## Facts

- Rafter Seven Ranches, L.P., a Kansas farming limited partnership, sought four used irrigation sprinkler systems.
- Rafter Seven worked with Ochs Irrigation, a dealer that located the systems from other sources and was to supply and install them.
- Because Rafter Seven could not pay cash, C.H. Brown Company agreed to provide financing through four separate five-year equipment leases (one per sprinkler), each with semiannual payments and a Wyoming choice-of-law clause.
- Each lease stated payments would commence when Rafter Seven had received equipment equal to 50% of the value to Brown of all equipment to be leased.
- The leases contained broad disclaimers stating Brown made no express or implied warranties, including merchantability and fitness, and disclaimed liability for consequential damages.
- Delivery, installation, and performance problems occurred; some systems were late, defective, or unusable for Rafter Seven’s irrigation needs.
- Rafter Seven stopped making payments and, after filing Chapter 11, objected to Brown’s proof of claim, asserting defenses based on nondelivery and nonconformity attributable to the supplier.

## Issues

1. Whether the transactions were “finance leases” under Wyoming’s enactment of UCC Article 2A, making the lessee’s payment obligation enforceable against the finance lessor after acceptance.
2. Whether Rafter Seven could defeat Brown’s claim based on nondelivery, non-acceptance, late delivery, or nonconforming performance of the sprinkler systems.
3. Whether the leases’ warranty disclaimers and risk-allocation terms barred Rafter Seven from asserting equipment-quality and supplier-performance complaints against Brown.

## Decision

- The Tenth Circuit affirmed the Bankruptcy Appellate Panel and the bankruptcy court’s allowance of Brown’s claim.
- The court held the leases were UCC Article 2A finance leases: Rafter Seven selected the equipment and supplier; Brown functioned as the financing lessor; Ochs was the supplier.
- The court concluded the contractual “50% of value received” clause set the start of rent and was satisfied by the deliveries found by the lower courts.
- Upon acceptance of delivered equipment in a finance-lease setting, Rafter Seven’s obligation to pay Brown became irrevocable, and defects or supplier nonperformance did not excuse payment to Brown.
- Any remedy for defective or nonconforming goods lay, if at all, against the supplier rather than the finance lessor.

## Legal Principles

- A transaction meeting UCC Article 2A’s definition of a finance lease allocates product-quality and performance risk primarily to the supplier, not the finance lessor that only finances the acquisition.
- In a finance lease, once the lessee accepts the goods, the lessee’s promise to pay the lessor becomes irrevocable and independent of disputes about the goods’ condition or the supplier’s performance.
- Contract terms triggering rent upon receipt of a specified portion of the equipment’s value may establish when payment begins; they do not necessarily condition payment on full performance or perfect goods.
- Express disclaimers of warranties by a finance lessor are generally effective to bar warranty-based claims against the lessor, leaving the lessee to pursue any available supplier-based claims.

## Conclusion

The court enforced the finance-lease structure under UCC Article 2A and held that, after acceptance and satisfaction of the leases’ rent-commencement condition, Rafter Seven remained liable to the finance lessor for payment despite delivery and defect disputes attributable to the supplier.


In re Rafter Seven Ranches, L.P., 546 F.3d 1194 (10th Cir. 2008)