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By John Sinodis and Chris Stovall
A recent federal court decision from Pennsylvania provides an important reminder that the public policy advanced by statutory recognition of finance leases under U.C.C. Article 2A, reinforced by statutory and contractual hell or high water protection for the lessor, directly undermines defenses commonly raised by lessees attempting to fend off collection.
In late July 2011, the U.S. District Court for the Eastern District of Pennsylvania published a 37-page long decision granting summary judgment for an equipment lessor on various defenses and counterclaims raised by three business lessees of telephone equipment. De Lage Landen Fin. Services, Inc. v. Rasa Floors, LP, 792 F. Supp. 2d 812 (E.D. Pa. 2011) (“De Lage”). In the course of the opinion, the court reviews the established law on finance leases under U.C.C. Article 2A, noting that finance leases are statutorily sanctioned, well-recognized in case law, have standard lease provisions integral to their existence (including the hell or high water clause), and draw special protections for lessors under Article 2A, because they provide an important alternative method for businesses to acquire needed equipment. The court’s emphasis on these affirmative elements of the law and policy concerning finance leases undergirds its rejection of the lessees’ defenses.
The De Lage court begins the U.C.C. analysis with the important recognition that U.C.C. Article 2A gives parties the right to make a binding stipulation that a lease is a finance lease governed by the Article, even when the lease would not meet the test for such ...
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