KANSAS OFFICE of
  REVISOR of STATUTES

  

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84-2a-103. Definitions and index of definitions. (1) In this article 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 to such person 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 preexisting 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.

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

(c) "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.

(d) "Conforming" goods or performance under a lease contract means goods or performance that are in accordance with the obligations under the lease contract.

(e) "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 $25,000.

(f) "Fault" means wrongful act, omission, breach or default.

(g) "Finance lease" means a lease with respect to which:

(i) The lessor does not select, manufacture or supply the goods;

(ii) the lessor acquires the goods or the right to possession and use of the goods in connection with the lease; and

(iii) one of the following occurs:

(A) 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;

(B) 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;

(C) 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 a 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) if the lease is not a consumer lease, the lessor, before the lessee signs the lease contract, informs the lessee in writing (a) of the identity of 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, (b) that the lessee is entitled under this article 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 (c) that the lessee may communicate with 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.

(h) "Goods" means all things that are movable at the time of identification to the lease contract, or are fixtures (K.S.A. 84-2a-309, and amendments thereto), 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.

(i) "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.

(j) "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.

(k) "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 article. Unless the context clearly indicates otherwise, the term includes a sublease agreement.

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

(m) "Leasehold interest" means the interest of the lessor or the lessee under a lease contract.

(n) "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.

(o) "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 preexisting lease contract but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.

(p) "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.

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

(r) "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.

(s) "Lot" means a parcel or a single article that is the subject matter of a separate lease or delivery, whether or not it is sufficient to perform the lease contract.

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

(u) "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.

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

(w) "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.

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

(y) "Supply contract" means a contract under which a lessor buys or leases goods to be leased.

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

(2) Other definitions applying to this article and the sections in which they appear are:

"Accessions," K.S.A. 84-2a-310(1), and amendments thereto;

"Construction mortgage," K.S.A. 84-2a-309(1)(d), and amendments thereto;

"Encumbrance," K.S.A. 84-2a-309(1)(e), and amendments thereto;

"Fixtures," K.S.A. 84-2a-309(1)(a), and amendments thereto;

"Fixture filing," K.S.A. 84-2a-309(1)(b), and amendments thereto; and

"Purchase money lease," K.S.A. 84-2a-309(1)(c), and amendments thereto.

(3) The following definitions in other articles apply to this article:

"Account," K.S.A. 2023 Supp. 84-9-102, and amendments thereto;

"Between merchants," K.S.A. 84-2-104(3), and amendments thereto;

"Buyer," K.S.A. 84-2-103(1)(a), and amendments thereto;

"Chattel paper," K.S.A. 2023 Supp. 84-9-102(a)(11), and amendments thereto;

"Consumer goods," K.S.A. 2023 Supp. 84-9-102(a)(23), and amendments thereto;

"Document," K.S.A. 2023 Supp. 84-9-102(a)(30), and amendments thereto;

"Entrusting," K.S.A. 84-2-403(3), and amendments thereto;

"General intangible," K.S.A. 2023 Supp. 84-9-102(a)(42), and amendments thereto;

"Instrument," K.S.A. 2023 Supp. 84-9-102(a)(47), and amendments thereto;

"Merchant," K.S.A. 84-2-104(1), and amendments thereto;

"Mortgage," K.S.A. 2023 Supp. 84-9-102(a)(55), and amendments thereto;

"Pursuant to commitment," K.S.A. 2023 Supp. 84-9-102(a)(68), and amendments thereto;

"Receipt," K.S.A. 84-2-103(1)(c), and amendments thereto;

"Sale," K.S.A. 84-2-106(1), and amendments thereto;

"Sale on approval," K.S.A. 84-2-326, and amendments thereto;

"Sale or return," K.S.A. 84-2-326, and amendments thereto; and

"Seller," K.S.A. 84-2-103(1)(d), and amendments thereto.

(4) In addition, article 1 of chapter 84 of the Kansas Statutes Annotated, and amendments thereto, contains general definitions and principles of construction and interpretation applicable throughout this article.

History: L. 1991, ch. 295, § 3; L. 2000, ch. 142, § 142; L. 2007, ch. 89, § 35; L. 2007, ch. 195, § 49; July 1, 2008.

KANSAS COMMENT, 1996

1. This section contains the definitions applicable to Article 2A. Subsection (1) defines a number of terms for purposes of this Article. Many, although not all, are derived from definitions in Article 1 or 2, with changes to make the definitions applicable to leases. The new definitions are identified in the Official Comments. Subsection (2) lists terms defined elsewhere in Article 2A. Subsection (3) incorporates by reference definitions appearing in other Articles of the Code. Subsection (4) is a reminder that Article 1, including the definitions of section 84-1-201, applies to Article 2A as well.

