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  1. What statute governs leases?
    Article 2A of the Uniform Commercial Code.
  2. What does Article 2A apply to?
    A lease of goods.
  3. What is a "lease"?
    A transfer of the right to possession or use of goods for a term in return for consideration.
  4. What are "goods"?
    All things that are movable at the time of identification to the lease contract.
  5. Does the definition of a "lease" include a sublease?
  6. If a "lease" is really a sale of goods on credit, does Article 2-A apply?
    No. Article 2-A applies only to true leases. In this case, the "lessor" is really a seller of goods (so that Article 2 governs), and an Article 9 secured party who should take the steps Article 9 requires for perfection or risk losing the goods to other claimants.
  7. Under U.C.C. section 1-201(37), when is a contract a disgused sale on credit (secured transaction) rather than a true lease?
    (a) The "lessee" has no right to terminate his obligation to pay during the lease term (an attribute of a sale on credit is that the buyer generally cannot use purchased goods and later decide to stop making payments and return the goods); and (b) one of the following is present: (i) the lease (including any mandatory renewals) 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 (ii) 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.
  8. Is a transaction necessarily a disgused sale merely because the lessee pays consideration equal to or greater than the fair market value of the leased goods?
  9. Is the transaction necessarily a disgused sale merely because the lessee assumes major duties (e.g., paying taxes, assuming the risk of loss, etc.) as to the goods?
  10. When it is unclear whether a transaction is a lease or a disgused sale, how can the lessser protect himself from other creditors without admitting that anything other than a true lease has occured?
    Make a protective filing under Article 9, using the terms "lessor" and "lessee" instead of the usual Article 9 terms "secured party" and "debtor."
  11. When must a lease be in writing under the Statute of Frauds?
    When total payments under the lease will be $1,000 or more.
  12. What are the requirements of a written lease?
    The writing must be signed by the party against whom enforcement is sought, describe the leased goods and the lease term, indicate that a lease contract has been made between the parties, and specify the quantity of the leased goods.
  13. Does Article 2-A have a "battle of the forms" provision?
  14. When does a consumer lease arise?
    If the lessee is a consumer.
  15. When is a lease term allowing acceleration of the entire lease obligation at the will of the lessor enforceable?
    Only if the lessor exercises it in good faith, which the lessor has the burden of proving.
  16. Does Article 2-A require both procedural and substantive unconscionability?
    No. If a consumer lease has been induced by unconscionable conduct, the court may award appropriate relief even though the lease is otherwise fair. The same rule applies if the lessor engages in unconscionable conduct in the collection of the claim arising from the lease (such as using force or violence).
  17. Can the successful consumer recover attorneys' fees in consumer lease litigation?
  18. When can the consumer be required to pay attorneys' fees to the lessor?
    If the consumer loses the lawsuit and the court finds that the consumer brought an action that the consumer knew to be groundless.
  19. What warranties does a lessor make in an Article 2A lease?
    The usual warranties that are made by a seller in Article 2, with one major exception: the finance lease.
  20. What is a "finance lease"?
    In a finance lease, the lessee, instead of buying goods and financing the sale, has the lessor buy the goods from a seller (called a supplier in Article 2A) and then lease them to the lessee.
  21. If the lessor is in the business of selecting, manufacturing, or selling the kinds of goods involved in the lease, does a finance lease occur?
  22. Does the lessor in a finance lease need to be a true financier?
    Yes, and the lessee must be the entity that selects the goods or approves their purchase.
  23. Does the lessor make implied warranties in a finance lease?
    No, but any warranties made by the supplier to the lessor are passed on to the lessee, who has a direct cause of action on them against the supplier to the extent the lessee's interest in the goods.
  24. Does a finance lease impose an absolute obligation on the lessee to make payments to the lesser?
    Yes, no matter how badly the leased goods perform. The lessee must deal with the supplier to work out problems, and must keep making the lease payments in the meanwhile. This is called a "hell or high water" clause, and, whether or not specifically provided for in the lease is the law.
  25. When does the "hell or high water" clause come into effect?
    As soon as the lessee "accepts" the goods.
  26. Does the "hell or high water" clause apply to consumer leases?
    No, only finance leases.
  27. What rights and remedies does the lessee have if the lessor defaults?
    The same rights and remedies the lessee would have had if the transaction had been a sale and Article 2 applied (e.g., accept the goods and recover damages for breach, or reject the goods and cover or seek the market price-lease differential).
  28. Is revocation of acceptance permitted in a lease situation under rules similar to Article 2?
  29. What can the lessor do upon default by lessee?
    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 of pursue any other remedies specifically provided for wihtin 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.
  30. Does a lessor have the right to repossess the goods without a court proceeding if the lessee defaults?
    Yes, if repossession can be done without a breach of the peace.
  31. What damages can the lessor recover after repossession?
    Only actual damages suffered, which the lessor must prove.

    If the lessor repossesses and then relets the goods to someone else, the new lease is a mitigating factor and must be taken into account in computing damages.
  32. If there is a substantial default by the lessee, can the lessor sue for the entire future rent?
    Only if the goods were neither repossessed nor tendered by the lessee (because, for example, they have been destroyed or have ceased to have any value).
  33. Does an action for rent lie where the lessor proves that the return of the goods was in no way a mitigating factor?
    Yes, 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.
  34. Does Article 2A allow subleasing (or any transfer of the lease)?
    Yes, in spite of an agreement otherwise.
  35. Is a transfer of the lease in material violation of the terms of the prime lease a ground for default?
    Yes. It gives rise to an action for damages, or allows a court "to grant other appropriate relief, including cancellation of the lease contract or an injunction against the transfer."

    NOTE: Although allowed by Article 2A, sublease can be a "material violation of the terms of the prime lease" and can be a grounds for default.
  36. Does Article 2A permit the lessor to grant a security interest in the lessor's interests under the lease?
    Yes, despite agreement otherwise, and does not allow the lessee to claim that doing so is a breach of the lease agreement.
  37. When is a sublessee not subject to the terms of the prime lease, and can get better rights in the leased goods than the sublessor had?
    Under the entrusting rule of Article 2. 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 an entruster.
  38. Generally, can creditors of either party to the lease get better rights than their debtors have in the leased party?
    No. Thus, the creditors of the lessor cannot levy ont he 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, exceptions.
  39. If the lease is not a true lease but is instead a sale on credit, and the "lessor" is really an unpaid seller, can the creditors of the lessee prevail?
    Yes, if the "lessor" has not taken the steps required by Article 9 to perfect a security interest in the leased goods.
  40. Does Article 2A give a lien to artisans who perform work on the leased property?
    Yes. This prevails over all other claims so long as the artisan maintains possession.
  41. Can a creditor of the lessor whose lien or security interest attaches to the leased goods after the lease was in effect realize on the leased property to the prejudice of the lessee?
    No. However, a creditor of the lessor whose lien or security interest attached prior to the lease may repossess unless the lessor leased the goods in the ordinary course of the lessor's business to a lessee who gave value and was unaware that the lease was in violation of the rights of the creditor.
  42. Can a creditor of the lessor whose lien or security interest attached prior to the lease repossess?
    Yes, unless the lessor leased the goods in the ordinary course of the lessor's business to a lessee who gave value and was unaware that the lease was in violation of the rights of the creditor.
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