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C&J Vantage Leasing Co. v. Wolfe: One Year Later
In March 2011, the Iowa Supreme Court sent ripples of concern, if not terror, throughout the equipment lease finance industry with an unprecedented decision refusing to afford finance lease status to a contract between a finance company and a commercial end user, notwithstanding the fact that the parties had expressly agreed to such treatment in their written documents. In C&J Vantage Leasing Co. v. Wolfe, 795 N.W.2d 65 (Iowa Mar. 4, 2011), the court reasoned that “a transaction must first qualify as a lease before it can qualify as a finance lease.” The court found that because the contract at issue permitted the end user to purchase the financed equipment for $1 at the end of the lease term (in essence, any capital lease), the transaction was in fact a sale with a security interest rather than a lease. The court specifically refused to give effect to the parties' expressed intent, as stated in the contract provision that: “[t]his agreement is, and is intended, to be a Lease.”
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.
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