Article 3 - Default by Lessee

California Commercial Code — §§ 10523-10532

Sections (10)

Amended by Stats. 1991, Ch. 111, Sec. 61. Effective July 15, 1991.

(a)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 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 lessee is in default under the lease contract and the lessor may:

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

(2)Proceed respecting goods not identified to the lease contract (Section 10524);

(3)Withhold delivery of the goods and take possession of goods previously delivered (Section 10525);

(4)Stop delivery of the goods by any bailee (Section 10526);

(5)Dispose of the goods and recover damages (Section 10527), or retain the goods and recover

damages (Section 10528), or in a proper case recover rent (Section 10529);

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

(b)If a lessor does not fully exercise a right or obtain a remedy to which the lessor is entitled under subdivision (a), the lessor may recover the loss resulting in the ordinary course of events from the lessee’s default as determined in any reasonable manner, together with incidental damages, less expenses saved in consequence of the lessee’s default.

(c)If a lessee is otherwise in default under a lease contract, the lessor may exercise the rights and pursue the remedies provided in the lease contract, which may include a right to cancel the lease. In addition, unless otherwise provided in the lease contract:

(1)If the default substantially impairs the value of the lease contract to the lessor, the lessor may exercise the

rights and pursue the remedies provided in subdivisions (a) and (b); or

(2)If the default does not substantially impair the value of the lease contract to the lessor, the lessor may recover as provided in subdivision (b).

§ 10524

Amended by Stats. 1991, Ch. 111, Sec. 62. Effective July 15, 1991.

(a)After a default by the lessee under the lease contract of the type described in subdivision (a) of, or paragraph (1) of subdivision (c) of, Section 10523 or, if agreed, after other default by the lessee, the lessor may:

(1)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

(2)Dispose of goods (subdivision (a) of Section 10527) that demonstrably have been intended for the particular lease contract even though those goods are unfinished.

(b)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.

§ 10525

Amended by Stats. 1991, Ch. 111, Sec. 63. Effective July 15, 1991.

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

(b)After a default by the lessee under the lease contract of the type described in subdivision (a) of, or paragraph (1) of subdivision (c) of, Section 10523 or, if agreed, after other default by the lessee, the lessor has 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 10527).

(c)The lessor may proceed under subdivision (b) without judicial process if it can be done without breach of the peace or the lessor may proceed by action.

§ 10526

Amended by Stats. 2006, Ch. 254, Sec. 70. Effective January 1, 2007.

(a)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 the lessor has a right to withhold or take possession of the goods.

(b)In pursuing its remedies under subdivision (a), the lessor may stop delivery until:

(1)Receipt of the goods by the lessee;

(2)Acknowledgment to the lessee by any bailee of the goods, except a carrier, that the bailee holds the goods for the lessee; or

(3)Such an

acknowledgment to the lessee by a carrier via reshipment or as a warehouse.

(c)(1) To stop delivery, a lessor shall so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods.

(2)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.

(3)A carrier who has issued a nonnegotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor.

§ 10527

Amended by Stats. 2006, Ch. 254, Sec. 71. Effective January 1, 2007.

(a)After a default by a lessee under the lease contract of the type described in subdivision (a) of, or paragraph (1) of subdivision (c) of, Section 10523 or after the lessor refuses to deliver or takes possession of goods (Section 10525 or 10526), or, if agreed, after other default by a lessee, the lessor may dispose of the goods concerned or the undelivered balance thereof by lease, sale, or otherwise.

(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 the disposition 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 lessor may recover from the lessee as

damages (1) accrued and unpaid rent as of the date of the commencement of the term of the new lease agreement, (2) 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 (3) any incidental damages allowed under Section 10530, less expenses saved in consequence of the lessee’s default.

(c)If the lessor’s disposition is by lease agreement that for any reason does not qualify for treatment under subdivision (b), 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 10528 governs.

(d)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 division.

(e)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 (subdivision (e) of Section 10508).

§ 10528

Amended by Stats. 2006, Ch. 254, Sec. 72. Effective January 1, 2007.

(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 lessor elects to retain the goods or a lessor elects to dispose of the goods and the disposition is by lease agreement that for any reason does not qualify for treatment under subdivision (b) of Section 10527, or is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in subdivision (a) of, or paragraph (1) of subdivision (c) of, Section 10523, or, if agreed, for other default of the lessee, (1) 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, (2) the present value as of the date determined under paragraph (1) of the total rent for the then remaining lease term of the original lease agreement minus the present value as of the same date of the market rent at the place where the goods are located computed for the same lease term, and (3) any incidental damages allowed under Section 10530, less expenses saved in consequence of the lessee’s default.

(b)If the measure of damages provided in subdivision (a) is inadequate to put a lessor in as good a position as performance would have, the measure of damages is the present value of the profit, including reasonable overhead, the lessor would have made from full performance by the lessee, together with any incidental damages allowed under Section 10530, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition.

§ 10529

Amended by Stats. 1991, Ch. 111, Sec. 67. Effective July 15, 1991.

(a)After default by the lessee under the lease contract of the type described in subdivision (a) of, or paragraph (1) of subdivision (c) of, Section 10523 or, if agreed, after other default by the lessee, if the lessor complies with subdivision (b), the lessor may recover from the lessee as damages:

(1)For goods accepted by the lessee and not repossessed by or tendered to the lessor, and for conforming goods lost or damaged after risk of loss passes to the lessee (Section 10219), (A) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, (B) the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and (C) any incidental damages allowed under Section 10530, less expenses saved in consequence of the lessee’s default; and

(2)For goods identified to the lease contract where the lessor has never delivered the goods or has taken

possession of them or the lessee has tendered them to the lessor, 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, (A) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, (B) the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and (C) any incidental damages allowed under Section 10530, less expenses saved in consequence of the lessee’s default.

(b)Except as provided in subdivision (c), 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.

(c)The lessor may dispose of the goods at any time before collection of the judgment for damages obtained pursuant to subdivision (a). 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 is governed by Section 10527 or 10528, and the lessor will cause an appropriate credit to be provided against a judgment for damages to the extent that the amount of the judgment exceeds the recovery available pursuant to Section 10527 or 10528.

(d)Payment of the judgment for damages obtained pursuant to subdivision (a) entitles the lessee to the use and possession of the goods not then disposed of for the remaining lease term of and in accordance with the lease agreement.

(e)After default by the lessee under the lease contract of the type described in subdivision (a) of, or paragraph (1) of subdivision (c) of, Section 10523 or, if agreed, after other default by the lessee, a lessor who is held not entitled to rent under this section must nevertheless be awarded damages for nonacceptance under Section 10527 or 10528.

§ 10530

Added by Stats. 1988, Ch. 1359, Sec. 5. Operative January 1, 1990, by Sec. 11 of Ch. 1359.

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.

§ 10531

Amended by Stats. 1991, Ch. 111, Sec. 68. Effective July 15, 1991.

(a)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 (1) the lessor has a right of action against the third party, and (2) 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.

(b)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, his or her suit or settlement, subject to his or her own interest, is as a fiduciary for the other party

to the lease contract.

(c)Either party with the consent of the other may sue for the benefit of whom it may concern.

§ 10532

Amended by Stats. 1991, Ch. 111, Sec. 69. Effective July 15, 1991.

In addition to any other recovery permitted by this division or other law, the lessor may 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.