FILED

United States Court of Appeals

Tenth Circuit

November 4, 2008

Elisabeth A. Shumaker

Clerk of Court

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

IN RE: RAFTER SEVEN RANCHES L.P.,

Debtor.

___________________

RAFTER SEVEN RANCHES L.P.,

Appellant,

v.

C.H. BROWN COMPANY,

Appellee.

No. 07-3091

Appeal from the United States Bankruptcy

Appellate Panel for the Tenth Circuit

(BAP No. KS-06-028)

(Bankr. No. 05-40483-12)

William E. Metcalf of Metcalf & Justus, Topeka, Kansas, for Appellant.

Richard Petersen-Klein (Justice B. King and Donald Patterson with him on the

brief) of Fisher, Patterson, Sayler & Smith, Topeka, Kansas, for Appellee.

Before BRISCOE, SEYMOUR and LUCERO, Circuit Judges.

SEYMOUR, Circuit Judge.
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Rafter Seven Ranches, L.P. (Rafter Seven) appeals a Bankruptcy Appeal

Panel (BAP) decision upholding the bankruptcy court’s rejection of Rafter

Seven’s objection to C.H. Brown Company’s (Brown) claim that it was liable to

Brown on certain equipment leases. See Rafter Seven Ranches, LP v. C.H. Brown

Company (In re Rafter Seven Ranches, LP), 362 B.R. 25, 27 (10th Cir. BAP

2007) (Rafter II). We have jurisdiction pursuant to 28 U.S.C. § 158(d), and we

affirm.

I

The facts and procedural history of this case have been fully reported in

both In re Rafter Seven Ranches, LP, Case No. 05-40483, 2007 WL 2903200

(Bankr. D. Kan 2007) (unpublished), and Rafter II, 362 B.R. at 27 (10th Cir. BAP

2007). We repeat here only what is necessary to explain the issues.

Rafter Seven was interested in purchasing used sprinkler systems for use

on its farm property. Its general partner, Michael J. Friesen, contacted Ochs

Irrigation (Ochs), a used system dealer. Because Ochs did not have the

appropriate used sprinklers in stock, Kenny Ochs located the desired sprinklers

from another source. Rafter Seven did not have the funds to purchase the

sprinklers, so Mr. Ochs suggested it contact Brown, a Wyoming private

agricultural and equipment lender, to finance the purchase of the sprinkler

systems. At a meeting on April 20, 2001, Brown agreed to a finance lease
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arrangement whereby Rafter Seven could acquire four used sprinkler systems

which Ochs would supply and install.

Brown forwarded four equipment leases to Rafter Seven for execution, one

for each sprinkler system. Rafter Seven’s general manager executed the leases on

behalf of the company. The leases were for a term of five years, required

semi-annual payments, and were to be governed by Wyoming law. The leases

each provided that the lease payments would be due with respect to each item of

equipment “when Lessee has received Equipment which is equal to 50% of the

value to Lessor of all Equipment to be leased.” Aple. Sup. App. at 134. In

addition, the leases made it plain that Brown, the lessor, was not warranting the

sprinklers for any purpose:

WARRANTIES: Lessee agrees that it has selected each item of

Equipment based upon its own judgment, and disclaims any reliance

upon any statement of representations made by Lessor. LESSOR

MAKES NO WARRANTY WITH RESPECT TO THE

EQUIPMENT, EXPRESSED OR IMPLIED, AND LESSOR

SPECIFICALLY DISCLAIMS ANY WARRANTY OF

MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR

PURPOSE AND ANY LIABILITY FOR CONSEQUENTIAL

DAMAGES ARISING OUT OF THE USE OR THE INABILITY TO

USE THE EQUIPMENT. Lessee agrees to make the lease payments

required hereunder without regard to the condition of the Equipment

and to look only to persons other than Lessor, such as manufacturer,

vendor, or supplier thereof, should any item of Equipment for any

reason, be defective.

Id. Upon Rafter Seven’s authorization, Brown sent payment to Ochs to fund

purchase by Ochs of the sprinklers.
-4-

The parties were aware that the sprinkler systems were needed as soon as

possible for the corn planting season ending May 1. When the sprinkler systems

did not arrive during May, Rafter Seven wrote to Brown informing it that it had

received neither the money for the leases nor the equipment. Upon receipt of the

letter, Brown contacted Kenny Ochs, apparently urging him to make delivery.

The first sprinkler system was delivered and installed in late July. It did

not conform to any of the leases in terms of serial number or equipment

characteristics. Despite the nonconformity and some serious defects, Rafter

Seven made use of the sprinkler system. On August 15, 2001, Rafter Seven sent

a letter to Ochs regarding the remaining three sprinklers:

By casual checking, I have learned that apparently you have used the

money provided by C. H. Brown and Co. as well as money from

Rafter Seven, in an amount exceeding $100,000 for purposes other

than the purchase of sprinklers, generators and underground pipe. In

other words, it appears that Rafter Seven and/or C. H. Brown Co.

may need to recover (from you) more than $50,000. If you have any

information to the contrary, it would be greatly appreciated.

