardown, please email us at community@lawinsider.com.
Transcript
Chad Busk [00:00:00] Streamline the contract, just like your icon aircraft, a streamlined design, your contract, you design your aircraft and you’ll have less fuel fatigue, they’ll sell more airplanes. Regulators will be pleased.
Intro Voice [00:00:14] Welcome to the Contract Teardown show from Law Insider, where legal experts tear down contracts from some of the most well-known companies and high profile executives around the world.
Mike Whelan [00:00:27] In this episode, corporate attorney Chad Busk breaks down the purchase agreement and operating agreement for icon aircrafts, A5 plane. He digs into the relationship between the purchasing and operating agreements and explains why companies might take on more liability than you might expect. Chad also makes a demand that your contract language be as streamlined as Icon’s aircraft. So let’s tear it down.
Mike Whelan [00:00:54] Hey, everybody. Welcome back to the Contract Tear Show. I’m Mike Whalen. In this show, we talked to really smart friends like Chad Busk over here about contracts. We tear them down, we break them down. We get a little nerdy. Chad, how are you today?
Chad Busk [00:01:09] I’m doing well, sir. Thanks for having me on your show.
Mike Whelan [00:01:11] Is it cold up there yet? Chad is in Michigan. Just as a side note, I was accepted to Michigan for law school. They called me and said, you’re in Austin. Are you just going to go to Texas? I said, I’ll tell you what, what’s the temperature right now? The lady said, 17 degrees. I said, I’m going to Texas. Are you cold yet?
Chad Busk [00:01:30] Well, we’re fairly cold, right? But we haven’t had snow yet, but it’s probably due in the next week or so.
Mike Whelan [00:01:36] It’s early. So, guys, Chad has some experience and a really interesting industry and that has led us to talk about these documents. I’m going to share them with you real quick. This is an aircraft purchase agreement and also an operating agreement with a company called Icon. So if you’re in the business of buying airplanes, which it’s been weeks since I’ve done that Chad, you might run into these things. Chad, tell us about these documents. Why are they important? When would a lawyer run into them? Why should they pay attention to this Teardown?
Chad Busk [00:02:09] The Icon A5 is a light sport aircraft that is amphibious and it’s basically for hobbyists with a lot of discretionary income, you would buy this airplane, keep it in your garage, put it on a trailer, take it to a lake, or take it to an airport. And you could get into the aircraft and fly at the lake or another airport in Fair-weather, in daytime, in warm weather under ten thousand feet. And you maybe would go fishing after you land on the lake and then you would do your business and have fun and do sporting things. And then you would fly home, fly back to your dock, put it on your trailer, take it back to your garage as it cost in twenty nineteen was three hundred and eighty nine thousand dollars. So and it’s been called the jet ski with wings. So you have to have a lot of discretionary income and you have to be quite adventurous to get a light sport aircraft pilot license in order to fly this thing safely. And in fact, I can make sure that whoever flies it is licensed to fly the aircraft to avoid liability. And there have been accidents with aircraft. As near as I can determine accidents happen due to pilot error and not to a design or production in the aircraft itself. In one case, someone was flying the aircraft on a cocktail of prescription medicines and they were definitely impaired. And they they died as a result of crashing aircraft into the water. But as of May, this is the two documents that they want you to sign for you to buy this airplane.
Mike Whelan [00:03:56] So if you’re like me and just fly around to go duck hunting, because where we’re going, we don’t need roads, you want to learn about this agreement. But also we’re going to talk in the end about some of the general principles that you can pull from a purchase agreement and an operating agreement like this, because there’s some really interesting principles in here. So, Chad, what we’re going to do is I’m going to share some pieces of this document and we’re just going to go down through each of them. We’re going to start with the purchase agreement. And I I noticed early you had a beef with the word, whereas heretofore, therefore, tell me about some of the archaic stuff that you’re seeing here at the beginning of this agreement.
