- Consolidated Laws - Uniform Commercial Code
PART 5
DEFAULT
A. IN GENERAL
B. DEFAULT BY LESSOR
C. DEFAULT BY LESSEE
A. IN GENERAL
Section 2-A-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 Section 1-106(1) or this Article
or the lease agreement, the rights and remedies referred to in
subsections (2) and (3) are cumulative.
(5) If the lease agreement covers both real property and goods, the
party seeking enforcement may proceed under this part as to the goods,
or under other applicable law as to both the real property and the goods
in accordance with that party`s rights and remedies in respect of the
real property, in which case this part does not apply.
Section 2-A-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.
Section 2-A-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 2-A-504, or
may otherwise be limited, altered, or excluded unless the limitation,
alteration, or exclusion is unconscionable. Limitation, alteration, or
exclusion of consequential damages for injury to the person in the case
of consumer goods is prima facie unconscionable but limitation,
alteration, or exclusion of damages where the loss is commercial is not
prima facie unconscionable.
(4) Rights and remedies on default by the lessor or the lessee with
respect to any obligation or promise collateral or ancillary to the
lease contract are not impaired by this Article.
Section 2-A-504. Liquidation of Damages.
(1) Damages payable by either party for default, or any other act or
omission, including indemnity for loss or diminution of anticipated tax
benefits or loss or damage to lessor`s residual interest, may be
liquidated in the lease agreement but only at an amount or by a formula
that is reasonable in light of the then anticipated harm caused by the
default or other act or omission.
(2) If the lease agreement provides for liquidation of damages, and
such provision does not comply with subsection (1), or such provision is
an exclusive or limited remedy that circumstances cause to fail of its
essential purpose, remedy may be had as provided in this Article.
(3) If the lessor justifiably withholds or stops delivery of goods
because of the lessee`s default or insolvency (Section 2-A-525 or
2-A-526), the lessee is entitled to restitution of any amount by which
the sum of his or her payment 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.
Section 2-A-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 cancelling 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.
Section 2-A-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. In a lease contract that is not a consumer
lease, by the original lease contract the parties may reduce the period
of limitation to not less than one year.
(2) A cause of action for default accrues when the act or omission on
which the default or breach of warranty is based is or should have been
discovered by the aggrieved party, or when the default occurs, whichever
is later. A cause of action for indemnity accrues when the act or
omission on which the claim for indemnity is based is or should have
been discovered by the indemnified party, whichever is later.
(3) If an action commenced within the time limited by subsection (1)
is so terminated as to leave available a remedy by another action for
the same default or breach of warranty or indemnity, the other action
may be commenced after the expiration of the time limited and within six
months after the termination of the first action unless the termination
resulted from voluntary discontinuance or from dismissal for failure or
neglect to prosecute.
(4) This section does not alter the law on tolling of the statute of
limitations nor does it apply to causes of action that have accrued
before this Article becomes effective.
Section 2-A-507. Proof of Market Rent: Time and Place.
(1) Damages based on market rent (Section 2-A-519 or 2-A-528) are
determined according to the rent for the use of the goods concerned for
a lease term identical to the remaining lease term of the original lease
agreement and prevailing at the times specified in Sections 2-A-519 and
2-A-528.
(2) If evidence of rent for the use of the goods concerned for a lease
term identical to the remaining lease term of the original lease
agreement and prevailing at the times or places described in this
Article is not readily available, the rent prevailing within any
reasonable time before or after the time described or at any other place
or for a different lease term which in commercial judgment or under
usage of trade would serve as a reasonable substitute for the one
described may be used, making any proper allowance for the difference,
including the cost of transporting the goods to or from the other place.
(3) Evidence of a relevant rent prevailing at a time or place or for a
lease term other than the one described in this Article offered by one
party is not admissible unless and until he or she has given the other
party notice the court finds sufficient to prevent unfair surprise.
(4) If the prevailing rent or value of any goods regularly leased in
any established market is in issue, reports in official publications of
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
Section 2-A-508. Lessee`s Remedies.
(1) If a lessor fails to deliver the goods in conformity to the lease
contract (Section 2-A-509) or repudiates the lease contract (Section
2-A-402), or a lessee rightfully rejects the goods (Section 2-A-509) or
justifiably revokes acceptance of the goods (Section 2-A-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 2-A-510), the lessor is in
default under the lease contract and the lessee may:
(a) cancel the lease contract (Section 2-A-505 (1));
(b) recover so much of the rent and security as has been paid and
is just under the circumstances;
(c) cover and recover damages as to all goods affected whether or
not they have been identified to the lease contract (Sections
2-A-518 and 2-A-520), or recover damages for nondelivery
(Sections 2-A-519 and 2-A-520);
(d) exercise any other rights or pursue any other remedies
provided in the lease contract.
