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84-2a-508. Lessee's remedies. (1) If a lessor fails to deliver the goods in conformity to the lease contract (K.S.A. 84-2a-509) or repudiates the lease contract (K.S.A. 84-2a-402), or a lessee rightfully rejects the goods (K.S.A. 84-2a-509) or justifiably revokes acceptance of the goods (K.S.A. 84-2a-517), 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 (K.S.A. 84-2a-510), the lessor is in default under the lease contract and the lessee may:

(a) Cancel the lease contract (K.S.A. 84-2a-505(1));

(b) recover so much of the rent and security as has been paid and is just under the circumstances;

(c) cover and recover damages as to all goods affected whether or not they have been identified to the lease contract (K.S.A. 84-2a-518 and 84-2a-520), or recover damages for nondelivery (K.S.A. 84-2a-519 and 84-2a-520);

(d) exercise any other rights or pursue any other remedies provided in the lease contract.

(2) If a lessor fails to deliver the goods in conformity to the lease contract or repudiates the lease contract, the lessee may also:

(a) If the goods have been identified, recover them (K.S.A. 84-2a-522); or

(b) in a proper case, obtain specific performance or replevy the goods (K.S.A. 84-2a-219) [84-2a-521].

(3) If a lessor is otherwise in default under a lease contract, the lessee may exercise the rights and pursue the remedies provided in the lease contract, which may include a right to cancel the lease, and in K.S.A. 84-2a-519(3).

(4) If a lessor has breached a warranty, whether express or implied, the lessee may recover damages (K.S.A. 84-2a-519(4)).

(5) On rightful rejection or justifiable revocation of acceptance, a lessee has a security interest in goods in the lessee's possession or control for any rent and security that has been paid and any expenses reasonably incurred in their inspection, receipt, transportation, and care and custody and may hold those goods and dispose of them in good faith and in a commercially reasonable manner, subject to K.S.A. 84-2a-527(5).

(6) Subject to the provisions of K.S.A. 84-2a-407, a lessee, on notifying the lessor of the lessee's intention to do so, may deduct all or any part of the damages resulting from any default under the lease contract from any part of the rent still due under the same lease contract.

History: L. 1991, ch. 295, ยง 56; February 1, 1992.

KANSAS COMMENT, 1996

1. This section indexes the remedies available to the lessee when the lessor defaults. It is derived from sections 84-2-711 (the index of buyer's remedies under Article 2) and 84-2-717 (which permits a buyer to deduct its damages from the unpaid purchase price of the goods). The remedies are, to a large extent, parallel to those of Article 2, although tailored to a lease contract.

2. Subsection (1) begins by identifying the four statutory events constituting default by the lessor: failure to deliver conforming goods; repudiation of the lease; rightful rejection of the goods by the lessee; and justifiable revocation of acceptance by the lessee. If one of the events occurs, the lessee may (1) cancel (84-2a-505(1)); (2) recover rent paid as is just under the circumstances (effectively a claim in quantum meruit, see Cole Energy Dev. Co. v. Ingersoll-Rand Co., 8 F.3d 607 (7th Cir. 1993) (dicta)); (3) cover and recover damages (84-2a-518) or recover market rent damages for nondelivery (84-2a-519); and (4) pursue any other remedies set out in the lease contract. These remedies generally are cumulative. See 84-2a-501(4). Official Comment 2 makes clear that this section rejects the doctrine of election of remedies, although the lessee may not be put in a better position than it would have been in had the lease contract been performed.

3. Subsection (2) adds two additional remedies available when the lessor repudiates the contract or fails to deliver the goods: the lessee may recover identified goods (84-2a-522) or may, in a proper case, obtain specific performance or replevy the goods (84-2a-521).

4. Subsection (3) applies when the lessor is in default but the lessee accepts the goods, either because the default does not justify rejection or revocation or because the lessee chooses not to reject or revoke acceptance. In such a case, the lessee may exercise any remedies set out in the lease contract and may recover the loss resulting in the ordinary course of events, plus incidental and consequential damages but less expenses saved as a result of the default. See 84-2a-519(3). This provision is comparable to section 84-2-714(1) but was not included in section 84-2-711, the statutory analogue, because that provision does not include remedies available to a buyer that has accepted the goods. See Official Comment 1 to 84-2-711. Subsection (4), which also is not present in the statutory analogue, recognizes that a lessee can recover damages for breach of warranty.

5. Under subsection (5), a lessee that rightfully rejects or revokes acceptance of goods has a security interest in goods in its possession, to the extent of any rent or security paid or expenses incurred. The lessee's security interest does not extend to its damages. The lessee may hold or dispose of the goods in good faith and in a commercially reasonable manner, and must account to the lessor for any excess proceeds from the disposition. See 84-2a-527(5).

6. Subsection (6) is based on section 84-2-717, and permits a lessee, on notice to the lessor, to set off its damages against any remaining rent payments. This subsection is expressly made subject to section 84-2a-407; thus, a lessee in a nonconsumer finance lease will not be able to exercise the right of set off under this subsection. In addition, as Official Comment 9 points out, the set-off right will not be available in a lease contract that has an enforceable "hell or high water" clause.


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