Office of the Revisor of Statutes
Minnesota Session Laws - 1989, Regular Session
Key: (1) language to be deleted (2) new language
Laws of Minnesota 1989
CHAPTER 232-H.F.No. 579
An act relating to certain commercial transactions;
adopting an article of the uniform commercial code
that governs leases; providing the conditions for the
determination of the existence of certain vehicle
leases; amending Minnesota Statutes 1988, sections
168A.17, by adding a subdivision; 336.1-105;
336.1-201; and 336.9-113; proposing coding for new law
in Minnesota Statutes, chapter 336.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
ARTICLE 1
ARTICLE 2A - LEASES
PART 1. GENERAL PROVISIONS
Section 2A-101. [336.2A-101] [SHORT TITLE.]
This article shall be known and may be cited as the Uniform
Commercial Code - Leases.
Sec. 2A-102. [336.2A-102] [SCOPE.]
This article applies to any transaction, regardless of
form, that creates a lease.
Sec. 2A-103. [336.2A-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 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 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.
(b) "Cancellation" occurs when either party puts an end to
the lease contract for default by the other party.
(c) "Commercial unit" means a unit of goods that 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,
except an organization, 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 $25,000.
(f) "Fault" means wrongful act, omission, breach, or
default.
(g) "Finance lease" means a lease in which (1) the lessor
does not select, manufacture or supply the goods, (2) the lessor
acquires the goods or the right to possession and use of the
goods in connection with the lease, and (3) either (i) the
lessee receives a copy of the contract evidencing the lessor's
purchase of the goods or a disclaimer statement on or before
signing the lease contract, or (ii) the lessee's approval of the
contract evidencing the lessor's purchase of the goods or a
disclaimer statement is a condition to effectiveness of the
lease contract. "Disclaimer statement" means a written
statement that is part of or separate from the lease contract
that discloses all warranties and other rights provided to the
lessee by the lessor and supplier in connection with the lease
contract and informs the lessee in a conspicuous manner that
there are no warranties or other rights provided to the lessee
by the lessor and supplier other than those disclosed in the
statement.
(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 as provided 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 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 pre-existing 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
interest in 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 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 or
leases 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:
"Accounts." Section 336.9-106.
"Between merchants." Section 336.2-104(3).
"Buyer." Section 336.2-103(1)(a).
"Chattel paper." Section 336.9-105(1)(b).
"Consumer goods." Section 336.9-109(1).
"Documents." Section 336.9-105(1)(f).
"Entrusting." Section 336.2-403(3).
"General intangibles." Section 336.9-106.
"Good faith." Section 336.2-103(1)(b).
"Instruments." Section 336.9-105(1)(i).
"Merchant." Section 336.2-104(1).
"Mortgage." Section 336.9-105(1)(j).
"Pursuant to commitment." Section 336.9-105(1)(k).
"Receipt." Section 336.2-103(1)(c).
"Sale." Section 336.2-106(1).
"Sale on Approval." Section 336.2-326.
"Sale or Return." Section 336.2-326.
"Seller." Section 336.2-103(1)(d).
(4) In addition sections 336.1-101 to 336.1-109 contain
general definitions and principles of construction and
interpretation applicable throughout this article.
Sec. 2A-104. [336.2A-104] [LEASES SUBJECT TO OTHER
STATUTES.]
(1) A lease, although subject to this article, is also
subject to any applicable:
(a) statute of the United States;
(b) certificate of title statute of this state: (list any
certificate of title statutes covering automobiles, trailers,
mobile homes, boats, farm tractors, and the like);
(c) certificate of title statute of another jurisdiction
(section 2A-105); or
(d) consumer protection statute of this state.
(2) In case of conflict between the provisions of this
article, other than sections 2A-105, 2A-304(3), and 2A-305(3),
and any statute referred to in subsection (1), the provisions of
that statute control.
(3) Failure to comply with any applicable statute has only
the effect specified in the statute.
Sec. 2A-105. [336.2A-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 after that until a new
certificate of title is issued by another jurisdiction.
Sec. 2A-106. [336.2A-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 signed the lease or in which the lessee resides at the
time the lease agreement becomes enforceable or within 30 days
after that 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.
