Code Section Group

Commercial Code - COM

DIVISION 10. PERSONAL PROPERTY LEASES [10101 - 10600]

  ( Division 10 repealed and added by Stats. 1988, Ch. 1359, Sec. 5. )

CHAPTER 5. Default [10501 - 10532]

  ( Chapter 5 added by Stats. 1988, Ch. 1359, Sec. 5. )

ARTICLE 2. Default by Lessor [10508 - 10522]
  ( Article 2 added by Stats. 1988, Ch. 1359, Sec. 5. )

10508.
  

(a) If a lessor fails to deliver the goods in conformity to the lease contract (Section 10509) or repudiates the lease contract (Section 10402), or a lessee rightfully rejects the goods (Section 10509) or justifiably revokes acceptance of the goods (Section 10517), 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 10510), the lessor is in default under the lease contract and the lessee may:

(1) Cancel the lease contract (subdivision (a) of Section 10505);

(2) Recover so much of the rent and security as has been paid and is just under the circumstances;

(3) Cover and recover damages as to all goods affected whether or not they have been identified to the lease contract (Sections 10518 and 10520), or recover damages for nondelivery (Sections 10519 and 10520);

(4) Exercise any other rights or pursue any other remedies provided in the lease contract.

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

(1) If the goods have been identified, recover them (Section 10522); or

(2) In a proper case, obtain specific performance or replevy the goods (Section 10521).

(c) If a lessor is otherwise in default under a lease contract, the lessee may exercise the rights and pursue the remedies provided in the lease contract, which may include a right to cancel the lease, and in subdivision (c) of Section 10519.

(d) If a lessor has breached a warranty, whether express or implied, the lessee may recover damages(subdivision (d) of Section 10519).

(e) 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 subdivision (e) of Section 10527.

(f) Subject to the provisions of Section 10407, 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.

(Amended by Stats. 1991, Ch. 111, Sec. 46. Effective July 15, 1991.)

10509.
  

(a) Subject to the provisions of Section 10510 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.

(b) 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.

(Amended by Stats. 1991, Ch. 111, Sec. 47. Effective July 15, 1991.)

10510.
  

(a) 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; but if the nonconformity does not fall within subdivision (b) and the lessor or the supplier gives adequate assurance of its cure, the lessee must accept that delivery.

(b) 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 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.

(Amended by Stats. 1991, Ch. 111, Sec. 48. Effective July 15, 1991.)

10511.
  

(a) Subject to any security interest of a lessee (subdivision (e) of Section 10508), 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 his or her 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.

(b) If a merchant lessee (subdivision (a)) or any other lessee (Section 10512) disposes of goods, he or she 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 10 percent of the gross proceeds.

(c) In complying with this section or Section 10512, 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.

(d) A purchaser who purchases in good faith from a lessee pursuant to this section or Section 10512 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 division.

(Amended by Stats. 1991, Ch. 111, Sec. 49. Effective July 15, 1991.)

10512.
  

(a) Except as otherwise provided with respect to goods that threaten to decline in value speedily (Section 10511) and subject to any security interest of a lessee (subdivision (e) of Section 10508):

(1) 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;

(2) 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 10511; but

(3) The lessee has no further obligations with regard to goods rightfully rejected.

(b) Action by the lessee pursuant to subdivision (a) is not acceptance or conversion.

(Amended by Stats. 1991, Ch. 111, Sec. 50. Effective July 15, 1991.)

10513.
  

(a) If any tender or delivery by the lessor or the supplier is rejected because it is 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.

(b) 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 he or she seasonably notifies the lessee.

(Amended by Stats. 1991, Ch. 111, Sec. 51. Effective July 15, 1991.)

10514.
  

(a) 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:

(1) If, stated seasonably, the lessor or the supplier could have cured it (Section 10513); or

(2) 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.

(b) 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.

(Amended by Stats. 2006, Ch. 254, Sec. 67. Effective January 1, 2007.)

