Chapter 41-02.1 Leases

Copy with citation

Copy as parenthetical citation

CHAPTER 41-02.1 LEASES 41-02.1-01. (2A-101) Short title

This chapter may be cited as the Uniform Commercial Code - Leases

41-02.1-02. (2A-102) Scope

This chapter applies to any transaction, regardless of form, that creates a lease

41-02.1-03. (2A-103) Definitions and index of definitions

In this chapter unless the context otherwise requires: a

"Buyer in ordinary course of business" means a person who in good faith and without knowledge that the sale is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawnbroker. "Buying" may be for cash or by exchange of other property or on secured or unsecured credit and includes acquiring goods or documents of title under a pre-existing contract for sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt

"Cancellation" occurs when either party puts an end to the lease contract for default by the other party

"Commercial unit" means such a unit of goods as by commercial usage is a single whole for purposes of lease and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article, as a machine, or a set of articles, as a suite of furniture or a line of machinery, or a quantity, as a gross or carload, or any other unit treated in use or in the relevant market as a single whole

"Conforming" goods or performance under a lease contract means goods or performance that is in accordance with the obligations under the lease contract

"Consumer lease" means a lease that a lessor regularly engaged in the business of leasing or selling makes to a lessee who is an individual and who takes under the lease primarily for a personal, family, or household purpose if the total payments to be made under the lease contract, excluding payments for options to renew or buy, do not exceed twenty-five thousand dollars

"Fault" means wrongful act, omission, breach, or default

"Finance lease" means a lease in which: (1) The lessor does not select, manufacture, or supply the goods; (2) The lessor acquires the goods or the right to possession and use of the goods in connection with the lease; and (a) (3) (b) (c) The lessee receives a copy of the contract by which the lessor acquired the goods or the right to possession and use of the goods before signing the lease contract; The lessee's approval of the contract by which the lessor acquired the goods or the right to possession and use of the goods is a condition to effectiveness of the lease contract; The lessee, before signing the lease contract, receives an accurate and complete statement designating the promises and warranties, and any disclaimers of warranties, limitations, or modifications of remedies, or liquidated damages, including those of any third party such as the manufacturer of the goods, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; or (d) Only if the lease is not a consumer lease, before the lessee signs the lease contract the lessor informs the lessee in writing of the identity of Page No. 1 the person supplying the goods to the lessor, unless the lessee has selected that person and directed the lessor to acquire the goods or the right to possession and use of the goods from that person, that the lessee is entitled under this chapter to the promises and warranties, including those of any third party, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods, and that the lessee may contact the person supplying the goods to the lessor and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies

"Goods" means all things that are movable at the time of identification to the lease contract, or are fixtures (section 41-02.1-39), but the term does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like, including oil and gas, before extraction. The term also includes the unborn young of animals

"Installment lease contract" means a lease contract that authorizes or requires the delivery of goods in separate lots to be separately accepted, even though the lease contract contains a clause "each delivery is a separate lease" or its equivalent

"Lease" means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates otherwise, the term includes a sublease

"Lease agreement" means the bargain, with respect to the lease, of the lessor and the lessee in fact as found in their language or by implication from other circumstances, including course of dealing or usage of trade or course of performance (as provided in this chapter). Unless the context clearly indicates otherwise, the term includes a sublease agreement

"Lease contract" means the total legal obligation that results from the lease agreement as affected by this chapter and any other applicable rules of law. Unless the context clearly indicates otherwise, the term includes a sublease contract

"Leasehold interest" means the interest of the lessor or the lessee under a lease contract

"Lessee" means a person who acquires the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessee

"Lessee in ordinary course of business" means a person who, in good faith and without knowledge that the lease is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods, leases in ordinary course from a person in the business of selling or leasing goods of that kind, but does not include a pawnbroker. "Leasing" may be for cash or by exchange of other property or on secured or unsecured credit and includes acquiring goods or documents of title under a pre-existing lease contract but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt

"Lessor" means a person who transfers the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessor

"Lessor's residual interest" means the lessor's interest in the goods after expiration, termination, or cancellation of the lease contract

"Lien" means a charge against or interest in goods to secure payment of a debt or performance of an obligation, but the term does not include a security interest

"Lot" means a parcel or a single article that is the subject matter of a separate lease or delivery, regardless of whether it is sufficient to perform the lease contract

Page No. 2 h

2. Other definitions applying to this chapter and the sections in which they appear are: t

"Merchant lessee" means a lessee that is a merchant with respect to goods of the kind subject to the lease

"Present value" means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain. The discount is determined by the interest rate specified by the parties if the rate was not manifestly unreasonable at the time the transaction was entered into; otherwise, the discount is determined by a commercially reasonable rate that takes into account the facts and circumstances of each case at the time the transaction was entered into

"Purchase" includes taking by sale, lease, mortgage, security interest, pledge, gift, or any other voluntary transaction creating an interest in goods

"Sublease" means a lease of goods the right to possession and use of which was acquired by the lessor as a lessee under an existing lease

"Supplier" means a person from whom a lessor buys or leases goods to be leased under a finance lease

"Supply contract" means a contract under which a lessor buys or leases goods to be leased

"Termination" occurs when either party under a power created by agreement or law puts an end to the lease contract otherwise than for default

"Accessions". Subsection 1 of section 41-02.1-40

"Construction mortgage". Subdivision d of subsection 1 of section 41-02.1-39

"Encumbrance". Subdivision e of subsection 1 of section 41-02.1-39

"Fixture filing". Subdivision b of subsection 1 of section 41-02.1-39

"Fixtures". Subdivision a of subsection 1 of section 41-02.1-39

"Purchase money lease". Subdivision c of subsection 1 of section 41-02.1-39

The following definitions also apply to this chapter: a

In addition, chapter 41-01 contains general definitions and principles of construction and interpretation applicable throughout this chapter

"Account". Section 41-09-02

"Between merchants". Subsection 1 of section 41-02-04

"Buyer". Subdivision a of subsection 1 of section 41-02-03

"Chattel paper". Section 41-09-02

"Consumer goods". Section 41-09-02

"Document". Section 41-09-02

"Entrusting". Subsection 3 of section 41-02-48

"General intangible". Section 41-09-02

"Instrument". Section 41-09-02

"Merchant". Subsection 3 of section 41-02-04

"Mortgage". Section 41-09-02

"Pursuant to commitment". Section 41-09-02

"Receipt". Subdivision c of subsection 1 of section 41-02-03

"Sale". Subdivision d of subsection 1 of section 41-02-06

"Sale on approval". Subdivision a of subsection 1 of section 41-02-43

"Sale or return". Subdivision b of subsection 1 of section 41-02-43

"Seller". Subdivision d of subsection 1 of section 41-02-03

41-02.1-04. (2A-104) Leases subject to other laws

A lease, although subject to this chapter, is also subject to any applicable: a. Certificate of title statute of this state; b. Certificate of title statute of another jurisdiction (section 41-02.1-05); or c. Consumer protection law of this state, both decisional and statutory

In case of conflict between the provisions of this chapter, other than section 41-02.1-05 or subsection 3 of section 41-02.1-34 or subsection 3 of section 41-02.1-35, and any statute or decision referred to in subsection 1, the provisions of that statute control

Failure to comply with any applicable law has only the effect specified therein

Page No. 3 title

41-02.1-05. (2A-105) Territorial application of article to goods covered by certificate of Subject to subsection 3 of section 41-02.1-34 and subsection 3 of section 41-02.1-35, with respect to goods covered by a certificate of title issued under a statute of this state or of another jurisdiction, compliance and the effect of compliance or noncompliance with a certificate of title statute are governed by the law, including the conflict of laws rules, of the jurisdiction issuing the certificate until the earlier of surrender of the certificate or four months after the goods are removed from that jurisdiction and thereafter until a new certificate of title is issued by another jurisdiction

41-02.1-06. (2A-106) Limitation on power of parties to consumer lease to choose applicable law and judicial forum

If the law chosen by the parties to a consumer lease is that of a jurisdiction other than a jurisdiction in which the lessee resides at the time the lease agreement becomes enforceable or within thirty days thereafter or in which the goods are to be used, the choice is not enforceable

If the judicial forum chosen by the parties to a consumer lease is a forum that would not otherwise have jurisdiction over the lessee, the choice is not enforceable

41-02.1-07. (2A-107) Waiver or renunciation of claim or right after default

Any claim or right arising out of an alleged default or breach of warranty may be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party

41-02.1-08. (2A-108) Unconscionability

If the court as a matter of law finds a lease contract or any clause of a lease contract to have been unconscionable at the time it was made, the court may refuse to enforce the lease contract, or it may enforce the remainder of the lease contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result

