What's New in the Law

Ability to Collect Rentals

Gaia Leasing LLC v. Wendelta, Inc., 2010 WL 5421324 (U.S. Dist. Ct. D. Minn. Dec. 23, 2010)

This case should motivate the assignees of equipment lessors to be sure they obtain and understand all of the documents related to the lease transaction being assigned. Although the lease in this case was not an Article 2A finance lease (the lessor had supplied the goods), it did contain a waiver of defenses (which the court confusingly refers to as a “hell-or-high-water” clause). Nevertheless, the transaction also included a document called the Condition Precedent ' the satisfaction of which was to be the trigger for the lessee's obligations to the lessor. Since the lessor was not able to satisfy the terms of the Condition Precedent, the lessee was never obligated to begin making payments under the lease to the assignee, against whom the court grants summary judgment.

Measures of Lessors' Damages

PNCEF, LLC v.Hendricks Building Supply LLC, 2010 WL 4677772 (U.S. Dist. Ct. S.D. Ala. Nov. 8, 2010); 2010 WL 3672257 (U.S. Dist Ct. S.D. Ala. Sept. 10, 2010)

After denying entry of a default judgment against a lessee in the earlier case and ordering the plaintiff (a successor to the original lessor) to submit further evidence to establish its claim for money damages, the court finds that the plaintiff is entitled to recover “stipulated loss value” ' defined in the lease to include total delinquent rent (including late fees), all future rent and the estimated fair market value of the equipment at the end of the lease term. With respect to estimated fair market value, the court accepts the estimate provided by the plaintiff's representative based on her experience, her examination of Web sites to determine the “going price” for such equipment and her consultations with other employees of the plaintiff. However, the court declines to award the plaintiff “reasonable” attorney's fees in excess of those actually incurred based on plaintiff's argument that “reasonable” should include potential future fees to be incurred due to difficulty of enforcement or possible contingency payments.

Other Conflicting Interests Under Article 2A

Rent-N-Roll v. Highway 64 Car and Truck Sales, 2010 WL 4629604 (Tenn. Ct. App. Nov. 16, 2010)

In a well-reasoned decision regarding Article 2A's provisions dealing with conflicts between lessors of accessions to goods and those having other interests in the whole of such goods, this appellate court affirms a judgment granting priority to a lessor of custom wheels and tires. A dealer perfected a security interest in an automobile that it sold to a woman who subsequently leased custom wheels and tires from a company that had to cut into the body of the car in order to install the wheels and tires. After the woman defaulted under both the security agreement with the dealer and the leases with the lessor of the wheels and tires, the dealer repossessed the car and the lessor sued the dealer to obtain possession of its wheels and tires. After a thorough examination of 2A-310, Lessor's and Lessee's Rights When Goods Become Accessions, the court concludes that the lessor of the wheels and tires was entitled to obtain possession of those leased goods from the secured party/dealer, but that it must first compensate the dealer for the damage done to the car when installing the wheels. Although the court does not attempt to explain the rationale behind the statute, 2A-310 makes a critical distinction regarding the priority of the lessor of accessions depending upon whether the lease of the accessions was entered into: 1) before, or 2) at the time or after, the goods became accessions. The interests of the lessor (as well as of the lessee) have priority only in the former case with respect to previously existing competing interests in the whole such as the dealer's security interest.

Vendor Issues

Express Blower, Inc. v. Earthcare, LLC, 2010 WL 5023244 (U.S. Ct. App. 5th Cir. Dec. 9, 2010) (not selected for publication in the Federal Reporter; see federal rules of appellate procedure regarding citation) Inasmuch as the background of this case involves a vendor's payment in full to a lessor of a defaulted lessee's obligations, it does not illustrate any issues that need to be resolved between a lessor and its vendor. However, it may be of interest as an example of the application of legal principles of suretyship in the context of the vendor subsequently seeking recovery from the lessee.

Robert W. Ihne is an attorney with 25 years of experience in commercial financing, primarily in the areas of secured transactions and equipment leasing. Such experience has included drafting, negotiating and providing advice related to direct transactions, syndications, vendor financing arrangements, and various forms of credit enhancements such as guaranties and letters of credit. He may be reached at [email protected]. The author gratefully acknowledges the assistance of Erin Staton and Ed Gross of Vedder Price Kaufman & Kammholz, P.C. in the preparation of this update.