Sec. 2A-107. [336.2A-107] [WAIVER OR RENUNCIATION OF CLAIM
OR RIGHT AFTER DEFAULT.]
Any claim or right arising out of an alleged default or
breach 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.
Sec. 2A-108. [336.2A-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, 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 may award reasonable attorney's fees to
the lessee.
(b) If the court does not find unconscionability, the court
may make an award under section 549.21 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.
Sec. 2A-109. [336.2A-109] [OPTION TO ACCELERATE AT WILL.]
A term providing that one party or the party's successor in
interest may accelerate payment or performance or require
collateral or additional collateral "at will" or "when the party
deems self insecure" or in words of similar import must be
construed to mean that the party has power to do so only if the
party in good faith believes that the prospect of payment or
performance is impaired.
PART 2. FORMATION AND CONSTRUCTION OF LEASE CONTRACT
Sec. 2A-201. [336.2A-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
$1,000; 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 admits
in 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.
Sec. 2A-202. [336.2A-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 the included terms 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.
Sec. 2A-203. [336.2A-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.
Sec. 2A-204. [336.2A-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.
Sec. 2A-205. [336.2A-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 term of assurance on a
form supplied by the offeree must be separately signed by the
offeror.
Sec. 2A-206. [336.2A-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.
Sec. 2A-207. [336.2A-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 to
show a waiver or modification of any term inconsistent with the
course of performance.
Sec. 2A-208. [336.2A-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, this
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.
Sec. 2A-209. [336.2A-209] [LESSEE UNDER FINANCE LEASE AS
BENEFICIARY OF SUPPLY CONTRACT.]
(1) The benefit of the supplier's promises to the lessor
under the supply contract and of all warranties, whether express
or implied, under the supply contract, extends to the lessee to
the extent of the lessee's leasehold interest under a finance
lease related to the supply contract, but subject to the terms
of the supply contract and all of the supplier's defenses or
claims arising from the supply contract.
(2) The extension of the benefit of the supplier's promises
and warranties to the lessee (section 2A-209(1)) does not: (a)
modify the rights and obligations of the parties to the supply
contract, whether arising from the supply contract or otherwise,
or (b) 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 against the lessee
unless, prior to 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 supply contract is
modified or rescinded after the lessee enters the finance lease,
the lessee has a cause of action against the lessor, and against
the supplier if the supplier has notice of the lessee's entering
the finance lease when the supply contract is modified or
rescinded. The lessee's recovery from such action shall put the
lessee in as good a position as if the modification or
rescission had not occurred.
Sec. 2A-210. [336.2A-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.
Sec. 2A-211. [336.2A-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 the
kind 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.
Sec. 2A-212. [336.2A-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 goods that:
(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.
Sec. 2A-213. [336.2A-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.
Sec. 2A-214. [336.2A-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
implied warranties 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.
Sec. 2A-215. [336.2A-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.
Sec. 2A-216. [336.2A-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 person who
may reasonably be expected to use, consume, or be affected by
the goods and who is injured by breach of the warranty. 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 the
beneficiary designated under this section.
Sec. 2A-217. [336.2A-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.
Sec. 2A-218. [336.2A-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 more
parties 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.
Sec. 2A-219. [336.2A-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 risk
of 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.
Sec. 2A-220. [336.2A-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, the
lessee, to the extent of any deficiency in the lessee's
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 the lessor's or
supplier's effective insurance coverage may treat the risk of
loss as resting on the lessee for a commercially reasonable time.
Sec. 2A-221. [336.2A-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 the goods 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 the lessee's
option either treat the lease contract as avoided or, except in
a finance 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
Sec. 2A-301. [336.2A-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.
Sec. 2A-302. [336.2A-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.
Sec. 2A-303. [336.2A-303] [ALIENABILITY OF PARTY'S
INTEREST UNDER LEASE CONTRACT OR OF LESSOR'S RESIDUAL INTEREST
IN GOODS; DELEGATION OF PERFORMANCE; ASSIGNMENT OF RIGHTS.]
(1) Any interest of a party under a lease contract and the
lessor's residual interest in the goods may be transferred
unless
(a) the transfer is voluntary and the lease contract
prohibits the transfer; or
(b) the transfer materially changes the duty of or
materially increases the burden or risk imposed on the other
party to the lease contract, and within a reasonable time after
notice of the transfer the other party demands that the
transferee comply with subsection (2) and the transferee fails
to comply.