2. With respect to a consumer lease, if the court as a matter of law finds that a lease contract or any clause of a lease contract has been induced by unconscionable conduct or that unconscionable conduct has occurred in the collection of a claim arising from a lease contract, the court may grant appropriate relief

Before making a finding of unconscionability under subsection 1 or 2, the court, on its own motion or that of a party, shall afford the parties a reasonable opportunity to present evidence as to the setting, purpose, and effect of the lease contract or clause thereof, or of the conduct

In an action in which the lessee claims unconscionability with respect to a consumer lease: a

If the court finds unconscionability under subsection 1 or 2, the court shall award reasonable attorney's fees to the lessee

If the court does not find unconscionability and the lessee claiming unconscionability has brought or maintained an action the claimant knew to be groundless, the court shall award reasonable attorney's fees to the party against whom the claim is made

In determining attorney's fees, the amount of the recovery on behalf of the claimant under subsections 1 and 2 is not controlling

41-02.1-09. (2A-109) Option to accelerate at will

A term providing that one party or that party's successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or "when he or she deems himself or herself insecure" or in words of similar import must be construed to mean that the party has power to do so only if the party in good faith believes that the prospect of payment or performance is impaired

Page No. 4 2. With respect to a consumer lease, the burden of establishing good faith under subsection 1 is on the party who exercised the power. Otherwise, the burden of establishing lack of good faith is on the party against whom the power has been exercised

41-02.1-10. (2A-201) Statute of frauds

A lease contract is not enforceable by way of action or defense unless: a

The total payments to be made under the lease contract, excluding payments for options to renew or buy, are less than one thousand dollars; or There is a writing, signed by the party against whom enforcement is sought or by that party's authorized agent, sufficient to indicate that a lease contract has been made between the parties and to describe the goods leased and the lease term

Any description of leased goods or of the lease term is sufficient and satisfies subdivision b of subsection 1, whether or not it is specific, if it reasonably identifies what is described

A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the lease contract is not enforceable under subdivision b of subsection 1 beyond the lease term and the quantity of goods shown in the writing

A lease contract that does not satisfy the requirements of subsection 1, but which is valid in other respects, is enforceable: a

If the goods are to be specially manufactured or obtained for the lessee and are not suitable for lease or sale to others in the ordinary course of the lessor's business, and the lessor, before notice of repudiation is received and under circumstances that reasonably indicate that the goods are for the lessee, has made either a substantial beginning of their manufacture or commitments for their procurement; If the party against whom enforcement is sought admits in that party's pleading, testimony, or otherwise in court that a lease contract was made, but the lease contract is not enforceable under this provision beyond the quantity of goods admitted; or c. With respect to goods that have been received and accepted by the lessee

The lease term under a lease contract referred to in subsection 4 is: a

If there is a writing signed by the party against whom enforcement is sought or by that party's authorized agent specifying the lease term, the term so specified; If the party against whom enforcement is sought admits in that party's pleading, testimony, or otherwise in court a lease term, the term so admitted; or A reasonable lease term

41-02.1-11. (2A-202) Final written expression - Parol or extrinsic evidence

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented by course of dealing or usage of trade or by course of performance and by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement

41-02.1-12. (2A-203) Seals inoperative

The affixing of a seal to a writing evidencing a lease contract or an offer to enter into a lease contract does not render the writing a sealed instrument and the law with respect to sealed instruments does not apply to the lease contract or offer

41-02.1-13. (2A-204) Formation in general

A lease contract may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a lease contract

Page No. 5 2

An agreement sufficient to constitute a lease contract may be found although the moment of its making is undetermined

Although one or more terms are left open, a lease contract does not fail for indefiniteness if the parties have intended to make a lease contract and there is a reasonably certain basis for giving an appropriate remedy

41-02.1-14. (2A-205) Firm offers

An offer by a merchant to lease goods to or from another person in a signed writing that by its terms gives assurance it will be held open is not revocable, for lack of consideration, during the time stated or, if no time is stated, for a reasonable time, but in no event may the period of irrevocability exceed three months. Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror

41-02.1-15. (2A-206) Offer and acceptance in formation of lease contract

1. Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a lease contract must be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances

If the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance

41-02.1-16. (2A-207) Course of performance or practical construction

Repealed by S.L. 2007, ch. 354, ยง 29

41-02.1-17. (2A-208) Modification, rescission, and waiver

An agreement modifying a lease contract needs no consideration to be binding

A signed lease agreement that excludes modification or rescission except by a signed writing may not be otherwise modified or rescinded, but, except as between merchants, such a requirement on a form supplied by a merchant must be separately signed by the other party

Although an attempt at modification or rescission does not satisfy the requirements of subsection 2, it may operate as a waiver

A party who has made a waiver affecting an executory portion of a lease contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver

41-02.1-18. (2A-209) Lessee under finance lease as beneficiary of supply contract

The benefit of the 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 subject to the terms of the warranty and of the supply contract and all of the supplier's defenses or claims arising therefrom

The extension of the benefit of the supplier's promises and warranties to the lessee (subsection 1 of section 41-02.1-09) does not modify the rights and obligations of the parties to the supply contract or impose any duty or liability under the supply contract on the lessee

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. Whenever a modification or rescission of the supply contract is effective between the supplier and the lessee, the lessor, in addition to the obligations of the lessor under the lease contract, is treated as having assumed 2

Page No. 6 2

all obligations of the supplier and warranties which were so modified or rescinded as they existed or were available to the lessee prior to modification or rescission

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 any agreement between the lessee and the supplier or from any other law

41-02.1-19. (2A-210) Express warranties

Express warranties by the lessor are created as follows: a

Any affirmation of fact or promise made by the lessor to the lessee which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods will conform to the affirmation or promise

Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods will conform to the description

Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods will conform to the sample or model

It is not necessary to the creation of an express warranty that the lessor use formal words, such as "warrant" or "guarantee", or that the lessor have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the lessor's opinion or commendation of the goods does not create a warranty

41-02.1-20. (2A-211) Warranties against interferences and against infringement - Lessee's obligation against infringement

There is in a lease contract a warranty that for the lease term no person holds a claim to or interest in the goods that arose from an act or omission of the lessor, other than a claim by way of infringement or the like, which will interfere with the lessee's enjoyment of its leasehold interest

Except in a finance lease, there is in a lease contract by a lessor who is a merchant regularly dealing in goods of the kind a warranty that the goods are delivered free of the rightful claim of any person by way of infringement or the like

A lessee who furnishes specifications to a lessor or a supplier shall hold the lessor and the supplier harmless against any claim by way of infringement or the like that arises out of compliance with the specifications

41-02.1-21. (2A-212) Implied warranty of merchantability

Except in a finance lease, a warranty that the goods will be merchantable is implied in a lease contract if the lessor is a merchant with respect to goods of that kind

2. Goods to be merchantable must: Pass without objection in the trade under the description in the lease agreement; In the case of fungible goods, be of fair average quality within the description; Be fit for the ordinary purposes for which goods of that type are used; a

d. Run, within the variation permitted by the lease agreement, of even kind, quality, and quantity within each unit and among all units involved; Be adequately contained, packaged, and labeled as the lease agreement may require; and e

f. Conform to any promises or affirmations of fact made on the container or label

3. Other implied warranties may arise from course of dealing or usage of trade

41-02.1-22. (2A-213) Implied warranty of fitness for particular purpose

Except in a finance lease, if the lessor at the time the lease contract is made has reason to know of any particular purpose for which the goods are required and that the lessee is relying on the lessor's skill or judgment to select or furnish suitable goods, there is in the lease contract an implied warranty that the goods will be fit for that purpose

Page No. 7 41-02.1-23. (2A-214) Exclusion or modification of warranties

1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit a warranty must be construed wherever reasonable as consistent with each other but, subject to the provisions of section 41-02.1-11 on parol or extrinsic evidence, negation or limitation is inoperative to the extent that the construction is unreasonable

Subject to subsection 3, to exclude or modify the implied warranty of merchantability or any part of it the language must mention "merchantability", be by a writing, and be conspicuous. Subject to subsection 3, to exclude or modify any implied warranty of fitness the exclusion must be by a writing and be conspicuous. Language to exclude all implied warranties of fitness is sufficient if it is in writing, is conspicuous and states, for example, "There is no warranty that the goods will be fit for a particular purpose"

