C&J Vantage Leasing Co. v. Wolfe: One Year Later

The Iowa court's holding on this point caused justifiable concern in the equipment leasing community. Indeed, entire seminars have been devoted to discussing the C&J Vantage case and its possible ramifications. One particular concern was that the case might be invoked by defaulting lessees in other jurisdictions as a springboard for attacking finance lease treatment of written leases on the basis that one or more of the requirements set forth in Article 2A of the Uniform Commercial Code (“UCC”) were not met. Such argument could be raised not only in the context of “dollar out” leases, but in other factual scenarios, such as where it is alleged that the lessor did not actually receive the leased goods despite executing a Delivery and Acceptance certificate, or where some other technical requirement of UCC ' 2A-103(a)(3) was not met. Plainly, such a result could defeat a finance company's justified expectation that its agreements will be treated as a finance lease as provided in the written contract language.

A compelling argument can be made that the Iowa Supreme Court was wrong. The court's holding on this issue is seemingly inconsistent with the official comments to Article 2A. Specifically, UCC ' 2A-103, comment (g), provides that “[i]f a transaction does not qualify as a finance lease, the parties may achieve the same result by agreement; no negative implications are to be drawn if the transaction does not qualify.” Other courts, including the Pennsylvania Superior Court and a New York trial court, have relied upon comment (g) to conclude that where the parties' agreement specifically states that it is intended to be a finance lease, as defined in Article 2A of the UCC, that intention will be enforced even though the transaction would not otherwise qualify. See generally De Lage Landen Financial Services, Inc. v. M.B. Management Co., Inc., 888 A.2d 895 (Pa. Super. 2005); General Electric Capital Corporation v. National Tractor Trailer School, Inc., 175 Misc.2d 20, 667 N.Y.S.2d 614 (1997). Indeed, the opinion in C&J Vantage appears to miss the central point that equipment finance leases, as expressly endorsed by UCC Article 2A, are a unique type of financial instrument that is neither a “true” lease nor a security interest. The court's reasoning also disregards and undermines one of the UCC's principal purposes: to encourage commercial parties to define their own relationship through the language of their contracts.