Printable Format84-2a-527. Lessor's rights to dispose of goods. (1) After a default by a lessee under the lease contract of a type described in K.S.A. 84-2a-523(1) or (3)(a), and amendments thereto, or after the lessor refuses to deliver or takes possession of goods (K.S.A. 84-2a-525 or 84-2a-526, and amendments thereto), 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.
(2) Except as otherwise provided with respect to damages liquidated in the lease agreement (K.S.A. 84-2a-504, and amendments thereto) or otherwise determined pursuant to agreement of the parties (K.S.A. 2024 Supp. 84-1-302 and K.S.A. 84-2a-503, and amendments thereto), 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 (a) accrued and unpaid rent as of the date of the commencement of the term of the new lease agreement, (b) the present value, as of the same date, of the total rent for the then remaining lease term of the original lease agreement minus 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 (c) any incidental damages allowed under K.S.A. 84-2a-530, and amendments thereto, less expenses saved in consequence of the lessee's default.
(3) 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 K.S.A. 84-2a-528, and amendments thereto, governs.
(4) 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 article.
(5) 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 (K.S.A. 84-2a-508(5), and amendments thereto).
History: L. 1991, ch. 295, § 75; L. 2007, ch. 89, § 39; July 1, 2008.
KANSAS COMMENT, 1996
1. The measure of damages under this section is based on section 84-2-706 and is the preferred remedy for lessors. It seeks to put the lessor in the same position it would have been had the lease contract been performed: the lessor has disposed of the goods and is able to recover from the lessee the loss it has incurred. Subsection (1) broadly authorizes a lessor to dispose of the goods in the event of statutory, material, or other agreed default (84-2a-523(1) & (3)(a)), or after the lessor refuses to deliver or takes possession of the goods (84-2a-525 & 84-2a-526).
2. By satisfying the requirements for disposition set out in subsection (2), the lessor is able to fix its damages based on the rent it receives, rather than relying on market rent. To qualify for this measure of damages, a lessor must meet the following requirements. First, the lessor must dispose of the goods by a lease agreement. Second, the disposing lease contract must be made in good faith and in a commercially reasonable manner. Third, the disposing lease contract must be "substantially similar to the original lease agreement." These requirements are the same as those for cover by a lessee (84-2a-518(2)). Compare Official Comments 3-7 to this section with Official Comments 3-7 to 84-2a-518. See also 1996 Kansas Comment 2 to 84-2a-518. The Official Comments to this section indicate that the focus should be on the various elements of the new lease in determining substantial similarity. The concern under section 84-2a-518 with the goods subject to the new lease is irrelevant here since the goods subject to the original lease are the ones being disposed of by the new lease. Note that this section omits sections 84-2-706(2), (3), and (4) of the statutory analogue, which set out detailed requirements for public and private resale of goods. This section adopts the more flexible standard of good faith and commercial reasonableness, although presumably the requirements of 84-2-706 may be relevant in determining whether the more flexible standard of this section is satisfied.
3. A lessor that properly disposes of the goods under this section may, under subsection (2), recover as damages from the lessee the following: (1) any accrued and unpaid rent as of the commencement of the new lease agreement; (2) the present value of the rent under the original lease contract minus the present value of the rent under the new lease contract (for a comparable period of time), both as of the date the new lease commences; and (3) any incidental damages but less any expenses saved in consequence of the default. The measure of damages differs from the statutory analogue by expressly incorporating the concept of present value, which is necessary because rent payments ordinarily are made over time. For the statutory definition of "present value," see 84-2a-103(1)(u). This subsection also attempts to adjust for what likely will be differing lease periods between the new lease and the original lease.
4. Resort to this section is not mandatory. A lessor that elects not to dispose of the goods may proceed to claim market rent damages under section 84-2a-528. Subsection (3) provides that a lessor that disposes of the goods by lease agreement that does not satisfy this section, or by sale or otherwise, also may use section 84-2a-528. Unlike Article 2, it is clear that, under Article 2A, a lessor that properly disposes of the goods is precluded from recovering market rent damages. See 84-2a-528(1). Compare Wendling v. Puls, 227 K. 780, 610 P.2d 580 (1980) (permitting reselling seller to recover market damages under Article 2); 1996 Kansas Comment 4 to 84-2-706.
5. Subsection (4) protects from the claims of the original lessee a subsequent purchaser or lessee who takes from the lessor in good faith and for value, even if the lessor fails to follow the requirements of Article 2A in disposing of the goods. Subsection (5) provides that, unlike a secured creditor under Article 9, the lessor is not accountable to the lessee for any profit made on disposing of the goods. Official Comment 10 explains that this is because the lessee does not have any equity of redemption in the goods.