3. Notwithstanding subsection 2, but subject to subsection 4: b

a. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", or "with all faults", or by other language that in common understanding calls the lessee's attention to the exclusion of warranties and makes plain that there is no implied warranty, if in writing and conspicuous; If the lessee before entering into the lease contract has examined the goods or the sample or model as fully as desired or has refused to examine the goods, there is no implied warranty with regard to defects that an examination ought in the circumstances to have revealed; and An implied warranty may also be excluded or modified by course of dealing, course of performance, or usage of trade

To exclude or modify a warranty against interference or against infringement (section 41-02.1-20) or any part of it, the language must be specific, be by a writing, and be conspicuous, unless the circumstances, including course of performance, course of dealing, or usage of trade, give the lessee reason to know that the goods are being leased subject to a claim or interest of any person

41-02.1-24. (2A-215) Cumulation and conflict of warranties express or implied

Warranties, whether express or implied, must be construed as consistent with each other and as cumulative, but if that construction is unreasonable, the intention of the parties determines which warranty is dominant. In ascertaining that intention, the following rules apply: Exact or technical specifications displace an inconsistent sample or model or general language of description

A sample from an existing bulk displaces inconsistent general language of description

Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose

41-02.1-25. (2A-216) Third-party beneficiaries of express and implied warranties

A warranty to or for the benefit of a lessee under this chapter, whether express or implied, extends to any person who may reasonably be expected to use, consume, or be affected by the goods and who is injured by breach of the warranty. The operation of this section may not be excluded, modified, or limited with respect to injury to the person of an individual to whom the warranty extends, but an exclusion, modification, or limitation of the warranty, including any with respect to rights and remedies, effective against the lessee is also effective against the beneficiary designated under this section

41-02.1-26. (2A-217) Identification

Identification of goods as goods to which a lease contract refers may be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement, identification occurs: 1. When the lease contract is made, if the lease contract is for a lease of goods that are existing and identified

Page No. 8 4

2. When the goods are shipped, marked, or otherwise designated by the lessor as goods to which the lease contract refers, if the lease contract is for a lease of goods that are not existing and identified

3. When the young are conceived, if the lease contract is for a lease of unborn young of animals

41-02.1-27. (2A-218) Insurance and proceeds

A lessee obtains an insurable interest when existing goods are identified to the lease contract even though the goods identified are nonconforming and the lessee has an option to reject them

If a lessee has an insurable interest only by reason of the lessor's identification of the goods, the lessor, until default or insolvency or notification to the lessee that identification is final, may substitute other goods for those identified

3. Notwithstanding a lessee's insurable interest under subsections 1 and 2, the lessor retains an insurable interest until an option to buy has been exercised by the lessee and risk of loss has passed to the lessee

4. Nothing in this section impairs any insurable interest recognized under any other statute or rule of law

The parties by agreement may determine that one or more parties have an obligation to obtain and pay for insurance covering the goods and by agreement may determine the beneficiary of the proceeds of the insurance

41-02.1-28. (2A-219) Risk of loss

Except in the case of a finance lease, risk of loss is retained by the lessor and does not pass to the lessee. In the case of a finance lease, risk of loss passes to the lessee

Subject to section 41-02.1-29, if risk of loss is to pass to the lessee and the time of passage is not stated, the following rules apply: a

If the lease contract requires or authorizes the goods to be shipped by carrier: (1) And it does not require delivery at a particular destination, the risk of loss (2) passes to the lessee when the goods are duly delivered to the carrier; but If it does require delivery at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the lessee when the goods are there duly so tendered as to enable the lessee to take delivery

If the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the lessee on acknowledgment by the bailee of the lessee's right to possession of the goods

In any case not within subdivision a or b, the risk of loss passes to the lessee on the lessee's receipt of the goods if the lessor, or, in the case of a finance lease, the supplier, is a merchant. Otherwise, the risk passes to the lessee on tender of delivery

41-02.1-29. (2A-220) Effect of default on risk of loss

If risk of loss is to pass to the lessee and the time of passage is not stated: a

If a tender or delivery of goods so fails to conform to the lease contract as to give a right of rejection, the risk of loss remains with the lessor, or, in the case of a finance lease, the supplier, until cure or acceptance

If the lessee rightfully revokes acceptance, the lessee, to the extent of any deficiency in the lessee's effective insurance coverage, may treat the risk of loss as having remained with the lessor from the beginning

2. Whether or not risk of loss is to pass to the lessee, if the lessee as to conforming goods already identified to a lease contract repudiates or is otherwise in default under the lease contract, the lessor, or, in the case of a finance lease, the supplier, to the extent of any deficiency in lessor's or supplier's effective insurance coverage may treat the risk of loss as resting on the lessee for a commercially reasonable time

Page No. 9 41-02.1-30. (2A-221) Casualty to identified goods

If a lease contract requires goods identified when the lease contract is made, and the goods suffer casualty without fault of the lessee, the lessor or the supplier before delivery, or the goods suffer casualty before risk of loss passes to the lessee under the lease agreement or section 41-02.1-28, then: 1

If the loss is total, the lease contract is avoided

If the loss is partial or the goods have so deteriorated as to no longer conform to the lease contract, the lessee may nevertheless demand inspection and at the lessee's option either treat the lease contract as avoided or, except in a finance lease that is not a consumer lease, accept the goods with due allowance from the rent payable for the balance of the lease term for the deterioration or the deficiency in quantity but without further right against the lessor

41-02.1-31. (2A-301) Enforceability of lease contract

Except as otherwise provided in this chapter, a lease contract is effective and enforceable according to its terms between the parties against purchasers of the goods and against creditors of the parties

41-02.1-32. (2A-302) Title to and possession of goods

Except as otherwise provided in this chapter, each provision of this chapter applies whether the lessor or a third party has title to the goods, and whether the lessor, the lessee, or a third party has possession of the goods, notwithstanding any statute or rule of law that possession or the absence of possession is fraudulent

41-02.1-33. (2A-303) Alienability of party's interest under lease contract or of lessor's residual interest in goods - Delegation of performance - Transfer of rights

Except as provided in subsection 3 and section 41-09-69, a provision in a lease agreement that prohibits the voluntary or involuntary transfer, including a transfer by sale, sublease, creation or enforcement of a security interest, or attachment, levy, or other judicial process, of an interest of a party under the lease contract or of the lessor's residual interest in the goods, or that makes such a transfer an event of default, is enforceable as provided in subsection 3, but a transfer that is prohibited or is an event of default under the lease agreement is otherwise effective. "Creation of a security interest" as used in this section includes the sale of a lease contract that is subject to chapter 41-09

A transfer of a right to damages for default with respect to the whole lease contract or a transfer of a right to payment arising out of the transferor's due performance of the transferor's entire obligation, which includes the creation of a security interest in the right to future payment under a lease contract that is granted by a lessor who has no remaining performance under the lease contract, may not be prohibited or made an event of default and is not a transfer that materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on the other party to the lease contract within subsection 3

Subject to subsection 2 and section 41-09-69, if a transfer is made that is prohibited or is an event of default under a lease agreement, or if a transfer is made that materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on the other party to the lease contract, unless the party prejudiced by the transfer agrees at any time to the transfer in the lease contract or otherwise, then that party has, if the transfer is made an event of default, the rights and remedies provided under subsection 2 of section 41-02.1-48. In all other cases, except as limited by contract, the transferor is liable to the prejudiced party for damages caused by the transfer to the extent the damages could not reasonably be prevented by the prejudiced party. A court having jurisdiction may grant other appropriate relief, including cancellation of the lease contract or an injunction against the transfer

Page No. 10 4

A transfer of "the lease" or of "all my rights under the lease" or a transfer in similar general terms is a transfer of rights, and unless the language or the circumstances, as in a transfer for security, indicate the contrary, the transfer is a delegation of duties by the transferor to the transferee and acceptance by the transferee constitutes a promise by the transferee to perform those duties. This promise is enforceable by either the transferor or the other party to the lease contract

5. Unless otherwise agreed by the lessor and the lessee, no delegation of performance relieves the transferor as against the other party of any duty to perform or any liability for default

To prohibit the transfer of an interest of a party under a consumer lease contract or to make a transfer an event of default, the language must be specific, by a writing, and conspicuous

41-02.1-34. (2A-304) Subsequent lease of goods by lessor

Subject to section 41-02.1-33, a subsequent lessee from a lessor of goods under an existing lease contract obtains, to the extent of the leasehold interest transferred, the leasehold interest in the goods that the lessor had or had power to transfer, and except as provided in subsections 2 and 4 of section 41-02.1-75, takes subject to the existing lease contract. A lessor with voidable title has power to transfer a good leasehold interest to a good-faith subsequent lessee for value, but only to the extent set forth in the preceding sentence. When goods have been delivered under a transaction of purchase, the lessor has that power even though any of the following are met: a

