Legal Issues — Documentation
Lessor More Protected
UCC Article 2A Analysis Strengthens Resistance to Common Lessee Collection Defenses
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 stands as a thorough and recent analysis of the maturing law on the general enforceability of finance leases, as promoted by UCC Article 2A.
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Forum Selection and Arbitration Clauses
Use Them or Lose Them
In this edition of Tipping the Scales, Andrew Alper discusses a recent case involving a forum selection clause where the court held the clause was enforceable, and parties that litigate a case extensively cannot attempt to move the case to a different forum at a later date. The article also explores arbitration clauses and the importance of either using them or losing them.
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Finance Leases Versus Vendor Leases
Explaining What We Do
Among the challenges we face in selling leasing to business executives who are unfamiliar with sophisticated equipment financings is the task of explaining how our equipment leases differ from a vendor lease or a vendor-financed installment sale financing. This article will touch on some of the aspects of third-party equipment financings and the explanations and arguments that might be presented to the uninitiated and his or her lawyers.
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Attachment: Your Security Interest Isn’t ‘Perfect’ Without It
The key point of this edition of Dispatches From the Trenches is to provide a friendly reminder that attachment is a cornerstone to a perfected security interest and that it is worthwhile to consider the requisite steps to attachment and their timing. Ken Weinberg reminds us that equipment lease forms need to be carefully worded so that the grant of the security interest occurs prior to acceptance in the event goods are not accepted before or simultaneously with delivery.
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Enforcement of Standstill Provisions
In the world of second lien lending and seller “carry back” financing, it is not uncommon for the lenders to enter into subordination agreements whereby the second lien subordinates its lien and its right to collect payments or money to the first lien. Onerous standstill provisions in subordination agreements are less common but also not unusual in subordination agreements.
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The Issue Becomes Complex When Moving From the UCC to State Title Laws
Uniform Commercial Code §9-311(a)(2) provides that the filing of a UCC financing statement does not perfect a lien that is governed by the state’s certificate of title law. Stepping out of the familiar and more-or-less uniform terrain of the UCC and into state title laws has proven perplexing, expensive and, in some cases, disastrous for motor vehicle lenders and lessors.
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Where Bankruptcy & Suretyship Law Collide
Creditors Prevail in the Ninth Circuit
In a complex case, the Ninth Circuit Court of Appeals has addressed a series of critical issues involving the operation and effect of a prepetition release by a surety and a “revival” provision in a settlement as well as the ability of an unsecured creditor to include in its unsecured claim attorneys’ fees and costs. The decision provides some important guidance for creditors in the drafting and enforcement of revival provisions in a settlement.
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Documentation of Certificates of Title Drum Up a Complex Dance Between Parties
Stepping out of the familiar and more-or-less uniform terrain of the UCC and into state title laws has proven perplexing, expensive and, in some cases, disastrous for motor vehicle lenders and lessors. At the end the day, the interplay between the generally uniform provisions of the UCC and the various state Certificate of Title laws resembles a complex dance, which must be attempted with caution.
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Be Explicit When Talking Negligence
Thoughts on Indemnification & Exculpation
There are risks involved in not mentioning negligence in the indemnity section of a lease agreement. Lessors should also be warned that state laws regarding the enforceability of exculpatory clauses can be relevant. Cautious lessors should always review their lease documents to know if these forms will protect them from claims.
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Documentation Matters
California Finance Lenders Law Trumps Choice of Law Clause Contained in Loan Contract
Most brokers, lenders and lessors have heard horror stories about doing business in California and the requirement of having a Commercial Finance Lenders License. Yes, the horror stories are true although qualifying to obtain the license is not very difficult. The following discussion is a short summary of some of the relevant provisions of the CFFL.
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Hell or High Water Clause Comes Under Attack
Lessor's Best Friend...or Worse Nightmare?
Columnist Andrew Alper discusses the common missteps taken by both lessors and lessees when drafting a hell or high water provision in equipment lease agreements. He also provides recent examples of the courts’ uneven decisions regarding the matter.
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Consider All Aspects — and State Revisions — When Drafting a Choice of Law Provision
Drafting a choice of law provision is not as easy as it seems if you assume the Uniform Universal Code (UCC) is ‘universal’ in all states. But it isn’t. Therefore, one needs to be extra vigilant in writing these provisions to ensure the outcome isn’t different from what was intended.
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Perform the Proper Due Diligence When Documenting Your Claim on a Title Certificate
Lessors of over-the-road trucks may find themselves becoming inventory lessors. This installment warns lessors to keep a close eye on certificates of title when another party is subleasing leased trucks. To sublease, Weinberg says, requires more due diligence than simply noting your interest on a certificate of title.
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Fraudulent Documentation
Court Rules Assignee Prevails on Nondischargeability Claim
Are assignee’s rights limited in a bankruptcy case? By looking into the recent case of In re Boyajian, 367 B.R. 138 (B.A.P. 9th Cir.), filed on March 30, 2007, we can now determine whether an assignee can submit nondischargeability claims against dishonest debtors, lessees or guarantors.
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A Little Something About EFA Documentation
What is an Equipment Finance Agreement?
An industry with a myriad of finance structures and even more colorful names (such as split TRAC’s, first amendment, leveraged, synthetic, dirty, finance, put and security leases) has added another — the Equipment Finance Agreement (EFA). This installment discusses EFAs and their impact on the future of the industry.
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Interim Rent
A Practical Look at a Sometimes Overlooked Charge
Many lease agreements contain an “interim rent” provision enabling the lessor to charge for the use of the lease property for the time period between the actual acceptance date and the date on which the base term of the lease commences. Although interim rent is well established, it’s not specifically addressed in the UCC. Therefore, it’s valuable to have an understanding of how it’s used and how the courts enforce it.
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