(2) If a lessor fails to deliver the goods in conformity to the lease
contract or repudiates the lease contract, the lessee may also:
(a) if the goods have been identified, recover them (Section
2-A-522); or
(b) in a proper case, obtain specific performance or replevy the
goods (Section 2-A-521).
(3) If a lessor is otherwise in default under a lease contract, the
lessee may exercise the rights and pursue the remedies provided in the
lease contract, which may include a right to cancel the lease, and in
Section 2-A-519(3).
(4) If a lessor has breached a warranty, whether express or implied,
the lessee may recover damages (Section 2-A-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 interest 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 Section 2-A-527(5).
(6) Subject to the provisions of Section 2-A-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.
Section 2-A-509. Lessee`s Rights on Improper Delivery: Rightful
Rejection.
(1) Subject to the provisions of Section 2-A-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.
Section 2-A-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.
Section 2-A-511. Merchant Lessee`s Duties as to Rightfully Rejected
Goods.
(1) Subject to any security interest of a lessee (Section 2-A-508(5)),
if a lessor or a supplier has no agent or place of business at the
market of rejection, a merchant lessee, after rejection of goods in his
or her possession or control, shall follow any reasonable instructions
received from the lessor or the supplier with respect to the goods. In
the absence of those instructions, a merchant lessee shall make
reasonable efforts to sell, lease, or otherwise dispose of the goods for
the lessor`s account if they threaten to decline in value speedily.
Instructions are not reasonable if on demand indemnity for expenses is
not forthcoming.
(2) If a merchant lessee (subsection (1)) or any other lessee (Section
2-A-512) disposes of goods, he or she is entitled to reimbursement
either from the lessor or the supplier or out of the proceeds for
reasonable expenses of caring for and disposing of the goods and, if the
expenses include no disposition commission, to such commission as is
usual in the trade, or if there is none, to a reasonable sum not
exceeding 10 percent of the gross proceeds.
(3) In complying with this section or Section 2-A-512, the lessee is
held only to good faith. Good faith conduct hereunder is neither
acceptance or conversion nor the basis of an action for damages.
(4) A purchaser who purchases in good faith from a lessee pursuant to
this section or Section 2-A-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.
Section 2-A-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 2-A-511) and subject to any
security interest of a lessee (Section 2-A-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 2-A-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.
Section 2-A-513. Cure by Lessor of Improper Tender or Delivery;
Replacement.
(1) If any tender or delivery by the lessor or the supplier is
rejected because nonconforming and the time for performance has not yet
expired, the lessor or the supplier may seasonably notify the lessee of
the lessor`s or the supplier`s intention to cure and may then make a
conforming delivery within the time provided in the lease contract.
(2) If the lessee rejects a nonconforming tender that the lessor or
the supplier had reasonable grounds to believe would be acceptable with
or without money allowance, the lessor or the supplier may have a
further reasonable time to substitute a conforming tender if he or she
seasonably notifies the lessee.
Section 2-A-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 2-A-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.
Section 2-A-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 2-A-509 (2)).
(2) Acceptance of a part of any commercial unit is acceptance of that
entire unit.
Section 2-A-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, other than a consumer lease in
which the supplier assisted in the preparation of the lease contract or
participated in negotiating the terms of the lease contract with the
lessor, 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, if any, or be barred from any remedy
against the party not notified;
(b) except in the case of a consumer lease, within a reasonable
time after the lessee receives notice of litigation for
infringement or the like (Section 2-A-211) the lessee shall
notify the lessor or be barred from any remedy over for
liability established by the litigation; and
(c) the burden is on the lessee to establish any default.
(4) If a lessee is sued for breach of a warranty or other obligation
for which a lessor or a supplier is answerable over the following apply:
(a) the lessee may give the lessor or the supplier, or both,
written notice of the litigation. If the notice states that
the person notified may come in and defend and that if the
person notified does not do so that person will be bound in
any action against that person by the lessee by any
determination of fact common to the two litigations, then
unless the person notified after seasonable receipt of the
notice does come in and defend that person is so bound; and
(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 2-A-211) or else be barred from any remedy over. If
the demand states that the lessor or the supplier agrees to
bear all expense and to satisfy any adverse judgment, then
unless the lessee after seasonable receipt of the demand does
turn over control the lessee is so barred.
(5) Subsections (3) and (4) apply to any obligation of a lessee to
hold the lessor or the supplier harmless against infringement or the
like (Section 2-A-211).