The lessor's transferor was deceived as to the identity of the lessor

The delivery was in exchange for a check which is later dishonored

It was agreed that the transaction was to be a "cash sale"

The delivery was procured through fraud punishable as larcenous under the criminal law

A subsequent lessee in the ordinary course of business from a lessor who is a merchant dealing in goods of that kind to whom the goods were entrusted by the existing lessee of that lessor before the interest of the subsequent lessee became enforceable against that lessor obtains, to the extent of the leasehold interest transferred, all of the lessor's and the existing lessee's rights to the goods, and takes free of the existing lease contract

A subsequent lessee from the lessor of goods that are subject to an existing lease contract and are covered by a certificate of title issued under a statute of this state or of another jurisdiction takes no greater rights than those provided both by this section and by the certificate of title statute

41-02.1-35. (2A-305) Sale or sublease of goods by lessee

Subject to section 41-02.1-33, a buyer or sublessee from the lessee of goods under an existing lease contract obtains, to the extent of the interest transferred, the leasehold interest in the goods that the lessee had or had power to transfer, and except as provided in subsections 2 and 4 of section 41-02.1-59, takes subject to the existing lease contract. A lessee with a voidable leasehold interest has power to transfer a good leasehold interest to a good-faith buyer for value or a good-faith sublessee for value, but only to the extent set forth in the preceding sentence. When goods have been delivered under a transfer of lease, the lessee has that power even though any of the following are met: a

The lessor was deceived as to the identity of the lessee

The delivery was in exchange for a check which is later dishonored

The delivery was procured through fraud punishable as larcenous under the criminal law

A buyer in the ordinary course of business or a sublessee in the ordinary course of business from a lessee who is a merchant dealing in goods of that kind to whom the goods were entrusted by the lessor obtains, to the extent of the interest transferred, all 2

Page No. 11 3

of the lessor's and lessee's rights to the goods, and takes free of the existing lease contract

A buyer or sublessee from the lessee of goods that are subject to an existing lease contract and are covered by a certificate of title issued under a statute of this state or of another jurisdiction takes no greater rights than those provided both by this section and by the certificate of title statute

41-02.1-36. (2A-306) Priority of certain liens arising by operation of law

If a person in the ordinary course of business furnishes services or materials with respect to goods subject to a lease contract, a lien upon those goods in the possession of that person given by statute or rule of law for those materials or services takes priority over any interest of the lessor or lessee under the lease contract or this chapter unless the lien is created by statute and the statute provides otherwise or unless the lien is created by rule of law and the rule of law provides otherwise

41-02.1-37. (2A-307) Priority of liens arising by attachment or levy on, security interests in, and other claims to goods

Except as otherwise provided in section 41-02.1-36, a creditor of a lessee takes subject to the lease contract

Except as otherwise provided in subsection 3 and in sections 41-02.1-36 and 41-02.1-38, a creditor of a lessor takes subject to the lease contract unless the creditor holds a lien that attached to the goods before the lease contract became enforceable

Except as otherwise provided in sections 41-09-37, 41-09-41, and 41-09-43, a lessee takes a leasehold interest subject to a security interest held by a creditor of the lessor

41-02.1-38. (2A-308) Special rights of creditors

A creditor of a lessor in possession of goods subject to a lease contract may treat the lease contract as void if as against the creditor retention of possession by the lessor is fraudulent under any statute or rule of law, but retention of possession in good faith and current course of trade by the lessor for a commercially reasonable time after the lease contract becomes enforceable is not fraudulent

2. Nothing in this chapter impairs the rights of creditors of a lessor if the lease contract becomes enforceable, not in current course of trade but in satisfaction of or as security for a pre-existing claim for money, security, or the like, and the lease contract is made under circumstances which under any statute or rule of law apart from this chapter would constitute a fraudulent transfer or voidable preference

A creditor of a seller may treat a sale or an identification of goods to contract for sale as void if as against the creditor retention of possession by the seller is fraudulent under any statute or rule of law, but retention of possession of the goods under a lease contract entered into by the seller as lessee and the buyer as lessor in connection with the sale or identification of the goods is not fraudulent if the buyer bought for value and in good faith

41-02.1-39. (2A-309) Lessor's and lessee's rights when goods become fixtures

In this section: a. Goods are "fixtures" when they become so related to particular real estate that an b

interest in them arises under real estate law

A "fixture filing" is the filing, in the office where a record of a mortgage on the real estate would be recorded, of a financing statement covering goods that are or are to become fixtures and conforming to the requirements of subsections 1 and 2 of section 41-09-73

A lease is a "purchase money lease" unless the lessee has possession or use of the goods or the right to possession or use of the goods before the lease agreement is enforceable

Page No. 12 5

A mortgage is a "construction mortgage" to the extent it secures an obligation incurred for the construction of an improvement on land, including the acquisition cost of the land, if the recorded writing so indicates

"Encumbrance" includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests

2. Under this chapter a lease may be of goods that are fixtures or may continue in goods that become fixtures, but no lease exists under this chapter of ordinary building materials incorporated into an improvement on land

This chapter does not prevent creation of a lease of fixtures under real estate law

The perfected interest of a lessor of fixtures has priority over a conflicting interest of an encumbrancer or owner of the real estate if either of the following exists: a

The lease is a purchase money lease, the conflicting interest of the encumbrancer or owner arises before the goods become fixtures, the interest of the lessor is perfected by a fixture filing before the goods become fixtures or within ten days thereafter, and the lessee has an interest of record in the real estate or is in possession of the real estate

The interest of the lessor is perfected by a fixture filing before the interest of the encumbrancer or owner is of record, the lessor's interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the lessee has an interest of record in the real estate or is in possession of the real estate

The interest of a lessor of fixtures has priority over the conflicting interest of an encumbrancer or owner of the real estate if any of the following are met: a

The fixtures are readily removable factory or office machines, readily removable equipment that is not primarily used or leased for use in the operation of the real estate, or readily removable replacements of domestic appliances that are goods subject to a consumer lease, and before the goods become fixtures the lease contract is enforceable

The conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the lease contract is enforceable

The encumbrancer or owner has consented in writing to the lease or has disclaimed an interest in the goods as fixtures

The lessee has a right to remove the goods as against the encumbrancer or owner. If the lessee's right to remove terminates, the priority of the interest of the lessor continues for a reasonable time

6. Notwithstanding subdivision a of subsection 4 but otherwise subject to subsections 4 and 5, the interest of a lessor of fixtures including the lessor's residual interest is subordinate to the conflicting interest of an encumbrance of the real estate under a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent given to refinance a construction mortgage, the conflicting interest of an encumbrancer of the real estate under a mortgage has this priority to the same extent as the encumbrancer of the real estate under the construction mortgage

In cases not within the preceding subsections, priority between the interest of a lessor of fixtures including the lessor's residual interest and the conflicting interest of an encumbrancer or owner of the real estate who is not the lessee is determined by the priority rules governing conflicting interests in real estate

If the interest of a lessor of fixtures including the lessor's residual interest has priority over all conflicting interests of all owners and encumbrancers of the real estate, the lessor or the lessee may on default, expiration, termination, or cancellation of the lease agreement by the other party but subject to the provisions of the lease agreement and this chapter, or if necessary to enforce other rights and remedies under this chapter of the lessor or the lessee, remove the goods from the real estate, free and clear of all conflicting interests of all owners and encumbrancers of the real estate, but the party removing the goods must reimburse any encumbrancer or owner of the real estate who is not the lessee and who has not otherwise agreed for the cost of repair of any 8

Page No. 13 9

physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation

Even though the lease agreement does not create a security interest, the interest of a lessor of fixtures including the lessor's residual interest is perfected by filing a financing statement as a fixture filing for leased goods that are or are to become fixtures in accordance with the relevant provisions of the chapter on secured transactions (chapter 41-09)

41-02.1-40. (2A-310) Lessor's and lessee's rights when goods become accessions

1. Goods are "accessions" when they are installed in or affixed to other goods

The interest of a lessor or a lessee under a lease contract entered into before the goods became accessions is superior to all interests in the whole except as stated in subsection 4

The interest of a lessor or a lessee under a lease contract entered into at the time or after the goods became accessions is superior to all subsequently acquired interests in the whole except as stated in subsection 4 but is subordinate to interests in the whole existing at the time the lease contract was made unless the holders of such interests in the whole have in writing consented to the lease or disclaimed an interest in the goods as part of the whole

