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relating to or arising out of the U.S. Telephone lease. While
not as clear as the indemnification provision in the Sha-Li
lease, we believe that the indemnification provisions of the RTS
lease eliminate for petitioner any risk of default if MHLC stops
receiving payments from U.S. Telephone.
6. Petitioners' U.C.C. Argument
Petitioners argue:
In sale leaseback transactions governed by the
Uniform Commercial Code (e.g., the transactions in the
case at bar), the institution financing the original
acquisition by the leasing company (Manufacturer's)
obtains a security interest in the middle company
(Proz) and /or investor (Petitioner) Notes because said
Notes constitute "proceeds" from the disposition of the
collateral. If the leasing company defaults (because,
for example, the underlying end-user ceases paying
rent), the original lending institution can enforce the
middle company and/or investor Notes, directly or
through the chain, to the extent that the proceeds from
foreclosure and sale of the collateral (equipment) are
insufficient to satisfy the outstanding balance of the
leasing company's debt.
The result, petitioners argue, "is a break in the circle of
payments".
N.Y. Uniform Commercial Code (U.C.C.) Law sec. 9-306(2)
(McKinney 1990) provides:
Except where this Article otherwise provides, a
security interest continues in collateral
notwithstanding sale, exchange or other disposition
thereof unless the disposition was authorized by the
secured party in the security agreement or otherwise,
and also continues in any identifiable proceeds
including collections received by the debtor.
[Emphasis added.]
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