Leases Hypo Notes - WIP Flashcards
What does article 2A of the UCC govern?
Leases of goods.
What is a lease?
A transfer of the right to possession and use of goods for a term in return for consideration.
When is a sale on credit disguised as a lease?
1) The lessee has not right to terminate her obligation to pay during the lease term, and
2) 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 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.
What provision exists within Article 2 of the UCC, but not Article 2A?
The battle of the forms provision
Under Article 2A, a lease must be in writing if:
The total lease payments will be $1000 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.
Under Article 2A, are terms allowing acceleration of the entire lease obligation of a consumer lease at the will of the lessor enforceable?
Yes, if exercised in good faith, which the lessor has the burden of proving.
What is true regarding express and implied warranties in a finance lease?
In a finance lease, the lessor makes no implied warranties. Any warranties, express or implied, made by the supplier to the lessor are passed on to the lessee.
When can a lessee refuse to pay a lessor on a nonconsumer finance lease?
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 true regarding contract reformation as a remedy in the case of default by the lessor?
Contract reformation is not available as a remedy to a lessee in the case of default by the lessor.
Default by the lessor gives the lessee the same rights and remedies the lessee would have had if the transaction had been a sale and Article 2 applied. Thus, the lessee may accept the goods and recover damages for breach of warranty, or may reject the goods and cover or seek the market price lease differential. Revocation of acceptance is permitted under rules similar to Article 2.
Where there is a default by the lessee, a lessor without an inventory of leased goods 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, when may the lessor pursue an action for the entire future rent?
Where the lessor has an inventory of leased goods that would cover any number of rentals.
“Lost volume” - when the return of the goods to the lessor would in no way mitigate the losses incurred due to the lessor’s inventory loss.
When is creating a sublease grounds for default on the prime lease?
When the sublease is a material violation of the prime lease contract.
What 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.
When would a creditor be able to repossess a car that lessor leased to lessee?
When the lessor’s creditors acquired a lean on the car before the lease.