The interest of a lessor or a lessee under a lease contract described in subsection 2 or 3 is subordinate to the interest of: a

A buyer in the ordinary course of business or a lessee in the ordinary course of business of any interest in the whole acquired after the goods became accessions

A creditor with a security interest in the whole perfected before the lease contract was made to the extent that the creditor makes subsequent advances without knowledge of the lease contract

5. When under subsection 2 or 3 a lessor or a lessee of accessions holds an interest that is superior to all interests in the whole, the lessor or the lessee may on default, expiration, termination, or cancellation of the lease contract by the other party, but subject to the provisions of the lease contract and this chapter, or if necessary to enforce the lessor's or lessee's other rights and remedies under this chapter, remove the goods from the whole, free and clear of all interests in the whole. However, the lessor or the lessee must reimburse any holder of an interest in the whole, who is not the lessee and who has not otherwise agreed, for the cost of repair of any physical injury but not for any diminution in value of the whole caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation

41-02.1-41. (2A-311) Priority subject to subordination

Nothing in this chapter prevents subordination by agreement by any person entitled to priority

41-02.1-42. (2A-401) Insecurity - Adequate assurance of performance

A lease contract imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired

If reasonable grounds for insecurity arise with respect to the performance of either party, the insecure party may demand in writing adequate assurance of due performance. Until the insecure party receives that assurance, if commercially reasonable the insecure party may suspend any performance for which the insecure party has not already received the agreed return

Page No. 14 3

A repudiation of the lease contract occurs if assurance of due performance adequate under the circumstances of the particular case is not provided to the insecure party within a reasonable time, not to exceed thirty days after receipt of a demand by the other party

Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered must be determined according to commercial standards

Acceptance of any nonconforming delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance

41-02.1-43. (2A-402) Anticipatory repudiation

If either party repudiates a lease contract with respect to a performance not yet due under the lease contract, the loss of which performance will substantially impair the value of the lease contract to the other, the aggrieved party may: 1

For a commercially reasonable time, await retraction of repudiation and performance by the repudiating party

2. Make demand under section 41-02.1-42 and await assurance of future performance adequate under the circumstances of the particular case

3. Resort to any right or remedy upon default under the lease contract or this chapter, even though the aggrieved party has notified the repudiating party that the aggrieved party would await the repudiating party's performance and assurance and has urged retraction

In addition, the aggrieved party may suspend performance or, if the aggrieved party is the lessor, proceed in accordance with the provisions of this chapter on the lessor's right to identify goods to the lease contract notwithstanding default or to salvage unfinished goods (section 41-02.1-71)

41-02.1-44. (2A-403) Retraction of anticipatory repudiation

1. Until the repudiating party's next performance is due, the repudiating party can retract the repudiation unless the aggrieved party has canceled the lease contract or materially changed the aggrieved party's position or otherwise indicated that the aggrieved party considers the repudiation final

2. Retraction may be by any method that clearly indicates to the aggrieved party that the repudiating party intends to perform under the lease contract and includes any assurance demanded under section 41-02.1-42

3. Retraction reinstates a repudiating party's rights under a lease contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation

41-02.1-45. (2A-404) Substituted performance

If without fault of the lessee, the lessor, or the supplier, the agreed berthing, loading, or unloading facilities fail or the agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable, but a commercially reasonable substitute is available, the substitute performance must be tendered and accepted

If the agreed means or manner of payment fails because of domestic or foreign governmental regulation: a

The lessor may withhold or stop delivery or cause the supplier to withhold or stop delivery unless the lessee provides a means or manner of payment that is commercially a substantial equivalent

If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the lessee's obligation unless the regulation is discriminatory, oppressive, or predatory

41-02.1-46. (2A-405) Excused performance

Subject to section 41-02.1-45 on substituted performance, the following rules apply: Page No. 15 2

1. Delay in delivery or nondelivery in whole or in part by a lessor or a supplier who complies with subsections 2 and 3 is not a default under the lease contract if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the lease contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order, regardless of whether the regulation or order later proves to be invalid

If the causes mentioned in subsection 1 affect only part of the lessor's or the supplier's capacity to perform, the lessor or supplier shall allocate production and deliveries among its customers but at its option may include regular customers not then under contract for sale or lease as well as its own requirements for further manufacture. The lessor or supplier may so allocate in any manner that is fair and reasonable

The lessor seasonably shall notify the lessee and, in the case of a finance lease, the supplier seasonably shall notify the lessor and the lessee, if known, that there will be delay or nondelivery and, if allocation is required under subsection 2, of the estimated quote thus made available for the lessee

41-02.1-47. (2A-406) Procedure on excused performance

If the lessee receives notification of a material or indefinite delay or an allocation justified under section 41-02.1-46, the lessee may by written notification to the lessor as to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (section 41-02.1-58), either: a

Terminate the lease contract (subsection 2 of section 41-02.1-53)

Except in a finance lease that is not a consumer lease, modify the lease contract by accepting the available quote in substitution, with due allowance from the rent payable for the balance of the lease term for the deficiency but without further right against the lessor

If, after receipt of a notification from the lessor under section 41-02.1-46, the lessee fails so to modify the lease agreement within a reasonable time not exceeding thirty days, the lease contract lapses with respect to any deliveries affected

41-02.1-48. (2A-407) Irrevocable promises - Finance leases

In the case of a finance lease that is not a consumer lease, the lessee's promises under the lease contract become irrevocable and independent upon the lessee's acceptance of the goods

A promise that has become irrevocable and independent under subsection 1: a

Is effective and enforceable between the parties and by or against third parties, including assignees of the parties

Is not subject to cancellation, termination, modification, repudiation, excuse, or substitution without the consent of the party to whom the promise runs

This section does not affect the validity under any other law of a covenant in any lease contract making the lessee's promises irrevocable and independent upon the lessee's acceptance of the goods

41-02.1-49. (2A-501) Default - Procedure

1. Whether the lessor or the lessee is in default under a lease contract is determined by the lease agreement and this chapter

If the lessor or the lessee is in default under the lease contract, the party seeking enforcement has rights and remedies as provided in this chapter and, except as limited by this chapter, as provided in the lease agreement

If the lessor or the lessee is in default under the lease contract, the party seeking enforcement may reduce the party's claim to judgment, or otherwise enforce the lease contract by self-help or any available judicial procedure or nonjudicial procedure, including administrative proceeding, arbitration, or the like, under this chapter

Page No. 16 4

Except as otherwise provided under subsection 1 of section 41-01-19, this chapter, or the lease agreement, the rights and remedies referred to in subsections 2 and 3 are cumulative

If the lease agreement covers both real property and goods, the party seeking enforcement may proceed under this part as to the goods, or under other applicable law as to both the real property and the goods in accordance with the party's rights and remedies in respect of the real property, in which case this part does not apply

41-02.1-50. (2A-502) Notice after default

Except as otherwise provided in this chapter or the lease agreement, the lessor or lessee in default under the lease contract is not entitled to notice of default or notice of enforcement from the other party to the lease agreement

41-02.1-51. (2A-503) Modification or impairment of rights and remedies

Except as otherwise provided in this chapter, the lease agreement may include rights and remedies for default in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter

2. Resort to a remedy provided under this chapter or in the lease agreement is optional unless the remedy is expressly agreed to be exclusive. If circumstances cause an exclusive or limited remedy to fail of its essential purpose, or provision for an exclusive remedy is unconscionable, remedy may be had as provided in this chapter

3. Consequential damages may be liquidated under section 41-02.1-52, or may otherwise be limited, altered, or excluded unless the limitation, alteration, or exclusion is unconscionable. Limitation, alteration, or exclusion of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation, alteration, or exclusion of damages if the loss is commercial is not prima facie unconscionable

4. Rights and remedies on default by the lessor or the lessee with respect to any obligation or promise collateral or ancillary to the lease contract are not impaired by this chapter

41-02.1-52. (2A-504) Liquidation of damages

1. Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to a lessor's residual interest, may be liquidated in the lease agreement but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or other act or omission

If the lease agreement provides for liquidation of damages, and the provision does not comply with subsection 1, or the provision is an exclusive or limited remedy that circumstances cause to fail of its essential purpose, remedy may be had as provided in this chapter

If the lessor justifiably withholds or stops delivery of goods because of the lessee's default or insolvency (section 41-02.1-73 or 41-02.1-74), the lessee is entitled to restitution of any amount by which the sum of the lessee's payments exceeds: a