(2) Within a reasonable time after demand pursuant to
subsection (1)(b), the transferee shall:
(a) cure or provide adequate assurance that the transferee
will promptly cure any default other than one arising from the
transfer;
(b) compensate or provide adequate assurance that the
transferee will promptly compensate the other party to the lease
contract and any other person holding an interest in the lease
contract, except the party whose interest is being transferred,
for any loss to that party resulting from the transfer;
(c) provide adequate assurance of future due performance
under the lease contract; and
(d) assume the lease contract.
(3) Demand pursuant to subsection (1)(b) is without
prejudice to the other party's rights against the transferee and
the party whose interest is transferred.
(4) An assignment of "the lease" or of "all my rights under
the lease" or an assignment in similar general terms is a
transfer of rights, and unless the language or the
circumstances, as in an assignment for security, indicate the
contrary, the assignment is a delegation of duties by the
assignor to the assignee and acceptance by the assignee
constitutes a promise by the assignee to perform those duties.
This promise is enforceable by either the assignor or the other
party to the lease contract.
(5) Unless otherwise agreed by the lessor and the lessee,
no delegation of performance relieves the assignor as against
the other party of any duty to perform or any liability for
default.
(6) A right to damages for default with respect to the
whole lease contract or a right arising out of the assignor's
due performance of the assignor's entire obligation can be
assigned despite agreement otherwise.
(7) To prohibit the transfer of an interest of a party
under a lease contract, the language of prohibition must be
specific, by a writing, and conspicuous.
Sec. 2A-304. [336.2A-304] [SUBSEQUENT LEASE OF GOODS BY
LESSOR.]
(1) Subject to the provisions of 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. When 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) If a lessee has entrusted leased goods to the lessee's
lessor who is a merchant dealing in goods of that kind, a
subsequent lessee from that lessor under a lease entered into
after the entrustment and in the ordinary course of business
takes those goods free of the existing lease contract and
obtains, to the extent of the leasehold interest transferred,
all of the lessor's and the earlier lessee's rights to the goods.
(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.
Sec. 2A-305. [336.2A-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 as
larcenous 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.
Sec. 2A-306. [336.2A-306] [PRIORITY OF CERTAIN LIENS
ARISING BY OPERATION OF LAW.]
If a person in the ordinary course of the person's 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.
Sec. 2A-307. [336.2A-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, a
creditor of a lessee takes subject to the lease contract.
(2) Except as otherwise provided in subsections (3) and (4)
of this section and in sections 2A-306 and 2A-308, a creditor of
a lessor takes subject to the lease contract:
(a) unless the creditor holds a lien that attached to the
goods before the lease contract became enforceable, or
(b) unless the creditor holds a security interest in the
goods that under the article on secured transactions (article 9)
would have priority over any other security interest in the
goods perfected by a filing covering the goods and made at the
time the lease contract became enforceable, whether or not any
other security interest existed.
(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 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 45 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 45-day period.
Sec. 2A-308. [336.2A-308] [SPECIAL RIGHTS OF CREDITORS.]
(1) A creditor of a lessor in possession of goods subject
to a 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.
Sec. 2A-309. [336.2A-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
real estate law;
(b) a "fixture filing" is the filing, in the office where a
mortgage on the real estate would be recorded or registered, of
a financing statement concerning goods that are or are to become
fixtures and conforming to the requirements of subsection (5) of
section 9-402;
(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 goods
become fixtures, the interest of the lessor is perfected by a
fixture filing before the goods become fixtures or within ten
days after that, 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 against
the 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 paragraph (a) of subsection (4) but
otherwise subject to subsections (4) and (5), the interest of a
lessor of fixtures 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 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 has priority over all
conflicting interests of all owners and encumbrancers of the
real estate, the lessor or the lessee may: (a) on default,
expiration, termination, or cancellation of the lease agreement
by the other party but subject to the provisions of the lease
agreement and this article, or (b) if necessary to enforce the
lessor's or lessee's other rights and remedies 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 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).
