Your Contract Says You Must Keep Paying Even When the Service Stops

A dental group finances a $200,000 imaging system bundled with software and a five-year maintenance plan. It pays $4,000 a month to a finance company. A year later, the system fails, the software provider stops responding, and repair requests go unanswered. The dental group stops paying.

The finance company demands the remaining balance and points to a clause requiring payment regardless of equipment defects, service problems, or the supplier’s performance. Lawyers call this a hell-or-high-water clause.

Why the Finance Company Expects Payment

In a typical equipment finance arrangement, the supplier provides and services the equipment, and a separate finance company pays for it. The finance company agreed to provide money, not to guarantee that the equipment would work. A hell-or-high-water clause makes the payment obligation independent of any dispute with the supplier.

Illinois Makes Finance Lease Payments Irrevocable After Acceptance

For a qualifying commercial finance lease, Illinois law reaches the same result even without such a clause. Under 810 ILCS 5/2A-407, the lessee’s promises become irrevocable and independent once the lessee accepts the goods. After that, they can’t be canceled or excused without the finance company’s consent, and they’re enforceable by anyone the lease is assigned to.

The statute has limits. The agreement has to qualify as a finance lease, which generally means the finance company didn’t select, make, or supply the equipment. Acceptance matters too. A business that rejected malfunctioning equipment on delivery is in a different position from one that used it successfully for a year. Acceptance can happen through conduct, so refusing to sign an acceptance certificate doesn’t necessarily prevent it. The statute also remains subject to the duty of good faith and to the lessee’s rights to revoke acceptance in limited circumstances.

Not every bundled arrangement is a finance lease. When a single vendor provides the equipment, software, service, and financing, or when the finance company and supplier are closely connected, the analysis may change.

The Remedy Usually Runs Against the Supplier

Being required to keep paying the finance company doesn’t leave the business without a remedy. Under Illinois’s version of the Uniform Commercial Code, a finance lessee generally receives the benefit of the supplier’s warranties and promises under the supply contract. If the supplier promised five years of working software and maintenance, the dental group may have a claim against the supplier for the cost of the failure, including the payments it must keep making for equipment it can’t use.

Warranties, maintenance agreements, service level commitments, and acceptance documents are the core evidence, along with repair requests, outage logs, and records of lost business.

Stopping Payments Creates a Second Dispute

Finance agreements usually allow the finance company to demand all future payments after a default. With three years left at $4,000 a month, that’s $144,000 in scheduled payments, plus late fees and collection costs, subject to the agreement and any required discounting. The finance company may also repossess the equipment and pursue anyone who personally guaranteed the agreement. For a small business, that guarantor is often the owner.

A business in this situation is usually better off keeping the finance obligation current, sometimes under a written reservation of rights, while pursuing the supplier. Stopping payments trades a strong claim against the supplier for a weak defense against the finance company.

This article provides general information and does not constitute legal advice. For guidance concerning a specific matter, see our contract review and advisory services. Contractual rights and remedies depend on the agreement, relevant circumstances, and applicable law. To discuss potential representation, request a consultation. Submitting an inquiry does not establish an attorney-client relationship.