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Wells Fargo Bank Northwest

August 14, 2012


Defendant appeals from the order of the Supreme Court, New York County (Bernard J. Fried, J.), entered March 23, 2011, which granted plaintiff's motion for partial summary judgment as to liability on its breach of contract cause of action.

The opinion of the court was delivered by: Saxe, J.

Wells Fargo Bank Northwest, N.A. v US Airways, Inc.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on August 14, 2012

David B. Saxe,J.P. John W. Sweeny, Jr. James M. Catterson Dianne T. Renwick Sallie Manzanet-Daniels, JJ.

This dispute arises out of an arrangement by which defendant US Airways, while it was the owner or operator of the three aircraft at issue here, had acquired from the manufacturer the right to operate the aircraft at a maximum takeoff weight (MTOW) in excess of the MTOW assigned to them upon manufacture.

US Airways' predecessor company, America West Airlines, Inc., acquired the three 737-3G7 aircraft from Boeing in 1991. At that time, each aircraft had an MTOW of 124,000 pounds. Pursuant to a program offered by Boeing called the Flex Program, US Airways entered into an agreement with Boeing that permitted it to operate the three aircraft at an increased MTOW of 138,500. However, US Airways' right to do so was subject to annual reports and payments of fees to Boeing, and, according to US Airways, the right to operate the three aircraft at the increased MTOW under the Flex Program agreement was not transferable.

In 2005, plaintiff Wells Fargo Bank Northwest, N.A., as Trustee, purchased the three aircraft from US Airways, then leased them all back to US Airways for a three-year term. Each purchase agreement included a page entitled "aircraft technical data," which specified that the MTOW of its subject aircraft was 138,500 pounds, with a footnote stating, "Current as of 2 September 2005." Nothing in the purchase agreements mentioned US Airways' arrangement with Boeing by which the aircraft's MTOW had been increased from 124,000 to 138,500.

The lease agreements provided, in section 19, for "Redelivery Conditions." Upon US Airways' turnover of the aircraft to Wells Fargo at the end of the lease term, Wells Fargo was permitted a final inspection, including a detailed "operations ground check," an "acceptance flight" demonstrating the airworthiness of the aircraft, and a full aircraft documentation review, to verify that the condition of the aircraft complied with the agreements. Section 19 provided further that, after the inspection, Wells Fargo would provide US Airways with a "Redelivery Certificate" acknowledging and confirming that US Airways had redelivered the aircraft to Wells Fargo in accordance with the agreement.

Schedule 11 to the lease agreements, entitled "Return Conditions," listed the terms pursuant to which each aircraft was to be redelivered to Wells Fargo. Notably, Section 1(q), under "General Condition," provided that the "[o]perating weights of the Aircraft will be as at delivery and will be freely transferable" (emphasis added). The term "Delivery" was defined as "delivery of the Aircraft on lease by Lessor to Lessee hereunder as evidenced by Lessee's execution and delivery of the Lease Supplement."

At the end of the lease terms, in accordance with the foregoing, Wells Fargo had a team of experts conduct the final inspections. These experts identified a number of discrepancies, all of which were resolved before the redelivery of the aircraft. However, the MTOW of the aircraft was not the subject of any inspection or discussion. Wells Fargo accepted redelivery of the aircraft, and the parties executed Redelivery Certificates as provided for in the lease agreements.

The Redelivery Certificates provided at Section 3: "By signing this Certificate, [Wells Fargo] accepts redelivery of the Aircraft under the Lease Agreement without prejudice to each party's rights and obligations under the Lease Agreement. All risks in the Aircraft shall pass from [US Airways] to [Wells Fargo] upon the effectiveness of this Certificate."

Section 4 of the Redelivery Certificates provided: "Except as listed on Appendix 2 hereof, [US Airways] has returned the Aircraft to [Wells Fargo] in the condition set forth in Schedule 11 of the Lease Agreement (each deviation from such requirement in the Lease Agreement, a "Discrepancy"). Set forth across from each Discrepancy listed on Appendix 2 ...

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