Sec. 2A-310. [336.2A-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 lease
contract 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 the 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) or (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
the lessor's or lessee's other rights and remedies under this
article; remove the goods from the whole, free and clear of all
interests in the whole, but the lessor or lessee must reimburse
any holder of an interest in the 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.
PART 4. PERFORMANCE OF LEASED CONTRACT:
REPUDIATED, SUBSTITUTED, AND EXCUSED
Sec. 2A-401. [336.2A-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 the insecure party 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 30 days after receipt of a demand
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.
Sec. 2A-402. [336.2A-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 remedies in this section, 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 contract
notwithstanding default or to salvage unfinished goods (section
2A-524).
Sec. 2A-403. [336.2A-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.
Sec. 2A-404. [336.2A-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.
Sec. 2A-405. [336.2A-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, the
lessor or supplier shall allocate production and deliveries
among the lessor's or supplier's customers but may include
regular customers not then under contract for sale or lease as
well as other requirements for further manufacture. The lessor
or supplier may so allocate 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 made available for the lessee.
Sec. 2A-406. [336.2A-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, 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 30 days, the
lease contract lapses with respect to any deliveries affected.
Sec. 2A-407. [336.2A-407] [IRREVOCABLE PROMISES: FINANCE
LEASES.]
(1) In the case of a finance lease, the lessee's promises
under the lease contract become irrevocable 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.
PART 5. DEFAULT
A. In General
Sec. 2A-501. [336.2A-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 lease
contract by self-help or any available judicial procedure or
nonjudicial procedure, including administrative proceeding,
arbitration, or the like, in accordance with this article.
(4) Except as otherwise provided in 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 the party's
rights and remedies in respect of the real property, in which
case this part does not apply.
Sec. 2A-502. [336.2A-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.
Sec. 2A-503. [336.2A-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
limited remedy 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 of consequential damages for injury to the person in
the case of consumer goods is prima facie unconscionable but
limitation of damages where the loss is commercial is not.
(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.
Sec. 2A-504. [336.2A-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 the provision does not comply with subsection (1),
or the 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 the lessee's 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, 20 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 $500.
(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.
Sec. 2A-505. [336.2A-505] [CANCELLATION AND TERMINATION
AND 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.
Sec. 2A-506. [336.2A-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. If the lease contract
is not a consumer lease, the parties may reduce the period of
limitation to not less than one year in the original lease
contract.
(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 the
indemnified party.
(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.
Sec. 2A-507. [336.2A-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 time of
the default.
(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
the party 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
Sec. 2A-508. [336.2A-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 pursue any
or all of the following remedies:
(a) cancel the lease contract (section 2A-505(1));
(b) recover so much of the rent and security as has been
paid, but in the case of an installment lease contract the
recovery is that which 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).
(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 remedies
provided in the lease contract and this article.
(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
may hold those goods and dispose of them in good faith and in a
commercially reasonable manner, subject to the provisions of
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.
Sec. 2A-509. [336.2A-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.
Sec. 2A-510. [336.2A-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
or more 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.
Sec. 2A-511. [336.2A-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 the lessee's 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, the lessee 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 a commission as is usual in the
trade, or if there 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 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.
Sec. 2A-512. [336.2A-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 (section 2A-511) 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 to
goods rightfully rejected.
(2) Action by the lessee pursuant to subsection (1) is not
acceptance or conversion.
Sec. 2A-513. [336.2A-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 the lessor or supplier seasonably notifies
the lessee.
Sec. 2A-514. [336.2A-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 to
rely.
(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.
Sec. 2A-515. [336.2A-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.
Sec. 2A-516. [336.2A-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 a
nonconformity, 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, or be barred from any remedy;
(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:
(a) The lessee may give the lessor or the supplier written
notice of the litigation. If the notice states that the lessor
or the supplier may come in and defend and that if the lessor or
the supplier does not do so the lessor or supplier will be bound
in any action against the lessor or supplier by the lessee by
any determination of fact common to the two litigations, then
unless the lessor or the supplier after seasonable receipt of
the notice does come in and defend the lessor or supplier 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) The provisions of 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).
Sec. 2A-517. [336.2A-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) 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.
(3) A lessee who so revokes has the same rights and duties
with regard to the goods involved as if the lessee had rejected
them.
Sec. 2A-518. [336.2A-518] [COVER; SUBSTITUTE GOODS.]