Section 2-A-517. Revocation of Acceptance of Goods.
(1) A lessee may revoke acceptance of a lot or commercial unit whose
nonconformity substantially impairs its value to the lessee if the
lessee has accepted it:
(a) except in the case of a finance lease, on the reasonable
assumption that its nonconformity would be cured and it has
not been seasonably cured; or
(b) without discovery of the nonconformity if the lessee`s
acceptance was reasonably induced either by the lessor`s
assurances or, except in the case of a finance lease, by the
difficulty of discovery before acceptance.
(2) Except in the case of a finance lease that is not a consumer
lease, a lessee may revoke acceptance of a lot or commercial unit if the
lessor defaults under the lease contract and the default substantially
impairs the value of that lot or commercial unit to the lessee.
(3) If the lease agreement so provides, the lessee may revoke
acceptance of a lot or commercial unit because of other defaults by the
lessor.
(4) Revocation of acceptance must occur within a reasonable time after
the lessee discovers or should have discovered the ground for it and
before any substantial change in condition of the goods which is not
caused by the nonconformity. Revocation is not effective until the
lessee notifies the lessor.
(5) A lessee who so revokes has the same right and duties with regard
to the goods involved as if the lessee had rejected them.
Section 2-A-518. Cover; Substitute Goods.
(1) After a default by a lessor under the lease contract of the type
described in Section 2-A-508(1) or, if agreed, after other default by
the lessor, the lessee may cover by making any purchase or lease of or
contract to purchase or lease goods in substitution for those due from
the lessor.
(2) Except as otherwise provided with respect to damages liquidated in
the lease agreement (Section 2-A-504) or otherwise determined pursuant
to agreement of the parties (Sections 1-102(3) and 2-A-503), if a
lessee`s cover is by a lease agreement substantially similar to the
original lease agreement and the new lease agreement is made in good
faith and in a commercially reasonable manner, the lessee may recover
from the lessor as damages (a) the present value, as of the date of the
commencement of the term of the new lease agreement, of the rent under
the new lease agreement applicable to that period of the new lease term
which is comparable to the then remaining term of the original lease
agreement minus the present value as of the same date of the total rent
for the then remaining lease term of the original lease agreement, and
(b) any incidental or consequential damages, less expenses saved in
consequence of the lessor`s default.
(3) If the lessee`s cover is by lease agreement that qualifies for
treatment under subsection (2), the lessee may elect to proceed under
subsection (2) or Section 2-A-519. 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.
Section 2-A-519. Lessee`s Damages for Non-delivery, 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 2-A-504) or otherwise determined pursuant
to agreement of the parties (Section 1-102(3) and 2-A-503), if a lessee
elects not to cover or a lessee elects to cover and the cover is by
lease agreement, whether or not the lease agreement qualifies for
treatment under Section 2-A-518(2), or is by purchase or otherwise, the
measure of damages for non-delivery or repudiation by the lessor or for
rejection or revocation of acceptance by the lessee is the present
value, as of the date of the default, of the then market rent minus the
present value as of the same date of the original rent, computed for the
remaining lease term of the original lease agreement, together with
incidental and consequential damages, less expenses saved in consequence
of the lessor`s default.
(2) Market rent is to be determined as of the place for tender or, in
cases of rejection after arrival or revocation of acceptance, as of the
place of arrival.
(3) Except as otherwise agreed, if the lessee has accepted goods and
given notification (Section 2-A-516(3)), the measure of damages for
non-conforming tender or delivery or other default by a lessor is the
loss resulting in the ordinary course of events from the lessor`s
default as determined in any manner that is reasonable together with
incidental and consequential damages, less expenses saved in consequence
of the lessor`s default.
(4) Except as otherwise agreed, the measure of damages for breach of
warranty is the present value at the time and place of acceptance of the
difference between the value of the use of the goods accepted and the
value if they had been as warranted for the lease term, unless special
circumstances show proximate damages of a different amount, together
with incidental and consequential damages, less expenses saved in
consequence of the lessor`s default or breach of warranty.
Section 2-A-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.
Section 2-A-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.
Section 2-A-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 2-A-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
Section 2-A-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 2-A-510), the
lessee is in default under the lease contract and the lessor may:
(a) cancel the lease contract (Section 2-A-505 (1));
(b) proceed respecting goods not identified to the lease contract
(Section 2-A-524);
(c) withhold delivery of the goods and take possession of goods
previously delivered (Section 2-A-525);
(d) stop delivery of the goods by any bailee (Section 2-A-526);
(e) dispose of the goods and recover damages (Section 2-A-527),
or retain the goods and recover damages (Section 2-A-528), or
in a proper case recover rent (Section 2-A-529);
(f) exercise any other rights or pursue any other remedies
provided in the lease contract.