Chad Busk [00:04:37] I always have a beef with those words, like the aircraft carrier aircraft is a very sleek and beautifully designed aircraft. But the contract contracts I want you to sign for the purchase and operating of the aircraft, they’re archaic, they’re not sleek, they don’t have good lines. And it would put off a person wanting to to buy the aircraft in. The first thing that that person would do is say, gee, with all these funny, whereas now they’re forward in consideration of provisions, I better find an attorney. I’ve got a patent attorney to go through these with a fine tooth comb because I don’t understand any of this.
Mike Whelan [00:05:14] Well, recitations at the beginning, like, what’s the purpose of all those whereases? Is there is there a place to put these kinds of things?
Chad Busk [00:05:23] You don’t need them. Yeah. You know, you can just have a statement of facts. You just have a paragraph with no having the gist states. What this agreement why this agreement? Basically icon is in the business of selling aircraft, but the buyers interest in buying an aircraft and then you just go, what, the agreement? You don’t need any of that stuff. This is archaic contract design and it’s redundant and it puts off the reader.
Mike Whelan [00:05:50] You mentioned, even in the recitation of the of the consideration, saying that we’ve got good and valuable consideration that feels like law school, classy, but again, not necessary.
Chad Busk [00:06:01] Just reciting consideration of a contract doesn’t mean there’s consideration. The court look at that determine if there isn’t that consideration out here. It’s easy because you’re you’re buying an aircraft, you’re exchanging money for an airplane. That’s consideration right there. You don’t need to say that there’s consideration. It’s obvious.
Mike Whelan [00:06:20] Hey, everybody, I’m Mike Whalen, I hope you’re enjoying this episode of the Contract Teardown Show real quick. I want to ask you to do me you really a quick favor. Look down below. You’ll see a discount code to join the law insider premium subscription. When you do that, you get access to more content like this. You’ll see webinars, daily tips on contract drafting, not to mention access to the world’s largest database of sample contracts and clauses. It will help you write better contracts faster if you want to do it. Right now, there’s a code below. So get there. Also, if you’re part of a larger team, if you’re in-house or in a law firm, just email us. We’re at sales@lawinsider.com will make sure you get a deal as well. Come join us in the community. The code is below. Let’s get back to the show.
Mike Whelan [00:07:06] Well, I’m going to scroll down. And what we’re going to do, guys, is jump from the purchase agreement to the operating agreement here in a minute because they have such a tight relationship. But I’m jumping down to this operating area. It’s in five of the purchase agreement and a really interesting section about paying an additional ten thousand dollars to purchase the agreement has to do with some of these indemnification. Tell me about this section. It’s really interesting.
Chad Busk [00:07:33] It is interesting. I don’t understand the reason behind it. Basically, they have very one sided covenant not to sue and indemnity provisions, but you can get rid of those, not agree to them if you pay an extra ten thousand dollars on top of the purchase price. But that’s only three percent more than the purchase price. So my point is just. Don’t charge an extra premium, just add that on to the purchase price and don’t have those complicated provisions in the contract from the get go right. You’ll make it easier to do the deal to sell an airplane to someone.
Mike Whelan [00:08:17] Yeah, and I’m thinking of, you know, as a theme, we’re going to see a lot that the airline, you know, that the company icon is sort of risking a lot to sell this thing. I’m thinking of this closing window underneath in six A. It talks about the the estimated closing date can be moved by icon if icon changes the moving that I’m assuming that when you buy a plane like this, there’s a certain amount of build to suit. Right. That it’s not just sitting in a in a showroom somewhere. Maybe that’s why they’re trying to do this, where they get to control sort of the production timeline, maybe.
Chad Busk [00:08:55] I’m sure they want to control that. You can buy the basic vanilla version, that you can add bells and whistles for an extra charge, but they get to closing. You have no right to delay the closing. And to me, again, that shows that it’s one sided. But if you want to buy one of the airplanes, you can’t go anywhere else and buy it from somebody else. So basically, they have bargaining chips on their table. On the other hand, if they want to do a deal, avoid what I call deal fatigue, you’re going to have a contract that’s easy to grasp so you can get on with the show.
