H. B. 2495
(By Delegate Pethtel)
[Introduced March 5, 1993; referred to the
Committee on the Judiciary.]
A BILL to amend and reenact sections one hundred five and two
hundred one, article one, chapter forty-six of the code of
West Virginia, one thousand nine hundred thirty-one, as
amended; to amend and reenact section one hundred thirteen,
article nine of said chapter; and to further amend said
chapter by adding thereto a new article, designated article
two-a, all relating generally to leases of goods; providing
definitions; making leases subject to other statutes;
providing for choice of law; allowing for waiver;
establishing basis of unconscionability; providing for
attorney's fees; limiting acceleration clauses; setting
burden of proof of good faith; providing for statute of
frauds and parol evidence rule; setting basis for formations
of lease; defining duration of offer and terms of
acceptance; effect of course of performance; modifications,
receiver or waiver; effect of supplier's and lessor's
actions; express and implied warranties; exclusion or
modification thereof; defining third-party beneficiaries of
warranties; procedure for identifying goods; insurance; risk
of loss and effect of default; effect of damage to
identified goods; enforceability of contract; effect of
possession or title to goods; effect of assignment of
rights, delegation of performance and alienation of
interest; effect of subsequent lease, sublease or sale;
priority of liens; establishing special rights of creditors;
effect of goods becoming fixtures or accessions;
establishing conditions of performance and when refutation
or substitutions may occur; defining default and
establishing procedures and remedies when default occurs;
effect of cancellation; statute of limitations; proof of
market rent; lessor's right to cure or provide cover;
defining acceptance of goods; establishing lessee's or
lessor's right to goods upon insolvency of either; setting
damages upon lessee's repudiation or default; and
establishing third parties' standing.
Be it enacted by the Legislature of West Virginia:
That sections one hundred five and two hundred one, article
one, chapter forty-six of the code of West Virginia, one thousand
nine hundred thirty-one, as amended, be amended and reenacted;
that section one hundred thirteen, article nine of said chapter
be amended and reenacted; and that said chapter be further
amended by adding thereto a new article, designated article two-
a, all to read as follows:
ARTICLE 1. GENERAL PROVISIONS.
§46-1-105. Territorial application of this chapter; parties'
power to choose applicable law.
(1) Except as provided hereafter in this section, when a
transaction bears a reasonable relation to this state and also to
another state or nation the parties may agree that the law either
of this state or of such other state or nation shall govern their
rights and duties. Failing such agreement this chapter applies
to transactions bearing an appropriate relation to this state.
(2) Where one of the following provisions of this chapter
specifies the applicable law, that provision governs and a
contrary agreement is effective only to the extent permitted by
the law (including the conflict of laws rules) so specified:
Rights of creditors against sold goods. Section 2-402.
Applicability of the article on bank deposits and
collections. Section 4-102.
Bulk transfers subject to the article on bulk transfers.
Section 6-102.
Applicability of the article on investment securities.
Section 8-106.
Perfection provisions of the article on secured
transactions. Section 9-103.
Sections 2A-105 and 2A-106, applicability of the article in
leases.
Section 2-402, rights of creditors against sold goods.
Section 4-102, applicability of the article on bank depositsand collections.
Section 6-102, bulk transfers subject to the article on bulk
transfers.
Section 8-106, applicability of the article on investment
securities.
Section 9-103, perfection provisions of the article on
secured transactions.
PART 2. GENERAL DEFINITIONS AND PRINCIPLES OF
INTERPRETATION.
§46-1-201. General definitions.
Subject to additional definitions contained in the
subsequent articles of this chapter which are applicable to
specific articles or parts thereof, and unless the context
otherwise requires, in this chapter:
(1) "Action" in the sense of a judicial proceeding includes
recoupment, counterclaim, setoff, suit in equity and any other
proceedings in which rights are determined.
(2) "Aggrieved party" means a party entitled to resort to a
remedy.
(3) "Agreement" means the bargain of the parties in fact as
found in their language or by implication from other
circumstances including course of dealing or usage of trade or
course of performance as provided in this chapter (sections 1-205
and 2-208). Whether an agreement has legal consequences is
determined by the provisions of this chapter, if applicable;
otherwise by the law of contracts (section 1-103). (Compare"Contract.")
(4) "Bank" means any person engaged in the business of
banking.
(5) "Bearer" means the person in possession of an
instrument, document of title, or certificated security payable
to bearer or indorsed in blank.
(6) "Bill of lading" means a document evidencing the receipt
of goods for shipment issued by a person engaged in the business
of transporting or forwarding goods, and includes an airbill.
"Airbill" means a document serving for air transportation as a
bill of lading for marine or rail transportation, and includes an
air consignment note or air waybill.
(7) "Branch" includes a separately incorporated foreign
branch of a bank.
(8) "Burden of establishing" a fact means the burden of
persuading the triers of fact that the existence of the fact is
more probable than its nonexistence.
(9) "Buyer in ordinary course of business" means a person
who in good faith and without knowledge that the sale to him is
in violation of the ownership rights or security interest of a
third party in the goods buys in ordinary course from a person in
the business of selling goods of that kind but does not include
a pawnbroker. All persons who sell minerals or the like
(including oil and gas) at wellhead or minehead shall be deemed
to be persons in the business of selling goods of that kind.
"Buying" may be for cash or by exchange of other property or onsecured or unsecured credit and includes receiving goods or
documents of title under a preexisting contract for sale but does
not include a transfer in bulk or as security for or in total or
partial satisfaction of a money debt.
(10) "Conspicuous": A term or clause is conspicuous when it
is so written that a reasonable person against whom it is to
operate ought to have noticed it. A printed heading in capitals
(as: NONNEGOTIABLE BILL OF LADING) is conspicuous. Language in
the body of a form is "conspicuous" if it is in larger or other
contrasting type or color. But in a telegram any stated term is
"conspicuous." Whether a term or clause is "conspicuous" or not
is for decision by the court.
(11) "Contract" means the total legal obligation which
results from the parties' agreement as affected by this chapter
and any other applicable rules of law. (Compare "Agreement.")
(12) "Creditor" includes a general creditor, a secured
creditor, a lien creditor and any representative of creditors,
including an assignee for the benefit of creditors, a trustee in
bankruptcy, a receiver in equity and an executor or administrator
of an insolvent debtor's or assignor's estate.
(13) "Defendant" includes a person in the position of
defendant in a cross action or counterclaim.
(14) "Delivery" with respect to instruments, documents of
title, chattel paper or certificated securities means voluntary
transfer of possession.
(15) "Document of title" includes bill of lading, dockwarrant, dock receipt, warehouse receipt or order for the
delivery of goods, and also any other document which in the
regular course of business or financing is treated as adequately
evidencing that the person in possession of it is entitled to
receive, hold and dispose of the document and the goods it
covers. To be a document of title a document must purport to be
issued by or addressed to a bailee and purport to cover goods in
the bailee's possession which are either identified or are
fungible portions of an identified mass.
(16) "Fault" means wrongful act, omission or breach.
(17) "Fungible" with respect to goods or securities means
goods or securities of which any unit is, by nature or usage of
trade, the equivalent of any other like unit. Goods which are
not fungible shall be deemed fungible for the purposes of this
chapter to the extent that under a particular agreement or
document unlike units are treated as equivalents.
(18) "Genuine" means free of forgery or counterfeiting.
(19) "Good faith" means honesty in fact in the conduct or
transaction concerned.
(20) "Holder" means a person who is in possession of a
document of title or an instrument or a certificated investment
security drawn, issued or endorsed to him or to his order or to
bearer or in blank.
(21) To "honor" is to pay or to accept and pay, or where a
credit so engages to purchase or discount a draft complying with
the terms of the credit.
(22) "Insolvency proceedings" includes any assignment for
the benefit of creditors or other proceedings intended to
liquidate or rehabilitate the estate of the person involved.
(23) A person is "insolvent" who either has ceased to pay
his debts in the ordinary course of business or cannot pay his
debts as they become due or is insolvent within the meaning of
the Federal Bankruptcy Law.
(24) "Money" means a medium of exchange authorized or
adopted by a domestic or foreign government as a part of its
currency.
(25) A person has "notice" of a fact when:
(a) He has actual knowledge of it; or
(b) He has received a notice or notification of it; or
(c) From all the facts and circumstances known to him at the
time in question he has reason to know that it exists. A person
"knows" or has "knowledge" of a fact when he has actual knowledge
of it. "Discover" or "learn" or a word or phrase of similar
import refers to knowledge rather than to reason to know. The
time and circumstances under which a notice or notification may
cease to be effective are not determined by this chapter.
(26) A person "notifies" or "gives" a notice or notification
to another by taking such steps as may be reasonably required to
inform the other in ordinary course whether or not such other
actually comes to know of it. A person "receives" a notice or
notification when:
(a) It comes to his attention; or
(b) It is duly delivered at the place of business through
which the contract was made or at any other place held out by him
as the place for receipt of such communications.
(27) Notice, knowledge or a notice or notification received
by an organization is effective for a particular transaction from
the time when it is brought to the attention of the individual
conducting that transaction, and in any event from the time when
it would have been brought to his attention if the organization
had exercised due diligence. An organization exercises due
diligence if it maintains reasonable routines for communicating
significant information to the person conducting the transaction
and there is reasonable compliance with the routines. Due
diligence does not require an individual acting for the
organization to communicate information unless such communication
is part of his regular duties or unless he has reason to know of
the transaction and that the transaction would be materially
affected by the information.
(28) "Organization" includes a corporation, government or
governmental subdivision or agency, business trust, estate,
trust, partnership or association, two or more persons having a
joint or common interest, or any other legal or commercial
entity.
(29) "Party," as distinct from "third party," means a person
who has engaged in a transaction or made an agreement within this
chapter.
(30) "Person" includes an individual or an organization (seesection 1-102).
(31) "Presumption" or "presumed" means that the trier of
fact must find the existence of the fact presumed unless and
until evidence is introduced which would support a finding of its
nonexistence.
(32) "Purchase" includes taking by sale, discount,
negotiation, mortgage, pledge, lien, issue or reissue, gift or
any other voluntary transaction creating an interest in property.
(33) "Purchaser" means a person who takes by purchase.
(34) "Remedy" means any remedial right to which an aggrieved
party is entitled with or without resort to a tribunal.
(35) "Representative" includes an agent, an officer of a
corporation or association, and a trustee, executor or
administrator of an estate, or any other person empowered to act
for another.
(36) "Rights" includes remedies.
(37) "Security interest" means an interest in personal
property or fixtures which secures payment or performance of an
obligation. The retention or reservation of title by a seller of
goods notwithstanding shipment or delivery to the buyer (section
2-401) is limited in effect to a reservation of a "security
interest." The term also includes any interest of a buyer of
accounts or chattel paper, which is subject to article 9. The
special property interest of a buyer of goods on identification
of such goods to a contract for sale under section 2-401 is not
a "security interest," but a buyer may also acquire a "securityinterest" by complying with article 9. Unless a lease or
consignment is intended as security, reservation of title
thereunder is not a "security interest" but a consignment is in
any event subject to the provisions on consignment sales (section
2-326).
(a) Whether a lease is intended as security is to be
determined by the facts of each case; however,
(a) (i) the
inclusion of an option to purchase does not of itself make the
lease one intended for security, and
(b) (ii) an agreement that
upon compliance with the terms of the lease the lessee shall
become or has the option to become the owner of the property for
no additional consideration or for a nominal consideration does
make the lease one intended for security.
(b) Whether a transaction creates a lease or security
interest is determined by the facts of each case; however, a
transaction creates a security interest if the consideration the
lessee is to pay the lessor for the right to possession and use
of the goods is an obligation for the term of the lease not
subject to termination by the lessee, and:
(A) The original term of the lease is equal to or greater
than the remaining economic life of the goods;
(B) The lessee is bound to renew the lease for the remaining
economic life of the goods or is bound to become the owner of the
goods;
(C) The lessee has an option to renew the lease for the
remaining economic life of the goods for no additionalconsideration or nominal additional consideration upon compliance
with the lease agreement; or
(D) The lessee has an option to become the owner of the
goods for no additional consideration or nominal additional
consideration upon compliance with the lease agreement.