In the meantime, it would be my suggestion . . . that you get ready to

make the first annual payments on three sprinklers that aren’t

delivered or functioning. Additionally, I believe that you should

provide us with some form of tangible security such as mortgages,

titles, or assignments until this matter is cleared.

Unless I have the written response before August 23, to my home

address . . . indicating the location of the sprinklers and generators,

we will have to insist on a meeting to arrange a restructuring of your

contract with Rafter Seven.

Aplt. App. at 127.
-5-

Sometime between mid-August and mid-September of 2001, two additional

nonconforming sprinkler units were delivered to Rafter Seven. Friesen was in the

fields when Och’s employees made delivery. After examination, Friesen

determined that the sprinklers were defective. He testified they were “rusty old

stuff with flat tires that — it was just junk.” Aple. Supp. App. at 186. He

directed that the sprinklers not be installed. The equipment was left standing in

the fields and was never completely assembled or made operational. The fourth

sprinkler system was never delivered.

Approximately six weeks later, on November 1, 2001, Rafter Seven sent a

letter to Brown stating that it would not honor the leases. This letter, which was

sent before the first payments were due, stated:

As we told Susie on the telephone last month, we have not insured

the sprinklers - such as they are. At that time, we mentioned that we

might have to reject the sprinklers and repudiate the lease. Nothing

has happened since that conversation to change our minds.

At the time of this writing, Mr. Ochs has partially installed one

sprinkler. This sprinkler is not 1296 feet long, as promised, nor does

it have a generator to provide power to the system. The sprinkler

leaks to such an extent that the watering patterns are uneven. 

Additionally, two tower motors (or gear drives) are worn to the point

that they are noisy. This sprinkler was delivered in July, after the

crops were already stressed. We have tried to mitigate our damages

by keeping our production costs low, but that alone did not prevent

the yields from being a disaster.

With respect to the other three circles, we can only say that there are

no circles with crops underneath them, or operating sprinklers. As

this summer became fall, we continued to believe that the two

antiquated, dysfunctional systems standing in the weeds would
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somehow become operational in time to plant wheat. They have not. 

Not only has Rafter Seven lost 390 acres of irrigated row crops, but

we have lost the benefit of timely planting the fall wheat crop. The

minimum loss now exceeds the entire lease amount of $80,000. 

Rafter Seven cannot honor the lease agreement under these

circumstances.

We are sorry to take this position and will be willing to work toward

another agreement that might resolve this loss.

Aplt. App. at 129-30 (emphasis added).

After receiving this letter, Brown phoned Friesen. Brown told him that it

had no responsibility for breach of warranty, and that Rafter Seven was still

liable under the leases. Hence, on November 23, 2001, Rafter Seven sent Ochs a

letter saying it expected Ochs to pay Brown for the sprinkler systems. The letter

also indicated Rafter Seven would try to hire someone to move or modify the

existing systems to try to make them operational so as to mitigate further

damages. Specifically, the letter states:

As you know, Rafter Seven Ranches, LP, has repudiated its lease

agreement with C. H. Brown Co. The obvious reason was the failure

of consideration, in that there was no performance on behalf of the

lessee because the contracts (which were designated as true leases)

were not fulfilled in a timely manner. As a result, Rafter Seven

completely lost the production on three circles and suffered

substantial losses on the fourth. A conservative loss estimate is

$20,000-$25,000 per quarter. In other words, the failure of Rafter

Seven to receive four sprinklers, (1985 or newer) 1296 feet long, in

working order, so that irrigated crops could be planted and insured

has caused us the value of the entire lease. This does not include

approximately $25,000 in cash advances paid by Rafter Seven. It

now appears that Rafter Seven will lose its FSA cost share grant

unless the installation on the home quarter is completed within thirty

days.
-7-

I have, of course, been in touch with Mr. Brown, who indicated that

we would be contacting him with a date for a conference telephone

call - - which I assume to be an attempt to resolve this problem. I

have not heard from you in this regard, therefore let me suggest the

following approach: since you guaranteed payment of

this indebtedness, I have enclosed a payment notification form and

self-addressed envelope to the Brown Co. for the first payment. 

There will be seven more of similar amounts in the next 12 months. 

You can probably absorb these, but I’m sure that Mr. Brown would

like this confirmed.

I anticipate that Mr. Brown will want a new agreement. Rafter

Seven will want a release and some idea about repayment, restitution

or presentment of four generators and a fourth sprinkler. Mr. Brown

and I both agree that if you can not perform, as I just suggested, that

you advise him promptly with the written answer to this question:

“where is the money?” or “what happened to Mr. Brown’s $80,000?”

I will proceed to further mitigate Rafter Seven’s damages by hiring

other contractors to move or modify the existing systems to try to

make them operate and I will attempt to purchase another system, be

it new or used. These additional costs should not be those of Rafter

Seven so you should be advised that some recompense will be

sought.

Aplt. App. at 45-46 (emphasis added). 

