Hell or High Water (HHW) clauses are part of the Ten Commandments of equipment finance. Or, as a TV ad for a certain credit card used to extoll, “don’t leave home without it.” UCC Section 2A-407 recognizes this concept for “true” leases, with respect to Article 2A “finance leases” that are not a consumer lease: “the lessee’s promises under the lease contract become irrevocable and independent upon the lessee’s acceptance of the goods.” For all other kinds of agreements, including non-true leases and loans, UCC Section 9-403 (Official Comment 2) validates a waiver of defenses agreement between an obligor and its counterparty that the former “will not assert against an assignee claims and defenses which it may have against the assignor.”
Although courts generally have upheld HHW clauses, even where UCC provisions have not been implicated, recent case law emphasizes that financiers need to be aware of circumstances which may undermine their expectations of a speedy disposition of their claims against a defaulting lessee or borrower. For example, in Macquarie Equipment Capital v. LA Semiconductor LLC, the U.S. District Court ruled that the HHW clause was of “ironclad enforceability” under New York law, which governed the lease. But the court denied the lessor’s motion for summary judgment, reasoning that the lessee had requested a “consultation” with the lessor to minimize any disruption to the lessee’s operations which might have been occasioned by repossession of the leased goods. As a result, replevin was not awarded solely upon the lessor’s motion papers. The lessor was required to proceed to trial to obtain the benefit of the HHW clause.
Notably, in Cerco Bridge Loans 6 LLC v. Schenker, a guarantor escaped liability under a HHW agreement. Even though the guaranty agreement in this 2025 case was “an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection,” the “Guaranteed Obligations” were limited in both number and scope. Because it was a “bad boy” guaranty, and none of the specified events to trigger the guaranty had occurred, the mere fact of a payment default did not trigger the guarantor’s liability. The court further reasoned that if the parties had intended the guarantor to be liable “upon any default by Borrower on the underlying debt, then there would be no reason to separately enumerate a list of conditions that trigger full recourse liability.” This decision echoes a recurring theme in case law: that a HHW clause in a guaranty is only enforceable if the underlying agreement, or conditions for triggering the guaranty, are in existence.
An Entertaining Decision
In another 2025 decision, Jefferies Strategic Investments, LLC v. Weiss, the court granted summary judgment in favor of the creditors, where a forbearance agreement included an individual (the sponsor of several hedge funds) who signed the document “for purposes of Section [9] hereof.” That section stated that the sponsor “unconditionally and irrevocably personally guarantees to the [creditors] the accuracy of the representations made by, and the performance of the agreements of [the hedge funds] hereunder.” Because the forbearance agreement included the hedge funds’ agreement to pay and perform all obligations under the note purchase and other agreements with the plaintiffs, the court readily concluded that the forbearance agreement included a valid and enforceable personal guaranty of the hedge funds’ debts.
The entertaining portion of the reported decision involved the guarantor’s attempted defenses. He argued that there was no enforceable contract because the creditors did not sign the forbearance agreement, but the court observed that the creditors “performed their obligations under the Forbearance Agreement…and took objective actions to evince their intent to be bound by filing a financing statement to perfect the security interest granted under the Forbearance Agreement.”
Another attempted defense alleged that plaintiffs’ CEO and outside counsel [!] allegedly called the guarantor, accused him of committing securities fraud, stated ‘that there would be a public news article that would destroy [his] reputation’ and threatened to sue [guarantor] personally if he did not sign the Forbearance Agreement.” Although a “contract may be voided on the ground of economic duress [and] a wrongful threat which precluded the exercise of free will,” the court noted that the guarantor “is a sophisticated and experienced businessman…and was represented by counsel in reviewing and executing the Forbearance Agreement,” who deleted certain provisions thereof during negotiations over the agreement, and rejected the argument that he signed it under duress.
More Good News
In a decision that could have gone the other way, the Second Circuit Court of Appeals upheld the HHW clause in American Cruise Lines v. United States, involving a vessel charter agreement (the maritime equivalent of a lease) between a U.S. entity and a Swiss lessee. The cruise line had complained that the HHW clause, by allocating certain expenses and risks to the Swiss entity, amounted to an impermissible transfer of control to a non-citizen corporation. Citing both U.S. Maritime Administration rulings and federal court decisions, the court upheld the enforceability of the HHW clause against this challenge.
Even if the underlying contract does not contain a HHW clause, financing parties have obtained the substantive equivalent by requiring a waiver of defenses clause from the lessee, guarantor, or other account debtor. Under UCC Section 9-403, “an agreement between an account debtor and an assignor not to assert against an assignee any claim or defense that the account debtor may have against the assignor is enforceable” by the assignee if it takes the assignment for value, in good faith, without notice of a claim against the property being assigned, and without notice of a defense of a type that may be asserted against a person otherwise entitled to enforce a negotiable instrument. Typically, secured lenders and receivables purchasers will require the lessee, borrower or other account debtor to sign an estoppel certificate affirming they have no such claims or defenses against the assignor or any other person or entity. Hence, in Volvo Financial Services v. Little, the federal District Court rejected the guarantor’s argument that the vehicles were defective, because it had waived the right to assert against the lender any defenses it may have had against the seller of the vehicles “or any other party.”
Practice Pointers
This recent case law provides some takeaways for lawyers representing funding sources:
- Be sure that the underlying obligation is still in effect. A guaranty which covers “all obligations of the account debtor under the [underlying agreement]” will be unavailing if the underlying obligation has terminated or otherwise has been extinguished.
- Describe the guaranty using broad language. Unless it is a “bad boy” guaranty, triggered by specified circumstances, the guaranty (and any waiver of defenses) should be enforceable in the event of any nonpayment or nonperformance by the underlying obligor.
- Obtain the underlying obligor’s agreement to pay specified amounts on dates certain, in addition to the HHW clause. For instance, it is settled law that a lessee’s consent to assignment, which stipulates that it is obligated to pay to the assignee X dollars per month for Y months, will create an independent obligation to the financier even if the underlying lease has been rejected in bankruptcy proceedings of the lessor/assignor.
- If at all possible, counsel should refrain from joining calls which threaten the defaulting party. Such participation would make counsel a witness in any ensuing litigation and may disqualify counsel from representing the financier in the lawsuit.
Case law continues to evolve, sometimes to the detriment of the funding source which believes that it will benefit from a HHW clause. It is not necessarily the wording of the HHW clause, but the facts and circumstances under which it is being applied, that may impact whether the financier will be successful.