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What's New in the Law

By Robert W. Ihne

Ability to Collect Rentals

In re Rafter Seven Ranches L.P. (Rafter Ranches L.P. v. C.H. Brown Company), 2008 WL 4787106 (U.S.Ct.App. 10th Cir. Nov. 4, 2008). A divided Tenth Circuit panel affirms the decisions of a bankruptcy court and bankruptcy appellate panel that a lessee of irrigation sprinkler systems was liable for unpaid rentals on its leases despite the facts that the systems supplied by a company chosen by the lessee did not conform to specifications of the equipment in the leases and, in the case of some of the equipment, was never used after the lessee inspected it and determined it to be “junk.” The primary basis for finding liability with respect to the unused equipment was that the lessee failed to notify the lessor of its rejection of the equipment in a reasonable period of time as required by Article 2A ' letting the equipment sit in the fields for six weeks before notifying the lessor. The dissent argues, to the contrary, that a reasonable opportunity to inspect should include an opportunity to test, which in the case of the “junk” would have been futile. The majority had also noted that the lessee authorized the lessor to pay the supplier before the equipment was delivered and agreed that it would look only to the supplier in the event the equipment was defective. Whether such promises would obligate the lessee to make all lease payments owing under the leases ' under contract law if not under Article 2A finance lease provisions requiring a reasonable opportunity to inspect ' even if prompt notice of nonconformity was given, is not made clear.

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