When a holding company guaranteed lease that a subsidiary assumed for railcars, and then failed to honor guaranty when subsidiary defaulted on the lease, judgment in favor of railcar supplier was affirmed. The appellate panel found that the holding company’s guaranty was a contract to pay a debt, not a lease for goods or services, and the Uniform Commercial Code did not apply as a result.
In January 2003, Ponderosa Petroleum Company entered into a lease with General Electric Railcar Services Corporation for 47 railcars to carry crude petroleum. Over the next several years, the companies executed several riders to the lease agreement extending the term of the lease agreement. The last extension gave the agreement a termination date of February 2020. In April 2015, Associated Energy Services, a wholly owned subsidiary of NuDevco Partners Holdings, assumed the obligation to make payments under the lease, though Ponderosa remained the party to the lease.
In September 2015, Union Tank acquired the lease, riders, and railcars from General Electric Capital Corporation. That same month, Associated Energy sent a notice of termination of the lease to GE Railcar, citing as a justification that the railcars were approaching the end of their permitted use to haul crude oil. The lease did not authorize termination for this reason. Associated Energy then began to return the railcars to Union Tank, and discontinued rental payments at the end of the month. Union Tank invoked NuDevco Partners’ lease guaranty, but NuDevco refused to honor it. Continue reading