Printable Format84-2a-528. Lessor's damages for non-acceptance, failure to pay, repudiation or other default. (1) 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 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 K.S.A. 84-2a-527(2), and amendments thereto, or is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in K.S.A. 84-2a-523(1) or (3)(a), and amendments thereto, or, if agreed, for other default of the lessee, (a) 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 goods to the lessor, (b) the present value as of the date determined under clause (a) 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 (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.
(2) If the measure of damages provided in subsection (1) 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 K.S.A. 84-2a-530, and amendments thereto, due allowance for costs reasonably incurred and due credit for payment or proceeds of disposition.
History: L. 1991, ch. 295, § 76; L. 2007, ch. 89, § 40; July 1, 2008.
KANSAS COMMENT, 1996
1. Subsection (1), which is a revised version of section 84-2-708(1), provides a lessor with an alternative to disposition in measuring the amount of damages for lessee's default. This subsection is available if the lessor does not attempt to dispose of the goods or disposes of the goods in a way that fails to satisfy section 84-2a-527(2). It is not available if the lessor properly disposes of the goods under section 84-2a-527(2). See 1996 Kansas Comment 4 to 84-2a-527.
2. Subsection (1) sets out a measure of damages for default under sections 84-2a-523(1) and 84-2a-523(3)(a), and for other defaults if the parties agree. A lessor may recover (1) accrued and unpaid rent (measured as of the date of default if the lessee never took possession of the goods, or, if the lessee took possession of the goods, as of the date the lessor repossessed the goods or was tendered possession by the lessee); (2) the present value of the rent for the remaining lease term less the present value of the market rent for the same lease term (as of the date determined above); and (3) incidental damages and less expenses saved as a result of the default. "Present value" is defined in 84-2a-103(1)(u), and is used because of the ongoing nature of the obligation to pay rent. In determining the date of default, Official Comment 2 to this section highlights that the date of default is not necessarily the same as the date of an event of default, because consideration must be given to any relevant grace periods or notice requirements. This subsection also provides, in a change from the statutory analogue, that the place for determining market rent is the place where the goods are located. Compare 84-2-708(1) (at time and place for tender). Section 84-2a-507 sets out further rules for proving market rent.
3. Subsection (2) provides a lessor with a measure of damages that can be used when disposition under section 84-2a-527 and market damages under subsection (1) of this subsection are unavailable or inadequate. The most common application of this section (as set in the context of leases) is the lost volume lessor — a lessor that loses volume as a result of the lessee's default. Neither market damages under subsection (1) nor damages under section 84-2a-527(2) put a lost volume lessor in as good a position as performance would have done. The Kansas Court of Appeals in Jetz Serv. Co. v. Salina Properties, 19 K.A.2d 144, 865 P.2d 1051 (1993), permitted a lost volume lessor of coin-operated laundry facilities to recover lost profits, reasoning by analogy to 84-2-708(2), the statutory analogue to this section. The court identified the following evidence as sufficient to uphold the trial court's finding that the plaintiff was a lost volume lessor: it was "in the business of supplying coin-operated laundry equipment; . . .it continually look[ed] for new locations in which to install laundry equipment; it would have been able to fulfill [one] lease without using the machines from [the other] lease; and it is uncontroverted that [lessor] would have been able to enter into both transactions irrespective of the breach by (lessee)." Id. Other courts would add a requirement that the additional leases not only would have been possible, but that they would have been profitable. Cf. R.E. Davis Chem. Corp. v. Diasonics, Inc., 826 F.2d 678 (7 th Cir. 1987) (construing Article 2 provision).
4. The measure of damages under subsection (2) is the present value of the lessor's lost profits, including reasonable overhead. In the case of a lost volume lessor, it makes no sense to give "due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition," and so that component of the damages formula should be ignored. Cf. James J. White & Robert S. Summers, 1 Uniform Commercial Code § 7-13, at 399 (4 th ed. Practitioner Treatise Series 1995). For proof of lost profits in cases involving new businesses decided under Article 2, see Olathe Mfg., Inc. v. Browning Mfg., 259 K. 735, 915 P.2d 86 (1996); Kvassay v. Murray, 15 K.A.2d 426, 808 P.2d 896, rev denied, 248 K. 996 (1991).
CASE ANNOTATIONS
1. Cited; court reconsiders damages and finds they are covered by contract rather than U.C.C. Reed v. Phillip Roy Financial Services, Inc., LLC, 546 F. Supp. 2d 1219, 1229 (2008).