No payments were ever made under the leases. Brown filed suit against

both Rafter Seven and Ochs in Wyoming state court. It obtained a default

judgment against Ochs, but the case against Rafter Seven was stayed when Rafter

Seven filed for Chapter 12 bankruptcy. Brown filed a claim in the bankruptcy for

payment on the leases, to which Rafter Seven objected. After a two day trial, the

bankruptcy court overruled the objection, finding that Rafter Seven had accepted

the goods and had failed to reject them seasonably as provided for in the Uniform
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Commercial Code (U.C.C.), codified at WYO. STAT. ANN. § 34.1-1-109 et seq.

Rafter Seven filed a Motion to Reconsider asserting that the right to inspect

includes a right to test and that because Ochs never sent complete sprinklers,

Rafter Seven had no opportunity to test them and hence was never required by the

U.C.C. to reject them. The bankruptcy court denied the motion, holding that the

right to inspect did not include a right to test. Rafter Seven appealed to the BAP,

which affirmed.

II

Rafter Seven contends on appeal that the bankruptcy court and the BAP

erred in concluding Rafter Seven had no right to test the sprinklers before the

obligation to notify Brown accrued. It also asserts the bankruptcy court erred in

deciding the case on issues Rafter Seven claims were not included in the pretrial

order or any other pleading. Finally, it argues that the bankruptcy court abused

its discretion in denying Rafter Seven’s Motion to Reconsider.

We review de novo the bankruptcy court’s legal conclusions, but we review

the findings which underpin the conclusions under the clearly erroneous standard. 

Brown v. Gullickson (In re Brown), 108 F.3d 1290, 1292 (10th Cir. 1997). “We

review de novo mixed questions consisting primarily of legal conclusions drawn

from the facts.” Id. We review for abuse of discretion the specific issue of

whether the bankruptcy court properly decided the case based on what was
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included in the pretrial order. See Ellis v. Ark. La. Gas Co., 609 F.2d 436, 439

(10th Cir. 1979). We similarly review for abuse of discretion the district court’s

denial of the motion for reconsideration. See Matosantos Commercial Corp. v.

Applebee’s Int’l, Inc., 245 F.3d 1203, 1213 (10th Cir. 2001).

Right to Test

Rafter Seven’s appeal does not challenge the facts as gathered at trial and

recounted by the bankruptcy court. Rather, it contends it had a right to test the

equipment before it was required to reject it, implying there was no time frame

within which it was required to test. The applicable statutes dictate otherwise. 

The right to inspect, synonymous with the right to test, is not separate from the

obligation to notify the lessor of rejection within a reasonable time.

Under WYO. STAT. ANN. § 34.1-2.A-407, a commercial lessee’s promises in

a finance agreement become irrevocable and independent upon acceptance of the

goods. Because this is a finance lease, acceptance of goods with the knowledge

of nonconformity precludes revocation of acceptance. Id. at § 34.1-2.A-516(b). 

Acceptance of goods is defined in § 34.1-2.A-515(a).

Acceptance of goods occurs after the lessee has had a reasonable

opportunity to inspect the goods and: (i) [t]he lessee signifies or acts

with respect to the goods in a manner that signifies to the lessor or

the supplier that the goods are conforming or that the lessee will take

or retain them in spite of their nonconformity; or (ii) [t]he lessee

fails to make an effective rejection of the goods (section

34.1-2.A-509(b)).

Id. Under § 34.1-2.A-509(b), “[r]ejection of goods is ineffective unless it is
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within a reasonable time after tender or delivery of the goods and the lessee

seasonably notifies the lessor.” If, as here, no time for rejection is prescribed by

the relevant agreement, then a “reasonable time for taking any action depends on

the nature, purpose and circumstances of such action.” Id. at § 34.1-1-204(b). 

An action is taken “seasonably” if it is taken “within a reasonable time.” Id. at §

34.1-1-204(c).

Rafter Seven contends it did not accept the sprinklers within the meaning

of § 34.1-2.A-515 because it never had an opportunity to test them given that

they were not even delivered in usable form. Application of the law to the facts

does not support Rafter Seven’s position. Rafter Seven received the first

sprinkler in late July. Knowing the sprinkler did not conform, Rafter Seven kept

it and made use of it anyway. Use of a nonconforming good constitutes

acceptance. See 34.1-2.A-515(a)(i). Although Rafter Seven did not use the

second and third sprinklers, received between mid-August and mid-September of

2001, it failed to effectively reject them. It inspected the second and third

sprinklers upon delivery, determined they were “junk,” refused to have them

assembled, and then let them sit in the fields for approximately six weeks before

making what it argues is a rejection of the goods. Effective rejection of the

goods did not occur until, at the earliest, November 1, 2001, when Rafter Seven

wrote its letter to Brown. Even if we assume this letter constituted an

unambiguous rejection of the sprinklers, six weeks was an unreasonable period of
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time to inspect given the facts of this case.

To convince us otherwise, Rafter Seven cites Capitol Dodge Sales, Inc. v.

N. Concrete Pipe, Inc., 346 N.W.2d 535 (Mich. App. 1983). In Capitol Dodge, a

commercial company sought to buy a truck with a snowplow attachment. Id. at

537. During the test drive, the truck overheated. The seller represented that the

overheating was the result of incorrect placement of the snowplow attachment. 