(2) If a lessor does not fully exercise a right or obtain a remedy to
which the lessor is entitled under subsection (1), the lessor may
recover the loss resulting in the ordinary course of events from the
lessee`s default as determined in any reasonable manner, together with
incidental damages, less expenses saved in consequence of the lessee`s
default.
(3) If a lessee is otherwise in default under a lease contract, the
lessor may exercise the rights and pursue the remedies provided in the
lease contract, which may include a right to cancel the lease. In
addition, unless otherwise provided in the lease contract:
(a) if the default substantially impairs the value of the lease
contract to the lessor, the lessor may exercise the rights
and pursue the remedies provided under subsection (1) or (2);
or
(b) if the default does not substantially impair the value of the
lease contract to the lessor, the lessor may recover as
provided in subsection (2).
Section 2-A-524. Lessor`s Right to Identify Goods to Lease Contract.
(1) After default by the lessee under the lease contract of the type
described in Section 2-A-523 (1) or Section 2-A-523 (3)(a) or, if
agreed, after other default by the lessee, the lessor 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 2-A-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.
Section 2-A-525. Lessor`s Right to Possession of Goods.
(1) If a lessor discovers the lessee to be insolvent, the lessor may
refuse to deliver the goods.
(2) After a default by the lessee under the lease contract of the type
described in Section 2-A-523(1) or 2-A-523(3)(a) or, if agreed, after
other default by the lessee, the lessor has the right to take possession
of the goods. If the lease contract so provides, the lessor may require
the lessee to assemble the goods and make them available to the lessor
at a place to be designated by the lessor which is reasonably convenient
to both parties. Without removal, the lessor may render unusable any
goods employed in trade or business, and may dispose of goods on the
lessee`s premises (Section 2-A-527).
(3) The lessor may proceed under subsection (2) without judicial
process if it can be done without breach of the peace or the lessor may
proceed by action.
Section 2-A-526. Lessor`s Stoppage of Delivery in Transit or Otherwise.
(1) A lessor may stop delivery of goods in the possession of a carrier
or other bailee if the lessor discovers the lessee to be insolvent and
may stop delivery of carload, truckload, planeload, or larger shipments
of express or freight if the lessee repudiates or fails to make a
payment due before delivery, whether for rent, security or otherwise
under the lease contract, or for any other reason the lessor has a right
to withhold or take possession of the goods.
(2) In pursuing its remedies under subsection (1), the lessor may stop
delivery until:
(a) receipt of the goods by the lessee;
(b) acknowledgment to the lessee by any bailee of the goods,
except a carrier, that the bailee holds the goods for the
lessee; or
(c) such an acknowledgment to the lessee by a carrier via
reshipment or as warehouseman.
(3) (a) To stop delivery, a lessor shall so notify as to enable the
bailee by reasonable diligence to prevent delivery of the goods.
(b) After notification, the bailee shall hold and deliver the
goods according to the directions of the lessor, but the
lessor is liable to the bailee for any ensuing charges or
damages.
(c) A carrier who has issued a nonnegotiable bill of lading is
not obliged to obey a notification to stop received from a
person other than the consignor.
Section 2-A-527. Lessor`s Rights to Dispose of Goods.
(1) After a default by a lessee under the lease contract of the type
described in Section 2-A-523(1) or 2-A-523(3)(a) or after the lessor
refuses to deliver or takes possession of goods (Section 2-A-525 or
2-A-526), or, if agreed, after other default by a lessee, the lessor may
dispose of the goods concerned or the undelivered balance thereof by
lease, sale, or otherwise.
(2) Except as otherwise provided with respect to damages liquidated in
the lease agreement (Section 2-A-504) or otherwise determined pursuant
to agreement of the parties (Sections 1-102(3) and 2-A-503), if the
disposition is by lease agreement substantially similar to the original
lease agreement and the new lease agreement is made in good faith and in
a commercially reasonable manner, the lessor may recover from the lessee
as damages (a) accrued and unpaid rent as of the date of the
commencement of the term of the new lease agreement, (b) the present
value, as of the same date, of the total rent for the then remaining
lease term of the original lease agreement minus the present value, as
of the same date, of the rent under the new lease agreement applicable
to that period of the new lease term which is comparable to the then
remaining lease term of the original lease agreement, and (c) any
incidental damages allowed under Section 2-A-530, less expenses saved in
consequence of the lessee`s default.
