IFC Credit Corp. v. Burton Industries, Inc. 536 F.3d 610 (7th Cir. 2008) - This Case Illustrates the Importance of "Delivery and Acceptance."

The Burton Industries case is another chapter in the saga of Norvergence, a company the Seventh Circuit has described as a "bogus telecommunications provider."

Norvergence and Burton entered into a five year contract for telecommunications services.

Norvergence then sold the contract to IFC Credit Corp., a finance company.

IFC sued to enforce the equipment lease, but the district court and the Seventh Circuit granted summary judgment in favor of Burton on the ground that although a lease was signed, the equipment was never delivered to Burton, installed at Burton's place of business or "delivered and accepted."

As the Seventh Circuit noted the Equipment Rental Agreement contained a "hell-or-high-water clause," stating that the lessee's obligation to pay was "'unconditional despite equipment failure, damage, loss or any other problem." The Equipment Rental Agreement also contained a clause limiting any claims that the Lessee could bring against any company that purchased the Equipment Rental Agreement from Norvergence. That clause prohibited the lessee from asserting against the Finance Company any "'claims, defenses or set-offs'" it might have against Novergence. Third, and most importantly, the Equipment Rental Agreement stated that it was not binding until the equipment "'was mounted in [Burton's] phone closet." Finally, the Equipment Rental Agreement contained a merger or integration clause providing that the Agreement was the sole agreement between the parties and that oral promises not contained in the Equipment Rental Agreement would not be enforced.

Norvergence delivered a box of equipment to the Lessee, which signed a Delivery and Acceptance Agreement.

However, the Norvergence equipment was never "mounted" in Burton's phone closet.

Thus, the Seventh Circuit held that the obligation to pay was subject to a condition precedent - the installation of the Norvergence equipment in Burton's phone closet. As the Court held "because that condition never occurred, it was as if the Equipment Rental Agreement - along with its "hell-or-high-water" and "assignment clauses- never existed. Thus, the Equipment Lease never existed and was not binding. Thus, the Court held that no contract existed because a condition precedent - installation - was not met. See id., citing Quake Contruction Inc. v. Am. Airlines, INc. 565 N.E.2d 990, 993-94 (Ill. 1990) (stating no contract existed where conditions precedent to contract formation were not met.).

The Burton Industries opinion is thoughtful and well-written. Its holding is consistent with well-settled principles of equipment leasing. This case again illustrates that in the world of equipment leasing, delivery and acceptance is vital to an enforceable equipment lease.

Edward X. Clinton, Jr.

Copyright 2009