Leases

Front 1

Scope of Article 2A

Back 1

lease or sublease of goods. A "lease" is a transfer of the right to possession and use of goods for a term in return for consideration.

Front 2

Tests for distinguishing a lease from a disguised sale

Back 2

(a) the lessee has no right to terminate his obligation to pay during the lease term; AND

(b) one of the following is present:
(1) the lease is for the entire economic life of the goods or gives the lessee an option to renew for the rest of the economic life for nominal or no additional consideration; OR
(2) the lease provides that the lessee will become the owner of the goods or has an option to purchase the goods for nominal or no additional consideration

Front 3

Statute of Frauds

Back 3

a lease must be in writing if the totla of payments under the lease will be $1,000 or more

- the writing must be signed by the party against whom enforcement is sought, describe the leased goods & lease term & indicate that a lease contract has been made between the parties
- writing must specifiy quantity

Front 4

no battle of the forms provision

Back 4

article 2A has no battle of the forms section

Front 5

consumer protection

Back 5

If the lessee is a consumer, the following special rules apply:

1) option to accelerate at will: if the lease allows acceleration, the option is enforceable only if exercised in good faith
2) unconscionability
a) substantive unconscionability not required: it is a defense that a consumer lease was induced by unconscionable conduct even if the lease terms are fair
b) attorney's fees: a successful consumer may recover atty's fees, but a consumer who knowingly brings a groundless suit can be held liable for the lessor's atty's fees

Front 6

finance lease

Back 6

- lessee instead of buying goods & financing the sale, has the lessor buy the goods from a seller (supplier) and then lease them to the lessee (think leasing a car from the bank)
- a finance lease arises only where the lessee selects the goods; if the lessor is a supplier, a finance lease does not arise
- any warranties made by the supplier to the lessor are passed on to the lessee to the extent of the lessee's interest, and so the lessee may sue the supplier
- finance lease imposes an absolute obligation on the lessee to make payments to the lessor no matter how badly the leased goods perform or break down-- applies whether or not it is specified in the lease
- hell or high water clause does not apply to consumer leases *****

Front 7

remedies-- default by lessor

Back 7

- same as Article 2 (accept the goods and recover damages or reject the goods and cover or seek the market price-lease differential)
- revocation of acceptance is permitted

Front 8

remedies-- default by lessee

Back 8

upon default, the lessor may cancel the lease contract, withhold delivery of the goods and take possession of previously delivered goods, stop delivery of goods by a bailee, dispose of or retain the goods and recover damages, recover rent, or exercise any other rights provided for within the lease contract
1. reposession: lessor can repossess leased goods if this can be done without a breach of the peace
2. limitation on damages: actual damages caused by the breach, thus if lessor repossess and relets the goods he generally may not bring an action for the entire rent due under the contract. Exception: if the lessor has lost lease volume as a result of the breach

Front 9

ability to sublease

Back 9

- in spite of an agreement to the contrary, subleasing is allowed
- however if transfer is a material violation of the lease it is a ground for default

Front 10

assigning right to payment arising out of a lease

Back 10

non-operating lease (lessor has no remaining significant affirmative duties) lessor can transfer the right to payment without the agreement of the lessee

but if lessor has remaining duties (operating lease) a transfer of a right to payment without agreement of lessee would be a ground for default

Front 11

rights of sublessee

Back 11

- a sublessee is subject to the terms of the prime lease
- default by the sublessor on the prime lease could result in repossession of the leased goods from the sublessee
- exception: if anyone entrusts goods to a merchant who deals in goods of that kind, a buyer or lessee in the ordinary course takes free of the claims of the entruster

Front 12

Creditor's Rights

Back 12

creditors of either party to the lease get no better rights than their debtors have in the leased property.
-creditors of the lessor cannot levy on the leased property in the hands of the lessee & creditors of the lessee cannot size the leased property and appropriate it to pay the debt owed by the lessee to the creditors.
-Exception:
1) not a true lease
2) statutory lien holders- artisans have priority if they maintain possession
3) lessor's preexisting creditors