Leases Flashcards
Which of the following is a true statement about Article 2A’s unconscionability provision?
A Procedural and substantive unconscionability are required.
B Attorneys’ fees may not be awarded to the prevailing party.
C Unconscionability is not defined in the provision.
D Unconscionable conduct in the collection of a valid lease debt may not be a basis for relief, since the debt itself is valid.
C Unconscionability is not defined in the provision.
Unconscionability is not defined in Article 2A’s unconscionability provision. Article 2A’s rules on unconscionability do not require both procedural and substantive unconscionability. If a consumer lease has been induced by unconscionable conduct, or if the lessor engages in unconscionable conduct in the collection of a claim arising from the lease (such as using force or violence) the court may award appropriate relief. In consumer lease litigation, the successful consumer is permitted to recover attorneys’ fees. If the consumer loses the lawsuit and the court finds that the consumer brought an action that the consumer knew to be groundless, the consumer must pay attorneys’ fees to the lessor.
Which of the following is an attribute of a sale on credit disguised as a lease?
A The lessee has the option to purchase the goods for nominal consideration.
B The lessee has the right to terminate her obligation to pay during the lease term.
C The lease term is less than the economic life of the goods.
D The lessee pays consideration greater than the fair market value of the leased goods.
A The lessee has the option to purchase the goods for nominal consideration.
A lessee’s option to purchase the goods for nominal consideration is an attribute of a sale on credit disguised as a lease. A contract is a disguised sale on credit (secured transaction) rather than a true lease if: (i) the lessee has no right to terminate her obligation to pay during the lease term; and (ii) the lease term is equal to or greater than the 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 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.
When can a lessee refuse to pay a lessor on a nonconsumer finance lease?
A If the goods are not accepted.
B If the goods are no longer wanted after a short enough time period.
C If the goods fail to function.
D Never.
A If the goods are not accepted.
A lessee can refuse to pay a lessor if the goods are not accepted. In a finance lease there is an implied “hell or high water” clause in the lease contract. This clause creates an absolute duty to pay the lessor. Any grievances must be worked out between the lessee and the supplier. This “hell or high water” clause duty is triggered when the lessee accepts the goods. Therefore, if the good is not accepted, the lessee can refuse to pay the lessor.
What is a finance lease?
Lesee has the lessor buy good from a “supplier” then lease them to the lesee. If the lessor is a merchant in goods of that kind no finance lease occurs. The lesee selects the goods or approves their purchase.
Lessor makes no implied warranties. Any implied warranties pass from the supplier through the lessor to the lesee.
Except in consumer leses, a finance lease imposes an absolute obligation on the lesee to make payments to the lessor no matter how badly the goods perform or break down.
Which of the following is correct with respect to warranties in a finance lease?
A No warranties apply to a finance lease, the lessee assumes all risks.
B The lessor makes implied warranties to the lessee, and only any express warranties from the supplier to the lessor are passed on to the lessee.
C The lessor makes express warranties to the lessee, and only any implied warranties from the supplier to the lessor are passed on to the lessee.
D The lessor makes no implied warranties and any express or implied warranties made by the supplier to the lessor are passed on to the lessee.
D The lessor makes no implied warranties and any express or implied warranties made by the supplier to the lessor are passed on to the lessee.
Where there is a default by the lessee, a lessor without an inventory of leased goods may NOT:
A Withhold delivery of the goods.
B Repossess the goods and recover the entire amount of rent called for in the lease.
C Cancel the lease contract.
D Repossess the goods without a court proceeding, provided there is no breach of the peace.
B Repossess the goods and recover the entire amount of rent called for in the lease.
Where there is a default by the lessee, typically the lessor may not repossess the goods and recover the entire amount of rent called for in the lease. Article 2A limits the lessor’s recovery to the actual damages suffered, which the lessor must prove. If the lessor proves that the return of the goods was in no way a mitigating factor, as, for example, where the lessor proves to have an inventory of leased goods that would cover any number of rentals, so that the lessor has lost volume by the refusal of the lessee to go through with the deal, the lessor may sue for the entire future rent. A lessor without an inventory of leased goods 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 or pursue any other remedies specifically provided for within the lease contract. The lessor is given the right to repossess the goods without a court proceeding if repossession can be done without a breach of the peace.