10515.
  

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

(1) 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

(2) The lessee fails to make an effective rejection of the goods (subdivision (b) of Section 10509).

(b) Acceptance of a part of any commercial unit is acceptance of that entire unit.

(Amended by Stats. 1991, Ch. 111, Sec. 53. Effective July 15, 1991.)

10516.
  

(a) 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.

(b) A lessee’s acceptance of goods precludes rejection of the goods accepted. In the case of a finance lease, other than a consumer lease in which the supplier assisted in the preparation of the lease contract or participated in negotiating the terms of the lease contract with the lessor, 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 division or the lease agreement for nonconformity.

(c) If a tender has been accepted:

(1) 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;

(2) Within a reasonable time after the lessee receives notice of litigation for infringement or the like (Section 10211) the lessee shall notify the lessor or be barred from any remedy over for liability established by the litigation; and

(3) The burden is on the lessee to establish any default.

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

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

(2) 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 10211) or else be barred from any remedy over. If the demand states that the lessor or the supplier agrees to bear all expense and to satisfy any adverse judgment, then unless the lessee after seasonable receipt of the demand does turn over control the lessee is so barred.

(e) Subdivisions (c) and (d) apply to any obligation of a lessee to hold the lessor or the supplier harmless against infringement or the like (Section 10211).

(f) Subdivision (c) shall not apply to a consumer lease.

(Amended by Stats. 1991, Ch. 111, Sec. 54. Effective July 15, 1991.)

10517.
  

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

(1) 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

(2) 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.

(b) A lessee may revoke acceptance of a lot or commercial unit if the lessor defaults under the lease contract and the default substantially impairs the value of that lot or commercial unit to the lessee.

(c) If the lease agreement so provides, the lessee may revoke acceptance of a lot or commercial unit because of other defaults by the lessor.

(d) 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.

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

(Amended by Stats. 1991, Ch. 111, Sec. 55. Effective July 15, 1991.)

10518.
  

(a) After a default by a lessor under the lease contract of the type described in subdivision (a) of Section 10508, 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.

(b) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 10504) or otherwise determined pursuant to agreement of the parties (Sections 1302 and 10503), if a lessee’s cover is by a 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 (1) 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 (2) any incidental or consequential damages, less expenses saved in consequence of the lessor’s default.

(c) If a lessee’s cover is by lease agreement that for any reason does not qualify for treatment under subdivision (b), or is by purchase or otherwise, the lessee may recover from the lessor as if the lessee had elected not to cover and Section 10519 governs.

(Amended by Stats. 2006, Ch. 254, Sec. 68. Effective January 1, 2007.)

10519.
  

(a) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 10504) or otherwise determined pursuant to agreement of the parties (Sections 1302 and 10503), 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 subdivision (b) of Section 10518, or is by purchase or otherwise, the measure 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.

(b) 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.

(c) Except as otherwise agreed, if the lessee has accepted goods and given notification (subdivision (c) of Section 10516), 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.

(d) Except as otherwise agreed, 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.

(Amended by Stats. 2006, Ch. 254, Sec. 69. Effective January 1, 2007.)

10520.
  

(a) 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.

(b) Consequential damages resulting from a lessor’s default include:

(1) 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

(2) Injury to person or property proximately resulting from any breach of warranty.

(Amended by Stats. 1991, Ch. 111, Sec. 58. Effective July 15, 1991.)

10521.
  

(a) Specific performance may be decreed if the goods are unique or in other proper circumstances.

(b) 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.

(c) 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.

(Amended by Stats. 1991, Ch. 111, Sec. 59. Effective July 15, 1991.)

10522.
  

(a) Subject to subdivision (b) 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 10217) 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 from the lessor if the lessor becomes insolvent within 10 days after receipt of the first installment of rent and security.

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

(Amended by Stats. 1991, Ch. 111, Sec. 60. Effective July 15, 1991.)

COMCommercial Code - COM2