(c) A transaction does not create a security interest merely
because it provides that:
(A) The present value of the consideration the lessee is
obligated to pay the lessor for the right to possession and use
of the goods is substantially equal to or is greater than the
fair market value of the goods at the time the lease is entered
into;
(B) The lessee assumes risk of loss of the goods, or agrees
to pay taxes, insurance, filing, recording or registration fees,
or service or maintenance costs with respect to the goods;
(C) The lessee has an option to renew the lease or to become
the owner of the goods;
(D) The lessee has an option to renew the lease for a fixed
rent that is equal to or greater than the reasonably predictable
fair market rent for the use of the goods for the term of the
renewal at the time the option is to be performed; or
(E) The lessee has an option to become the owner of the
goods for a fixed price that is equal to or greater than the
reasonably predictable fair market value of the goods at the time
the option is to be performed.
(d) For purposes of this subdivision (37):
(A) Additional consideration is not nominal if (i) when the
option to renew the lease is granted to the lessee the rent is
stated to be the fair market rent for the use of the goods for
the term of the renewal determined at the time the option is to
be performed, or (ii) when the option to become the owner of the
goods is granted to the lessee the price is stated to be the fair
market value of the goods determined at the time the option is to
be performed. Additional consideration is nominal if it is less
than the lessee's reasonably predictable cost of performing under
the lease agreement if the option is not exercised;
(B) "Reasonably predictable" and "remaining economic life of
the goods" are to be determined with reference to the facts and
circumstances at the time the transaction is entered into; and
(C) "Present value" means the amount as of a date certain of
one or more sums payable in the future, discounted to the date
certain. The discount is determined by the interest rate
specified by the parties if the rate is not manifestly
unreasonable at the time the transaction is entered into;
otherwise, the discount is determined by a commercially
reasonable rate that takes into account the facts and
circumstances of each case at the time the transaction was
entered into.
(38) "Send" in connection with any writing or notice means
to deposit in the mail or deliver for transmission by any other
usual means of communication with postage or cost of transmission
provided for and properly addressed and in the case of aninstrument to an address specified thereon or otherwise agreed,
or if there be none to any address reasonable under the
circumstances. The receipt of any writing or notice within the
time at which it would have arrived if properly sent has the
effect of a proper sending.
(39) "Signed" includes any symbol executed or adopted by a
party with present intention to authenticate a writing.
(40) "Surety" includes guarantor.
(41) "Telegram" includes a message transmitted by radio,
teletype, cable, any mechanical method of transmission, or the
like.
(42) "Term" means that portion of an agreement which relates
to a particular matter.
(43) "Unauthorized" signature or endorsement means one made
without actual, implied or apparent authority and includes a
forgery.
(44) "Value." Except as otherwise provided with respect to
negotiable instruments and bank collections (sections 3-303, 4-
208 and 4-209) a person gives "value" for rights if he acquires
them.
(a) In return for a binding commitment to extend credit or
for the extension of immediately available credit whether or not
drawn upon and whether or not a chargeback is provided for in the
event of difficulties in collection; or
(b) As security for or in total or partial satisfaction of
a preexisting claim; or
(c) By accepting delivery pursuant to a preexisting contract
for purchase; or
(d) Generally, in return for any consideration sufficient to
support a simple contract.
(45) "Warehouse receipt" means a receipt issued by a person
engaged in the business of storing goods for hire.
(46) "Written" or "writing" includes printing, typewriting
or any other intentional reduction to tangible form.
ARTICLE 2A. LEASES.
PART 1. GENERAL PROVISIONS.
§46-2A-101. Short title.
This article shall be known and may be cited as the "Uniform
Commercial Code -- Leases."
§46-2A-102. Scope.
This article applies to any transaction, regardless of form,
that creates a lease.
§46-2A-103. Definitions and index of definitions.
(1) In this article unless the context otherwise requires:
(a) "Buyer in ordinary course of business" means a person
who in good faith and without knowledge that the sale to him or
her is in violation of the ownership rights or security interest
or leasehold interest of a third party in the goods, buys in
ordinary course from a person in the business of selling goods of
that kind but does not include a pawnbroker. "Buying" may be for
cash or by exchange of other property or on secured or unsecured
credit and includes receiving goods or documents of title undera preexisting contract for sale but does not include a transfer
in bulk or as security for or in total or partial satisfaction of
a money debt.
(b) "Cancellation" occurs when either party puts an end to
the lease contract for default by the other party.
(c) "Commercial unit" means such a unit of goods as by
commercial usage is a single whole for purposes of lease and
division of which materially impairs its character or value on
the market or in use. A commercial unit may be a single article,
as a machine, or a set of articles, as a suite of furniture or a
line of machinery, or a quantity, as a gross or carload or any
other unit treated in use or in the relevant market as a single
whole.
(d) "Conforming" goods or performance under a lease contract
means goods or performance that are in accordance with the
obligations under the lease contract.
(e) "Consumer lease" means a lease that a lessor regularly
engaged in the business of leasing or selling makes to a lessee
who is an individual and who takes under the lease primarily for
a personal, family or household purpose, if the total payments to
be made under the lease contract, excluding payments for options
to renew or buy, do not exceed twenty-five thousand dollars.
(f) "Fault" means wrongful act, omission, breach or default.
(g) "Finance lease" means a lease with respect to which:
(i) The lessor does not select, manufacture or supply the
goods;
(ii) The lessor acquires the goods or the right to
possession and use of the goods in connection with the lease; and
(iii) One of the following occurs:
(A) The lessee receives a copy of the contract by which the
lessor acquired the goods or the right to possession and use of
the goods before signing the lease contract;
(B) The lessee's approval of the contract by which the
lessor acquired the goods or the right to possession and use of
the goods is a condition to effectiveness of the lease contract;
(C) The lessee, before signing the lease contract, receives
an accurate and complete statement designating the promises and
warranties, and any disclaimers of warranties, limitations or
modifications of remedies, or liquidated damages, including those
of a third party, such as the manufacturer of the goods, provided
to the lessor by the person supplying the goods in connection
with or as part of the contract by which the lessor acquired the
goods or the right to possession and use of the goods; or
(D) If the lease is not a consumer lease, the lessor, before
the lessee signs the lease contract, informs the lessee in
writing (a) of the identity of the person supplying the goods to
the lessor, unless the lessee has selected that person and
directed the lessor to acquire the goods or the right to
possession and use of the goods from that person, (b) that the
lessee is entitled under this article to the promises and
warranties, including those of any third party, provided to the
lessor by the person supplying the goods in connection with or aspart of the contract by which the lessor acquired the goods or
the right to possession and use of the goods, and (c) that the
lessee may communicate with the person supplying the goods to the
lessor and receive an accurate and complete statement of those
promises and warranties, including any disclaimers and
limitations of them or of remedies.
(h) "Goods" means all things that are movable at the time of
identification to the lease contract, or are fixtures (section
2A-309), but the term does not include money, documents,
instruments, accounts, chattel paper, general intangibles or
minerals or the like, including oil and gas, before extraction.
The term also includes the unborn young of animals.
(i) "Installment lease contract" means a lease contract that
authorizes or requires the delivery of goods in separate lots to
be separately accepted, even though the lease contract contains
a clause "each delivery is a separate lease" or its equivalent.
(j) "Lease" means a transfer of the right to possession and
use of goods for a term in return for consideration, but a sale,
including a sale on approval or a sale or return, or retention or
creation of a security interest is not a lease. Unless the
context clearly indicates otherwise, the term includes a
sublease.
(k) "Lease agreement" means the bargain, with respect to the
lease, of the lessor and the lessee in fact as found in their
language or by implication from other circumstances including
course of dealing or usage of trade or course of performance asprovided in this article. Unless the context clearly indicates
otherwise, the term includes a sublease agreement.
(l) "Lease contract" means the total legal obligation that
results from the lease agreement as affected by this article and
any other applicable rules of law. Unless the context clearly
indicates otherwise, the term includes a sublease contract.
(m) "Leasehold interest" means the interest of the lessor or
the lessee under a lease contract.
(n) "Lessee" means a person who acquires the right to
possession and use of goods under a lease. Unless the context
clearly indicates otherwise, the term includes a sublessee.
(o) "Lessee in ordinary course of business" means a person
who, in good faith and without knowledge that the lease to him or
her is in violation of the ownership rights or security interest
or leasehold interest of a third party in the goods, leases in
ordinary course from a person in the business of selling or
leasing goods of that kind but does not include a pawnbroker.
"Leasing" may be for cash or by exchange of other property or on
secured or unsecured credit and includes receiving goods or
documents of title under a preexisting lease contract but does
not include a transfer in bulk or as security for or in total or
partial satisfaction of a money debt.
(p) "Lessor" means a person who transfers the right to
possession and use of goods under a lease. Unless the context
clearly indicates otherwise, the term includes a sublessor.
(q) "Lessor's residual interest" means the lessor's interestin the goods after expiration, termination or cancellation of the
lease contract.
(r) "Lien" means a charge against or interest in goods to
secure payment of a debt or performance of an obligation, but the
term does not include a security interest.
(s) "Lot" means a parcel or a single article that is the
subject matter of a separate lease or delivery, whether or not it
is sufficient to perform the lease contract.
(t) "Merchant lessee" means a lessee that is a merchant with
respect to goods of the kind subject to the lease.
(u) "Present value" means the amount as of a date certain of
one or more sums payable in the future, discounted to the date
certain. The discount is determined by the interest rate
specified by the parties if the rate was not manifestly
unreasonable at the time the transaction was entered into;
otherwise, the discount is determined by a commercially
reasonable rate that takes into account the facts and
circumstances of each case at the time the transaction was
entered into.
(v) "Purchase" includes taking by sale, lease, mortgage,
security interest, pledge, gift or any other voluntary
transaction creating an interest in goods.
(w) "Sublease" means a lease of goods with the right to
possession and use of which was acquired by the lessor as a
lessee under an existing lease.
(x) "Supplier" means a person from whom a lessor buys orleases goods to be leased under a finance lease.
(y) "Supply contract" means a contract under which a lessor
buys or leases goods to be leased.
(z) "Termination" occurs when either party pursuant to a
power created by agreement or law puts an end to the lease
contract otherwise than for default.
(2) Other definitions applying to this article and the
sections in which they appear are:
"Accessions." Section 2A-310(1);
"Construction mortgage." Section 2A-309(1)(d);
"Encumbrance." Section 2A-309(1)(e);
"Fixtures." Section 2A-309(1)(a);
"Fixture filing." Section 2A-309(1)(b);
"Purchase money lease." Section 2A-309(1)(c).
(3) The following definitions in other articles apply to
this article:
"Account." Section 9-106;
"Between merchants." Section 2-104(3);
"Buyer." Section 2-103(1)(a);
"Chattel paper." Section 9-105(1)(b);
"Consumer goods." Section 9-109(1);
"Document." Section 9-105(1)(f);
"Entrusting." Section 2-403(3);
"General intangibles." Section 9-106;
"Good faith." Section 2-103(1)(b);
"Instrument." Section 9-105(1)(i);
"Merchant." Section 2-104(1);
"Mortgage." Section 9-105(1)(j);
"Pursuant to commitment." Section 9-105(1)(k);
"Receipt." Section 2-103(1)(c);
"Sale." Section 2-106(1);
"Sale on approval." Section 2-326;
"Sale or return." Section 2-326;
"Seller." Section 2-103(1)(d).
(4) In addition, article one contains general definitions
and principles of construction and interpretation applicable
throughout this article.
§46-2A-104. Leases subject to other law.
(1) A lease, although subject to this article, is also
subject to any applicable:
(a) Certificate of title statute of this state (section 17A-
3-2);
(b) Certificate of title statute of another jurisdiction
(section 2A-105); or
(c) Consumer protection statute of this state, or final
consumer protection decision of a court of this state existing on
the effective date of this article.
(2) In case of conflict between this article, other than
sections 2A-105, 2A-304(3) and 2A-305(3), and a statute or
decision referred to in subsection (1), the statute or decision
controls.
(3) Failure to comply with any applicable law has only theeffect specified therein.
§46-2A-105. Territorial application of article to goods covered
by certificate of title.
Subject to the provisions of sections 2A-304(3) and 2A-
305(3), with respect to goods covered by a certificate of title
issued under a statute of this state or of another jurisdiction,
compliance and the effect of compliance or noncompliance with a
certificate of title statute are governed by the law (including
the conflict of laws rules) of the jurisdiction issuing the
certificate until the earlier of (a) surrender of the
certificate, or (b) four months after the goods are removed from
that jurisdiction and thereafter until a new certificate of title
is issued by another jurisdiction.
§46-2A-106. Limitation on power of parties to consumer lease to
choose applicable law and judicial forum.
(1) If the law chosen by the parties to a consumer lease is
that of a jurisdiction other than a jurisdiction in which the
lessee resides at the time the lease agreement becomes
enforceable or within thirty days thereafter or in which the
goods are to be used, the choice is not enforceable.