Mike Whelan [00:09:27] Yeah, yeah. And going down to 60, I mean, again, it’s talking about this, how little power the buyer has following buyers inspection. And during the closing window, buyer must provide written notice to icon of any items Buyer believes do not conform to Icahn’s internal quality specifications. And if you don’t give that notice, you’re accepting the aircraft as is again trying to put a lot of onus on the buyer to not undo the purchase.
Chad Busk [00:09:55] But you don’t know. The buyer doesn’t know what Icon’s internal quality specifications are. They can anything that icon says. And furthermore, they’re going to be hidden. And if you’re just an ordinary Joe or Jill with a lot of money, you’re not going to be qualified to go into that aircraft and say, yep, it conforms to their internal quality specifications again. So they have all the chips on their side of the table.
Mike Whelan [00:10:24] Yeah. And I’m looking down at eight F specifically where they really nail this home. They say Icon may terminate this purchase agreement at any time for convenience, again, given them a lot of control over that production schedule.
Chad Busk [00:10:38] That’s true.
Mike Whelan [00:10:40] I’m moving down now. There’s quite a large section limiting, you know, a limited warranty and a disclaimer of warranties jump down to that. That’s in Section 11. And talk to me about about this area. What are you seeing? I see a lot of bold, a lot of capital letters. Do you like this section?
Chad Busk [00:11:05] There are trying to make it conspicuous and they’re putting it all caps and bold, but under the uniform commercial code to make something conspicuous to satisfy the code, you don’t have to put it in bold and in caps. If they can’t fire in bold, that would do it. Putting something in all caps again hurts the readability and comprehension of the contract, it just makes it harder to grasp and there’s no reason to put it in caps. It’s like shouting. It’s like the shouting. You don’t need to do a uniform. Commercial code doesn’t require it. So why do it? Just because attorneys are doing it for years, you know, and and they go ahead and do it just because that’s how they’ve been taught in law school or when they were in a law firm. Hey, this is disclaimer language. We better keep it involved. We better put it in all caps. But that it doesn’t fly. It doesn’t fly with me. I guess it’s a pun it doesn’t fly so well.
Mike Whelan [00:12:02] Speaking of sort of these things that are meant to nudge the buyer, I’m interested. We’re about to talk about the the other agreement on operating this thing under 13. They talk about operational safety already. And there’s an interesting bit about the sort of what you’re buying into. Talk to me about this area that sort of hammers home. This is what you’re getting into if you buy this plane.
Chad Busk [00:12:26] Well, that really goes to the operating agreement you are buying, not the airplane. You’re buying the airplane. Plus, you’re going to do everything that they want you to do for the life of the airplane as long as you own it. Right. Before we get into the operating agreement, not only signed by the buyer, future owner of the aircraft, but also the managing pilot, the managing pilot must be a person, a natural person, an individual who is qualified and licensed to fly the airplane in. Managing pilot may be different than the owner, but I will always know the identity of the managing pilot and be able to track him or her as they remain qualified to operate the aircraft over the life of the aircraft. And I have an interesting point on the management pilot. I understand that there’s consideration between the buyer and icon when the buyer purchases the aircraft. OK, but what consideration is to make a valid agreement between the managing pilot and icon? I don’t think there’s consideration. They can say there is and they do and the operating agreement. But I don’t think there’s consideration between the managing pilot and the icon. No, to me, and I don’t think that they’ve addressed that properly.