The buyer accepted the explanation and attempted to properly attach the

snowplow per the seller’s instructions. Over the next two days, the vehicle

overheated several times and the buyer repeatedly contacted the seller, ultimately

telling him he did not want to buy the truck. Id. at 537-38. Upon suit, the seller

contended the buyer’s use of the truck constituted acceptance, while the buyer

claimed he was only exercising his right to a reasonable inspection period. The

court held that approximately three days of inspection was not unreasonable. Id.

at 540.

In Colonial Pacific Leasing Corp. v. JWCJR Corp., 977 P.2d 541 (Utah

App. 1999), also cited by Rafter Seven, an auto shop purchased a computer and

software system financed by Colonial Pacific. On the day of delivery, the debtor

informed the creditor that the equipment was received but not yet operational. Id.

at 543. On the second day, the creditor contacted the debtor and this time the

debtor informed it that the software system was working. Later that same day, the

system crashed. The debtor called the software company but was unable to get
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the system working. Soon after, the debtor contacted the software company to

come and pick up the equipment. Id. The debtor also called the creditor twice

within ten days of the system crashing to inform it that the equipment was not

operational. Id. at 546. Through his conversations with the creditor, the debtor

understood that he was no longer obligated on the lease due to his rejection of the

goods. Id.

More than two years later, the creditor brought suit against the debtor to

recover unpaid lease payments. The trial judge ruled for the creditor. The

appellate court reversed, holding that the trial court failed to make factual

findings about whether the debtor had a reasonable opportunity to inspect the

system. In so doing, the court noted:

Taking possession of the goods is not determinative of acceptance,

nor is the signing of a form acceptance before receipt of goods, nor

the making of a lease payment. A reasonable time to inspect under

the UCC must allow an opportunity to put the product to its intended

use, or for testing to verify its capability to perform as intended.

Id. at 545 (internal citations and quotation marks omitted). We agree with this

interpretation of a reasonable time to inspect or test, but that does not change the

outcome of this case.

The facts of both Capitol Dodge and Colonial Pacific diverge significantly

from those here. With respect to the second and third sprinklers, Rafter Seven

recognized immediately that the used sprinklers delivered to it were

nonconforming to the leases and were “junk.” No testing was necessary to
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determine nonconformance. Instead of notifying Brown, however, Rafter Seven

left the sprinklers sitting in the field. This is in stark contrast to Capitol Dodge

and Colonial Pacific, where the buyers attempted to put the purchased goods to

use and immediately contacted the appropriate party upon finding the defects.

Seasonable rejection is intertwined with the concept of a reasonable time to

inspect. See § 34.1-1-204. For either concept, the reasonable time period is tied

to the difficulty of discovering the nonconformity. See 1 JAMES J. WHITE &

ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE § 8-3 at 447-48 (4th ed.

1996) (hereinafter WHITE & SUMMERS). In this case, Rafter Seven knew

immediately on inspection that the second and third sprinklers were

nonconforming because not all of the parts were delivered and the equipment was

not operable. Case law supports the conclusion that Rafter Seven’s time to reject

was relatively short in these circumstances. Compare Pioneer Peat, Inc. v.

Quality Grassing & Servs., Inc., 653 N.W.2d 469 (Minn. App. 2002) (one month

lapse between acceptance and rejection not reasonable where company knew

product was nonconforming); McClure Oil Corp. v. Murray Equip., Inc., 515 N.E.

2d 546, 552 (Ind. App. 1987) (ineffective rejection where buyer did not give

unambiguous rejection until nineteen days after receipt of product during which

time he used product, claimed to be dissatisfied with product from first day of

use, and ordered alternative equipment nine days after receipt of disputed

equipment); EPN-Delaval, S.A. v. Inter-Equip, Inc., 542 F.Supp. 238, 243, 247
1

Rafter Seven contends it rejected the second and third sprinklers when it

made clear to Och’s installers that they were unacceptable. We are not

persuaded. Under § 34.1-2.A-515, Rafter Seven had an obligation to notify

Brown, the lessor, of its rejection, which it did not do until its letter of November

1, 2001. Furthermore, that letter itself indicates that Rafter Seven continued to

hope the dysfunctional sprinklers would become operational. See supra at 5-6.

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(S.D. Tex. 1982) (where defect is total and blatant, sixty-five days constitutes

unreasonable rejection time); with Integrated Circuits Unlimited, Inc. v. E.F.

Johnson, Co. 691 F. Supp. 630, 631, 634 (E.D.N.Y. 1988) (one month reasonable

where purchaser actively testing complex electronic equipment), rev’d on other

grounds, 875 F.2d 1040 (2d Cir. 1989); Tri-Continental Leasing Corp. v. Law

Office of Richard W. Burns, 710 S.W.2d 604 (Tex. App. 1985) (testing time of

one month reasonable where equipment malfunctioned immediately and buyer

was constantly working with seller to make equipment operable); Moses v.

Newman, 658 S.W.2d 119 (Tenn.App.1983) (one day not long enough to

constitute reasonable time to inspect).

