## Facts

- Leaf Financial Corporation (Leaf) entered into a written finance-lease contract with ACS Services, Inc. (ACS) under which Leaf would purchase software/equipment selected by ACS from N-Able and lease it to ACS for periodic payments.
- The lease stated it was a U.C.C. Article 2A finance lease and contained an integration clause.
- The lease stated the equipment/software was provided “as is” and included a broad waiver and disclaimer of warranties by Leaf, including disclaimers of implied warranties such as merchantability and fitness for a particular purpose.
- The lease provided that ACS’s obligation to pay was not conditioned on the software’s performance and that, unless ACS rejected the software within a short, specified period after installation (seven days), ACS was required to pay Leaf regardless of the software’s condition.
- ACS signed an addendum specifically waiving any right to assert the software’s failure or defects as a defense if Leaf sought to enforce the lease.
- Leaf purchased the software from the vendor and the software was delivered/installed for ACS.
- ACS did not reject the software within the contractual rejection period, but contended the software did not function properly and that efforts to correct deficiencies were unsuccessful.
- ACS never made any lease payments to Leaf.
- A personal guaranty was executed in connection with the lease, under which William J. Adams, Jr. guaranteed payment obligations owed under the lease.
- Leaf sued ACS (and the guarantor) for breach and moved for summary judgment to recover the amounts due under the lease and guaranty.

## Issues

1. Whether the agreement qualified as a U.C.C. Article 2A finance lease so that Leaf, as finance lessor, could enforce an unconditional payment obligation after delivery and acceptance.
2. Whether ACS could avoid payment by invoking Article 2A warranty concepts or the software’s alleged defects despite the “as is” term, warranty disclaimers, integration clause, and addendum waiving defect-based defenses.
3. Whether ACS failed to timely reject (or effectively revoke acceptance of) the software such that it remained obligated to pay rent under the lease.

## Decision

- The court granted Leaf’s motion for summary judgment.
- The court treated the transaction as a finance lease under U.C.C. Article 2A: ACS selected the software and vendor, and Leaf’s role was to provide financing by purchasing the software and leasing it to ACS.
- The court held that ACS’s payment obligation was enforceable despite allegations that the software was defective, given the finance-lease structure and the contract’s express risk allocation, “as is” provision, and warranty waivers.
- The court enforced the addendum in which ACS expressly waived the right to raise the software’s failure as a defense to enforcement of the lease.
- The court concluded ACS did not timely reject the software under the contract’s rejection provision and, having failed to reject within the stated period, ACS could not withhold all payments to Leaf based on performance complaints.
- Judgment was entered for Leaf on the lease breach (and related guaranty obligation) for the amounts due under the contract.

## Legal Principles

- A transaction that meets Article 2A’s finance-lease requirements is enforced as a finance lease where the lessee selects the goods and supplier and the lessor’s function is providing financing rather than supplying or manufacturing the goods.
- In an Article 2A finance lease, once the lessee accepts the goods (including by failing to reject within a contractually specified time), the lessee’s duty to pay the finance lessor is independent of disputes about the goods’ performance; defect remedies generally run against the supplier.
- Clear “as is” terms and conspicuous disclaimers of express and implied warranties are enforceable to bar warranty claims against the finance lessor in a commercial finance lease.
- Contract provisions stating that rent is due regardless of the equipment’s condition, and express waivers of defect-based defenses to enforcement, are generally enforceable in commercial finance-lease contracts.
- Failure to reject within the contractual rejection window supports a finding of acceptance and supports summary judgment for unpaid rent when the lessee makes no payments.

## Conclusion

The Delaware Superior Court granted summary judgment for Leaf, enforcing the Article 2A finance lease and related guaranty because ACS selected the vendor and software, failed to reject within the contract’s seven-day period, and had agreed through “as is” language, warranty waivers, and an addendum that software defects would not excuse payment to the finance lessor.


Leaf Financial Corp. v. ACS Services, Inc., 2010 WL 1740884 (2010)