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EQUIPMENT LEASES
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.)
[ Law Office of Steven R. Lovett • • telephone: (818) 999-9397 • facsimile:(818) 999-5048 • ]
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