Rafter Seven knew upon inspection that the equipment was nonconforming,

yet it did nothing to reject the second and third sprinklers for at least six weeks

after they were delivered.1

 According to the specific language of the statute,

these actions are consistent with acceptance rather than rejection. See § 34.1-

2.A-515 (acceptance occurs when lessee does any of three things after a

reasonable opportunity to inspect the goods: (a) signifies acceptance; (b) fails to

make an effective rejection; or (c) does any act that signifies acceptance). While
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a reasonable opportunity to inspect and test is available under the UCC, six

weeks was an unreasonable period in the circumstances of this case, given Rafter

Seven’s immediate recognition of the defective condition of the equipment.

WHITE & SUMMERS make clear why “speedy notification” is important:

The policies for speedy notification are not mysterious. The obvious

policies behind the notice provisions are to give the seller [here, the

lessor] an opportunity to cure, to permit the seller to assist the buyer

in minimizing the buyer’s losses, and to return the goods to seller

early — before they have depreciated, rotted or worse. If the seller

can cure the difficulty and so save the sale and prevent lost profits

that the buyer might otherwise suffer, the policy has been fulfilled. 

Even if the seller’s inspection discloses that the goods are defective

and the seller agrees to take them back, the entire loss from the

transaction may be minimized by early action, because the seller may

be able to resell the goods to another party and at a higher price than

the goods would command after they had depreciated.

WHITE & SUMMERS at 445-46. 

The dissent does not believe “the Uniform Commercial Code [would] really

leave a lessee in Rafter Seven’s position to be so rooked without recourse,”

dissent at 5, and suggests we are ignoring the realities of the situation. To the

contrary, as the lease agreements note, this is a case in which the lessee, Rafter

Seven, chose the supplier, Ochs, and authorized the finance lessor, Brown, to pay

the supplier for the cost of the sprinklers before the goods were delivered to the

lessee. This is also a case in which Rafter Seven agreed that Brown would not be

responsible for warranting the fitness of the equipment, and that Rafter Seven

would look only to Ochs in the event that any item of equipment was defective. 
2

Given our conclusion on the merits, the bankruptcy court did not abuse its

discretion in denying Rafter Seven’s Motion for Reconsideration on this same

issue.

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As one court has explained in a tripartite situation such as this:

When the commercial context has been, as here, a financing

lease, the weight of authority is that the consideration which flows

from the financing lessor is money, not a functioning product. 

Accordingly a breach by the supplier of the equipment does not

excuse the lessee from making lease payments to the finance-lessor,

unless the equipment lease otherwise provides. Where, as in many

lease documents with a finance-lessor (and in the instant case), there

is an express disclaimer of liability for malfunctioning equipment,

the position of the finance-lessor is that much stronger. 

Patriot Gen’l Life Ins. Co. v. CFC Investment Co., 420 N.E.2d 918, 922 (Mass.

Ct. App. 1981) (footnote omitted) (citing cases). Given that Rafter Seven knew

immediately, without testing, that the long-overdue sprinklers were

non-conforming, it was clearly obligated by § 34.1-2A-515 to so inform Brown to

whom it owed payments for financing the transaction. The bankruptcy court

correctly determined that Rafter Seven had all the time it needed to inspect the

facially nonconforming goods, and that its rejection was therefore not

seasonable.2

Bankruptcy Court Properly Addressed Timeliness of Rejection

Rafter Seven claims the bankruptcy court incorrectly decided the case

because Rafter Seven’s objection to Brown’s claim was based on Ochs’ complete

failure to deliver the sprinklers described in the leases, see Aplt. App. at 108
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(“The debtor contends that the irrigation sprinklers which were the subject of the

leases . . . were never delivered. . . . What was delivered to Rafter Seven was

basically ‘a pile of junk.’”), while the bankruptcy court’s decision was based on

Rafter Seven’s failure to seasonably reject the sprinkler systems. Rafter Seven

contends the bankruptcy court abused its discretion in deciding the case on an

issue not identified in the pretrial order or other pleadings.

We do not agree. We are persuaded by our review of the record that the

bankruptcy court’s decision was based on the general issues and principles

articulated by the parties in the pretrial order and the proceedings thereafter. The

parties were well aware that the law governing this matter is Article 2A of the

U.C.C., as codified in Wyoming. While Rafter Seven took the position that

delivery of conforming goods was never made, the UCC makes clear that

nonconforming goods may be accepted or rejected, and that any rejection must be

done within a reasonable time with notice to the lessor. See WYO. STAT. ANN. §§

34.1-2.A-509(b) & 34.1-2.A-515.

The record clearly reveals that the trial of the matter revolved around

acceptance or rejection of the goods, and Rafter Seven did not object to that

course of events. Under FED. R. CIV. P. 15(b)(2) “[w]hen an issue not raised by

the pleadings is tried by the parties’ express or implied consent, it must be treated

in all respects as if raised by the pleadings.” The bankruptcy court clearly saw

timeliness of rejection as the key to this case, see Aple. Supp. App. 201-22, and
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Rafter Seven gives us no grounds to hold that the court abused its discretion in so

doing.

For the foregoing reasons, we AFFIRM.
1

 I also agree with the majority that the bankruptcy court did not abuse its

discretion by addressing the issue of timeliness.

