Skip to main content Skip to office menu Skip to footer
Minnesota Legislature

Office of the Revisor of Statutes

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.