(1) The benefit of a supplier's promises to the lessor under the supply contract and of all warranties, whether express or implied, including those of any third party provided in connection with or as part of the supply contract, extends to the lessee to the extent of the lessee's leasehold interest under a finance lease related to the supply contract, but is subject to the terms of the warranty and of the supply contract and all defenses or claims arising therefrom.

(2) The extension of the benefit of a supplier's promises and of warranties to the lessee (Section 55-2A-209(1) NMSA 1978) does not: (i) modify the rights and obligations of the parties to the supply contract, whether arising therefrom or otherwise, or (ii) impose any duty or liability under the supply contract on the lessee.

(3) Any modification or rescission of the supply contract by the supplier and the lessor is effective between the supplier and the lessee unless, before the modification or rescission, the supplier has received notice that the lessee has entered into a finance lease related to the supply contract. If the modification or rescission is effective between the supplier and the lessee, the lessor is deemed to have assumed, in addition to the obligations of the lessor to the lessee under the lease contract, promises of the supplier to the lessor and warranties that were so modified or rescinded as they existed and were available to the lessee before modification or rescission.

(4) In addition to the extension of the benefit of the supplier's promises and of warranties to the lessee under Subsection (1), the lessee retains all rights that the lessee may have against the supplier which arise from an agreement between the lessee and the supplier or under other law.

History: 1978 Comp., § 55-2A-209, enacted by Laws 1992, ch. 114, § 25.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

Uniform Statutory Source. — None.

Changes. — This section is modeled on Section 9-318 [55-9-318 NMSA 1978], the Restatement (Second) of Contracts §§ 302-315 (1981), and leasing practices. See Earman Oil Co. v. Burroughs Corp., 625 F.2d 1291, 1296-97 (5th Cir. 1980).

1. The function performed by the lessor in a finance lease is extremely limited. Section 2A-103(1)(g) [55-2A-103 NMSA 1978]. The lessee looks to the supplier of the goods for warranties and the like or, in some cases as to warranties, to the manufacturer if a warranty made by that person is passed on. That expectation is reflected in subsection (1), which is self-executing. As a matter of policy, the operation of this provision may not be excluded, modified or limited; however, an exclusion, modification, or limitation of any term of the supply contract or warranty, including any with respect to rights and remedies, and any defense or claim such as a statute of limitations, effective against the lessor as the acquiring party under the supply contract, is also effective against the lessee as the beneficiary designated under this provision. For example, the supplier is not precluded from excluding or modifying an express or implied warranty under a supply contract. Sections 2-312(2) and 2-316, or Section 2A-214 [55-2-312 and 55-316 or 55-2A-214 NMSA 1978, respectively]. Further, the supplier is not precluded from limiting the rights and remedies of the lessor and from liquidating damages. Sections 2-718 [55-2-718 NMSA 1978] and 2-719 [55-2-719 NMSA 1978] or Sections 2A-503 [55-2A-503 NMSA 1978] and 2A-504 [55-2A-504 NMSA 1978]. If the supply contract excludes or modifies warranties, limits remedies, or liquidates damages with respect to the lessor, such provisions are enforceable against the lessee as beneficiary. Thus, only selective discrimination against the beneficiaries designated under this section is precluded, i.e., exclusion of the supplier's liability to the lessee with respect to warranties made to the lessor. This section does not affect the development of other law with respect to products liability.

2. Enforcement of this benefit is by action. Sections 2A-103(4) and 1-106(2) [55-2A-103 and 55-1-106 NMSA 1978, respectively].

3. The benefit extended by these provisions is not without a price, as this Article also provides in the case of a finance lease that is not a consumer lease that the lessee's promises to the lessor under the lease contract become irrevocable and independent upon the lessee's acceptance of the goods. Section 2A-407 [55-2A-407 NMSA 1978].

4. Subsection (2) limits the effect of subsection (1) on the supplier and the lessor by preserving, notwithstanding the transfer of the benefits of the supply contract to the lessee, all of the supplier's and the lessor's rights and obligations with respect to each other and others; it further absolves the lessee of any duties with respect to the supply contract that might have been inferred from the extension of the benefits thereof.

5. Subsections (2) and (3) also deal with difficult issues related to modification or rescission of the supply contract. Subsection (2) states a rule that determines the impact of the statutory extension of benefit contained in subsection (1) upon the relationship of the parties to the supply contract and, in a limited respect, upon the lessee. This statutory extension of benefit, like that contained in Sections 2A-216 [55-2A-216 NMSA 1978] and 2-318 [55-2-318 NMSA 1978], is not a modification of the supply contract by the parties. Thus, subsection (3) states the rules that apply to a modification or rescission of the supply contract by the parties. Subsection (3) provides that a modification or rescission is not effective between the supplier and the lessee if, before the modification or rescission occurs, the supplier received notice that the lessee has entered into the finance lease. On the other hand, if the modification or rescission is effective, then to the extent of the modification or rescission of the benefit or warranty, the lessor by statutory dictate assumes an obligation to provide to the lessee that which the lessee would otherwise lose. For example, assume a reduction in an express warranty from four years to one year. No prejudice to the lessee may occur if the goods perform as agreed. If, however, there is a breach of the express warranty after one year and before four years pass, the lessor is liable. A remedy for any prejudice to the lessee because of the bifurcation of the lessee's recourse resulting from the action of the supplier and the lessor is left to resolution by the courts based on the facts of each case.

6. Subsection (4) makes it clear that the rights granted to the lessee by this section do not displace any rights the lessee otherwise may have against the supplier.

Cross References. — Sections 2A-103(1)(g), 2A-407 and 9-318 [55-2A-103, 55-2A-407 and 55-9-318 NMSA 1978, respectively].

"Action". Section 1-201(1) [55-1-201 NMSA 1978].

"Finance lease". Section 2A-103(1)(g) [55-2A-103 NMSA 1978].

"Leasehold interest". Section 2A-103(1)(m) [55-2A-103 NMSA 1978].

"Lessee". Section 2A-103(1)(n) [55-2A-103 NMSA 1978].

"Lessor". Section 2A-103(1)(p) [55-2A-103 NMSA 1978].

"Notice". Section 1-201(25) [55-1-201 NMSA 1978].

"Party". Section 1-201(29) [55-1-201 NMSA 1978].

"Rights". Section 1-201(36) [55-1-201 NMSA 1978].

"Supplier". Section 2A-103(1)(x) [55-2A-103 NMSA 1978].

"Supply contract". Section 2A-103(1)(y) [55-2A-103 NMSA 1978].

"Term". Section 1-201(42) [55-1-201 NMSA 1978].

Effective dates. — Laws 1992, ch. 114, § 238 made Laws 1992, ch. 114, § 25 effective July 1, 1992.