07-3091, In re Rafter Seven Ranches, L.P.

LUCERO, J., concurring in part and dissenting in part.

I agree with my respected colleagues that Rafter Seven Ranches accepted

the first sprinkler system and used it in an attempt to mitigate its damages.1

 But I

cannot accept that by leaving sprinkler parts in Rafter Seven’s field in September,

Ochs “delivered” the second and third systems. Were we to assume delivery, as

the majority does, a “reasonable opportunity to inspect” includes the ability to

test, which Rafter Seven never had during the six weeks before it notified Brown

on November 1. Because the majority applies an unduly inflexible view of the

U.C.C. that misapprehends the realities of this transaction, I respectfully dissent.

I

Let us be clear on what happened. As early as 2000, Ochs was promoting

sprinkler systems to Rafter Seven and asked for and received “down payments”

totaling about $25,000 for generators and nozzle packages to be part of a later

sprinkler delivery. In April 2001, after Rafter Seven discouraged Ochs because it

could not afford the complete systems, Ochs arranged for Friesen to meet with

Brown. Under the terms of the lease agreements with Brown, Ochs was to supply

Rafter Seven with four functional sprinkler systems around May 2001, in time for

the planting season. The leases specified the manufacturer, model, and serial

number of each sprinkler system. The “Delivery and Acceptance” clause of each
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Brown lease allowed Rafter Seven to certify that the equipment was “delivered,

inspected, installed, . . . in good working condition, and . . . accepted by [Rafter

Seven] as satisfactory” before approving Brown’s payment to Ochs. Rafter Seven

signed these clauses at the same time the leases were signed—a time when all

parties knew the equipment was undelivered. This fiction allowed Brown to pay

Ochs immediately, thus enabling the nearly contemporaneous acquisition and

delivery of the sprinkler systems. Yet, the first sprinkler system was not

delivered until sometime in July. Apparently, Rafter Seven was expected to pray

for rain in the interim.

Although it is undisputed that the first system was woefully inadequate,

Rafter Seven had no alternative but to use it in an attempt to salvage some of its

crop. As for the other three systems, the record is unimpeachable: Ochs never

delivered any other complete sprinkler systems in working condition.

When Ochs attempted to deliver a second and third system apparently as

late as mid-September—at or near the end of the growing season—Friesen

immediately recognized that the equipment was incomplete and did not match the

serial numbers or specifications in the lease agreements. He pronounced it “junk”

and asked Ochs’ delivery men to remove it. When they did not, Friesen decided

to make the best of a bad situation by waiting to see if they would complete the

installation so that the sprinklers sufficiently conformed to the terms of each

lease. He awaited delivery of numerous missing and replacement parts. They
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never came. Now Rafter Seven is in bankruptcy, Ochs has Brown’s $80,000, and

Brown is attempting to recover lease payments from Rafter Seven for equipment

that Ochs never supplied.

II

A

Engaging in analytical hopscotch, the majority skips to inspection without

passing delivery. As the “Delivery and Acceptance” clause of each leases shows,

all parties contemplated specific sprinkler systems delivered in good working

condition. Such certifications are ordinarily signed at or after delivery. See, e.g.,

Old Kent Leasing Servs. Corp. v. McEwan, 38 S.W.3d 220, 224-25 (Tex. App.

2001); EagleFunding Capital Corp. v. Kamar, No. 011928, 2002 WL 1020663, at

*1-2 (Mass. Super. Ct. Apr. 17, 2002). Because Rafter Seven signed this clause

before delivery—otherwise, Ochs would have been unable to acquire the

equipment—it lost the ability to withhold payment from Ochs for unsatisfactory

equipment. Nonetheless, the clause informs our understanding of the terms of the

leases: installation of the sprinkler systems was part and parcel of the supplier’s

performance and, necessarily, a prerequisite to inspection. The majority assumes

delivery occurred, Maj. Op. at 10, a fatal oversight I cannot condone.

The idea that delivery is not effected willy-nilly any time a supplier dumps

some parts on a lessee is hardly revolutionary. In Moses v. Newman, 658 S.W.2d

119 (Tenn. Ct. App. 1983), cited by the majority, a buyer purchased a mobile
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home that was later destroyed by a windstorm before the seller had completed

installing it. Id. at 120. Despite the fact that the buyer had made multiple trips to

see the house before purchasing it, and despite the fact that he had placed

personal items in the trailer, the court held that the buyer had not yet had a

reasonable opportunity to inspect it largely because the seller had contracted for

delivery and installation, and “the seller had not completed the contracted

installation at the time of loss.” Id. at 121-22; see also Davis v. Vintage Enters.,

Inc., 209 S.E.2d 824, 828-29 (N.C. Ct. App. 1974).

My colleagues imply that because “Rafter Seven left the sprinklers sitting

in the field,” Maj. Op. at 13; see also id. at 10, it somehow accepted a delivery. 