(2) If the judicial forum chosen by the parties to a
consumer lease is a forum that would not otherwise have
jurisdiction over the lessee, the choice is not enforceable.
§46-2A-107. Waiver or renunciation of claim or right after
default.
Any claim or right arising out of an alleged default orbreach of warranty may be discharged, in whole or in part,
without consideration by a written waiver or renunciation signed
and delivered by the aggrieved party.
§46-2A-108. Unconscionability.
(1) If the court as a matter of law finds a lease contract
or any clause of a lease contract to have been unconscionable at
the time it was made, the court may refuse to enforce the lease
contract, or it may enforce the remainder of the lease contract
without the unconscionable clause, or it may so limit the
application of any unconscionable clause as to avoid any
unconscionable result.
(2) With respect to a consumer lease, if the court as a
matter of law finds that a lease contract or any clause of a
lease contract has been induced by unconscionable conduct or that
unconscionable conduct has occurred in the collection of a claim
arising from a lease contract, the court may grant appropriate
relief.
(3) Before making a finding of unconscionability under
subsection (1) or (2), the court, on its own motion or that of a
party, shall afford the parties a reasonable opportunity to
present evidence as to the setting, purpose and effect of the
lease contract or clause thereof, or of the conduct.
(4) In an action in which the lessee claims
unconscionability with respect to a consumer lease:
(a) If the court finds unconscionability under subsection
(1) or (2), the court shall award reasonable attorney's fees tothe lessee.
(b) If the court does not find unconscionability and the
lessee claiming unconscionability has brought or maintained an
action he or she knew to be groundless, the court shall award
reasonable attorney's fees to the party against whom the claim is
made.
(c) In determining attorney's fees, the amount of the
recovery on behalf of the claimant under subsections (1) and (2)
is not controlling.
§46-2A-109. Option to accelerate at will.
(1) A term providing that one party or his or her successor
in interest may accelerate payment or performance or require
collateral or additional collateral "at will" or "when he or she
deems himself or herself insecure" or in words of similar import
must be construed to mean that he or she has power to do so only
if he or she in good faith believes that the prospect of payment
or performance is impaired.
(2) With respect to a consumer lease, the burden of
establishing good faith under subsection (1) is on the party who
exercised the power; otherwise the burden of establishing lack of
good faith is on the party against whom the power has been
exercised.
PART 2. FORMATION AND CONSTRUCTION OF LEASE CONTRACT.
§46-2A-201. Statute of frauds.
(1) A lease contract is not enforceable by way of action or
defense unless:
(a) The total payments to be made under the lease contract,
excluding payments for options to renew or buy, are less than one
thousand dollars; or
(b) There is a writing, signed by the party against whom
enforcement is sought or by that party's authorized agent,
sufficient to indicate that a lease contract has been made
between the parties and to describe the goods leased and the
lease term.
(2) Any description of leased goods or of the lease term is
sufficient and satisfies subsection (1)(b), whether or not it is
specific, if it reasonably identifies what is described.
(3) A writing is not insufficient because it omits or
incorrectly states a term agreed upon, but the lease contract is
not enforceable under subsection (1)(b) beyond the lease term and
the quantity of goods shown in the writing.
(4) A lease contract that does not satisfy the requirements
of subsection (1), but which is valid in other respects, is
enforceable:
(a) If the goods are to be specially manufactured or
obtained for the lessee and are not suitable for lease or sale to
others in the ordinary course of the lessor's business, and the
lessor, before notice of repudiation is received and under
circumstances that reasonably indicate that the goods are for the
lessee, has made either a substantial beginning of their
manufacture or commitments for their procurement;
(b) If the party against whom enforcement is sought admitsin that party's pleading, testimony or otherwise in court that a
lease contract was made, but the lease contract is not
enforceable under this provision beyond the quantity of goods
admitted; or
(c) With respect to goods that have been received and
accepted by the lessee.
(5) The lease term under a lease contract referred to in
subsection (4) is:
(a) If there is a writing signed by the party against whom
enforcement is sought or by that party's authorized agent
specifying the lease term, the term so specified;
(b) If the party against whom enforcement is sought admits
in that party's pleading, testimony or otherwise in court a lease
term, the term so admitted; or
(c) A reasonable lease term.
§46-2A-202. Final written expression: Parol or extrinsic
evidence.
Terms with respect to which the confirmatory memoranda of
the parties agree or which are otherwise set forth in a writing
intended by the parties as a final expression of their agreement
with respect to such terms as are included therein may not be
contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement but may be explained or
supplemented:
(a) By course of dealing or usage of trade or by course of
performance; and
(b) By evidence of consistent additional terms unless the
court finds the writing to have been intended also as a complete
and exclusive statement of the terms of the agreement.
§46-2A-203. Seals inoperative.
The affixing of a seal to a writing evidencing a lease
contract or an offer to enter into a lease contract does not
render the writing a sealed instrument and the law with respect
to sealed instruments does not apply to the lease contract or
offer.
§46-2A-204. Formation in general.
(1) A lease contract may be made in any manner sufficient to
show agreement, including conduct by both parties which
recognizes the existence of a lease contract.
(2) An agreement sufficient to constitute a lease contract
may be found although the moment of its making is undetermined.
(3) Although one or more terms are left open, a lease
contract does not fail for indefiniteness if the parties have
intended to make a lease contract, and there is a reasonably
certain basis for giving an appropriate remedy.
§46-2A-205. Firm offers.
An offer by a merchant to lease goods to or from another
person in a signed writing that by its terms gives assurance it
will be held open is not revocable, for lack of consideration,
during the time stated or, if no time is stated, for a reasonable
time, but in no event may the period of irrevocability exceed
three months. Any such term of assurance on a form supplied bythe offeree must be separately signed by the offeror.
§46-2A-206. Offer and acceptance in formation of lease
contract.
(1) Unless otherwise unambiguously indicated by the language
or circumstances, an offer to make a lease contract must be
construed as inviting acceptance in any manner and by any medium
reasonable in the circumstances.
(2) If the beginning of a requested performance is a
reasonable mode of acceptance, an offeror who is not notified of
acceptance within a reasonable time may treat the offer as having
lapsed before acceptance.
§46-2A-207. Course of performance or practical construction.
(1) If a lease contract involves repeated occasions for
performance by either party with knowledge of the nature of the
performance and opportunity for objection to it by the other, any
course of performance accepted or acquiesced in without objection
is relevant to determine the meaning of the lease agreement.
(2) The express terms of a lease agreement and any course of
performance, as well as any course of dealing and usage of trade,
must be construed whenever reasonable as consistent with each
other; but if that construction is unreasonable, express terms
control course of performance, course of performance controls
both course of dealing and usage of trade and course of dealing
controls usage of trade.
(3) Subject to the provisions of section 2A-208 on
modification and waiver, course of performance is relevant toshow a waiver or modification of any term inconsistent with the
course of performance.
§46-2A-208. Modification, rescission and waiver.
(1) An agreement modifying a lease contract needs no
consideration to be binding.
(2) A signed lease agreement that excludes modification or
rescission except by a signed writing may not be otherwise
modified or rescinded, but, except as between merchants, such a
requirement on a form supplied by a merchant must be separately
signed by the other party.
(3) Although an attempt at modification or rescission does
not satisfy the requirements of subsection (2), it may operate as
a waiver.
(4) A party who has made a waiver affecting an executory
portion of a lease contract may retract the waiver by reasonable
notification received by the other party that strict performance
will be required of any term waived, unless the retraction would
be unjust in view of a material change of position in reliance on
the waiver.
§46-2A-209. Lessee under finance lease as beneficiary of supply
contract.
(1) The benefit of a supplier's promises to the lessor under
the supply contract and of all warranties, whether express or
implied, including those of any third party provided in
connection with or as part of the supply contract, extends to the
lessee to the extent of the lessee's leasehold interest under afinance lease related to the supply contract, but is subject to
the terms of the warranty and of the supply contract and all
defenses or claims arising therefrom.
(2) The extension of the benefit of a supplier's promises
and of warranties to the lessee (section 2A-209(1)) does not (i)
modify the rights and obligations of the parties to the supply
contract, whether arising therefrom or otherwise, or (ii) impose
any duty or liability under the supply contract on the lessee.
(3) Any modification or rescission of the supply contract by
the supplier and the lessor is effective between the supplier and
the lessee unless, before the modification or rescission, the
supplier has received notice that the lessee has entered into a
finance lease related to the supply contract. If the
modification or rescission is effective between the supplier and
the lessee, the lessor is deemed to have assumed, in addition to
the obligations of the lessor to the lessee under the lease
contract, promises of the supplier to the lessor and warranties
that were so modified or rescinded as they existed and were
available to the lessee before modification or rescission.
(4) In addition to the extension of the benefit of the
supplier's promises and of warranties to the lessee under
subsection (1), the lessee retains all rights that the lessee may
have against the supplier which arise from an agreement between
the lessee and the supplier or under other law.
§46-2A-210. Express warranties.
(1) Express warranties by the lessor are created as follows:
(a) Any affirmation of fact or promise made by the lessor to
the lessee which relates to the goods and becomes part of the
basis of the bargain creates an express warranty that the goods
will conform to the affirmation or promise;
(b) Any description of the goods which is made part of the
basis of the bargain creates an express warranty that the goods
will conform to the description;
(c) Any sample or model that is made part of the basis of
the bargain creates an express warranty that the whole of the
goods will conform to the sample or model.
(2) It is not necessary to the creation of an express
warranty that the lessor use formal words, such as "warrant" or
"guarantee," or that the lessor have a specific intention to make
a warranty, but an affirmation merely of the value of the goods
or a statement purporting to be merely the lessor's opinion or
commendation of the goods does not create a warranty.
§46-2A-211. Warranties against interference and against
infringement; lessee's obligation against
infringement.
(1) There is in a lease contract a warranty that for the
lease term no person holds a claim to or interest in the goods
that arose from an act or omission of the lessor, other than a
claim by way of infringement or the like, which will interfere
with the lessee's enjoyment of its leasehold interest.
(2) Except in a finance lease, there is in a lease contract
by a lessor who is a merchant regularly dealing in goods of thekind, a warranty that the goods are delivered free of the
rightful claim of any person by way of infringement or the like.
(3) A lessee who furnishes specifications to a lessor or a
supplier shall hold the lessor and the supplier harmless against
any claim by way of infringement or the like that arises out of
compliance with the specifications.
§46-2A-212. Implied warranty of merchantability.
(1) Except in a finance lease, a warranty that the goods
will be merchantable is implied in a lease contract if the lessor
is a merchant with respect to goods of that kind.
(2) Goods to be merchantable must be at least such as:
(a) Pass without objection in the trade under the
description in the lease agreement;
(b) In the case of fungible goods, are of fair average
quality within the description;
(c) Are fit for the ordinary purposes for which goods of
that type are used;
(d) Run, within the variation permitted by the lease
agreement, of even kind, quality and quantity within each unit
and among all units involved;
(e) Are adequately contained, packaged and labeled as the
lease agreement may require; and
(f) Conform to any promises or affirmations of fact made on
the container or label.
(3) Other implied warranties may arise from course of
dealing or usage of trade.
§46-2A-213. Implied warranty of fitness for particular purpose.
Except in a finance lease, if the lessor at the time the
lease contract is made has reason to know of any particular
purpose for which the goods are required and that the lessee is
relying on the lessor's skill or judgment to select or furnish
suitable goods, there is in the lease contract an implied
warranty that the goods will be fit for that purpose.
§46-2A-214. Exclusion or modification of warranties.
(1) Words or conduct relevant to the creation of an express
warranty and words or conduct tending to negate or limit a
warranty must be construed wherever reasonable as consistent with
each other; but, subject to the provisions of section 2A-202 on
parol or extrinsic evidence, negation or limitation is
inoperative to the extent that the construction is unreasonable.
(2) Subject to subsection (3), to exclude or modify the
implied warranty of merchantability or any part of it the
language must mention "merchantability," be by a writing and be
conspicuous. Subject to subsection (3), to exclude or modify any
implied warranty of fitness the exclusion must be by a writing
and be conspicuous. Language to exclude all implied warranties
of fitness is sufficient if it is in writing, is conspicuous and
states, for example, "There is no warranty that the goods will be
fit for a particular purpose."
