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Eureka v. Wentworth: Further Erosion of the 'Hell or High Water' Principle
A fundamental tenet of equipment leasing has been the concept of “hell or high water” rental payments. Once the lease is signed and the lessee accepts the goods, then the lessee's promises under the lease become irrevocable, especially the promise to pay rent. The draftsmen of UCC Article 2A recognized this critical element and codified it with respect to a finance lease in UCC '2A-407(1)-(2) (all citations herein refer to Uniform Commercial Code Article 2A pre-2003 revisions). A finance lease is a particular type of “true” equipment lease in which the lessee itself selects the item of equipment it wants and instructs the lessor to acquire it for lease to the lessee. UCC '2A-103(g). A finance lessor is neither the manufacturer nor supplier of the item of equipment; it is merely providing the money. Article 2A of the Uniform Commercial Code (the “Code” or the “UCC”) extends certain benefits to finance lessors, one of the most important of which is that the lessee's promises are not subject to termination, modification or repudiation; in other words, the lessee must comply with them come “hell or high water.” UCC '2A-407(2)(b).
The “hell or high water” protection of the Code is meant to ensure that the rental payments due to a finance lessor will not be held hostage by the lessee because of a defect in the equipment being financed or a claim by the lessee that the lessor breached a provision of the lease or otherwise. Traditionally, courts have viewed a lessor's “hell or high water” protection as inviolate. Under what circumstances, then, could a lessee cancel the lease and cease making rental payments, and are there any exceptions to the “hell or high water” nature of lessee's obligations? A recent case, Eureka Broadband Corporation v. Wentworth Leasing Corporation, 400 F.3d 62 (1st Cir. 2005), suggests that fraud may be such an exception.
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Protecting Innovation in the Cyber World from Patent Trolls
With trillions of dollars to keep watch over, the last thing we need is the distraction of costly litigation brought on by patent assertion entities (PAEs or "patent trolls"), companies that don't make any products but instead seek royalties by asserting their patents against those who do make products.