This is plainly contrary to Wyoming law. Rafter Seven, which had refused

installation of the sprinklers after declaring them junk, did not bear the burden of

removing them from its property. With language that could just as easily apply to

the present case, the Wyoming Supreme Court has held:

When [the buyer] told [the seller] that the machine was not workable

without modifications, that can mean nothing else than that the machine

which was delivered to the [buyer] was not successful, and hence the

condition of a sale, if there was a sale, was not fulfilled. It is difficult to

see what further notice of the lack of success of the machine could have

been given. As already indicated, if [the seller] did not then want the

[buyer] to retain possession, there was nothing at that time, or at any time

thereafter, to prevent him from taking it back. The fact that it remained in

[the buyer]’s possession was [the seller]’s own fault, at least as much as

that of [the buyer]. 

 Morgan v. Union Pac. R.R. Co., 346 P.2d 1071, 1077 (Wyo. 1959) (emphases
2 Even were we left to counting days, numerous courts have found

seasonable rejection following inspection periods similar to, or even longer than,

the period at issue here. See, e.g., Buckeye Trophy, Inc. v. S. Bowling & Billiard

Supply Co., 443 N.E.2d 1043, 1046 (Ohio Ct. App. 1983) (sixty-five days

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added).

Rafter Seven’s decision to await actual delivery is eminently reasonable. 

The leases each specify that lease payments “shall commence when Lessee has

received Equipment which is equal to 50% of the value.” I refuse to call a pile of

sprinkler parts, incapable of watering anything, valuable under this lease. For

these reasons, Rafter Seven’s November 1 letter to Brown was a seasonable

rejection of Ochs’ ineffective delivery. 

B

The majority concludes that Rafter Seven’s obligation to Brown is

independent of Ochs’ failure. Does the Uniform Commercial Code really leave a

lessee in Rafter Seven’s position to be so rooked without recourse? In my view,

the answer is “no.” Wyoming law is unambiguous in requiring that a lessee have

a reasonable opportunity to inspect goods. See Wyo. Stat. Ann. § 34.1-2.A515(a). As the majority recognizes, precedent requires that the opportunity to

inspect must include a reasonable opportunity to test, and that reasonableness

must be determined by the facts and circumstances of a particular transaction.

In asking what constitutes a “reasonable time” to inspect, we have a duty to

look at the realities of the transaction rather than to simply count days.2

 Rafter
reasonable); GNP Commodities, Inc. v. Walsh Heffernan Co., 420 N.E.2d 659,

665 (Ill. App. Ct. 1981) (two months reasonable); La Villa Fair v. Lewis Carpet

Mills, Inc. 548 P.2d 825, 832 (Kan. 1976) (nine months reasonable).

3

 I recognize that in a lease transaction, U.C.C. § 509(b), Wyo. Stat. Ann.

§ 34.1-2.A.509(b), requires that the lessee give notice of rejection to the lessor,

not the seller. In this case, however, Rafter Seven was still attempting to prod

Ochs, the only party with any power to effect the complete delivery of the second

and third sprinkler systems, into fulfilling its obligations before Rafter Seven

could exercise its right to test. These events were therefore prerequisite to giving

the notice of rejection implicated by § 509(b).

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Seven was in an obvious bind. If it did not allow Ochs the opportunity to deliver

and install sprinkler systems in working condition, it would assuredly lose its

crops. Because Rafter Seven allowed Ochs a few more weeks to complete the

systems, the majority holds that it failed to seasonably reject the sprinklers. This

result is particularly odd because, although Rafter rejected the goods by telling

the seller, Ochs, that the sprinklers were incomplete and refusing to permit their

installation in that condition, the majority holds that Rafter Seven somehow, at

the same time, managed to accept the same goods with regard to the lessor (under

this approach, perhaps Schrödinger’s cat could be both dead and alive at the same

instant). We are not directed by the majority to a single case interpreting U.C.C.

§ 2A-515 to produce such an enigma, and I would not read the Code to allow this

baffling and inequitable result. I therefore cannot accept that Rafter Seven, which

never received delivery of the sprinklers for which it had bargained, can be said

to have had an opportunity to inspect them.3

To bolster its conclusion that Rafter Seven took an unreasonable length of
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time to inspect, the majority relies on a treatise which explains the policy

rationales requiring “speedy notification” of rejection. Tellingly, none of these

policies are furthered by my colleagues’ disposition. For example, timely

rejection gives a seller an opportunity to cure, Maj. Op. at 15 (quoting James J.

White & Robert S. Summers, Uniform Commercial Code § 8-3 at 445-46 (4th ed.

1996)), but there is no doubt that the seller in this case—Ochs, not Brown—was

unambiguously on notice that it had not delivered goods that were fit for

installation and testing. The party with an opportunity to actually deliver

conforming goods was therefore immediately on notice that the sprinklers it had

delivered thus far were not satisfactory. See, e.g., EPN-Delaval, S.A. v. InterEquip, Inc., 542 F. Supp. 238, 247 (S.D. Tex. 1982) (observing that the “purpose

[of notice of rejection] is to inform the seller that the buyer rejects the goods in

sufficient time to give the seller opportunity to cure, and to assist in minimizing

the buyer’s losses”).