(3) Notwithstanding subsection (2), but subject to
subsection (4):
(a) Unless the circumstances indicate otherwise, all impliedwarranties are excluded by expressions like "as is," or "with all
faults," or by other language that in common understanding calls
the lessee's attention to the exclusion of warranties and makes
plain that there is no implied warranty, if in writing and
conspicuous;
(b) If the lessee before entering into the lease contract
has examined the goods or the sample or model as fully as desired
or has refused to examine the goods, there is no implied warranty
with regard to defects that an examination ought in the
circumstances to have revealed; and
(c) An implied warranty may also be excluded or modified by
course of dealing, course of performance or usage of trade.
(4) To exclude or modify a warranty against interference or
against infringement (section 2A-211) or any part of it, the
language must be specific, be by a writing and be conspicuous,
unless the circumstances, including course of performance, course
of dealing or usage of trade, give the lessee reason to know that
the goods are being leased subject to a claim or interest of any
person.
§46-2A-215. Cumulation and conflict of warranties express or
implied.
Warranties, whether express or implied, must be construed as
consistent with each other and as cumulative, but if that
construction is unreasonable, the intention of the parties
determines which warranty is dominant. In ascertaining that
intention the following rules apply:
(a) Exact or technical specifications displace an
inconsistent sample or model or general language of description;
(b) A sample from an existing bulk displaces inconsistent
general language of description;
(c) Express warranties displace inconsistent implied
warranties other than an implied warranty of fitness for a
particular purpose.
§46-2A-216. Third-party beneficiaries of express and implied
warranties.
A warranty to or for the benefit of a lessee under this
article, whether express or implied, extends to any natural
person who is in the family or household of the lessee or who is
a guest in the lessee's home if it is reasonable to expect that
such person may use, consume or be affected by the goods and who
is injured in person by breach of the warranty. This section
does not displace principals of law and equity that extend a
warranty to or for the benefit of a lessee to other persons. The
operation of this section may not be excluded, modified or
limited, but an exclusion, modification or limitation of the
warranty, including any with respect to rights and remedies,
effective against the lessee is also effective against any
beneficiary designated under this section.
§46-2A-217. Identification.
Identification of goods as goods to which a lease contract
refers may be made at any time and in any manner explicitly
agreed to by the parties. In the absence of explicit agreement,identification occurs:
(a) When the lease contract is made if the lease contract is
for a lease of goods that are existing and identified;
(b) When the goods are shipped, marked or otherwise
designated by the lessor as goods to which the lease contract
refers, if the lease contract is for a lease of goods that are
not existing and identified; or
(c) When the young are conceived, if the lease contract is
for a lease of unborn young of animals.
§46-2A-218. Insurance and proceeds.
(1) A lessee obtains an insurable interest when existing
goods are identified to the lease contract even though the goods
identified are nonconforming and the lessee has an option to
reject them.
(2) If a lessee has an insurable interest only by reason of
the lessor's identification of the goods, the lessor, until
default or insolvency or notification to the lessee that
identification is final, may substitute other goods for those
identified.
(3) Notwithstanding a lessee's insurable interest under
subsections (1) and (2), the lessor retains an insurable interest
until an option to buy has been exercised by the lessee and risk
of loss has passed to the lessee.
(4) Nothing in this section impairs any insurable interest
recognized under any other statute or rule of law.
(5) The parties by agreement may determine that one or moreparties have an obligation to obtain and pay for insurance
covering the goods and by agreement may determine the beneficiary
of the proceeds of the insurance.
§46-2A-219. Risk of loss.
(1) Except in the case of a finance lease, risk of loss is
retained by the lessor and does not pass to the lessee. In the
case of a finance lease, risk of loss passes to the lessee.
(2) Subject to the provisions of this article on the effect
of default on risk of loss, section 2A-220, if risk of loss is to
pass to the lessee and the time of passage is not stated, the
following rules apply:
(a) If the lease contract requires or authorizes the goods
to be shipped by carrier:
(i) And it does not require delivery at a particular
destination, the risk of loss passes to the lessee when the goods
are duly delivered to the carrier; but
(ii) If it does require delivery at a particular destination
and the goods are there duly tendered while in the possession of
the carrier, the risk of loss passes to the lessee when the goods
are there duly so tendered as to enable the lessee to take
delivery.
(b) If the goods are held by a bailee to be delivered
without being moved, the risk of loss passes to the lessee on
acknowledgment by the bailee of the lessee's right to possession
of the goods.
(c) In any case not within subsection (a) or (b), the riskof loss passes to the lessee on the lessee's receipt of the goods
if the lessor, or, in the case of a finance lease, the supplier,
is a merchant; otherwise the risk passes to the lessee on tender
of delivery.
§46-2A-220. Effect of default on risk of loss.
(1) Where risk of loss is to pass to the lessee and the time
of passage is not stated:
(a) If a tender or delivery of goods so fails to conform to
the lease contract as to give a right of rejection, the risk of
their loss remains with the lessor, or, in the case of a finance
lease, the supplier, until cure or acceptance;
(b) If the lessee rightfully revokes acceptance, he or she,
to the extent of any deficiency in his or her effective insurance
coverage, may treat the risk of loss as having remained with the
lessor from the beginning.
(2) Whether or not risk of loss is to pass to the lessee, if
the lessee as to conforming goods already identified to a lease
contract repudiates or is otherwise in default under the lease
contract, the lessor, or, in the case of a finance lease, the
supplier, to the extent of any deficiency in his or her effective
insurance coverage may treat the risk of loss as resting on the
lessee for a commercially reasonable time.
§46-2A-221. Casualty to identified goods.
If a lease contract requires goods identified when the lease
contract is made, and the goods suffer casualty without fault of
the lessee, the lessor or the supplier before delivery, or thegoods suffer casualty before risk of loss passes to the lessee
pursuant to the lease agreement or section 2A-219, then:
(a) If the loss is total, the lease contract is avoided; and
(b) If the loss is partial or the goods have so deteriorated
as to no longer conform to the lease contract, the lessee may
nevertheless demand inspection and at his or her option either
treat the lease contract as avoided or, except in a finance lease
that is not a consumer lease, accept the goods with due allowance
from the rent payable for the balance of the lease term for the
deterioration or the deficiency in quantity but without further
right against the lessor.
PART 3. EFFECT OF LEASE CONTRACT.
§46-2A-301. Enforceability of lease contract.
Except as otherwise provided in this article, a lease
contract is effective and enforceable according to its terms
between the parties, against purchasers of the goods and against
creditors of the parties.
§46-2A-302. Title to and possession of goods.
Except as otherwise provided in this article, each provision
of this article applies whether the lessor or a third party has
title to the goods, and whether the lessor, the lessee or a third
party has possession of the goods, notwithstanding any statute or
rule of law that possession or the absence of possession is
fraudulent.
§46-2A-303. Alienability of party's interest under lease
contract or of lessor's residual interest in
goods; delegation of performance; transfer of
rights.
(1) As used in this section, "creation of a security
interest" includes the sale of a lease contract that is subject
to article 9, Secured Transactions, by reason of section 9-
102(1)(b).
(2) Except as provided in subsections (3) and (4), a
provision in a lease agreement which (i) prohibits the voluntary
or involuntary transfer, including a transfer by sale, sublease,
creation or enforcement of a security interest, or attachment,
levy, or other judicial process, of an interest of a party under
the lease contract or of the lessor's residual interest in the
goods, or (ii) makes such a transfer an event of default, gives
rise to the rights and remedies provided in subsection (5), but
a transfer that is prohibited or is an event of default under the
lease agreement is otherwise effective.
(3) A provision in a lease agreement which (i) prohibits the
creation or enforcement of a security interest in an interest of
a party under the lease contract or in the lessor's residual
interest in the goods, or (ii) makes such a transfer an event of
default, is not enforceable unless, and then only to the extent
that, there is an actual transfer by the lessee of the lessee's
right of possession or use of the goods in violation of the
provision or an actual delegation of a material performance of
either party to the lease contract in violation of the provision.
Neither the granting nor the enforcement of a security interestin (i) the lessor's interest under the lease contract, or (ii)
the lessor's residual interest in the goods is a transfer that
materially impairs the prospect of obtaining return performance
by, materially changes the duty of, or materially increases the
burden or risk imposed on, the lessee within the purview of
subsection (5) unless, and then only to the extent that, there is
an actual delegation of a material performance of the lessor.
(4) A provision in a lease agreement which (i) prohibits a
transfer of a right to damages for default with respect to the
whole lease contract or of a right to payment arising out of the
transferor's due performance of the transferor's entire
obligation, or (ii) makes such a transfer an event of default, is
not enforceable, and such a transfer is not a transfer that
materially impairs the prospect of obtaining return performance
by, materially changes the duty of, or materially increases the
burden or risk imposed on, the other party to the lease contract
within the purview of subsection (5).
(5) Subject to subsections (3) and (4):
(a) If a transfer is made which is made an event of default
under a lease agreement, the party to the lease contract not
making the transfer, unless that party waives the default or
otherwise agrees, has the rights and remedies described in
section 2A-501(2);
(b) If paragraph (a) is not applicable and if a transfer is
made that (i) is prohibited under a lease agreement, or (ii)
materially impairs the prospect of obtaining return performanceby, materially changes the duty of, or materially increases the
burden or risk imposed on, the other party to the lease contract,
unless the party not making the transfer agrees at any time to
the transfer in the lease contract or otherwise, then, except as
limited by contract (i) the transferor is liable to the party not
making the transfer for damages caused by the transfer to the
extent that the damages could not reasonably be prevented by the
party not making the transfer, and (ii) a court having
jurisdiction may grant other appropriate relief, including
cancellation of the lease contract or an injunction against the
transfer.
(6) A transfer of "the lease" or of "all my rights under the
lease" or a transfer in similar general terms, is a transfer of
rights and, unless the language or the circumstances, as in a
transfer for security, indicate the contrary, the transfer is a
delegation of duties by the transferor to the transferee.
Acceptance by the transferee constitutes a promise by the
transferee to perform those duties. The promise is enforceable
by either the transferor or the other party to the lease
contract.
(7) Unless otherwise agreed by the lessor and the lessee, a
delegation of performance does not relieve the transferor as
against the other party of any duty to perform or of any
liability for default.
(8) In a consumer lease, to prohibit the transfer of an
interest of a party under the lease contract or to make atransfer an event of default, the language must be specific, by
a writing, and conspicuous.
§46-2A-304. Subsequent lease of goods by lessor.
(1) Subject to section 2A-303, a subsequent lessee from a
lessor of goods under an existing lease contract obtains, to the
extent of the leasehold interest transferred, the leasehold
interest in the goods that the lessor had or had power to
transfer, and except as provided in subsection (2) and section
2A-527(4), takes subject to the existing lease contract. A
lessor with voidable title has power to transfer a good leasehold
interest to a good faith subsequent lessee for value, but only to
the extent set forth in the preceding sentence. If goods have
been delivered under a transaction of purchase, the lessor has
that power even though:
(a) The lessor's transferor was deceived as to the identity
of the lessor;
(b) The delivery was in exchange for a check which is later
dishonored;
(c) It was agreed that the transaction was to be a "cash
sale"; or
(d) The delivery was procured through fraud punishable as
larcenous under the criminal law.
(2) A subsequent lessee in the ordinary course of business
from a lessor who is a merchant dealing in goods of that kind to
whom the goods were entrusted by the existing lessee of that
lessor before the interest of the subsequent lessee becameenforceable against that lessor obtains, to the extent of the
leasehold interest transferred, all of that lessor's and the
existing lessee's rights to the goods and takes free of the
existing lease contract.
(3) A subsequent lessee from the lessor of goods that are
subject to an existing lease contract and are covered by a
certificate of title issued under a statute of this state or of
another jurisdiction takes no greater rights than those provided
both by this section and by the certificate of title statute.
§46-2A-305. Sale or sublease of goods by lessee.
(1) Subject to the provisions of section 2A-303, a buyer or
sublessee from the lessee of goods under an existing lease
contract obtains, to the extent of the interest transferred, the
leasehold interest in the goods that the lessee had or had power
to transfer and, except as provided in subsection (2) and section
2A-511(4), takes subject to the existing lease contract. A
lessee with a voidable leasehold interest has power to transfer
a good leasehold interest to a good faith buyer for value or a
good faith sublessee for value, but only to the extent set forth
in the preceding sentence. When goods have been delivered under
a transaction of lease the lessee has that power even though:
(a) The lessor was deceived as to the identity of the
lessee;
(b) The delivery was in exchange for a check which is later
dishonored; or
(c) The delivery was procured through fraud punishable aslarcenous under the criminal law.
(2) A buyer in the ordinary course of business or a
sublessee in the ordinary course of business from a lessee who is
a merchant dealing in goods of that kind to whom the goods were
entrusted by the lessor obtains, to the extent of the interest
transferred, all of the lessor's and lessee's rights to the
goods, and takes free of the existing lease contract.