(3) If the lessor`s disposition is by lease agreement that qualifies
for treatment under subsection (2), the lessor may elect to proceed
under subsection (2) or Section 2-A-528. 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.
(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 2-A-508(5)).
Section 2-A-528. Lessor`s Damages for Non-acceptance, Failure to Pay,
Repudiation, or Other Default.
(1) Except as otherwise provided with respect to damages liquidated in
the lease agreement (Section 2-A-504) or otherwise determined pursuant
to agreement of the parties (Sections 1-102(3) and 2-A-503), if a lessor
elects to retain the goods or a lessor elects to dispose of the goods
and the disposition is by lease agreement whether or not the lease
agreement qualifies for treatment under Section 2-A-527(2), or is by
sale or otherwise, the lessor may recover from the lessee as damages for
a default of the type described in Section 2-A-523(1) or 2-A-523 (3)(a),
or, if agreed, for other default of the lessee, (a) accrued and unpaid
rent as of the date of default if the lessee has never taken possession
of the goods, or, if the lessee has taken possession of the goods, as of
the date the lessor repossesses the goods or an earlier date on which
the lessee makes a tender of the goods to the lessor, (b) the present
value as of the date determined under clause (a) of the total rent for
the then remaining lease term of the original lease agreement minus the
present value as of the same date of the market rent at the place where
the goods are located computed for the same lease term, and (c) any
incidental damages allowed under Section 2-A-530, less expenses saved in
consequence of the lessee`s default.
(2) If the measure of damages provided in subsection (1) is inadequate
to put a lessor in as good a position as performance would have, the
measure of damages is the present value of the profit, including
reasonable overhead, the lessor would have made from full performance by
the lessee, together with any incidental damages allowed under Section
2-A-530, due allowance for costs reasonably incurred and due credit for
payments or proceeds of disposition.
Section 2-A-529. Lessor`s Action for the Rent.
(1) After default by the lessee under the lease contract of the type
described in Section 2-A-523(1) or 2-A-523(3)(a) or, if agreed, after
other default by the lessee, if the lessor complies with subsection (2),
the lessor may recover from the lessee as damages:
(a) for goods accepted by the lessee and not repossessed by or
tendered to the lessor, and for conforming goods lost or
damaged within a commercially reasonable time after risk of
loss passes to the lessee (Section 2-A-219), (i) accrued and
unpaid rent as of the date of entry of judgment in favor of
the lessor, (ii) the present value as of the same date of the
rent for the then remaining lease term of the lease
agreement, and (iii) any incidental damages allowed under
Section 2-A-530, less expenses saved in consequence of the
lessee`s default; and
(b) for goods identified to the lease contract, if the lessor is
unable after reasonable effort to dispose of them at a
reasonable price or the circumstances reasonably indicate
that effort will be unavailing, (i) accrued and unpaid rent
as of the date of entry of judgment in favor of the lessor,
(ii) the present value as of the same date of the rent for
the then remaining lease term of the lease agreement, and
(iii) any incidental damages allowed under Section 2-A-530,
less expenses saved in consequence of the lessee`s default.
(2) Except as provided in subsection (3), the lessor shall hold for
the lessee for the remaining lease term of the lease agreement any goods
that have been identified to the lease contract and are in the lessor`s
control.
(3) The lessor may dispose of the goods at any time before collection
of the judgment for damages obtained pursuant 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 is
governed by Section 2-A-527 or Section 2-A-528, and the lessor will
cause an appropriate credit to be provided against a judgment for
damages to the extent that the amount of the judgment exceeds the
recovery available pursuant to Section 2-A-527 or Section 2-A-528.
(4) Payment of the judgment for damages obtained pursuant to
subsection (1) entitles the lessee to the use and possession of the
goods not then disposed of for the remaining lease term of and in
accordance with the lease agreement.
(5) After default by the lessee under the lease contract of the type
described in Section 2-A-523 (1) or Section 2-A-523 (3)(a) or, if
agreed, after other default by the lessee, a lessor who is held not
entitled to rent under this section must nevertheless be awarded damages
for non-acceptance under Section 2-A-527 or 2-A-528.
Section 2-A-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.
Section 2-A-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, his or
her suit or settlement, subject to his or her own interest, is as a
fiduciary for the other party to the lease contract.
(3) Either party with the consent of the other may sue for the benefit
of whom it may concern.
Section 2-A-532. Lessor`s Rights to Residual Interest.
In addition to any other recovery permitted by this Article or other
law, the lessor may recover from the lessee an amount that will fully
compensate the lessor for any loss of or damage to the lessor`s residual
interest in the goods caused by the default of the lessee.