Upon the lessee’s default, the lessor may pursue an action for the entire future rent in which of the following situations?
A Where the goods are unique and have been repossessed by the lessor.
B Where the lessee has admitted fault and tendered the goods to the lessor.
C Where return of the goods would mitigate the lessor’s loss.
D Where the lessor has an inventory of leased goods that would cover any number of rentals.
D Where the lessor has an inventory of leased goods that would cover any number of rentals.
A lessor may pursue an action for the entire future rent where the lessor has an inventory of leased goods that would cover any number of rentals, so that the lessor has lost volume by the refusal of the lessee to go through with the deal. If there is a substantial default by the lessee, a lessor without an inventory of leased goods may sue for the entire future rent if the goods were neither repossessed by nor tendered to the lessor (because, for example, they have been destroyed or have ceased to have any value). An action for rent also lies where the lessor proves that the return of the goods was in no way a mitigating factor to the lessor’s loss.
When is creating a sublease grounds for default on the prime lease?
A When the prime lease does not grant the right to sublease.
B When the sublease is a material violation of the prime lease contract.
C When the sublessee fails to pay the sublessor.
D When the lessor does not grant approval for the sublease.
B When the sublease is a material violation of the prime lease contract.
Subleasing is permissible, unless it is a material violation of the terms of the prime lease. Although Article 2A does not define “material,” the court can use the contracting party’s standards to determine its meaning.
Under Article 2A, a lease must be in writing if:
A A single lease payment is $100 or more.
B A single lease payment is $500 or more.
C The total lease payments will be $500 or more.
D The total lease payments will be $1000 or more.
D The total lease payments will be $1000 or more.
A lease must be in writing if the total 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 and the lease term, and indicate that a lease contract has been made between the parties. As in Article 2, the writing must specify the quantity of the leased goods.
Which of the following is an exception to the general rule that creditors of either party to the lease get no better rights than their debtors have in the leased property?
A A preexisting creditor of the lessee.
B Entrustment to a merchant.
C Not a disguised sale on credit.
D A statutory lienholder.
D A statutory lienholder.
A statutory lienholder is an exception to the general rule that creditors of either party to the lease get no better rights than their debtors have in the leased property. Generally, creditors of the lessor cannot levy on the leased property in the hands of the lessee, and creditors of the lessee cannot seize the leased property and appropriate it to pay the debt owed by the lessee to the creditors. There are, however, the following exceptions: (i) when the lease is not a true lease, (ii) statutory lienholders, and (iii) lessor’s preexisting creditors.
What are the lessor’s remedies if there is a substantial default by lessee?
If there is a substantial default, and the goods were neither repossessed by nor tendered to the lessor, the lessor may sue for the entire future rent.
Also possible if return of the goods did not mitigate damages, like if the lessor is a lost volume seller.
If the default is not substantial, then the lessor may only sue for actual damages.
What are the lessee’s options when lessor defaults?
1) Accept the goods and recover damages for breach of warranty.
2) Reject the goods and cover or seek the market price lease differential.
3) Spec. Perf. only if goods were unique.
4) Revocation governed by Art. 2
What are lessor’s remedies in general if the lessee defaults?
1) Cancel the K
2) Withhold delivery of the goods and take possession of previously delivered goods
3) Stop delivery of goods by a bailee
4) Dispose of or retain the goods and recover damages
5) Recover rent
6) Exercise rights in the K
7) Can repo without a court order if it can be done without a breach of the peace.
When is a lease a consumer lease?
If lessee is a consumer.
When may a lessor accelerate at will?
When the lease contains a provision giving the lessor that option, and the lessor exercises that option in good faith.
Burden is on lessor to prove good faith.