(3) A buyer or sublessee from the lessee of goods that are
subject to an existing lease contract and are covered by a
certificate of title issued under a statute of this state or of
another jurisdiction takes no greater rights than those provided
both by this section and by the certificate of title statute.
§46-2A-306. Priority of certain liens arising by operation of
law.
If a person in the ordinary course of his or her business
furnishes services or materials with respect to goods subject to
a lease contract, a lien upon those goods in the possession of
that person given by statute or rule of law for those materials
or services takes priority over any interest of the lessor or
lessee under the lease contract or this article unless the lien
is created by statute and the statute provides otherwise or
unless the lien is created by rule of law and the rule of law
provides otherwise.
§46-2A-307. Priority of liens arising by attachment or levy on,
security interests in and other claims to goods.
(1) Except as otherwise provided in section 2A-306, acreditor of a lessee takes subject to the lease contract.
(2) Except as otherwise provided in subsections (3) and (4)
and in sections 2A-306 and 2A-308, a creditor of a lessor takes
subject to the lease contract unless:
(a) The creditor holds a lien that attached to the goods
before the lease contract became enforceable;
(b) The creditor holds a security interest in the goods and
the lessee did not give value and receive delivery of the goods
without knowledge of the security interest; or
(c) The creditor holds a security interest in the goods
which was perfected (section 9-303) before the lease contract
became enforceable.
(3) A lessee in the ordinary course of business takes the
leasehold interest free of a security interest in the goods
created by the lessor even though the security interest is
perfected (section 9-303) and the lessee knows of its existence.
(4) A lessee other than a lessee in the ordinary course of
business takes the leasehold interest free of a security interest
to the extent that it secures future advances made after the
secured party acquires knowledge of the lease or more than forty-
five days after the lease contract becomes enforceable, whichever
first occurs, unless the future advances are made pursuant to a
commitment entered into without knowledge of the lease and before
the expiration of the forty-five day period.
§46-2A-308. Special rights of creditors.
(1) A creditor of a lessor in possession of goods subject toa lease contract may treat the lease contract as void if as
against the creditor retention of possession by the lessor is
fraudulent under any statute or rule of law, but retention of
possession in good faith and current course of trade by the
lessor for a commercially reasonable time after the lease
contract becomes enforceable is not fraudulent.
(2) Nothing in this article impairs the rights of creditors
of a lessor if the lease contract (a) becomes enforceable, not in
current course of trade but in satisfaction of or as security for
a preexisting claim for money, security or the like, and (b) is
made under circumstances which under any statute or rule of law
apart from this article would constitute the transaction a
fraudulent transfer or voidable preference.
(3) A creditor of a seller may treat a sale or an
identification of goods to a contract for sale as void if as
against the creditor retention of possession by the seller is
fraudulent under any statute or rule of law, but retention of
possession of the goods pursuant to a lease contract entered into
by the seller as lessee and the buyer as lessor in connection
with the sale or identification of the goods is not fraudulent if
the buyer bought for value and in good faith.
§46-2A-309. Lessor's and lessee's rights when goods become
fixtures.
(1) In this section:
(a) Goods are "fixtures" when they become so related to
particular real estate that an interest in them arises under realestate law;
(b) A "fixture filing" is the filing, in the office where a
mortgage on the real estate would be filed or recorded, of a
financing statement covering goods that are or are to become
fixtures and conforming to the requirements of section 9-402(5);
(c) A lease is a "purchase money lease" unless the lessee
has possession or use of the goods or the right to possession or
use of the goods before the lease agreement is enforceable;
(d) A mortgage is a "construction mortgage" to the extent it
secures an obligation incurred for the construction of an
improvement on land including the acquisition cost of the land,
if the recorded writing so indicates; and
(e) "Encumbrance" includes real estate mortgages and other
liens on real estate and all other rights in real estate that are
not ownership interests.
(2) Under this article a lease may be of goods that are
fixtures or may continue in goods that become fixtures, but no
lease exists under this article of ordinary building materials
incorporated into an improvement on land.
(3) This article does not prevent creation of a lease of
fixtures pursuant to real estate law.
(4) The perfected interest of a lessor of fixtures has
priority over a conflicting interest of an encumbrancer or owner
of the real estate if:
(a) The lease is a purchase money lease, the conflicting
interest of the encumbrancer or owner arises before the goodsbecome fixtures, the interest of the lessor is perfected by a
fixture filing before the goods become fixtures or within ten
days thereafter, and the lessee has an interest of record in the
real estate or is in possession of the real estate; or
(b) The interest of the lessor is perfected by a fixture
filing before the interest of the encumbrancer or owner is of
record, the lessor's interest has priority over any conflicting
interest of a predecessor in title of the encumbrancer or owner,
and the lessee has an interest of record in the real estate or is
in possession of the real estate.
(5) The interest of a lessor of fixtures, whether or not
perfected, has priority over the conflicting interest of an
encumbrancer or owner of the real estate if:
(a) The fixtures are readily removable factory or office
machines, readily removable equipment that is not primarily used
or leased for use in the operation of the real estate, or readily
removable replacements of domestic appliances that are goods
subject to a consumer lease, and before the goods become fixtures
the lease contract is enforceable; or
(b) The conflicting interest is a lien on the real estate
obtained by legal or equitable proceedings after the lease
contract is enforceable; or
(c) The encumbrancer or owner has consented in writing to
the lease or has disclaimed an interest in the goods as fixtures;
or
(d) The lessee has a right to remove the goods as againstthe encumbrancer or owner. If the lessee's right to remove
terminates, the priority of the interest of the lessor continues
for a reasonable time.
(6) Notwithstanding subsection (4)(a) but otherwise subject
to subsections (4) and (5), the interest of a lessor of fixtures,
including the lessor's residual interest, is subordinate to the
conflicting interest of an encumbrancer of the real estate under
a construction mortgage recorded before the goods become fixtures
if the goods become fixtures before the completion of the
construction. To the extent given to refinance a construction
mortgage, the conflicting interest of an encumbrancer of the real
estate under a mortgage has this priority to the same extent as
the encumbrancer of the real estate under the construction
mortgage.
(7) In cases not within the preceding subsections, priority
between the interest of a lessor of fixtures, including the
lessor's residual interest, and the conflicting interest of an
encumbrancer or owner of the real estate who is not the lessee is
determined by the priority rules governing conflicting interests
in real estate.
(8) If the interest of a lessor of fixtures, including the
lessor's residual interest, has priority over all conflicting
interests of all owners and encumbrancers of the real estate, the
lessor or the lessee may (i) on default, expiration, termination
or cancellation of the lease agreement but subject to the lease
agreement and this article, or (ii) if necessary to enforce otherrights and remedies of the lessor or lessee under this article,
remove the goods from the real estate, free and clear of all
conflicting interests of all owners and encumbrancers of the real
estate, but the lessor or lessee must reimburse any encumbrancer
or owner of the real estate who is not the lessee and who has not
otherwise agreed for the cost of repair of any physical injury,
but not for any diminution in value of the real estate caused by
the absence of the goods removed or by any necessity of replacing
them. A person entitled to reimbursement may refuse permission
to remove until the party seeking removal gives adequate security
for the performance of this obligation.
(9) Even though the lease agreement does not create a
security interest, the interest of a lessor of fixtures,
including the lessor's residual interest, is perfected by filing
a financing statement as a fixture filing for leased goods that
are or are to become fixtures in accordance with the relevant
provisions of the article on secured transactions (article 9).
§46-2A-310. Lessor's and lessee's rights when goods become
accessions.
(1) Goods are "accessions" when they are installed in or
affixed to other goods.
(2) The interest of a lessor or a lessee under a lease
contract entered into before the goods became accessions is
superior to all interests in the whole except as stated in
subsection (4).
(3) The interest of a lessor or a lessee under a leasecontract entered into at the time or after the goods became
accessions is superior to all subsequently acquired interests in
the whole except as stated in subsection (4) but is subordinate
to interests in the whole existing at the time the lease contract
was made unless the holders of such interests in the whole have
in writing consented to the lease or disclaimed an interest in
the goods as part of the whole.
(4) The interest of a lessor or a lessee under a lease
contract described in subsection (2) or (3) is subordinate to the
interest of:
(a) A buyer in the ordinary course of business or a lessee
in the ordinary course of business of any interest in the whole
acquired after the goods became accessions; or
(b) A creditor with a security interest in the whole
perfected before the lease contract was made to the extent that
the creditor makes subsequent advances without knowledge of the
lease contract.
(5) When under subsections (2), (3) and (4) a lessor or a
lessee of accessions holds an interest that is superior to all
interests in the whole, the lessor or the lessee may (a) on
default, expiration, termination or cancellation of the lease
contract by the other party but subject to the provisions of the
lease contract and this article, or (b) if necessary to enforce
his or her other rights and remedies under this article, remove
the goods from the whole, free and clear of all interests in the
whole, but he or she must reimburse any holder of an interest inthe whole who is not the lessee and who has not otherwise agreed
for the cost of repair of any physical injury but not for any
diminution in value of the whole caused by the absence of the
goods removed or by any necessity for replacing them. A person
entitled to reimbursement may refuse permission to remove until
the party seeking removal gives adequate security for the
performance of this obligation.
§46-2A-311. Priority subject to subordination.
Nothing in this article prevents subordination by agreement
by any person entitled to priority.
PART 4. PERFORMANCE OF LEASED CONTRACT;
REPUDIATED, SUBSTITUTED AND EXCUSED.
§46-2A-401. Insecurity; adequate assurance of performance.
(1) A lease contract imposes an obligation on each party
that the other's expectation of receiving due performance will
not be impaired.
(2) If reasonable grounds for insecurity arise with respect
to the performance of either party, the insecure party may demand
in writing adequate assurance of due performance. Until the
insecure party receives that assurance, if commercially
reasonable the insecure party may suspend any performance for
which he or she has not already received the agreed return.
(3) A repudiation of the lease contract occurs if assurance
of due performance adequate under the circumstances of the
particular case is not provided to the insecure party within a
reasonable time, not to exceed thirty days after receipt of ademand by the other party.
(4) Between merchants, the reasonableness of grounds for
insecurity and the adequacy of any assurance offered must be
determined according to commercial standards.
(5) Acceptance of any nonconforming delivery or payment does
not prejudice the aggrieved party's right to demand adequate
assurance of future performance.
§46-2A-402. Anticipatory repudiation.
If either party repudiates a lease contract with respect to
a performance not yet due under the lease contract, the loss of
which performance will substantially impair the value of the
lease contract to the other, the aggrieved party may:
(a) For a commercially reasonable time, await retraction of
repudiation and performance by the repudiating party;
(b) Make demand pursuant to section 2A-401 and await
assurance of future performance adequate under the circumstances
of the particular case; or
(c) Resort to any right or remedy upon default under the
lease contract or this article, even though the aggrieved party
has notified the repudiating party that the aggrieved party would
await the repudiating party's performance and assurance and has
urged retraction. In addition, whether or not the aggrieved
party is pursuing one of the foregoing remedies, the aggrieved
party may suspend performance or, if the aggrieved party is the
lessor, proceed in accordance with the provisions of this article
on the lessor's right to identify goods to the lease contractnotwithstanding default or to salvage unfinished goods (section
2A-524).
§46-2A-403. Retraction of anticipatory repudiation.
(1) Until the repudiating party's next performance is due,
the repudiating party can retract the repudiation unless, since
the repudiation, the aggrieved party has canceled the lease
contract or materially changed the aggrieved party's position or
otherwise indicated that the aggrieved party considers the
repudiation final.
(2) Retraction may be by any method that clearly indicates
to the aggrieved party that the repudiating party intends to
perform under the lease contract and includes any assurance
demanded under section 2A-401.
(3) Retraction reinstates a repudiating party's rights under
a lease contract with due excuse and allowance to the aggrieved
party for any delay occasioned by the repudiation.
§46-2A-404. Substituted performance.
(1) If without fault of the lessee, the lessor and the
supplier, the agreed berthing, loading or unloading facilities
fail or the agreed type of carrier becomes unavailable or the
agreed manner of delivery otherwise becomes commercially
impracticable, but a commercially reasonable substitute is
available, the substitute performance must be tendered and
accepted.
(2) If the agreed means or manner of payment fails because
of domestic or foreign governmental regulation:
(a) The lessor may withhold or stop delivery or cause the
supplier to withhold or stop delivery unless the lessee provides
a means or manner of payment that is commercially a substantial
equivalent; and
(b) If delivery has already been taken, payment by the means
or in the manner provided by the regulation discharges the
lessee's obligation unless the regulation is discriminatory,
oppressive or predatory.