The amount to which the lessor is entitled by virtue of terms liquidating the lessor's damages under subsection 1; or In the absence of those terms, twenty percent of the then present value of the total rent the lessee was obligated to pay for the balance of the lease term, or, in the case of a consumer lease, the lesser of that amount or five hundred dollars

A lessee's right to restitution under subsection 3 is subject to offset to the extent the lessor establishes: a

A right to recover damages under the provisions of this chapter other than subsection 1; and The amount or value of any benefits received by the lessee directly or indirectly by reason of the lease contract

Page No. 17 41-02.1-53. (2A-505) Cancellation and termination and effect of cancellation, termination, rescission, or fraud on rights and remedies

1. On cancellation of the lease contract, all obligations that are still executory on both sides are discharged, but any right based on prior default or performance survives, and the canceling party also retains any remedy for default of the whole lease contract or any unperformed balance

2. On termination of the lease contract, all obligations that are still executory on both sides are discharged but any right based on prior default or performance survives

3. Unless the contrary intention clearly appears, expressions of "cancellation", "rescission", or the like of the lease contract may not be construed as a renunciation or discharge of any claim in damages for an antecedent default

4. Rights and remedies for material misrepresentation or fraud include all rights and remedies available under this chapter for default

5. Neither rescission nor a claim for rescission of the lease contract nor rejection or return of the goods may bar or be deemed inconsistent with a claim for damages or other right or remedy

41-02.1-54. (2A-506) Statute of limitations

An action for default under a lease contract, including breach of warranty or indemnity, must be commenced within four years after the cause of action accrued. By the original lease contract the parties may reduce the period of limitation to not less than one year

A cause of action for default accrues when the act or omission on which the default or breach of warranty is based is or should have been discovered by the aggrieved party, or when the default occurs, whichever is later. A cause of action for indemnity accrues when the act or omission on which the claim for indemnity is based is or should have been discovered by the indemnified party, whichever is later

If an action commenced within the time limited by subsection 1 is so terminated as to leave available a remedy by another action for the same default or breach of warranty or indemnity, the other action may be commenced after the expiration of the time limited and within six months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute

This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action that have accrued before this chapter becomes effective

41-02.1-55. (2A-507) Proof of market rent - Time and place

1. Damages based on market rent (section 41-02.1-67 or 41-02.1-76) are determined according to the rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease agreement and prevailing at the time of the default

If evidence of rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease agreement and prevailing at the times or places described in this chapter is not readily available, the rent prevailing within any reasonable time before or after the time described or at any other place or for a different lease term which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the difference, including the cost of transporting the goods to or from the other place

Evidence of a relevant rent prevailing at a time or place or for a lease term other than the one described in this chapter offered by one party is not admissible unless and until the party has given the other party notice that the court finds sufficient to prevent unfair surprise

If the prevailing rent or value of any goods regularly leased in any established market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of that market are admissible 3

Page No. 18 in evidence. The circumstances of the preparation of the report may be shown to affect its weight but not its admissibility

41-02.1-56. (2A-508) Lessee's remedies

If a lessor fails to deliver the goods in conformity to the lease contract (section 41-02.1-57) or repudiates the lease contract (section 41-02.1-43), or a lessee rightfully rejects the goods (section 41-02.1-57) or justifiably revokes acceptance of the goods (section 41-02.1-65), then with respect to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (section 41-02.1-58), the lessor is in default under the lease contract and the lessee may: a. Cancel the lease contract (subsection 1 of section 41-02.1-53)

b. Recover so much of the rent and security as has been paid as is just under the circumstances

c. Cover and recover damages as to all goods affected whether or not they have been identified to the lease contract (sections 41-02.1-66 and 41-02.1-68), or recover damages for nondelivery (sections 41-02.1-67 and 41-02.1-68)

Exercise any other rights or remedies provided in the lease contract

If a lessor fails to deliver the goods in conformity to the lease contract or repudiates the lease contract, the lessee may also: a

If the goods have been identified, recover them (section 41-02.1-70); or In a proper case, obtain specific performance or replevy the goods (section 41-02.1-80)

If a lessor is otherwise in default under a lease contract, the lessee may exercise the rights and remedies provided in the lease contract, which may include a right to cancel the lease, and under subsection 3 of section 41-02.1-67

If a lessor has breached a warranty, whether express or implied, the lessee may recover damages (subsection 4 of section 41-02.1-67)

5. On rightful rejection or justifiable revocation of acceptance, a lessee has a security interest in goods in the lessee's possession or control for any rent and security that has been paid and any expenses reasonably incurred in their inspection, receipt, transportation, and care and custody and may hold those goods and dispose of them in good faith and in a commercially reasonable manner, subject to the provisions of subsection 5 of section 41-02.1-75

Subject to the provisions of section 41-02.1-48, a lessee, on notifying the lessor of the lessee's intention to do so, may deduct all or any part of the damages resulting from any default under the lease contract from any part of the rent still due under the same lease contract

41-02.1-57. (2A-509) Lessee's rights on improper delivery - Rightful rejection

Subject to the provisions of section 41-02.1-58 on default in installment lease contracts, if the goods or the tender or delivery fail in any respect to conform to the lease contract, the lessee may reject or accept the goods or accept any commercial unit or units and reject the rest of the goods

2. Rejection of goods is ineffective unless it is within a reasonable time after tender or delivery of the goods and the lessee seasonably notifies the lessor

41-02.1-58. (2A-510) Installment lease contracts - Rejection and default

1. Under an installment lease contract, a lessee may reject any delivery that is nonconforming if the nonconformity substantially impairs the value of that delivery and cannot be cured or the nonconformity is a defect in the required documents. If, however, the nonconformity does not fall within subsection 2 and the lessor or the supplier gives adequate assurance of its cure, the lessee must accept that delivery

2. Whenever nonconformity or default with respect to one or more deliveries substantially impairs the value of the installment lease contract as a whole, there is a default with Page No. 19 respect to the whole. But, the aggrieved party reinstates the installment lease contract as a whole if the aggrieved party accepts a nonconforming delivery without seasonably notifying of cancellation or brings an action with respect only to past deliveries or demands performance as to future deliveries

41-02.1-59. (2A-511) Merchant lessee's duties as to rightfully rejected goods

Subject to any security interest of a lessee (subsection 5 of section 41-02.1-56), if a lessor or a supplier has no agent or place of business at the market of rejection, a merchant lessee, after rejection of goods in the merchant lessee's possession or control, shall follow any reasonable instructions received from the lessor or the supplier with respect to the goods. In the absence of those instructions, a merchant lessee shall make reasonable efforts to sell, lease, or otherwise dispose of the goods for the lessor's account if they threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming

If a merchant lessee or any other lessee (section 41-02.1-60) disposes of goods, the lessee is entitled to reimbursement either from the lessor or the supplier or out of the proceeds for reasonable expenses of caring for and disposing of the goods and, if the expenses include no disposition commission, to such commission as is usual in the trade, or if there is none, to a reasonable sum not exceeding ten percent of the gross proceeds

In complying with this section or section 41-02.1-60, the lessee is held only to good faith. Good-faith conduct hereunder is neither acceptance or conversion nor the basis of an action for damages

A purchaser who purchases in good faith from a lessee under this section or section 41-02.1-60 takes the goods free of any rights of the lessor and the supplier even though the lessee fails to comply with one or more of the requirements of this chapter

41-02.1-60. (2A-512) Lessee's duties as to rightfully rejected goods

Except as otherwise provided with respect to goods that threaten to decline in value speedily (section 41-02.1-59) and subject to any security interest of a lessee (subsection 5 of section 41-02.1-56): a

The lessee, after rejection of goods in the lessee's possession, shall hold them with reasonable care at the lessor's or the supplier's disposition for a reasonable time after the lessee's seasonable notification of rejection; If the lessor or the supplier gives no instructions within a reasonable time after notification of rejection, the lessee may store the rejected goods for the lessor's or the supplier's account or ship them to the lessor or the supplier or dispose of them for the lessor's or the supplier's account with reimbursement in the manner provided in section 41-02.1-59; but The lessee has no further obligations with regard to goods rightfully rejected

Action by the lessee pursuant to subsection 1 is not acceptance or conversion

41-02.1-61. (2A-513) Cure by lessor of improper tender or delivery - Replacement

If any tender or delivery by the lessor or the supplier is rejected because nonconforming and the time for performance has not yet expired, the lessor or the supplier may seasonably notify the lessee of the lessor's or the supplier's intention to cure and may then make a conforming delivery within the time provided in the lease contract

If the lessee rejects a nonconforming tender that the lessor or the supplier had reasonable grounds to believe would be acceptable with or without money allowance, the lessor or the supplier may have a further reasonable time to substitute a conforming tender if the lessor or the supplier seasonably notifies the lessee