Ability to Collect Rentals

Gaia Leasing LLC v. Wendelta, Inc., 2010 WL 5421324 (U.S. Dist. Ct. D. Minn. Dec. 23, 2010)

This case should motivate the assignees of equipment lessors to be sure they obtain and understand all of the documents related to the lease transaction being assigned. Although the lease in this case was not an Article 2A finance lease (the lessor had supplied the goods), it did contain a waiver of defenses (which the court confusingly refers to as a “hell-or-high-water” clause). Nevertheless, the transaction also included a document called the Condition Precedent ' the satisfaction of which was to be the trigger for the lessee's obligations to the lessor. Since the lessor was not able to satisfy the terms of the Condition Precedent, the lessee was never obligated to begin making payments under the lease to the assignee, against whom the court grants summary judgment.

Measures of Lessors' Damages

PNCEF, LLC v.Hendricks Building Supply LLC, 2010 WL 4677772 (U.S. Dist. Ct. S.D. Ala. Nov. 8, 2010); 2010 WL 3672257 (U.S. Dist Ct. S.D. Ala. Sept. 10, 2010)

After denying entry of a default judgment against a lessee in the earlier case and ordering the plaintiff (a successor to the original lessor) to submit further evidence to establish its claim for money damages, the court finds that the plaintiff is entitled to recover “stipulated loss value” ' defined in the lease to include total delinquent rent (including late fees), all future rent and the estimated fair market value of the equipment at the end of the lease term. With respect to estimated fair market value, the court accepts the estimate provided by the plaintiff's representative based on her experience, her examination of Web sites to determine the “going price” for such equipment and her consultations with other employees of the plaintiff. However, the court declines to award the plaintiff “reasonable” attorney's fees in excess of those actually incurred based on plaintiff's argument that “reasonable” should include potential future fees to be incurred due to difficulty of enforcement or possible contingency payments.

Other Conflicting Interests Under Article 2A

Rent-N-Roll v. Highway 64 Car and Truck Sales, 2010 WL 4629604 (Tenn. Ct. App. Nov. 16, 2010)

In a well-reasoned decision regarding Article 2A's provisions dealing with conflicts between lessors of accessions to goods and those having other interests in the whole of such goods, this appellate court affirms a judgment granting priority to a lessor of custom wheels and tires. A dealer perfected a security interest in an automobile that it sold to a woman who subsequently leased custom wheels and tires from a company that had to cut into the body of the car in order to install the wheels and tires. After the woman defaulted under both the security agreement with the dealer and the leases with the lessor of the wheels and tires, the dealer repossessed the car and the lessor sued the dealer to obtain possession of its wheels and tires. After a thorough examination of 2A-310, Lessor's and Lessee's Rights When Goods Become Accessions, the court concludes that the lessor of the wheels and tires was entitled to obtain possession of those leased goods from the secured party/dealer, but that it must first compensate the dealer for the damage done to the car when installing the wheels. Although the court does not attempt to explain the rationale behind the statute, 2A-310 makes a critical distinction regarding the priority of the lessor of accessions depending upon whether the lease of the accessions was entered into: 1) before, or 2) at the time or after, the goods became accessions. The interests of the lessor (as well as of the lessee) have priority only in the former case with respect to previously existing competing interests in the whole such as the dealer's security interest.

Vendor Issues

Express Blower, Inc. v. Earthcare, LLC, 2010 WL 5023244 (U.S. Ct. App. 5th Cir. Dec. 9, 2010) (not selected for publication in the Federal Reporter; see federal rules of appellate procedure regarding citation) Inasmuch as the background of this case involves a vendor's payment in full to a lessor of a defaulted lessee's obligations, it does not illustrate any issues that need to be resolved between a lessor and its vendor. However, it may be of interest as an example of the application of legal principles of suretyship in the context of the vendor subsequently seeking recovery from the lessee.

Robert W. Ihne is an attorney with 25 years of experience in commercial financing, primarily in the areas of secured transactions and equipment leasing. Such experience has included drafting, negotiating and providing advice related to direct transactions, syndications, vendor financing arrangements, and various forms of credit enhancements such as guaranties and letters of credit. He may be reached at [email protected]. The author gratefully acknowledges the assistance of Erin Staton and Ed Gross of Vedder Price Kaufman & Kammholz, P.C. in the preparation of this update.