§46-2A-405. Excused performance.
Subject to section 2A-404 on substituted performance, the
following rules apply:
(a) Delay in delivery or nondelivery, in whole or in part,
by a lessor or a supplier who complies with paragraphs (b) and
(c) is not a default under the lease contract if performance as
agreed has been made impracticable by the occurrence of a
contingency the nonoccurrence of which was a basic assumption on
which the lease contract was made or by compliance in good faith
with any applicable foreign or domestic governmental regulation
or order, whether or not the regulation or order later proves to
be invalid.
(b) If the causes mentioned in paragraph (a) affect only
part of the lessor's or the supplier's capacity to perform, he or
she shall allocate production and deliveries among his or her
customers but at his or her option may include regular customers
not then under contract for sale or lease as well as his or her
own requirements for further manufacture. He or she may soallocate in any manner that is fair and reasonable.
(c) The lessor seasonably shall notify the lessee and in the
case of a finance lease the supplier seasonably shall notify the
lessor and the lessee, if known, that there will be delay or
nondelivery and, if allocation is required under paragraph (b),
of the estimated quota thus made available for the lessee.
§46-2A-406. Procedure on excused performance.
(1) If the lessee receives notification of a material or
indefinite delay or an allocation justified under section 2A-405,
the lessee may by written notification to the lessor as to any
goods involved, and with respect to all of the goods if under an
installment lease contract the value of the whole lease contract
is substantially impaired (section 2A-510):
(a) Terminate the lease contract (section 2A-505(2)); or
(b) Except in a finance lease that is not a consumer lease,
modify the lease contract by accepting the available quota in
substitution, with due allowance from the rent payable for the
balance of the lease term for the deficiency but without further
right against the lessor.
(2) If, after receipt of a notification from the lessor
under section 2A-405, the lessee fails so to modify the lease
agreement within a reasonable time not exceeding thirty days, the
lease contract lapses with respect to any deliveries affected.
§46-2A-407. Irrevocable promises; finance leases.
(1) In the case of a finance lease that is not a consumer
lease the lessee's promises under the lease contract becomeirrevocable and independent upon the lessee's acceptance of the
goods.
(2) A promise that has become irrevocable and independent
under subsection (1):
(a) Is effective and enforceable between the parties and by
or against third parties including assignees of the parties; and
(b) Is not subject to cancellation, termination,
modification, repudiation, excuse or substitution without the
consent of the party to whom the promise runs.
(3) This section does not affect the validity under any
other law of a covenant in any lease contract making the lessee's
promises irrevocable and independent upon the lessee's acceptance
of the goods.
PART 5. DEFAULT.
A. IN GENERAL.
§46-2A-501. Default; procedure.
(1) Whether the lessor or the lessee is in default under a
lease contract is determined by the lease agreement and this
article.
(2) If the lessor or the lessee is in default under the
lease contract, the party seeking enforcement has rights and
remedies as provided in this article and, except as limited by
this article, as provided in the lease agreement.
(3) If the lessor or the lessee is in default under the
lease contract, the party seeking enforcement may reduce the
party's claim to judgment, or otherwise enforce the leasecontract by self-help or any available judicial procedure or
nonjudicial procedure, including administrative proceedings,
arbitration or the like, in accordance with this article.
(4) Except as otherwise provided in section 1-106(1) or this
article or the lease agreement, the rights and remedies referred
to in subsections (2) and (3) are cumulative.
(5) If the lease agreement covers both real property and
goods, the party seeking enforcement may proceed under this part
as to the goods, or under other applicable law as to both the
real property and the goods in accordance with that party's
rights and remedies in respect of the real property, in which
case this part does not apply.
§46-2A-502. Notice after default.
Except as otherwise provided in this article or the lease
agreement, the lessor or lessee in default under the lease
contract is not entitled to notice of default or notice of
enforcement from the other party to the lease agreement.
§46-2A-503. Modification or impairment of rights and remedies.
(1) Except as otherwise provided in this article, the lease
agreement may include rights and remedies for default in addition
to or in substitution for those provided in this article and may
limit or alter the measure of damages recoverable under this
article.
(2) Resort to a remedy provided under this article or in the
lease agreement is optional unless the remedy is expressly agreed
to be exclusive. If circumstances cause an exclusive or limitedremedy to fail of its essential purpose, or provision for an
exclusive remedy is unconscionable, remedy may be had as provided
in this article.
(3) Consequential damages may be liquidated under section
2A-504, or may otherwise be limited, altered or excluded unless
the limitation, alteration or exclusion is unconscionable.
Limitation, alteration or exclusion of consequential damages for
injury to the person in the case of consumer goods is prima facie
unconscionable but limitation, alteration or exclusion of damages
where the loss is commercial is not prima facie unconscionable.
(4) Rights and remedies on default by the lessor or the
lessee with respect to any obligation or promise collateral or
ancillary to the lease contract are not impaired by this article.
§46-2A-504. Liquidation of damages.
(1) Damages payable by either party for default, or any
other act or omission, including indemnity for loss or diminution
of anticipated tax benefits or loss or damage to lessor's
residual interest, may be liquidated in the lease agreement but
only at an amount or by a formula that is reasonable in light of
the then anticipated harm caused by the default or other act or
omission.
(2) If the lease agreement provides for liquidation of
damages, and such provision does not comply with subsection (1),
or such provision is an exclusive or limited remedy that
circumstances cause to fail of its essential purpose, remedy may
be had as provided in this article.
(3) If the lessor justifiably withholds or stops delivery of
goods because of the lessee's default or insolvency (section 2A-
525 or 2A-526), the lessee is entitled to restitution of any
amount by which the sum of his or her payments exceeds:
(a) The amount to which the lessor is entitled by virtue of
terms liquidating the lessor's damages in accordance with
subsection (1); or
(b) In the absence of those terms, twenty percent of the
then present value of the total rent the lessee was obligated to
pay for the balance of the lease term, or, in the case of a
consumer lease, the lesser of such amount or five hundred
dollars.
(4) A lessee's right to restitution under subsection (3) is
subject to offset to the extent the lessor establishes:
(a) A right to recover damages under the provisions of this
article other than subsection (1); and
(b) The amount or value of any benefits received by the
lessee directly or indirectly by reason of the lease contract.
§46-2A-505. Cancellation and termination; effect of
cancellation, termination, rescission or fraud
on rights and remedies.
(1) On cancellation of the lease contract, all obligations
that are still executory on both sides are discharged, but any
right based on prior default or performance survives, and the
canceling party also retains any remedy for default of the whole
lease contract or any unperformed balance.
(2) On termination of the lease contract, all obligations
that are still executory on both sides are discharged but any
right based on prior default or performance survives.
(3) Unless the contrary intention clearly appears,
expressions of "cancellation," "rescission" or the like of the
lease contract may not be construed as a renunciation or
discharge of any claim in damages for an antecedent default.
(4) Rights and remedies for material misrepresentation or
fraud include all rights and remedies available under this
article for default.
(5) Neither rescission nor a claim for rescission of the
lease contract nor rejection or return of the goods may bar or be
deemed inconsistent with a claim for damages or other right or
remedy.
§46-2A-506. Statute of limitations.
(1) An action for default under a lease contract, including
breach of warranty or indemnity, must be commenced within four
years after the cause of action accrued. By the original lease
contract the parties may reduce the period of limitation to not
less than one year.
(2) A cause of action for default accrues when the act or
omission on which the default or breach of warranty is based is
or should have been discovered by the aggrieved party, or when
the default occurs, whichever is later. A cause of action for
indemnity accrues when the act or omission on which the claim for
indemnity is based is or should have been discovered by theindemnified party, whichever is later.
(3) If an action commenced within the time limited by
subsection (1) is so terminated as to leave available a remedy by
another action for the same default or breach of warranty or
indemnity, the other action may be commenced after the expiration
of the time limited and within six months after the termination
of the first action unless the termination resulted from
voluntary discontinuance or from dismissal for failure or neglect
to prosecute.
(4) This section does not alter the law on tolling of the
statute of limitations nor does it apply to causes of action that
have accrued before this article becomes effective.
§46-2A-507. Proof of market rent; time and place.
(1) Damages based on market rent (section 2A-519 or 2A-528)
are determined according to the rent for the use of the goods
concerned for a lease term identical to the remaining lease term
of the original lease agreement and prevailing at the times
specified in sections 2A-519 and 2A-528.
(2) If evidence of rent for the use of the goods concerned
for a lease term identical to the remaining lease term of the
original lease agreement and prevailing at the times or places
described in this article is not readily available, the rent
prevailing within any reasonable time before or after the time
described or at any other place or for a different lease term
which in commercial judgment or under usage of trade would serve
as a reasonable substitute for the one described may be used,making any proper allowance for the difference, including the
cost of transporting the goods to or from the other place.
(3) Evidence of a relevant rent prevailing at a time or
place or for a lease term other than the one described in this
article offered by one party is not admissible unless and until
he or she has given the other party notice the court finds
sufficient to prevent unfair surprise.
(4) If the prevailing rent or value of any goods regularly
leased in any established market is in issue, reports in official
publications or trade journals or in newspapers or periodicals of
general circulation published as the reports of that market are
admissible in evidence. The circumstances of the preparation of
the report may be shown to affect its weight but not its
admissibility.
B. DEFAULT BY LESSOR.
§46-2A-508. Lessee's remedies.
(1) If a lessor fails to deliver the goods in conformity to
the lease contract (section 2A-509) or repudiates the lease
contract (section 2A-402), or a lessee rightfully rejects the
goods (section 2A-509) or justifiably revokes acceptance of the
goods (section 2A-517), then with respect to any goods involved,
and with respect to all of the goods if under an installment
lease contract the value of the whole lease contract is
substantially impaired (section 2A-510), the lessor is in default
under the lease contract and the lessee may:
(a) Cancel the lease contract (section 2A-505(1));
(b) Recover so much of the rent and security as has been
paid and is just under the circumstances;
(c) Cover and recover damages as to all goods affected
whether or not they have been identified to the lease contract
(sections 2A-518 and 2A-520), or recover damages for nondelivery
(sections 2A-519 and 2A-520);
(d) Exercise any other rights or pursue any other remedies
provided in the lease contract.
(2) If a lessor fails to deliver the goods in conformity to
the lease contract or repudiates the lease contract, the lessee
may also:
(a) If the goods have been identified, recover them (section
2A-522); or
(b) In a proper case, obtain specific performance or replevy
the goods (section 2A-521).
(3) If a lessor is otherwise in default under a lease
contract, the lessee may exercise the rights and pursue the
remedies provided in the lease contract, which may include a
right to cancel the lease, and in section 2A-519(3).
(4) If a lessor has breached a warranty, whether express or
implied, the lessee may recover damages (section 2A-519(4)).
(5) On rightful rejection or justifiable revocation of
acceptance, a lessee has a security interest in goods in the
lessee's possession or control for any rent and security that has
been paid and any expenses reasonably incurred in their
inspection, receipt, transportation and care and custody and mayhold those goods and dispose of them in good faith and in a
commercially reasonable manner, subject to section 2A-527(5).
(6) Subject to the provisions of section 2A-407, a lessee,
on notifying the lessor of the lessee's intention to do so, may
deduct all or any part of the damages resulting from any default
under the lease contract from any part of the rent still due
under the same lease contract.
§46-2A-509. Lessee's rights on improper delivery; rightful
rejection.
(1) Subject to the provisions of section 2A-510 on default
in installment lease contracts, if the goods or the tender or
delivery fail in any respect to conform to the lease contract,
the lessee may reject or accept the goods or accept any
commercial unit or units and reject the rest of the goods.
(2) Rejection of goods is ineffective unless it is within a
reasonable time after tender or delivery of the goods and the
lessee seasonably notifies the lessor.
§46-2A-510. Installment lease contracts; rejection and default.
(1) Under an installment lease contract, a lessee may reject
any delivery that is nonconforming if the nonconformity
substantially impairs the value of that delivery and cannot be
cured or the nonconformity is a defect in the required documents;
but if the nonconformity does not fall within subsection (2) and
the lessor or the supplier gives adequate assurance of its cure,
the lessee must accept that delivery.
(2) Whenever nonconformity or default with respect to one ormore deliveries substantially impairs the value of the
installment lease contract as a whole there is a default with
respect to the whole. But, the aggrieved party reinstates the
installment lease contract as a whole if the aggrieved party
accepts a nonconforming delivery without seasonably notifying of
cancellation or brings an action with respect only to past
deliveries or demands performance as to future deliveries.