Mike Whelan [00:13:43] Yeah, we’ll show you guys that because there is a whereas so theoretically it’s happened. I’m I’m curious sort of in principle, a theme that we’ve seen throughout these interviews, throughout these teardowns, Chad, is that the the the contract sort of has two purposes or two functions. One is that it makes clear what’s being agreed to. And two is that it sort of nudges people. It encourages them to recognize things, to say, hey, this is happening. I’m looking at this section about about how often you’re doing engine overhauls and parachute repacks and recovery, rocket replacement, all these different things. Does reciting these things here have any kind of legal effect in this document in terms of, hey, you can’t get out of this deal because this stuff happened because we told you that was coming? Or is this mostly intended to say, hey, dude, you’re you’re getting into a big deal here?
Chad Busk [00:14:40] I think it’s both, actually. I think I’m trying to reduce their liability by telling the owner what they have to do to maintain the aircraft. And they talk about the operating costs of the the aircraft, both fixed and hourly cost on their website. They put specific dollar amounts for both the fixed and the operating costs. And I suggested they they link to their website in the operating agreement when it talks about the things you have to do to maintain the aircraft, why not link to the website that has the actual cost so that somebody can see what they’re going to be stuck with to maintain and operate the aircraft properly over the life of the aircraft?
Mike Whelan [00:15:21] Yeah, we’re about to jump to the operating agreement before we do that, guys, I this bit is fascinating. I know what a black box is because I watch TV. That’s legitimately the only reason. But they point out in fifteen notwithstanding anything to the contrary here in the flight data recorder. And the data collected is and remains after the closing of this sale, the sole property of Icon. That’s fascinating. Tell me about that.
Chad Busk [00:15:48] Well, they do that because if the aircraft is involved in a crash, then they can retrieve the flight data recorder and they can find out what the pilot is doing or not doing when things went wrong. And in fact, in some of the crashes, you can get on a website and they have an analysis. The FAA did an analysis of what happened to result in the crash. And you can see data directly from the flight data recorder. That’s hard. I think it’s CEPHAS website. So that, again, the Icon. And say, well, this is pilot error, our aircraft is performing fine, but whatever it was operating it, you know, did this did that, they they flew the aircraft outside of its performance parameters and then they crashed. So that’s that. I was sorry it happened, but we’re not liable for that, according to the flight data recorder data. See.
Mike Whelan [00:16:45] So speaking of, you drowned your plane and ran into the ground. We’re going to jump over to the operating agreement. I want to get you to sort of give me the big principle here. When you’ve got both a purchase agreement and an operating agreement, especially when you’ve got a big purchase like this, what’s the relationship between those two? Do you even need an operating agreement to get the sale completed?
Chad Busk [00:17:08] I think the reason why they have an operating agreement, Mike, is because managing pilot is a party to the operating agreement. They want to come in, who’s ever going to fly that plane? And that person may be different than the owner. That’s why they have two agreements and why you really can’t combine the two, because managing pilots signed the purchase agreement or she she’s the operating agreement.
Mike Whelan [00:17:32] Yeah. And to your earlier point, there is this, whereas the parties acknowledge, et cetera, that this deal was arrived at in consideration of the provisions of this operating agreement, specifically including but not limited to the agreements and waivers of owner and managing pilot and the indemnification here in.
Chad Busk [00:17:49] I don’t see how managing pilot can waive anything because there’s no consideration for him or her to do so. So I think they have a problem, as I’ve said before, with that.
Mike Whelan [00:18:00] Yeah. And on that, if you get if you jump down to one F, it’s it’s talking about the importance of this relationship with a managing pilot. It says that the owner agrees that the aircraft will not be flown if there’s no managing pilot. It’s grounded and it talks about this vacancy in the managing pilot position due to resignation. Talk to me about this section.
Chad Busk [00:18:22] Well, I think it goes on to say that I must always know who the managing managing pilot is so that they know that that aircraft is being flown only by managing pilot who’s authorized and licensed to fly the airplane. Again, they don’t want some person that’s not qualified to fly that aircraft, because if that happens, then they might be liable. So then again, they’re trying to control the operators, the aircraft from cradle to grave over the useful life of the aircraft so that they’re they don’t have any liability, so that they can’t be sued or if they are sued when actually there’s a mandatory arbitration clause, would have to put arbitration.