This remains true even if, as a technical matter, Brown, not Rafter Seven,

was the “buyer” with regard to Ochs. See Midwest Precision Servs., Inc. v. PTM

Indus. Corp., 887 F.2d 1128, 1132 (1st Cir. 1989) (describing the role of the

parties in a tripartite lease-finance arrangement). Ochs pitched the sprinklers to

Rafter Seven, Ochs took its “down payments,” Ochs set up the meeting between

Brown and Friesen, and Ochs was paid. It only makes sense that Rafter Seven

would demand performance from Ochs, not Brown. Brown had long ago paid
4 In fact, as the majority interprets the U.C.C., Brown had no stake in

whether Ochs’ upheld his end of the bargain because it had Rafter Seven sign the

Delivery and Acceptance clause before Rafter Seven had an opportunity to

inspect. If this is the case, the U.C.C. utterly fails the lessee by allowing the

lessor to shift risk to the lessee at no cost to itself. Brown only accepted the usual

risk that Rafter Seven will default, and Ochs merely had its bargained-for

obligation to supply the goods, but Rafter Seven was saddled with both its

bargained-for obligation to make lease payments and the risk that Ochs would not

perform. In essence, the lender-lessor has created a high-risk financial product,

and should assume a heightened duty commensurate with the risk it has created. 

Cf. Am. L. Prod. Liab. 3d § 1:9.

-8-

Ochs for the sprinklers, so it was not in a position to pressure Ochs into

delivering conforming equipment.4

 Rafter Seven never received that equipment

from Ochs and it never saw a penny of Brown’s money.

Moreover, this delay must be viewed in perspective: Rafter Seven was

promised sprinkler systems in May. If Brown had learned of Rafter Seven’s

definitive rejection in, say, early October instead of early November, it would

have made little practical difference for the purposes of mitigating Brown’s

losses. (Unless I am sorely mistaken, there are no farmers in Wyoming who plant

crops in October for calendar year production.) Indeed, Brown received a July 10

letter informing it that Ochs failed to deliver the sprinklers, and admits that

thereafter it had no idea, one way or another, whether the sprinklers were ever

shipped.

There is also little likelihood that the six-week inspection period

compounded Brown’s losses through “depreciat[ion], rot[ting], or worse . . . .” 
5 None of this should have come as any surprise to Brown. As early as July

10, 2001, Erol Klassen, Rafter Seven’s manager, wrote Brown to tell him that

Rafter Seven Ranch

has not seen the $80,000.00 you advanced toward the purchase of

sprinklers, or four operating sprinklers as promised by Mr. Ochs. As

of this date we have delayed planting some crops as long as possible. 

The growing crops are without water, which means they are certain

to whither and die under this heat. . . . As it is now, we are high and

dry. Please give me your thoughts as to what, if anything, I should

do.

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Maj. Op at 14 (quoting White & Summers at 445-46). We are not dealing with a

contract for refrigerated trucks filled with arugula, but rather one for non-fungible

sprinklers. See Moses, 568 S.W.2d at 121 (“What is a reasonable opportunity

varies, depending upon the type of goods involved.”); Buckeye Trophy, Inc. v. S.

Bowling & Billiard Supply Co., 443 N.E.2d 1043, 1046 (Ohio Ct. App. 1982)

(trial court did not err in finding a 65-day delay before inspection reasonable

when, among other things, the goods were “not perishable or subject to severe

market fluctuations”). Brown does not dispute that the second and third sets of

sprinklers not only failed to match the descriptions in the leases, they were also

ancient, lacking in essential parts, and, as delivered, largely worthless. This is

not a case where a lessor suffered some appreciable loss due to a few weeks’

delay or where “the entire loss from the transaction [would have been] minimized

by early action.” Maj. Op. at 15 (quoting White & Summers at 445-46).5

 To the

contrary, the incomplete sprinklers remained on Rafter Seven’s property because
6 The majority also suggests that the form disclaimer of warranty on the

back of the lease agreements is a final nail in Rafter Seven's coffin, reasoning that

Brown was not liable for defects in the sprinklers, having disclaimed any

warranty. However, it is difficult to see how a warranty, or lack thereof, informs

the issue in this case. There is no dispute that Ochs delivered nonconforming

equipment which Rafter Seven had the right to reject within a reasonable time;

the equipment delivered did not match the specific characteristics and serial

numbers identified in the leases. At best, Brown disclaimed liability for product

defects, not defective performance under the leases. It is the latter that is at issue

here.

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no party considered them worth the expense of removing them.6

III

Meanwhile, back at the ranch, Rafter Seven did what a reasonable rancher

would do under these circumstances. Let us not forget, these sprinklers were to

be delivered around May 2001, in time for the planting season; tempus agrarius

fugit—time flies out on the farm. When Ochs delivered an incomplete mess of

sprinkler parts three to four months after tender was due, Rafter Seven, already

faced with the loss of its crops, afforded the seller six more weeks for delivery

and installation of a testable sprinkler system. Because such a system was never

delivered, I do not see how it can be said that Rafter Seven had a reasonable

opportunity to test the sprinklers. Even assuming that the sprinklers were

“delivered” at all, the six weeks taken for testing was not unreasonable in the

circumstances. Consequently, I cannot fathom how Rafter Seven can be liable for

the lease payments at issue.