Article 2A of the Uniform Commercial Code governs all leases made or effective after January 1, 1990. In California, the California Commercial Code (hereinafter "CC") now govern all equipment leases after January 1, 1990. California's statutes follow the UCC, but the numbering is slightly different since the sections appear in Division 10 of the Code. For example, 2A-507 is 10507, 2A-508 is 10508, etc.
The parties do not have to strictly follow the remedies in Article 2A. Subsection 6 of CC
10523 allows the lessor to opt out of the remedies section of Article 2A, and elect their own
remedies. Accordingly, most sections begin with the language, "except as otherwise provided.."
CC 10523 and 10528(a) also make it clear that the lessor need not repossess, unless
the lessee tenders the equipment. Subsection (b) provides that if the lessor does not exercise a right or obtain a remedy to which it is entitled, it may recover damages calculated "in any reasonable manner," together with incidental damages (lost profits), less expenses saved. Also, acceleration of the lease balance, discounted to present value, is sanctioned by CC 10528, whether or not there is a repossession.
CC 10527 discusses the lessor's remedies when the equipment is released by a
substantially similar lease. This is a rather rare scenario, so I will not spend any time on this section.
CC 10528 corresponds to 2A-528. This section governs releasing by a dissimilar
lease, and two more common situations:
(1) Resale of the equipment;
(2) The lessor could dispose of the goods but decides not to (the "if a lessor elects to retain the goods" language in subsection (a)).
In either of these situations, which are the two most common lease default scenarios, the lessor has the following remedy:
1. The lessor can collect "accrued and unpaid rent" as of the date of repossession or default (if there is no repossession); plus
2. The present value 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..." (this means accelerated rent reduced to present value); plus
3. Any incidental damages (lost profits), less expenses saved.
Finally, under Article 2A, while the lessor need not repossess, if the lessor does
repossess, it must credit the lessor with sums collected pursuant to CC 10529. (Believe it or not, this provision has been added to California's version of 2A, and this duty to credit the resold equipment is not found in all jurisdictions.)
Equipment Leases