Mike Whelan [00:19:06] But does this create a continued like what would make me nervous about this is this is creating a continued responsibility for the manufacturer. That’s really not true in any you know, in most purchases of of commodities like this. Like why why would this company agree to do that? Even if it creates this management responsibility ongoing?
Chad Busk [00:19:28] It is. You have to track all your contracts, their operating agreements, very carefully. It’s a would be a challenge for accurate contract administration to do that, but they not only have liability exposure, they have reputational damage. So if there are these crashes of their Iconix five airplanes in the industry, in the aircraft industry and elsewhere, they’re going to develop a bad reputation. So why would anyone want to buy an airplane this expensive? It might it might crash. So they want to protect they want to protect themselves from not only liability, but also from reputational damage for flying these aircraft around.
Mike Whelan [00:20:18] That’s an interesting one. Right? Like, we we tend as lawyers to say, I want to avoid liability to my to my client. But here is a client saying, no, we would rather have that liability, you know, that responsibility ongoing. Then, you know, there’s a business trade off in there and they’re consciously, apparently making that tradeoff decision.
Chad Busk [00:20:39] I think so. I I don’t know how well they were doing. I know they had a little financial difficulties a few years ago, but maybe they’ve surmounted those. And so we’ll see.
Mike Whelan [00:20:52] So I’m jumping down now, getting back to this this thing about the releases of liability and and the managing pilot. And here in four, there’s a section called Optional Release and Covenant not to sue limitation of liability. These are selection’s extra selections that both the owner and managing pilot, I assume, make together that you can’t you know, you can’t choose these things unless they both sign. Talk to me about this optional release section. I think you might have mentioned it. Is this the ten thousand dollars deal you mentioned in the earlier?
Chad Busk [00:21:25] If you pay an extra ten thousand dollars, those go away again. Why have this awkward ten thousand dollar premium just build that into the cost of the airplane and just don’t have those provisions in there anyway? The first thing someone is going to do with that money smarts it off. If you have enough money to buy an airplane, you have enough money to hire an attorney to look at those provisions and say you shouldn’t agree to those, you should take those. And they still have an indemnity later on in the operating agreement indemnity. If the owner managing pilot breaches the agreement, they’ve got an indemnity for that, too. I wonder if you before you agree to that, if you should contact your family insurance broker and see if you can get insurance, maybe in the way of an access liability policy that would insure over that contractual indemnity obligation. Otherwise, the buyer and managing to sticks to managing pilot. As I said, their assets are going to be exposed on that indemnity. And you don’t know what that liability is, so they may want to investigate insurance coverage for that.
Mike Whelan [00:22:33] Yeah, and on this election, what’s interesting to your point earlier about this relationship between the owner and managing pilot, which could be two different people and maybe often are two different people, but it’s got a place for both of their signatures on their initials, on on these individual sections. So, like, if the owner doesn’t want to pay the 10 grand for whatever reason, I don’t know why they wouldn’t. But the managing pilot is saying, no, I’m not touching this thing. You know, it’s interesting that they both have to be on the same page, even in making this election.
Chad Busk [00:23:03] Sure. Sure. And you wonder then about what type of an agreement a managing pilot should have with the owner if they’re separate? You know, if I represent a managing pilot, he says, look, I’m going to fly this airplane for this gentleman or lady who’s the man who was the owner. I want to make sure that I’ve got a contract between me, the managing pilot and the owner to protect me, the these of the icon. So there’s that to consider to this can be a tangled web, a tangled web before before we reach the end of the road here
Mike Whelan [00:23:34] and getting below in 40. And it sort of lists out these different different kinds of indemnification that can be purchased. But then, like you pointed out, in five, there’s another different section that is apparently a non purchasable waiver of all claims or whatever. Talk to me about five a this other indemnification section
Chad Busk [00:23:57] at the other end of the page, if I can refresh my recollection. But I think that has to do for breach of the contract.