§46-2A-511. Merchant lessee's duties as to rightfully rejected
goods.
(1) Subject to any security interest of a lessee (section
2A-508(5)), if a lessor or a supplier has no agent or place of
business at the market of rejection, a merchant lessee, after
rejection of goods in his or her possession or control, shall
follow any reasonable instructions received from the lessor or
the supplier with respect to the goods. In the absence of those
instructions, a merchant lessee shall make reasonable efforts to
sell, lease or otherwise dispose of the goods for the lessor's
account if they threaten to decline in value speedily.
Instructions are not reasonable if on demand indemnity for
expenses is not forthcoming.
(2) If a merchant lessee (subsection (1)) or any other
lessee (section 2A-512) disposes of goods, he or she is entitled
to reimbursement either from the lessor or the supplier or out of
the proceeds for reasonable expenses of caring for and disposing
of the goods and, if the expenses include no disposition
commission, to such commission as is usual in the trade, or ifthere is none, to a reasonable sum not exceeding ten percent of
the gross proceeds.
(3) In complying with this section or section 2A-512, the
lessee is held only to good faith. Good faith conduct hereunder
is neither acceptance or conversion nor the basis of an action
for damages.
(4) A purchaser who purchases in good faith from a lessee
pursuant to this section or section 2A-512 takes the goods free
of any rights of the lessor and the supplier even though the
lessee fails to comply with one or more of the requirements of
this article.
§46-2A-512. Lessee's duties as to rightfully rejected goods.
(1) Except as otherwise provided with respect to goods that
threaten to decline in value speedily and subject to any security
interest of a lessee (section 2A-508(5)):
(a) The lessee, after rejection of goods in the lessee's
possession, shall hold them with reasonable care at the lessor's
or the supplier's disposition for a reasonable time after the
lessee's seasonable notification of rejection;
(b) If the lessor or the supplier gives no instructions
within a reasonable time after notification of rejection, the
lessee may store the rejected goods for the lessor's or the
supplier's account or ship them to the lessor or the supplier or
dispose of them for the lessor's or the supplier's account with
reimbursement in the manner provided in section 2A-511; but
(c) The lessee has no further obligations with regard togoods rightfully rejected.
(2) Action by the lessee pursuant to subsection (1) is not
acceptance or conversion.
§46-2A-513. Cure by lessor of improper tender or delivery;
replacement.
(1) If any tender or delivery by the lessor or the supplier
is rejected because nonconforming and the time for performance
has not yet expired, the lessor or the supplier may seasonably
notify the lessee of the lessor's or the supplier's intention to
cure and may then make a conforming delivery within the time
provided in the lease contract.
(2) If the lessee rejects a nonconforming tender that the
lessor or the supplier had reasonable grounds to believe would be
acceptable with or without money allowance, the lessor or the
supplier may have a further reasonable time to substitute a
conforming tender if he or she seasonably notifies the lessee.
§46-2A-514. Waiver of lessee's objections.
(1) In rejecting goods, a lessee's failure to state a
particular defect that is ascertainable by reasonable inspection
precludes the lessee from relying on the defect to justify
rejection or to establish default:
(a) If, stated seasonably, the lessor or the supplier could
have cured it (section 2A-513); or
(b) Between merchants if the lessor or the supplier after
rejection has made a request in writing for a full and final
written statement of all defects on which the lessee proposes torely.
(2) A lessee's failure to reserve rights when paying rent or
other consideration against documents precludes recovery of the
payment for defects apparent on the face of the documents.
§46-2A-515. Acceptance of goods.
(1) Acceptance of goods occurs after the lessee has had a
reasonable opportunity to inspect the goods and:
(a) The 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
(b) The lessee fails to make an effective rejection of the
goods (section 2A-509(2)).
(2) Acceptance of a part of any commercial unit is
acceptance of that entire unit.
§46-2A-516. Effect of acceptance of goods; notice of default;
burden of establishing default after acceptance;
notice of claim or litigation to person
answerable over.
(1) A lessee must pay rent for any goods accepted in
accordance with the lease contract, with due allowance for goods
rightfully rejected or not delivered.
(2) A lessee's acceptance of goods precludes rejection of
the goods accepted. In the case of a finance lease, if made with
knowledge of a nonconformity, acceptance cannot be revoked
because of it. In any other case, if made with knowledge of anonconformity, acceptance cannot be revoked because of it unless
the acceptance was on the reasonable assumption that the
nonconformity would be seasonably cured. Acceptance does not of
itself impair any other remedy provided by this article or the
lease agreement for nonconformity.
(3) If a tender has been accepted:
(a) Within a reasonable time after the lessee discovers or
should have discovered any default, the lessee shall notify the
lessor and the supplier, if any, or be barred from any remedy
against the party not notified;
(b) Except in the case of a consumer lease, within a
reasonable time after the lessee receives notice of litigation
for infringement or the like (section 2A-211) the lessee shall
notify the lessor or be barred from any remedy over for liability
established by the litigation; and
(c) The burden is on the lessee to establish any default.
(4) If a lessee is sued for breach of a warranty or other
obligation for which a lessor or a supplier is answerable over
the following apply:
(a) The lessee may give the lessor or the supplier, or both,
written notice of the litigation. If the notice states that the
person notified may come in and defend and that if the person
notified does not do so that person will be bound in any action
against that person by the lessee by any determination of fact
common to the two litigations, then unless the person notified
after seasonable receipt of the notice does come in and defendthat person is so bound;
(b) The lessor or the supplier may demand in writing that
the lessee turn over control of the litigation including
settlement if the claim is one for infringement or the like
(section 2A-211) or else be barred from any remedy over. If the
demand states that the lessor or the supplier agrees to bear all
expense and to satisfy any adverse judgment, then unless the
lessee after seasonable receipt of the demand does turn over
control the lessee is so barred.
(5) Subsections (3) and (4) apply to any obligation of a
lessee to hold the lessor or the supplier harmless against
infringement or the like (section 2A-211).
§46-2A-517. Revocation of acceptance of goods.
(1) A lessee may revoke acceptance of a lot or commercial
unit whose nonconformity substantially impairs its value to the
lessee if the lessee has accepted it:
(a) Except in the case of a finance lease, on the reasonable
assumption that its nonconformity would be cured and it has not
been seasonably cured; or
(b) Without discovery of the nonconformity if the lessee's
acceptance was reasonably induced either by the lessor's
assurances or, except in the case of a finance lease, by the
difficulty of discovery before acceptance.
(2) Except in the case of a finance lease that is not a
consumer lease, a lessee may revoke acceptance of a lot or
commercial unit if the lessor defaults under the lease contractand the default substantially impairs the value of that lot or
commercial unit to the lessee.
(3) If the lease agreement so provides, the lessee may
revoke acceptance of a lot or commercial unit because of other
defaults by the lessor.
(4) Revocation of acceptance must occur within a reasonable
time after the lessee discovers or should have discovered the
ground for it and before any substantial change in condition of
the goods which is not caused by the nonconformity. Revocation
is not effective until the lessee notifies the lessor.
(5) A lessee who so revokes has the same rights and duties
with regard to the goods involved as if the lessee had rejected
them.
§46-2A-518. Cover; substitute goods.
(1) After a default by a lessor under the lease contract of
the type described in (section 2A-508(1)), or, if agreed, after
other default by the lessor, the lessee may cover by making any
purchase or lease of or contract to purchase or lease goods in
substitution for those due from the lessor.
(2) Except as otherwise provided with respect to damages
liquidated in the lease agreement (section 2A-504) or otherwise
determined pursuant to agreement of the parties (sections 1-
102(3) and 2A-503), if a lessee's cover is by a lease agreement
substantially similar to the original lease agreement and the new
lease agreement is made in good faith and in a commercially
reasonable manner, the lessee may recover from the lessor asdamages (i) the present value, as of the date of the commencement
of the term of the new lease agreement, of the rent under the new
lease agreement applicable to that period of the new lease term
which is comparable to the then remaining term of the original
lease agreement minus the present value as of the same date of
the total rent for the then remaining lease term of the original
lease agreement, and (ii) any incidental or consequential damages
less expenses saved in consequence of the lessor's default.
(3) If a lessee's cover is by lease agreement that for any
reason does not qualify for treatment under subsection (2), or is
by purchase or otherwise, the lessee may recover from the lessor
as if the lessee had elected not to cover and section 2A-519
governs.
§46-2A-519. Lessee's damages for nondelivery, repudiation,
default and breach of warranty in regard to
accepted goods.
(1) Except as otherwise provided with respect to damages
liquidated in the lease agreement (section 2A-504) or otherwise
determined pursuant to agreement of the parties (sections 1-
102(3) and 2A-503), if a lessee elects not to cover or a lessee
elects to cover and the cover is by lease agreement that for any
reason does not qualify for treatment under section 2A-518(2), or
is by purchase or otherwise, the measure of damages for
nondelivery or repudiation by the lessor or for rejection or
revocation of acceptance by the lessee is the present value as of
the date of the default, of the then market rent minus thepresent value as of the same date of the original rent, computed
for the remaining lease term of the original lease agreement
together with incidental and consequential damages, less expenses
saved in consequence of the lessor's default.
(2) Market rent is to be determined as of the place for
tender or, in cases of rejection after arrival or revocation of
acceptance, as of the place of arrival.
(3) Except as otherwise agreed, if the lessee has accepted
goods and given notification (section 2A-516(3)), the measure of
damages for nonconforming tender or delivery or other default by
a lessor is the loss resulting in the ordinary course of events
from the lessor's default as determined in any manner that is
reasonable together with incidental and consequential damages,
less expenses saved in consequence of the lessor's default.
(4) Except as otherwise agreed, the measure of damages for
breach of warranty is the present value at the time and place of
acceptance of the difference between the value of the use of the
goods accepted and the value if they had been as warranted for
the lease term, unless special circumstances show proximate
damages of a different amount, together with incidental and
consequential damages, less expenses saved in consequence of the
lessor's default or breach of warranty.
§46-2A-520. Lessee's incidental and consequential damages.
(1) Incidental damages resulting from a lessor's default
include expenses reasonably incurred in inspection, receipt,
transportation and care and custody of goods rightfully rejectedor goods the acceptance of which is justifiably revoked, any
commercially reasonable charges, expenses or commissions in
connection with effecting cover, and any other reasonable expense
incident to the default.
(2) Consequential damages resulting from a lessor's default
include:
(a) Any loss resulting from general or particular
requirements and needs of which the lessor at the time of
contracting had reason to know and which could not reasonably be
prevented by cover or otherwise; and
(b) Injury to person or property proximately resulting from
any breach of warranty.
§46-2A-521. Lessee's right to specific performance or replevin.
(1) Specific performance may be decreed if the goods are
unique or in other proper circumstances.
(2) A decree for specific performance may include any terms
and conditions as to payment of the rent, damages or other relief
that the court deems just.
(3) A lessee has a right of replevin, detinue,
sequestration, claim and delivery, or the like for goods
identified to the lease contract if after reasonable effort the
lessee is unable to effect cover for those goods or the
circumstances reasonably indicate that the effort will be
unavailing.
§46-2A-522. Lessee's right to goods on lessor's insolvency.
(1) Subject to subsection (2), and even though the goodshave not been shipped, a lessee who has paid a part or all of the
rent and security for goods identified to a lease contract
(section 2A-217) on making and keeping good a tender of any
unpaid portion of the rent and security due under the lease
contract may recover the goods identified from the lessor if the
lessor becomes insolvent within ten days after receipt of the
first installment of rent and security.
(2) A lessee acquires the right to recover goods identified
to a lease contract only if they conform to the lease contract.
C. DEFAULT BY LESSEE.
§46-2A-523. Lessor's remedies.
(1) If a lessee wrongfully rejects or revokes acceptance of
goods or fails to make a payment when due or repudiates with
respect to a part or the whole, then, with respect to any goods
involved, and with respect to all of the goods if under an
installment lease contract the value of the whole lease contract
is substantially impaired (section 2A-510), the lessee is in
default under the lease contract and the lessor may:
(a) Cancel the lease contract (section 2A-505(1));
(b) Proceed respecting goods not identified to the lease
contract (section 2A-524);
(c) Withhold delivery of the goods and take possession of
goods previously delivered (section 2A-525);
(d) Stop delivery of the goods by any bailee (section 2A-
526);
(e) Dispose of the goods and recover damages (section 2A-527), or retain the goods and recover damages (section 2A-528) or
in a proper case recover rent (section 2A-529);
(f) Exercise any other rights or pursue any other remedies
provided in the lease contract.