(1) After default by a lessor under the lease contract
(section 2A-508(1)), 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 determined
by agreement of the parties (section 1-102(3)), if a lessee's
cover is by lease agreement substantially similar to the
original lease agreement and the lease agreement is made in good
faith and in a commercially reasonable manner, the lessee may
recover from the lessor as damages (a) the present value, as of
the date of default, of the difference between the total rent
for the lease term of the new lease agreement and the total rent
for the remaining lease term of the original lease agreement and
(b) 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.
Sec. 2A-519. [336.2A-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 determined
by agreement of the parties (section 336.1-102(3)), 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 difference between the then market rent and 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) If the lessee has accepted goods and given notification
(section 2A-516(3)), the measure of damages for nonconforming
tender or delivery 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) 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.
Sec. 2A-520. [336.2A-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
rejected or 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.
Sec. 2A-521. [336.2A-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.
Sec. 2A-522. [336.2A-522] [LESSEE'S RIGHT TO GOODS ON
LESSOR'S INSOLVENCY.]
(1) Subject to subsection (2) and even though the goods
have 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
Sec. 2A-523. [336.2A-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 pursue any
or all of the following remedies:
(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).
(2) If a lessee is otherwise in default under a lease
contract, the lessor may exercise the rights and remedies
provided in the lease agreement and this article.
Sec. 2A-524. [336.2A-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
or control; 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.
Sec. 2A-525. [336.2A-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) The lessor has on default by the lessee under the lease
contract 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 that can be done without breach of the peace
or the lessor may proceed by action.
Sec. 2A-526. [336.2A-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) 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.
Sec. 2A-527. [336.2A-527] [LESSOR'S RIGHTS TO DISPOSE OF
GOODS.]
(1) After a default by a lessee under the lease contract
(section 2A-523(1)) or after the lessor refuses to deliver or
takes possession of goods (section 2A-525 or 2A-526), the lessor
may dispose of the goods concerned or the undelivered balance by
lease, sale or otherwise.
(2) Except as otherwise provided with respect to damages
liquidated in the lease agreement (section 2A-504) or determined
by agreement of the parties (section 336.1-102(3)), if the
disposition is by lease agreement substantially similar to the
original lease agreement and the lease agreement is made in good
faith and in a commercially reasonable manner, the lessor may
recover from the lessee as damages (a) accrued and unpaid rent
as of the date of the start of the term of the new lease
agreement, (b) the present value as of the date of the start of
the term of the new lease agreement of the difference between
the total rent for the remaining lease term of the original
lease agreement and the total rent for the lease term of the new
lease agreement, and (c) any incidental damages allowed under
section 2A-530, less expenses saved in consequence of the
lessee'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)).
Sec. 2A-528. [336.2A-528] [LESSOR'S DAMAGES FOR
NONACCEPTANCE OR REPUDIATION.]
(1) Except as otherwise provided with respect to damages
liquidated in the lease agreement (section 2A-504) or determined
by agreement of the parties (section 1-102(3)), if a lessor
elects to retain the goods or a lessor elects to dispose of the
goods and 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 nonacceptance or repudiation by the lessee (a)
accrued and unpaid rent as of the date the lessor obtained
possession of the goods or an earlier date when the lessee made
an effective tender of possession of the goods back to the
lessor, (b) the present value as of the date determined under
paragraph (a) of the difference between the total rent for the
then remaining lease term of the original lease agreement and
the market rent at the time determined under paragraph (a), and
place for tender computed for the same lease term, and (c) 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 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.
Sec. 2A-529. [336.2A-529] [LESSOR'S ACTION FOR THE RENT.]
(1) After default by the lessee under the lease contract
(section 2A-523(1)), if the lessor complies with subsection (2),
the lessor may recover from the lessee as damages:
(a) for goods accepted by the lessee 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 date of
entry of judgment in favor of the lessor 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 date of entry of judgment in favor of
the lessor 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 judgement for damages obtained pursuant to
subsection (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 will be governed by
section 2A-527 or section 2A-528.
(4) Payment of the judgment for damages obtained pursuant
to subsection (1) entitles the lessee to use and possession of
the goods not then disposed of for the remaining lease term of
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.
