## Facts

- Jaz, Inc. and related entities sought to acquire a used Noritsu 2211 photo-processing machine from vendor Richard B. Foley, to be financed through an equipment lease with First Hawaiian Leasing, Inc.
- Jaz and First Hawaiian Leasing executed a master equipment lease and addenda describing the transaction as a finance-lease arrangement.
- Jaz signed an undated acceptance certificate that First Hawaiian Leasing treated as confirmation of delivery and acceptance.
- Foley never delivered the machine, and Jaz never received, installed, or inspected it.
- Despite non-delivery, Jaz made lease payments totaling about $13,732.02 before suing Foley and First Hawaiian Leasing.
- The circuit court entered default judgments against Foley and entered judgment for First Hawaiian Leasing on Jaz’s claims and on the lessor’s counterclaim, and awarded the lessor attorney’s fees, costs, and interest.
- Jaz appealed; First Hawaiian Leasing cross-appealed as to the amount of attorney’s fees.

## Issues

1. Whether a lessee “accepted” leased goods under HRS § 490:2A-515 when it signed an acceptance certificate before delivery and never had an opportunity to inspect.
2. Whether risk of loss could pass to the lessee under the lease and UCC Article 2A when the goods were never tendered or delivered.
3. Whether HRS § 490:2A-407 (finance-lease “hell or high water”) made the lessee’s promise to pay irrevocable despite non-delivery and non-acceptance.
4. Whether the lessee was obligated to make or continue lease payments for equipment that was never delivered, installed, or inspected.
5. Whether attorney’s fees and costs awarded to the lessor could stand given the correctness of the underlying judgment.

## Decision

- The Intermediate Court of Appeals vacated the amended final judgment in favor of First Hawaiian Leasing and vacated the related findings, conclusions, and fee/cost orders.
- The court held Jaz did not accept the machine because it was never delivered and Jaz had no reasonable opportunity to inspect; a pre-delivery acceptance certificate did not establish acceptance.
- The court held risk of loss did not pass to Jaz because there was no tender or delivery.
- The court held HRS § 490:2A-407 did not apply because acceptance is a prerequisite to an “irrevocable and independent” payment obligation in a finance lease.
- The court held Jaz was not obligated to continue paying for the undelivered machine.
- The case was remanded for further proceedings consistent with the appellate rulings.

## Legal Principles

- Under HRS § 490:2A-515, acceptance requires a reasonable opportunity to inspect; signing an acceptance certificate before delivery cannot constitute acceptance when goods are never delivered.
- Risk of loss provisions in a finance lease do not shift risk to the lessee absent tender or delivery of the goods.
- HRS § 490:2A-407 makes a finance-lease lessee’s payment obligation irrevocable only upon acceptance; without acceptance, the statutory “hell or high water” rule is not triggered.
- A lessor cannot enforce ongoing rent obligations for equipment that was never delivered and therefore never accepted under Article 2A.
- Fee and cost awards premised on prevailing-party status must be vacated when the underlying judgment is vacated.

## Conclusion

The appellate court vacated the judgment for the equipment lessor because the machine was never delivered, so the lessee neither accepted the goods nor assumed risk of loss, and the finance-lease statute’s irrevocable payment rule did not apply; the associated fee awards were likewise vacated and the case remanded.


Jaz, Inc. v. Foley, 85 P.3d 1099 (Haw. Ct. App. 2004)