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84-2a-209. Lessee under finance lease as beneficiary of supply contract. (1) The benefit of a 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 a 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 is subject to the terms of the warranty and of the supply contract and all defenses or claims arising therefrom.

(2) The extension of a benefit of the supplier's promises and of warranties to the lessee (subsection (1) of this section) does not: (a) Modify the rights and obligations of the parties to the supply contract, whether arising therefrom or otherwise, or (b) impose any duty or liability under the supply contract on the lessee.

(3) 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. If the modification or rescission is effective between the supplier and the lessee, the lessor is deemed to have assumed, in addition to the obligations of the lessor to the lessee under the lease contract, promises of the supplier to the lessor and warranties that were so modified or rescinded as they existed and were available to the lessee before modification or rescission.

(4) 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 an agreement between the lessee and the supplier or under other law.

History: L. 1991, ch. 295, § 18; February 1, 1992.

KANSAS COMMENT, 1996

1. In a finance lease, the finance lessee looks to the supplier or manufacturer, not the finance lessor, for warranties concerning the goods. See 1996 Kansas Comment 3 to 84-2a-103. But the finance lessee ordinarily lacks privity with the supplier, whose warranties run to the finance lessor under the supply contract. This section makes the finance lessee a third party beneficiary of the supply contract, enabling the finance lessee to assert an action for breach of warranty against the supplier. See 84-1-106(2). It is derived from section 84-9-318 and the third party beneficiary provisions (§§ 302-315) of the Restatement (Second) of Contracts.

2. Subsection (1) states the basic rule: that the benefits of the supplier's promises under the supply contract and of all warranties, express or implied, run to the finance lessee as a matter of statute. Official Comment 1 indicates that the operation of this subsection may not be modified or excluded; but a limitation of warranty or of any term of the supply contract, or any defense good against the finance lessor, also is effective against the finance lessee. As Official Comment 1 explains, only "selective discrimination" is impermissible — i.e., "exclusion of the supplier's liability to the lessee with respect to warranties made to the lessor." The section permits exclusion or limitation of liability as to both the lessee and the lessor. Note, however, that the lessee must receive some notice of the warranties under the supply contract in order for the lease to qualify as a finance lease in the first instance. See 84-2a-103(g)(iii).

3. In addition, subsection (1) limits the benefit received by the finance lessee to the "extent of the lessee's leasehold interest under a finance lease related to the supply contract." Thus, the finance lessee likely would be able to reject the goods for breach of warranty and recover damages from the supplier. It would not, however, be able to recover the price paid for the goods under the supply contract. Compare 84-2-711(1). That remedy is for the buyer (i.e., the finance lessor), and exceeds the extent of the leasehold interest of the finance lessee. See William H. Lawrence & John H. Minan, The Law of Personal Property Leasing ¶ 13.02(2)(c) (1993).

4. Subsection (2) makes clear that this section does not modify the rights and duties of the parties to the supply contract, nor does it impose any duty or liability on the finance lessee under the supply contract. In addition, subsection (4) adds that this section does not eliminate any rights the lessee may have against the supplier from any agreement between the supplier and the lessee or under any other law.

5. Subsection (3) limits the ability of the parties to the supply contract to modify or rescind that contract. Modification or rescission of the supply contract is not effective once the supplier receives notice that the finance lessee has entered into the finance lease. Before notice is received, the modification or rescission is effective between the supplier and the finance lessor. But in that case, this subsection deems the finance lessor to have "assumed" all promises and warranties under the supply contract that would have benefited the finance lessee.


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