Sec. 2A-530. [336.2A-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.
Sec. 2A-531. [336.2A-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 to
a party to the lease contract (a) the lessor has a right of
action against the third party, and (b) the lessee also has a
right of action against the third party if the lessee:
(i) has a security interest in the goods;
(ii) has an insurable interest in the goods; or
(iii) 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, the party plaintiff's suit or
settlement, subject to the party plaintiff's 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.
Sec. 101. [DEFINITION.]
Unless the context indicates otherwise, where the term
"this article" appears in sections 2A-101 to 2A-531, it refers
to that series of sections, which comprise an article of the
Uniform Commercial Code and shall be referred to as "this
article" when published in Minnesota Statutes.
ARTICLE 2
CONFORMING AMENDMENTS
Section 1. Minnesota Statutes 1988, section 168A.17, is
amended by adding a subdivision to read:
Subd. 1b. [LEASES THAT ARE NOT SALES OR SECURITY
INTERESTS.] A motor vehicle lease does not create a security
interest merely because it provides that the rental price is
permitted or required to be adjusted under the agreement by
reference to the amount realized upon sale or other disposition
of the motor vehicle. In the case of a lease agreement with
respect to a vehicle other than a vehicle used primarily for
personal, family, or household purposes, the determination
whether the lease agreement constitutes a lease and does not
create a conditional sale or security interest shall be governed
by the stated intent of the parties set forth in the lease
agreement, unless the substance of the lease agreement is
inconsistent with the stated intent.
Sec. 2. Minnesota Statutes 1988, section 336.1-105, is
amended to read:
336.1-105 [TERRITORIAL APPLICATION OF THE 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 336.2-402.
Applicability of the article on leases. Sections 2A-105
and 2A-106.
Applicability of the article on bank deposits and
collections. Section 336.4-102.
Bulk transfers subject to the article on bulk transfers.
Section 336.6-102.
Applicability of the article on investment securities.
Section 336.8-106.
Perfection provisions of the article on secured
transactions. Section 336.9-103.
Sec. 3. Minnesota Statutes 1988, section 336.1-201, is
amended to read:
336.1-201 [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
336.1-205 and 336.2-208). Whether an agreement has legal
consequences is determined by the provisions of this chapter, if
applicable; otherwise by the law of contracts (section
336.1-103). (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 endorsed 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 does 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 that
person 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 on secured 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 printing 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, dock
warrant, 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 that person or that
person's 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
debts in the ordinary course of business or cannot pay the 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 that person
(a) has actual knowledge of it; or
(b) has received a notice or notification of it; or
(c) from all the facts and circumstances known to that
person at the time in question, has reason to know that it
exists.
A person "knows" or has "knowledge" of a fact when that
person 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 that person's 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
that person 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 the individual's
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 regular duties or unless the
individual 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
(see section 336.1-102).
(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 re-issue, 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 336.2-401) 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 those goods to a contract for sale under
section 336.2-401 is not a "security interest," but a buyer may
also acquire a "security interest" 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 is subject to the provisions
on consignment sales (section 336.2-326). Whether a lease is
intended as security is to be determined by the facts of each
case; however, (a) the inclusion of an option to purchase does
not of itself make the lease one intended for security, and (b)
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.
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 additional
consideration 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.
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.
For purposes of this subsection (37):
(x) 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;
(y) "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
(z) "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 an instrument 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 336.3-303,
336.4-208 and 336.4-209) a person gives "value" for rights by
acquiring 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.
Sec. 4. Minnesota Statutes 1988, section 336.9-113, is
amended to read:
336.9-113 [SECURITY INTERESTS ARISING UNDER ARTICLE ON
SALES.]
A security interest arising solely under the article on
sales (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.
ARTICLE 3
Section 1. [EFFECTIVE DATE; APPLICATION.]
This act is effective January 1, 1990, and applies to lease
contracts that first become effective on or after that date.
This act does not apply to a lease contract that first became
effective before January 1, 1990, or to an extension, amendment,
modification, renewal, or supplement of or to the lease
contract, unless the parties agree in writing to be governed by
this act.
Presented to the governor May 19, 1989
Signed by the governor May 22, 1989, 8:30 p.m.
Official Publication of the State of Minnesota
Revisor of Statutes