Opinion ID: 149094
Heading Depth: 3
Heading Rank: 1

Heading: Meaning of Pay

Text: The bankruptcy court's rejection of the Owner Participants' claims was based on its ruling that an exclusionary clause, which canceled Delta's obligation to pay under the TIA if it paid SLV, was satisfied by the discharge in bankruptcy of Delta's obligation to pay SLV. The court's reasoning was based in part on alternative dictionary definitions of pay to the effect that an obligation is deemed paid once the obligation has been discharged. We find this reasoning erroneous. Assuming that the reference, in the exclusionary clauses, to payment of SLV is ambiguous, the court's interpretation depended on a strained and improbable reading, which inevitably defeated the intentions of the contracting parties. Adoption of the bankruptcy court's construction of pay nullified Delta's obligation to pay the Owner Participant under the TIA upon the occurrence most likely to call its provisions into playDelta's insolvency. Delta's insolvency would predictably at once bring about (1) the foreclosure of the aircraft, causing the loss to the Owner Participant for which Delta promised compensation, and (2) Delta's bankruptcy and discharge, causing (under the bankruptcy court's interpretation) nullification of Delta's obligation to compensate the Owner Participant under the TIA. This interpretation of pay rendered the agreement nonsensical and self-defeating, by making it inoperative in the very circumstance for which it was designed. Delta's obligation to pay compensation under the TIA, of course, did not provide the Owner Participant with complete protection. Since the Owner Participant's loss of tax benefits would likely come about as a result of Delta's insolvency and consequent bankruptcy, the Owner Participant could not realistically expect to collect 100% of what Delta would owe it under the TIA. What the Owner Participant could reasonably expect to receive was a claim against Delta in bankruptcy for the amount due to it under the TIA, and to recover ratably for that claim along with the other creditors. This contractual expectation was defeated by the bankruptcy court's interpretation, which treated Delta's bankruptcy as simultaneously causing the Owner Participant's loss for which Delta owed compensation under the TIA and nullifying Delta's obligation to compensate the Owner Participants for that loss. This was not a reasonable interpretation of the contract. Nor is it an answer that, notwithstanding the cancellation of Delta's obligation to pay under the TIA, the Owner Participant retained the opportunity to recover for its loss of depreciation by way of SLV. As noted, under the terms of the Indenture waterfall, the Owner Participant would receive no part of SLV until the Lenders were fully compensated. By giving the Owner Participant a right to recover directly from Delta, the TIA placed the Owner Participant in equal status with other unsecured creditors, to the extent of its claim for depreciation recapture. Relegating it to recover only indirectly through the indenture waterfall, from payment of SLV, deprived the Owner Participant of that contractual entitlement and defeated the purpose of the contract. Notwithstanding that dictionary definitions of pay include this strained alternative, the bankruptcy court was not at liberty to adopt it as the meaning of the contractual term, when that was plainly not the understanding of the contracting parties. [3]