Section 55-2A-516 - Effect of acceptance of goods; notice of default; burden of establishing default after acceptance; notice of claim or litigation to person answerable over.

NM Stat § 55-2A-516 (2019) (N/A)

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(1) A lessee must pay rent for any goods accepted in accordance with the lease contract, with due allowance for goods rightfully rejected or not delivered.

(2) A lessee's acceptance of goods precludes rejection of the goods accepted. In the case of a finance lease, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it. In any other case, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance does not of itself impair any other remedy provided by this article or the lease agreement for nonconformity.

(3) If a tender has been accepted:

(a) within a reasonable time after the lessee discovers or should have discovered any default, the lessee shall notify the lessor and the supplier, if any, or be barred from any remedy against the party not notified;

(b) except in the case of a consumer lease, within a reasonable time after the lessee receives notice of litigation for infringement or the like (Section 55-2A-211 NMSA 1978) the lessee shall notify the lessor or be barred from any remedy over for liability established by the litigation; and

(4) If a lessee is sued for breach of a warranty or other obligation for which a lessor or a supplier is answerable over the following apply:

(a) The lessee may give the lessor or the supplier, or both, written notice of the litigation. If the notice states that the person notified may come in and defend and that if the person notified does not do so that person will be bound in any action against that person by the lessee by any determination of fact common to the two litigations, then unless the person notified after seasonable receipt of the notice does come in and defend that person is so bound.

(b) The lessor or the supplier may demand in writing that the lessee turn over control of the litigation including settlement if the claim is one for infringement or the like (Section 55-2A-211 NMSA 1978) or else be barred from any remedy over. If the demand states that the lessor or the supplier agrees to bear all expense and to satisfy any adverse judgment, then unless the lessee after seasonable receipt of the demand does turn over control the lessee is so barred.

(5) Subsections (3) and (4) apply to any obligation of a lessee to hold the lessor or the supplier harmless against infringement or the like (Section 55-2A-211 NMSA 1978).

History: 1978 Comp., § 55-2A-516, enacted by Laws 1992, ch. 114, § 71.

OFFICIAL COMMENTS

Uniform Statutory Source: — Section 2-607 [55-2-607 NMSA 1978].

Changes: — Substantially revised.

1. Subsection (2) creates a special rule for finance leases, precluding revocation if acceptance is made with knowledge of nonconformity with respect to the lease agreement, as opposed to the supply agreement; this is not inequitable as the lessee has a direct claim against the supplier. Section 2A-209(1) [55-2A-209 NMSA 1978]. Revocation of acceptance of a finance lease is permitted if the lessee's acceptance was without discovery of the nonconformity (with respect to the lease agreement, not the supply agreement) and was reasonably induced by the lessor's assurances. Section 2A-517(1)(b) [55-2A-517 NMSA 1978]. Absent exclusion or modification, the lessor under a finance lease makes certain warranties to the lessee. Sections 2A-210 and 2A-211(1) [55-2A-210 and 55-2A-211 NMSA 1978, respectively]. Revocation of acceptance is not prohibited even after the lessee's promise has become irrevocable and independent. Section 2A-407 [55-2A-407 NMSA 1978] official comment. Where the finance lease creates a security interest, the rule may be to the contrary. General Elec. Credit Corp. of Tennessee v. Ger-Beck Mach. Co., 806 F.2d 1207 (3rd Cir. 1986).

2. Subsection (3)(a) requires the lessee to give notice of default, within a reasonable time after the lessee discovered or should have discovered the default. In a finance lease, notice may be given either to the supplier, the lessor, or both, but remedy is barred against the party not notified. In a finance lease, the lessor is usually not liable for defects in the goods and the essential notice is to the supplier. While notice to the finance lessor will often not give any additional rights to the lessee, it would be good practice to give the notice since the finance lessor has an interest in the goods. Subsection (3)(a) does not use the term finance lease, but the definition of supplier is a person from whom a lessor buys or leases goods to be leased under a finance lease. Section 2A-103(1)(x) [55-2A-103 NMSA 1978]. Therefore, there can be a "supplier" only in a finance lease. Subsection (4) applies similar notice rules as to lessors and suppliers if a lessee is sued for a breach of warranty or other obligation for which a lessor or supplier is answerable over.

3. Subsection (3)(b) requires the lessee to give the lessor notice of litigation for infringement or the like. There is an exception created in the case of a consumer lease. While such an exception was considered for a finance lease, it was not created because it was not necessary - the lessor in a finance lease does not give a warranty against infringement. Section 2A-211(2) [55-2A-211 NMSA 1978]. Even though not required under subsection (3)(b), the lessee who takes under a finance lease should consider giving notice of litigation for infringement or the like to the supplier, because the lessee obtains the benefit of the suppliers' promises subject to the suppliers' defenses or claims. Sections 2A-209(1) and 2-607(3)(b) [55-2A-209 and 55-2-607 NMSA 1978, respectively].

Cross References: — Sections 2-607(3)(b), 2A-103(1)(x), 2A-209(1), 2A-210, 2A-211(1), 2A-211(2), 2A-407 official comment and 2A-517(1)(b) [55-2-607, 55-2A-103, 55-2A-209, 55-2A-210, 55-2A-211, 55-2A-407 and 55-2A-517 NMSA 1978, respectively].

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

"Agreement". Section 1-201(3) [55-1-201 NMSA 1978].

"Burden of establishing". Section 1-201(8) [55-1-201 NMSA 1978].

"Conforming". Section 2A-103(1)(d) [55-2A-103 NMSA 1978].

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

"Delivery". Section 1-201(14) [55-1-201 NMSA 1978].

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

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

"Goods". Section 2A-103(1)(h) [55-2A-103 NMSA 1978].

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

"Lease agreement". Section 2A-103(1)(k) [55-2A-103 NMSA 1978].

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