2. "Consumer lease." A lease is a "consumer lease" under paragraph (1)(e) when it is (1) made by a lessor regularly engaged in the business of leasing or selling (2) to a lessee who is an individual (3) who takes the goods primarily for a personal, family, or household purpose, (4) so long as the total lease payments do not exceed $25,000. This definition is based on the definition of "consumer lease" in the Consumer Leasing Act, 15 U.S.C. § 1667, and the Uniform Consumer Credit Code, K.S.A. 16a-1-301(12). Differences from the analogues are noted in the Official Comments to this section. The dollar limitation was an option in the official text that was adopted by Kansas. Note that some leases that are not "consumer leases" under Article 2A will nonetheless be subject to the Kansas Consumer Protection Act (KCPA), K.S.A. 50-623 et seq. The KCPA defines "consumer" as "an individual or sole proprietor who seeks or acquires property or services for personal, family, household, business or agricultural purposes," K.S.A. 50-624(b), while under Article 2A, leases by individuals for business or agricultural purposes are not consumer leases. Certain rules in Article 2A apply only to consumer leases. See 84-2a-106, 84-2a-108(2), 84-2a-108(4), 84-2a-109(2), 84-2a-221, 84-2a-309, 84-2a-406, 84-2a-407, 84-2a-504(3)(b), & 84-2a-516(3)(b).

3. "Finance lease." One of the innovations of Article 2A is how it deals with the common commercial reality of lessors whose principal role in a lease transaction is to provide financing. Unlike a traditional two-party lease, such a "finance lease" involves three parties. Ordinarily, the finance lessee first selects the goods from a supplier or manufacturer. The supplier then leases or sells those goods to the finance lessor instead of directly to the finance lessee. The finance lessor then leases or subleases the goods to the finance lessee. The contract between the supplier and the finance lessor is referred to as the supply contract. See 84-2a-103(1)(y). The contract between the finance lessor and the finance lessee, if it satisfies the requirements of paragraph (1)(g), is a finance lease. A more detailed description of finance leases, as well as the various ways finance leases commonly are created, appears in the Official Comments.

There are three requirements a lease must satisfy to be a finance lease. First, the lessor may not select, manufacture, or supply the goods. The lessor's role in the transaction must be to facilitate the lessee's acquisition of the goods from the supplier. Second, the goods must be acquired by the lessor "in connection with" the lease. The purpose of this requirement is to "insure the lessee's reliance on the supplier, and not on the lessor." See Official Comments to this section. Third, the lessee must receive notice of its warranty rights against the supplier in one of four specified ways. Again, this is because the lessee looks to the supplier, not the lessor, for any warranties (see 84-2a-209(1), 84-2a-212(1), & 84-2a-213); this paragraph requires that the lessee be informed of its warranty rights against the supplier. In addition, of course, to qualify as a finance lease the transaction must be a true lease. See 1996 Kansas Comment 5 to this section. The fact that the lessor is affiliated with the supplier does not preclude the transaction from qualifying as a finance lease. The Official Comments state that, under those circumstances, "whether the transaction qualifies as a finance lease will be determined by the facts of each case." See also Siemens Credit Corp. v. Newlands, 905 F. Supp. 757 (N.D. Cal. 1994) (finding requirements of finance lease satisfied even though supplier and finance lessor were affiliated companies).

Certain rules in Article 2A apply solely to finance leases. See 84-2a-209, 84-2a-211(2), 84-2a-212(1), 84-2a-213, 84-2a-219(1), 84-2a-220(1)(a), 84-2a-221, 84-2a-405(c), 84-2a-407, 84-2a-516(2), & 84-2a-517(1)(a), (2). As the Official Comments point out, the parties to a lease contract can achieve by agreement the same results as provided by this Article for a finance lease, which a prudent lessor should do.

4. "Goods." The source of the definition of "goods" in paragraph (1)(h) is section 84-9-105(1)(h) rather than Article 2. Although the basic definition is the same ("all things that are movable at the time of identification" to the contract), many of the more difficult problems under Article 2 will not arise under Article 2A. Thus, the Article 2A definition of goods excludes minerals, including oil and gas, before extraction; other things that are goods under Article 2, such as electricity and crops, are not leased and so will not be at issue under Article 2A. Presumably Kansas courts will apply the "predominant factor" or "thrust" test to determine whether Article 2A applies to mixed contracts providing for the lease of goods and the provision of services. See 1996 Kansas Comment 2 to 84-2-105.

5. "Lease." Paragraph (1)(j) defines a lease as a transfer of the right to the possession and use of goods for a term in exchange for consideration, and expressly provides that neither a sale nor the creation or retention of a security interest constitutes a lease. In a lease, unlike a sale, the goods are returned at the end of the term; the lessor thus retains a residual interest in the goods. See 84-2a-103(q); K-B Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148 (10th Cir. 1985) (applying Kansas law) (lease-purchase agreement in "economic reality" was installment sale). Section 84-1-201(37) sets out the Code test for distinguishing between a lease and a security interest. See 1996 Kansas Comments to 84-1-201(37). This paragraph provides that the term "lease" includes a sublease, unless the context clearly requires otherwise.

Revisor's Note:

Section was also amended by L. 2007, ch. 90, § 59, but that version was repealed by L. 2007, ch. 195, § 60.

Law Review and Bar Journal References:

"Electronic Commerce in Kansas: Contract Formation and Formalities Under Article 2," Christopher R. Drahozal, 68 J.K.B.A. No. 5, 22 (1999).

Attorney General's Opinions:

Theft; breach of lease; purchase agreement and failure to return property. 94-134.

CASE ANNOTATIONS

1. Case remanded for determination of whether third party was an agent of principal for liability purposes. Dealer's Leasing, Inc. v. Allen, 26 Kan. App. 2d 745, 754, 994 P.2d 651 (1999).


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