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The Handshake Agreement is Worth the Paper it is Written On

Horn & Johnsen SC > Horn & Johnsen News  > The Handshake Agreement is Worth the Paper it is Written On

The Handshake Agreement is Worth the Paper it is Written On

Co-ownership of an airplane is the cheapest way to fly. Many pilots start out in one of these. Variations of this type of ownership are flying clubs, fractional ownership, or unspoken agreements that more than one person fly an aircraft titled to one person. As the cost of aircraft maintenance and storage is high, it makes sense for most pilots to share the costs with others in exchange for flight time.

Anyone in one of these situations, however, could face unseen risk. This risk generally exists in handshake agreements, gentlemen’s pacts, or unwritten rules about part ownership, when nothing is on paper. With nothing on paper (or not enough) any unwritten rules are unlikely to be helpful when the time comes.

Take one example. A Cessna 182 Skylane owned by a ‘club’ consisting of 6 people formed their club 15 years ago. Things have gone fine for 15 year. When there is a dispute among members, they resolve it informally among themselves. Their insurance policy covers the plane and its owners in case of damage to property, death, or bodily injury. But one day one of the members passes away. The surviving spouse wants money instead of a share in the airplane club and tries to sell the share. If the spouse cannot find a buyer they may want to force the sale of the airplane to pay out the share value.

Yes, the surviving spouse can do this, if nothing is in writing prohibiting it. That is why this club ought to have a lawyer write up an operating agreement between the ‘members’ of the club, and have all of them sign it. The club should also be titled in the name of a limited liability company or similar entity, to isolate it from the reach of members outside of the club, and to protect the members’ personal assets from creditors.

A handshake agreement is not going to help in many other situations. In a dispute among members, they have to resolve it among themselves despite anger and stubbornness, or resort to court proceedings. Consider what happens when only one person is on the title. The other people have basically no legal rights to the plane, regardless of how long they have been flying it.

Insurance companies are generally good about making sure co-owners have something in place to protect one owner from liability for acts of another. But an insurance policy has a limit. If an airplane is crashed and a death occurs, many times the ensuing wrongful death litigation could result in a money judgement far in excess of the policy limits. The average settlement in wrongful death cases in U.S. airplane disasters is reportedly $3 to $5 million per victim.

There are numerous other problems that co-owners can encounter without anything in writing. As part of a pilot’s training, we learn to make risk assessments and use techniques to stay aware of the situation around us. Part of that training should include a risk assessment of handshake agreements. The best thing to do for someone in or considering a co-ownership is to see an attorney as soon as possible. Have the attorney look at the paperwork (if any) underlying the co-ownership. An experienced aviation attorney is of course the ideal professional to consult, because they are specialists and (one would hope) fellow pilots that understand the needs and egos of pilots sharing ownership.

 


Greenberg et al., “The Big Money Surprise About Malaysia Airlines Flight 370”, Fortune (May 1, 2014) (quoting Peter Schmitz, CEO of global aviation for Aon).

Source: New feed