(2) If a lessor does not fully exercise a right or obtain a
remedy to which the lessor is entitled under subsection (1), the
lessor may recover the loss resulting in the ordinary course of
events from the lessee's default as determined in any reasonable
manner, together with incidental damages, less expenses saved in
consequence of the lessee's default.
(3) If a lessee is otherwise in default under a lease
contract, the lessor may exercise the rights and pursue the
remedies provided in the lease contract which may include a right
to cancel the lease. In addition, unless otherwise provided in
the lease contract:
(a) If the default substantially impairs the value of the
lease contract to the lessor, the lessor may exercise the rights
and pursue the remedies provided in subsection (1) or (2); or
(b) If the default does not substantially impair the value
of the lease contract to the lessor, the lessor may recover as
provided in subsection (2).
§46-2A-524. Lessor's right to identify goods to lease contract.
(1) A lessor aggrieved under section 2A-523(1), may:
(a) Identify to the lease contract conforming goods not
already identified if at the time the lessor learned of the
default they were in the lessor's or the supplier's possession orcontrol; and
(b) Dispose of goods (section 2A-527(1)) that demonstrably
have been intended for the particular lease contract even though
those goods are unfinished.
(2) If the goods are unfinished, in the exercise of
reasonable commercial judgment for the purposes of avoiding loss
and of effective realization, an aggrieved lessor or the supplier
may either complete manufacture and wholly identify the goods to
the lease contract or cease manufacture and lease, sell or
otherwise dispose of the goods for scrap or salvage value or
proceed in any other reasonable manner.
§46-2A-525. Lessor's right to possession of goods.
(1) If a lessor discovers the lessee to be insolvent, the
lessor may refuse to deliver the goods.
(2) After a default by the lessee under the lease contract
of the type described in section 2A-523(1) or 2A-523(3)(a) or, if
agreed, after other default by the lessee, the lessor has the
right to take possession of the goods. If the lease contract so
provides, the lessor may require the lessee to assemble the goods
and make them available to the lessor at a place to be designated
by the lessor which is reasonably convenient to both parties.
Without removal, the lessor may render unusable any goods
employed in trade or business, and may dispose of goods on the
lessee's premises (section 2A-527).
(3) The lessor may proceed under subsection (2) without
judicial process if it can be done without breach of the peace orthe lessor may proceed by action.
§46-2A-526. Lessor's stoppage of delivery in transit or
otherwise.
(1) A lessor may stop delivery of goods in the possession of
a carrier or other bailee if the lessor discovers the lessee to
be insolvent and may stop delivery of carload, truckload,
planeload or larger shipments of express or freight if the lessee
repudiates or fails to make a payment due before delivery,
whether for rent, security or otherwise under the lease contract,
or for any other reason the lessor has a right to withhold or
take possession of the goods.
(2) In pursuing its remedies under subsection (1), the
lessor may stop delivery until:
(a) Receipt of the goods by the lessee;
(b) Acknowledgment to the lessee by any bailee of the goods,
except a carrier, that the bailee holds the goods for the lessee;
or
(c) Such an acknowledgment to the lessee by a carrier via
reshipment or as warehouseman.
(3)(a) To stop delivery, a lessor shall so notify as to
enable the bailee by reasonable diligence to prevent delivery of
the goods.
(b) After notification, the bailee shall hold and deliver
the goods according to the directions of the lessor, but the
lessor is liable to the bailee for any ensuing charges or
damages.
(c) A carrier who has issued a nonnegotiable bill of lading
is not obliged to obey a notification to stop received from a
person other than the consignor.
§46-2A-527. Lessor's rights to dispose of goods.
(1) After a default by a lessee under the lease contract of
the type described in section 2A-523(1) or 2A-523(3)(a) or after
the lessor refuses to deliver or takes possession of goods,
(sections 2A-525 or 2A-526), or, if agreed, after other default
by a lessee, the lessor may dispose of the goods concerned or the
undelivered balance thereof by lease, sale or otherwise.
(2) Except as otherwise provided with respect to damages
liquidated in the lease agreement (section 2A-504) or otherwise
determined pursuant to agreement of the parties (sections 1-
102(3) and 2A-503), if the disposition is by lease agreement
substantially similar to the original lease agreement and the new
lease agreement is made in good faith and in a commercially
reasonable manner, the lessor may recover from the lessee as
damages (i) accrued and unpaid rent as of the date of the
commencement of the term of the new lease agreement, (ii) the
present value, as of the same date, of the total rent for the
then remaining lease term of the original lease agreement minus
the present value, as of the same date, of the rent under the new
lease agreement applicable to that period of the new lease term
which is comparable to the then remaining term of the original
lease agreement, and (iii) any incidental damages allowed under
section 2A-530, less expenses saved in consequence of thelessee's default.
(3) If the lessor's disposition is by lease agreement that
for any reason does not qualify for treatment under subsection
(2), or is by sale or otherwise, the lessor may recover from the
lessee as if the lessor had elected not to dispose of the goods
and section 2A-528 governs.
(4) A subsequent buyer or lessee who buys or leases from the
lessor in good faith for value as a result of a disposition under
this section takes the goods free of the original lease contract
and any rights of the original lessee even though the lessor
fails to comply with one or more of the requirements of this
article.
(5) The lessor is not accountable to the lessee for any
profit made on any disposition. A lessee who has rightfully
rejected or justifiably revoked acceptance shall account to the
lessor for any excess over the amount of the lessee's security
interest (section 2A-508(5)).
§46-2A-528. Lessor's damages for nonacceptance, failure to pay,
repudiation or other default.
(1) Except as otherwise provided with respect to damages
liquidated in the lease agreement (section 2A-504) or otherwise
determined pursuant to agreement of the parties (sections 1-
102(3) and 2A-503), if a lessor elects to retain the goods or a
lessor elects to dispose of the goods and the disposition is by
lease agreement that for any reason does not qualify for
treatment under section 2A-527(2), or is by sale or otherwise,the lessor may recover from the lessee as damages for a default
of the type described in section 2A-523(1) or 2A-523(3)(a), or,
if agreed, for other default of the lessee (i) accrued and unpaid
rent as of the date of default if the lessee has never taken
possession of the goods, or, if the lessee has taken possession
of the goods, as of the date the lessor repossesses the goods or
an earlier date on which the lessee makes a tender of the goods
to the lessor, (ii) the present value as of the date determined
under clause (i) of the total rent for the then remaining lease
term of the original lease agreement minus the present value as
of the same date of the market rent at the place where the goods
are located computed for the same lease term, and (iii) any
incidental damages allowed under section 2A-530, less expenses
saved in consequence of the lessee's default.
(2) If the measure of damages provided in subsection (1) is
inadequate to put a lessor in as good a position as performance
would have, the measure of damages is the present value of the
profit, including reasonable overhead, the lessor would have made
from full performance by the lessee, together with any incidental
damages allowed under section 2A-530, due allowance for costs
reasonably incurred and due credit for payments or proceeds of
disposition.
§46-2A-529. Lessor's action for the rent.
(1) After default by the lessee under the lease contract of
the type described in (section 2A-523(1) or 2A-523(3)(a)) or, if
agreed, after other default by the lessee, if the lessor complieswith subsection (2), the lessor may recover from the lessee as
damages:
(a) For goods accepted by the lessee and not repossessed by
or tendered to the lessor, and for conforming goods lost or
damaged within a commercially reasonable time after risk of loss
passes to the lessee (section 2A-219), (i) accrued and unpaid
rent as of the date of entry of judgment in favor of the lessor,
(ii) the present value as of the same date of the rent for the
then remaining lease term of the lease agreement, and (iii) any
incidental damages allowed under section 2A-530, less expenses
saved in consequence of the lessee's default; and
(b) For goods identified to the lease contract if the lessor
is unable after reasonable effort to dispose of them at a
reasonable price or the circumstances reasonably indicate that
effort will be unavailing, (i) accrued and unpaid rent as of the
date of entry of judgment in favor of the lessor, (ii) the
present value as of the same date of the rent for the then
remaining lease term of the lease agreement, and (iii) any
incidental damages allowed under section 2A-530, less expenses
saved in consequence of the lessee's default.
(2) Except as provided in subsection (3), the lessor shall
hold for the lessee for the remaining lease term of the lease
agreement any goods that have been identified to the lease
contract and are in the lessor's control.
(3) The lessor may dispose of the goods at any time before
collection of the judgment for damages obtained pursuant tosubsection (1). If the disposition is before the end of the
remaining lease term of the lease agreement, the lessor's
recovery against the lessee for damages is governed by section
2A-527 or section 2A-528, and the lessor will cause an
appropriate credit to be provided against a judgment for damages
to the extent that the amount of the judgment exceeds the
recovery available pursuant to section 2A-527 or 2A-528.
(4) Payment of the judgment for damages obtained pursuant to
subsection (1) entitles the lessee to the use and possession of
the goods not then disposed of for the remaining lease term of
and in accordance with the lease agreement.
(5) After a lessee has wrongfully rejected or revoked
acceptance of goods, has failed to pay rent then due, or has
repudiated (section 2A-402), a lessor who is held not entitled to
rent under this section must nevertheless be awarded damages for
nonacceptance under sections 2A-527 and 2A-528.
§46-2A-530. Lessor's incidental damages.
Incidental damages to an aggrieved lessor include any
commercially reasonable charges, expenses or commissions incurred
in stopping delivery, in the transportation, care and custody of
goods after the lessee's default, in connection with return or
disposition of the goods, or otherwise resulting from the
default.
§46-2A-531. Standing to sue third parties for injury to goods.
(1) If a third party so deals with goods that have been
identified to a lease contract as to cause actionable injury toa party to the lease contract (i) the lessor has a right of
action against the third party, and (ii) the lessee also has a
right of action against the third party if the lessee:
(a) Has a security interest in the goods;
(b) Has an insurable interest in the goods; or
(c) Bears the risk of loss under the lease contract or has
since the injury assumed that risk as against the lessor and the
goods have been converted or destroyed.
(2) If at the time of the injury the party plaintiff did not
bear the risk of loss as against the other party to the lease
contract and there is no arrangement between them for disposition
of the recovery, his or her suit or settlement, subject to his or
her own interest, is as a fiduciary for the other party to the
lease contract.
(3) Either party with the consent of the other may sue for
the benefit of whom it may concern.
§46-2A-532. Lessor's rights to residual interest.
In addition to any other recovery permitted by this article
or other law, the lessor may recover from the lessee an amount
that will fully compensate the lessor for any loss of or damage
to the lessor's residual interest in the goods caused by the
default of the lessee.
ARTICLE 9. SECURED TRANSACTIONS; SALES OF ACCOUNTS AND CHATTEL
PAPER.
§46-9-113. Security interests arising under article on sales.
A security interest arising solely under the article onsales (article 2)
or the article on leases (article 2A) is
subject to the provisions of this article except that to the
extent that and so long as the debtor does not have or does not
lawfully obtain possession of the goods:
(a) No security agreement is necessary to make the security
interest enforceable; and
(b) No filing is required to perfect the security interest;
and
(c) The rights of the secured party on default by the debtor
are governed
(i) by the article on sales (article 2)
in the case
of a security interest arising solely under such article, or (ii)
by the article on leases (article 2A) in the case of a security
interest arising solely under such article.
NOTE: The purpose of this bill is to add to the Uniform
Commercial Code a new article dealing specifically with leases of
personal property. Under present law, such transactions are
governed by an improvised mixture of common law principles
relating to personal and real property and of statutes dealing
with sales and security interests. The present Code definition
of security interest is modified to reflect leasing arrangements.
The Uniform Commercial Code (UCC), Article 2A - Leases,
governs any lease or personal property (or goods), whether the
transaction is a "true lease" or a "finance lease." The former
occurs when the lessor gives possession and right to use the
personal property to the lessee for a fixed period of time in
return for rent. The title to the property remains with the
lessor. A "finance lease" occurs when the lessor is not the
fundamental supplier of the goods leased, but leases goods to
lessees as a means of financing their sale. Article 2A is
largely derived from the sales article of the UCC - Article 2.
It provides basic contract rules, including matters of offer and
acceptance, statutes of frauds, warranties, assignment of
interests, and remedies upon breach of contract.
Strike-throughs indicate language that would be stricken
from the present law, and underscoring indicates new language
that would be added.
Article two-a is new; therefore, strike-throughs and
underscoring have been omitted.
This bill was recommended by the Commission on Interstate
Cooperation for passage at this session.