Page No. 20 2

41-02.1-62. (2A-514) Waiver of lessee's objections

In rejecting goods, a lessee's failure to state a particular defect that is ascertainable by reasonable inspection precludes the lessee from relying on the defect to justify rejection or to establish default: a

If, stated seasonably, the lessor or the supplier could have cured it (section 41-02.1-61); or Between merchants if the lessor or the supplier after rejection has made a request in writing for a full and final written statement of all defects on which the lessee proposes to rely

A lessee's failure to reserve rights when paying rent or other consideration against documents precludes recovery of the payment for defects apparent in the documents

41-02.1-63. (2A-515) Acceptance of goods

Acceptance of goods occurs after the lessee has had a reasonable opportunity to inspect the goods and: a

The lessee signifies or acts with respect to the goods in a manner that signifies to the lessor or the supplier that the goods are conforming or that the lessee will take or retain them in spite of their nonconformity; or The lessee fails to make an effective rejection of the goods (subsection 2 of section 41-02.1-57)

Acceptance of a part of any commercial unit is acceptance of that entire unit

41-02.1-64. (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

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

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 chapter or the lease agreement for nonconformity

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; 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 41-02.1-20) the lessee shall notify the lessor or be barred from any remedy over for liability established by the litigation; and The burden is on the lessee to establish any default

If a lessee is sued for breach of a warranty or other obligation for which a lessor or a supplier is answerable over: a

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

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 41-02.1-20) 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 b

Page No. 21 adverse judgment, then unless the lessee after seasonable receipt of the demand does turn over control the lessee is so barred

The provisions of 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 41-02.1-20)

41-02.1-65. (2A-517) Revocation of acceptance of goods

A lessee may revoke acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to the lessee if: a

Except in the case of a finance lease, on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or b. Without discovery of the nonconformity if the lessee's acceptance was reasonably induced either by the lessor's assurances or, except in the case of a finance lease, by the difficulty of discovery before acceptance

Except in the case of a finance lease that is not a consumer lease, a lessee may revoke acceptance of a lot or commercial unit if the lessor commits a default under the lease contract which substantially impairs the value of that lot or commercial unit to the lessee

If the lease agreement so provides, the lessee may revoke acceptance of a lot or commercial unit for other defaults by the lessor

4. Revocation of acceptance must occur within a reasonable time after the lessee discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by the nonconformity. Revocation is not effective until the lessee notifies the lessor

A lessee who so revokes has the same rights and duties with regard to the goods involved as if the lessee had rejected them

41-02.1-66. (2A-518) Cover - Substitute goods

After default by a lessor under the lease contract as described in subsection 1 of section 41-02.1-56 or, if agreed, after other default by the lessor, the lessee may cover by making any purchase or lease of or contract to purchase or lease goods in substitution for those due from the lessor

Except as otherwise provided with respect to damages liquidated in the lease agreement (section 41-02.1-52) or determined by agreement of the parties (sections 41-01-16 and 41-02.1-51), if a lessee's cover is by lease agreement substantially similar to the original lease agreement and the new lease agreement is made in good faith and in a commercially reasonable manner, the lessee may recover from the lessor as damages the present value, as of the date of the commencement of the term of the new lease agreement, of the rent under the new lease agreement applicable to that period of the new lease term which is comparable to the then remaining term of the original lease agreement minus the present value as of the same date of the total rent for the then remaining lease term of the original lease agreement, and any incidental or consequential damages, less expenses saved in consequence of the lessor's default

If a lessee's cover is by lease agreement that for any reason does not qualify for treatment under subsection 2, or is by purchase or otherwise, the lessee may recover from the lessor as if the lessee had elected not to cover and section 41-02.1-67 governs

41-02.1-67. (2A-519) Lessee's damages for nondelivery, repudiation, default, and breach of warranty in regard to accepted goods

Except as otherwise provided with respect to damages liquidated in the lease agreement (section 41-02.1-52) or determined by agreement of the parties (sections 41-01-16 and 41-02.1-51), if a lessee elects not to cover or a lessee elects to cover and the cover is by lease agreement that for any reason does not qualify for treatment under subsection 2 of section 41-02.1-66, or is by purchase or otherwise, the measure 2

Page No. 22 of damages for nondelivery or repudiation by the lessor or for rejection or revocation of acceptance by the lessee is the present value, as of the date of the default, of the then market rent minus the present value as of the same date of the original rent, computed for the remaining lease term of the original lease agreement together with incidental and consequential damages, less expenses saved in consequence of the lessor's default

2. Market rent is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival

If the lessee has accepted goods and given notification (subsection 3 of section 41-02.1-64), the measure of damages for nonconforming tender or delivery or other default by a lessor is the loss resulting in the ordinary course of events from the lessor's default as determined in any manner that is reasonable together with incidental and consequential damages, less expenses saved in consequence of the lessor's default

The measure of damages for breach of warranty is the present value at the time and place of acceptance of the difference between the value of the use of the goods accepted and the value if they had been as warranted for the lease term, unless special circumstances show proximate damages of a different amount, together with incidental and consequential damages, less expenses saved in consequence of the lessor's default or breach of warranty

41-02.1-68. (2A-520) Lessee's incidental and consequential damages

Incidental damages resulting from a lessor's default include expenses reasonably incurred in inspection, receipt, transportation, and care and custody of goods rightfully rejected or goods the acceptance of which is justifiably revoked, any commercially reasonable charges, expenses, or commissions in connection with effecting cover, and any other reasonable expense incident to the default

2. Consequential damages resulting from a lessor's default include: a

Any loss resulting from general or particular requirements and needs of which the lessor at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and Injury to person or property proximately resulting from any breach of warranty

41-02.1-69. (2A-521) Lessee's right to specific performance or replevin

Specific performance may be decreed if the goods are unique or in other proper circumstances

A decree for specific performance may include any terms and conditions as to payment of the rent, damages, or other relief that the court deems just

A lessee has a right of replevin, detinue, sequestration, claim and delivery, or the like for goods identified to the lease contract if after reasonable effort the lessee is unable to effect cover for those goods or the circumstances reasonably indicate that the effort will be unavailing

41-02.1-70. (2A-522) Lessee's right to goods on lessor's insolvency

Subject to subsection 2 and even though the goods have not been shipped, a lessee who has paid a part or all of the rent and security for goods identified to a lease contract (section 41-02.1-26) on making and keeping good a tender of any unpaid portion of the rent and security due under the lease contract may recover the goods identified to a lease contract only if they conform to the lease contract

A lessee acquires the right to recover goods identified to a lease contract only if they conform to the lease contract

41-02.1-71. (2A-523) Lessor's remedies

If a lessee wrongfully rejects or revokes acceptance of goods or fails to make a payment when due or repudiates with respect to a part or the whole, then, with respect Page No. 23 to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (section 41-02.1-58), the lessee is in default under the lease contract and the lessor may: a. Cancel the lease contract (subsection 1 of section 41-02.1-53)

Proceed respecting goods not identified to the lease contract (section 41-02.1-72)

c. Withhold delivery of the goods and take possession of goods previously delivered (section 41-02.1-73)

Stop delivery of the goods by any bailee (section 41-02.1-74)

e. Dispose of the goods and recover damages (section 41-02.1-75), or retain the goods and recover damages (section 41-02.1-76), or in a proper case recover rent (section 41-02.1-77)

Exercise any other rights or remedies provided in the lease contract

If a lessor does not exercise the rights to which the lessor is entitled under subsection 1, the lessor may recover the loss resulting in the ordinary course of events from the lessee's default as determined in any manner which is reasonable, together with incidental damages, less expenses saved in consequence of the lessee's default

If a lessee is otherwise in default under a lease contract, the lessor may exercise the rights and remedies provided in the lease contract, which may include a right to cancel the lease, and unless otherwise provided in the lease contract: a

If the default substantially impairs the value of the lease contract to the lessor, the lessor may exercise the rights and remedies provided under subsection 1 or 2

If the default does not substantially impair the value of the lease contract to the lessor, the lessor may recover under subsection 2

41-02.1-72. (2A-524) Lessor's right to identify goods to lease contract

A lessor aggrieved under subsection 1 of section 41-02.1-70 may: a

Identify to the lease contract conforming goods not already identified if at the time the lessor learned of the default they were in the lessor's or the supplier's possession or control; and b. Dispose of goods (subsection 1 of section 41-02.1-74) that demonstrably have been intended for the particular lease contract even though those goods are unfinished