Mike Whelan [00:24:04] Yeah, it talks about against any claims, action suits, proceedings, losses, damages, et cetera, to the extent that losses are caused by or a result of any breach of the representations or warranties. I agree with
Chad Busk [00:24:16] what them of indemnity, which I just mentioned, maybe should be insured over if if you can get insurance for that type of indemnity coverage, I don’t know.
Mike Whelan [00:24:26] So just a couple more here, guys. I want to talk about the definitions in seven. There’s a section called Definitions. And again, a theme in these conversations that we’ve had is where those go. Should they be contextual? Should they be at the beginning and bright lights? What do you think about the definitions of these roles?
Chad Busk [00:24:44] When I write contracts, I have a definition section, but I always move toward the front of the agreement because I think it’s more logical to put them there than in the end. There are some plain English advocates, especially Ken Adams, who is the guru of plain English in these modern times. He likes to define doesn’t usually go and recommend as separate definitions. Section usually recommends contextual contextual definitions. The first time you use a word in the contract, you characterize it and then that means it’s a defined term for the rest of the agreement. So that’s how I do definitions
Mike Whelan [00:25:23] like Standard Amount. So finally, I’m speaking of the cradle to the grave ownership for for the manufacturer. I’m looking at 11 talks about transfer of the aircraft or this agreement. It seems to limit your ability to go sell it without them buying onto the whole thing. Talk to me about this transfer section again.
Chad Busk [00:25:46] They want to know who their aircraft lines up in the hands so they have to control and be aware of the any sale down the road of the aircraft. To make sure, again, that whoever has it, if they’re not authorized to fly at the FAA managing pilot that is trained and licensed to fly it. So they they track that aircraft through its useful life. Because, again, avoiding liability exposure, avoiding reputational damage control.
Mike Whelan [00:26:20] Yeah, when you’re selling a four hundred thousand dollar toy, you want to make sure that the kids are playing with it correctly. So I’m thinking, Chad, you know, this is a really interesting document. Obviously, a lot of the people watching this may not be buying and selling aircrafts if you want to. I guess I could you could buy one for me and I can give it a shot. I’ll be your test dummy.
Chad Busk [00:26:40] You know, my you can fly the icon aircraft if you have Microsoft flight simulator 20, 20 and a powerful enough PC to run it. You get the icon aircraft here free of charge included in your library of airplanes that you dealt with by Microsoft Flight Simulator 20 20. So if the airplane in that program and it’s
Mike Whelan [00:27:02] on then and then I don’t have to go outside, which is a win win. But Chad, I am curious in terms of principles like what are you seeing as take home principles that somebody who’s dealing with the purchase agreement or maybe the purchase of a large product like this, what kind of principles can you give to drafting attorneys from this example?
Chad Busk [00:27:22] I would make it more simple, I would avoid our contract language, I would avoid needless liability provisions and build extra liability into the cost of the aircraft. As I said, don’t have things in bold caps. Streamline the contract just like your icon aircraft to streamline, design your contract, like you design your aircraft and you’ll have less deal fatigue. You’ll sell more airplanes. The owners will be pleased. That’s basically what I recommend.
Mike Whelan [00:27:54] Put your contract in an air tunnel. You’ll win every time. Chad, if people want to get in touch with you to talk more about purchasing, flying things or other subjects, what’s the best way to reach out to you?
Chad Busk [00:28:08] I have a website that’s busklaw.com and my email address is busklaw@charter.net.
Mike Whelan [00:28:19] Awesome. Well, I appreciate that, Chad. Thanks for being with us. And all of you watching can go to the show notes of this episode by going to lawinsider.com/resources. Also, if you want to be one of my smart friends and contribute, just send us an email at Community@LawInsider.com. We’ll hang out. We’ll see you guys next time. Thanks again, Chad.
Chad Busk [00:28:39] OK, thank you, Mike. Appreciate it.