National City Commercial Capital Co. v. Becker Real Estate Services, Inc.
24 Misc. 3d 912, 885 N.Y.S.2d 173 (2009)
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Rule of Law:
Under UCC § 2-A-407, a lessee's promise to make payments under a non-consumer finance lease becomes irrevocable and independent upon acceptance of the goods, obligating the lessee to pay the lessor regardless of equipment defects or vendor misconduct.
Facts:
- On or about August 14, 2006, the defendant corporation entered into an equipment finance lease with General Electric Capital Corporation (GE Capital) to lease telephone equipment provided by a third-party vendor, Capital 4, Inc.
- The lease contained a 'hell or high water' clause requiring the defendant to make all payments regardless of any problems with the equipment, and it expressly disclaimed all warranties by the lessor.
- The defendant also signed a 'Delivery and Acceptance Certificate,' acknowledging it had received the equipment and that the contract was a finance lease under UCC Article 2-A.
- In December 2006, GE Capital sold and assigned the lease to the plaintiff.
- The defendant made monthly payments for approximately one year, first to GE Capital and then to the plaintiff after the assignment.
- In September 2007, the defendant ceased making payments, later alleging that the telephone equipment was defective and often non-functional.
- The defendant subsequently claimed the employee who signed the lease lacked the authority to bind the corporation.
- The equipment vendor, Capital 4, Inc., went out of business.
Procedural Posture:
- The plaintiff, an assignee of an equipment finance lease, filed a lawsuit against the defendant lessee in the Supreme Court of New York, Nassau County, which is a state trial-level court.
- The plaintiff sought to recover accelerated payments, possession of the equipment, and attorneys' fees after the defendant defaulted on its monthly payments.
- The plaintiff then filed a motion for summary judgment, asking the court to rule in its favor without a full trial.
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Issue:
Under UCC Article 2-A, are a lessee's obligations under a finance lease containing a 'hell or high water' clause enforceable by the lessor's assignee, thereby precluding defenses based on defective equipment, vendor fraud, or initial lack of authority to sign the lease?
Opinions:
Majority - Pines, J.
Yes, a lessee's obligations under a finance lease containing a 'hell or high water' clause are enforceable. UCC § 2-A-407 statutorily codifies the 'hell or high water' provision, making a lessee's promise to pay irrevocable and independent upon acceptance of the goods. Therefore, defenses related to the equipment's performance are not valid against the lessor or its assignee; the lessee's remedy is against the vendor. The court reasoned that the defendant's claims of defective equipment and vendor fraud are barred by the unambiguous terms of the lease and by UCC § 2-A-407. The defendant's only recourse for these issues is against the now-defunct vendor, Capital 4, Inc. Furthermore, the court found that even if the employee who signed the lease lacked initial authority, the defendant ratified the contract by its subsequent actions—specifically, by accepting the equipment and making payments for over a year without objection. Finally, the defense of champerty fails because the plaintiff's primary purpose in acquiring the lease was not to bring a lawsuit, as evidenced by the fact it was part of a larger purchase and the defendant made eight payments to the plaintiff before any legal action commenced.
Analysis:
This decision strongly affirms the enforceability of 'hell or high water' clauses in commercial finance leases, providing significant security for finance lessors and their assignees. The ruling clarifies that under UCC Article 2-A, the financial obligation is severed from the performance of the equipment, shifting the risk of non-performance entirely to the lessee. The case also serves as a practical example of ratification, demonstrating that a corporation cannot escape a contract by claiming lack of authority after it has accepted the benefits of the agreement through its conduct. This precedent reinforces the unique, statutorily protected nature of finance leases, distinguishing them from ordinary leases and promoting the availability of capital for equipment financing.