If the goods are unfinished, in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization, an aggrieved lessor or the supplier may either complete manufacture and wholly identify the goods to the lease contract or cease manufacture and lease, sell, or otherwise dispose of the goods for scrap or salvage value or proceed in any other reasonable manner

41-02.1-73. (2A-525) Lessor's right to possession of goods

If a lessor discovers the lessee to be insolvent, the lessor may refuse to deliver the goods

The lessor has on a default by the lessee under the lease contract described in subsection 1 of section 41-02.1-71 or in subdivision a of subsection 3 of section 41-02.1-71 the right to take possession of the goods. If the lease contract so provides, the lessor may require the lessee to assemble the goods and make them available to the lessor at a place to be designated by the lessor which is reasonably convenient to both parties. Without removal, the lessor may render unusable any goods employed in trade or business and may dispose of goods on the lessee's premises (section 41-02.1-75)

The lessor may proceed under subsection 2 without judicial process if that can be done without breach of the peace or the lessor may proceed by action

Page No. 24 41-02.1-74. (2A-526) Lessor's stoppage of delivery in transit or otherwise

A lessor may stop delivery of goods in the possession of a carrier or other bailee if the lessor discovers the lessee to be insolvent and may stop delivery of carload, truckload, planeload, or larger shipments of express or freight if the lessee repudiates or fails to make a payment due before delivery, whether for rent, security, or otherwise under the lease contract, or for any other reason that the lessor has a right to withhold or take possession of the goods

In pursuing its remedies under subsection 1, the lessor may stop delivery until: a. Receipt of the goods by the lessee; b

Acknowledgment to the lessee by any bailee of the goods, except a carrier, that the bailee holds the goods for the lessee; or Such an acknowledgment to the lessee by a carrier via reshipment or as a warehouse

To stop delivery, a lessor shall so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods

After notification, the bailee shall hold and deliver the goods according to the directions of the lessor, but the lessor is liable to the bailee for any ensuing charges or damages

A carrier who has issued a non-negotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor

41-02.1-75. (2A-527) Lessor's rights to dispose of goods

After a default by a lessee under the lease contract described in subsection 1 of section 41-02.1-71 or in subdivision a of subsection 3 of section 41-02.1-71 or after the lessor refuses to deliver or takes possession of goods (section 41-02.1-73 or 41-02.1-74), the lessor may dispose of the goods concerned or the undelivered balance thereof by lease, sale, or otherwise

Except as otherwise provided with respect to damages liquidated in the lease agreement (section 41-02.1-52) or determined by agreement of the parties (sections 41-01-16 and 41-02.1-51), if the disposition is by lease agreement substantially similar to the original lease agreement and the lease agreement is made in good faith and in a commercially reasonable manner, the lessor may recover from the lessee as damages accrued and unpaid rent as of the date of the commencement of the new term of the new lease agreement, the present value, as of the same date, of the total rent for the remaining lease term of the original lease agreement minus the present value, as of the same date, of the rent under the new lease agreement applicable to that period of the new lease term which is comparable to the then remaining term of the original lease agreement, and any incidental damages allowed under section 41-02.1-78, less expenses saved in consequence of the lessee's default

If the lessor's disposition is by lease agreement that for any reason does not qualify for treatment under subsection 2, or is by sale or otherwise, the lessor may recover from the lessee as if the lessor had elected not to dispose of the goods and section 41-02.1-76 governs

A subsequent buyer or lessee who buys or leases from the lessor in good faith for value as a result of a disposition under this section takes the goods free of the original lease contract and any rights of the original lessee even though the lessor fails to comply with one or more of the requirements of this chapter

The lessor is not accountable to the lessee for any profit made on any disposition. A lessee who has rightfully rejected or justifiably revoked acceptance shall account to the lessor for any excess over the amount of the lessee's security interest (subsection 5 of section 41-02.1-56)

or other default

41-02.1-76. (2A-528) Lessor's damages for nonacceptance, failure to pay, repudiation, 1

Except as otherwise provided with respect to damages liquidated in the lease agreement (section 41-02.1-52) or determined by agreement of the parties (sections Page No. 25 41-01-16 and 41-02.1-51), if a lessor elects to retain the goods or a lessor elects to dispose of the goods and disposition is by lease agreement that for any reason does not qualify for treatment under subsection 2 of section 41-02.1-75, or is by sale or otherwise, the lessor may recover from the lessee as damages for a default described in subsection 1 of section 41-02.1-71 or in subdivision a of subsection 3 of section 41-02.1-71, or, if agreed, for other default of the lessee accrued and unpaid rent as of the date of default if the lessee has never taken possession of the goods, or if the lessee has taken possession of the goods, as of the date the lessor repossesses the goods or an earlier date on which the lessee makes a tender of the goods to the lessor; the present value, as of the same date, 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 rent under the new lease agreement applicable to that period of the new lease term which is comparable to the then remaining term of the original lease agreement; and any incidental damages allowed under section 41-02.1-78, less expenses saved in consequence of the lessee's default

If the measure of damages provided in subsection 1 is inadequate to put a lessor in as good a position as performance would have, the measure of damages is the profit, including reasonable overhead, the lessor would have made from full performance by the lessee, together with any incidental damages allowed under section 41-02.1-78, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition

41-02.1-77. (2A-529) Lessor's action for the rent

After default by the lessee under the lease contract as described in subsection 1 of section 41-02.1-71 or subdivision a of subsection 3 of section 41-02.1-71 or, if agreed, after other default by the lessee, if the lessor complies with subsection 2, the lessor may recover from the lessee as damages: a

For goods accepted by the lessee and not repossessed by or tendered to the lessor, and for conforming goods lost or damaged within a commercially reasonable time after risk of loss passes to the lessee (section 41-02.1-28), accrued and unpaid rent as of the date of entry of judgment in favor of the lessor the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and any incidental damages allowed under section 41-02.1-78, less expenses saved in consequence of the lessee's default; and For goods identified to the lease contract if the lessor is unable after reasonable effort to dispose of them at a reasonable price or the circumstances reasonably indicate that effort will be unavailing, accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and any incidental damages allowed under section 41-02.1-78, and the lessor will cause an appropriate credit to be provided against any judgment for damages to the extent that the amount of the judgment exceeds the recovery available under section 41-02.1-75 or 41-02.1-76, less expenses saved in consequence of the lessee's default

Except as provided in subsection 3, the lessor shall hold for the lessee for the remaining lease term of the lease agreement any goods that have been identified to the lease contract and are in the lessor's control

The lessor may dispose of the goods at any time before collection of the judgment for damages obtained under subsection 1. If the disposition is before the end of the remaining lease term of the lease agreement, the lessor's recovery against the lessee for damages will be governed by section 41-02.1-75 or 41-02.1-76

Payment of the judgment for damages obtained under subsection 1 entitles the lessee to use and possession of the goods not then disposed of for the remaining lease term of and in accordance with the lease agreement

After a lessee has wrongfully rejected or revoked acceptance of goods, has failed to pay rent then due, or has repudiated (section 41-02.1-42), a lessor who is held not 2

Page No. 26 entitled to rent under this section must nevertheless be awarded damages for nonacceptance under sections 41-02.1-75 and 41-02.1-76

41-02.1-78. (2A-530) Lessor's incidental damages

Incidental damages to an aggrieved lessor include any commercially reasonable charges, expenses, or commissions incurred in stopping delivery, in the transportation, care, and custody of goods after the lessee's default, in connection with return or disposition of the goods, or otherwise resulting from the default

41-02.1-79. (2A-531) Standing to sue third parties for injury to goods

If a third party so deals with goods that have been identified to a lease contract as to cause actionable injury to a party to the lease contract, the lessor has a right of action against the third party, and the lessee also has a right of action against the third party if the lessee: a. Has a security interest in the goods; b. Has an insurable interest in the goods; or c

Bears the risk of loss under the lease contract or has since the injury assumed that risk as against the lessor and the goods have been converted or destroyed

If at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the lease contract and there is no arrangement between them for disposition of the recovery, the plaintiff's suit or settlement, subject to the plaintiff's own interest, is as a fiduciary for the other party to the lease contract

Either party with the consent of the other may sue for the benefit of whom it may concern

41-02.1-80. (2A-532) Lessor's rights to residual interest

In addition to any other recovery permitted by this chapter or other law, the lessor is entitled to recover from the lessee an amount that will fully compensate the lessor for any loss of or damage to the lessor's residual interest in the goods caused by the default of the lessee

Page No. 27

Previous Section

Chapter 41-02 Sales

Next Section

Chapter 41-03 Negotiable Instruments