General Electric Capital Corp. v. FPL Service Corp.

Majority - Mark W. Bennett

Yes, a party's obligation under an equipment lease is not excused by a natural disaster when the contract contains an enforceable "hell-or-high-water" clause, and if the lease is deemed a secured transaction, the secured party must strictly adhere to UCC Article 9's requirements for commercially reasonable disposition and notice of repossessed collateral, which cannot be waived by the debtor. The court found FPL liable because the contract contained an explicit "hell-or-high-water" clause, stating FPL's payment obligations were "absolute and unconditional" and assigning to FPL the "risk of loss and damage to the Equipment from any cause whatsoever." Under Iowa law, which recognizes Restatement (Second) of Contracts §§ 261 (supervening impracticability) and 265 (frustration of purpose) defenses, these defenses are inapplicable if the contract language indicates otherwise. The court cited C & J Vantage Leasing Co. v. Wolfe to affirm the enforceability of hell-or-high-water clauses in Iowa, regardless of whether the agreement is a lease or secured transaction. FPL's argument that Hurricane Sandy was unforeseeable and insurance impossible was rejected, as the contract's "any cause whatsoever" language expressly dealt with such contingencies, thus precluding FPL from claiming excuse from performance. The court determined that the agreement, despite being labeled a "Lease Agreement," was in fact a secured transaction under Iowa Code § 554.1203(2). This was based on a two-part test: (1) FPL was prohibited from terminating its payment obligation (due to the "absolute and unconditional" clause), and (2) FPL had an option to purchase the copiers for nominal consideration ($1.00) at the end of the term. This recharacterization meant that GECC, as a secured party, was obligated to comply with UCC Article 9's requirements for the disposition of collateral, specifically concerning commercial reasonableness and proper notice, which debtors cannot waive prior to default. The court found that GECC failed to provide admissible evidence that it disposed of the copiers in a commercially reasonable manner. The affidavit from GECC's bookkeeper, Rick Tyler, lacked personal knowledge regarding the remarketing process and was deemed inadmissible hearsay. Consequently, GECC did not meet its burden of proof under Iowa Code § 554.9626(l)(b). Additionally, GECC failed to provide proper notice for the resale of the second copier, as required by Iowa Code § 554.9611, as the initial notice only covered one copier, and FPL had not executed a post-default waiver. Due to these deficiencies, the court granted summary judgment on liability but deferred ruling on the issue of damages, instructing the parties to submit additional admissible evidence.