Alienability of Party's Interest Under Lease Contract or of Lessor's Residual Interest in Goods; Delegation of Performance; Transfer of Rights

  1. Law
  2. Georgia Code
  3. Commercial Code
  4. Leases
  5. Effect of Lease Contract
  6. Alienability of Party's Interest Under Lease Contract or of Lessor's Residual Interest in Goods; Delegation of Performance; Transfer of Rights

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  1. As used in this Code section, "creation of a security interest" includes the sale of a lease contract that is subject to Article 9 of this title, Secured Transactions, by reason of paragraph (3) of subsection (a) of Code Section 11-9-109.
  2. Except as provided in subsection (3) of this Code section and in Code Section 11-9-407, a provision in a lease agreement which (i) prohibits the voluntary or involuntary transfer, including a transfer by sale, sublease, creation or enforcement of a security interest, or attachment, levy, or other judicial process, of an interest of a party under the lease contract or of the lessor's residual interest in the goods, or (ii) makes such a transfer an event of default, gives rise to the rights and remedies provided in subsection (4) of this Code section, but a transfer that is prohibited or is an event of default under the lease agreement is otherwise effective.
  3. A provision in a lease agreement which (i) prohibits a transfer of a right to damages for default with respect to the whole lease contract or of a right to payment arising out of the transferor's due performance of the transferor's entire obligation, or (ii) makes such a transfer an event of default, is not enforceable, and such a transfer is not a transfer that materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease contract within the purview of subsection (4) of this Code section.
  4. Subject to subsection (3) of this Code section and to Code Section 11-9-407:
  1. If a transfer is made which is made an event of default under a lease agreement, the party to the lease contract not making the transfer, unless that party waives the default or otherwise agrees, has the rights and remedies described in subsection (2) of Code Section 11-2A-501;
  2. If paragraph (a) of this subsection is not applicable and if a transfer is made that (i) is prohibited under a lease agreement or (ii) materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease contract, unless the party not making the transfer agrees at any time to the transfer in the lease contract or otherwise, then, except as limited by contract, (x) the transferor is liable to the party not making the transfer for damages caused by the transfer to the extent that the damages could not reasonably be prevented by the party not making the transfer and (y) a court having jurisdiction may grant other appropriate relief, including cancellation of the lease contract or an injunction against the transfer. For purposes of determining the extent of liability for damages under this paragraph, the transferor has the burden of proving that any of the damages caused by the transfer could reasonably be or have been prevented by the party not making the transfer, and of proving the extent that they could reasonably be or have been so prevented.

A transfer of "the lease" or of "all my rights under the lease", or a transfer in similar general terms, is a transfer of rights, and, unless the language or the circumstances, as in a transfer for security, indicate the contrary, the transfer is a delegation of duties by the transferor to the transferee. Acceptance by the transferee constitutes a promise by the transferee to perform those duties. The promise is enforceable by either the transferor or the other party to the lease contract.

Unless otherwise agreed by the lessor and the lessee, a delegation of performance does not relieve the transferor as against the other party of any duty to perform or of any liability for default.

In a consumer lease, to prohibit the transfer of an interest of a party under the lease contract or to make a transfer an event of default, the language must be specific, by a writing, and conspicuous.

(Code 1981, §11-2A-303, enacted by Ga. L. 1993, p. 633, § 1; Ga. L. 2001, p. 362, § 10.)

The 2001 amendment, effective July 1, 2001, in subsection (1), inserted "Code" at the beginning and substituted "paragraph (3) of subsection (a) of Code Section 11-9-109" for "Code Section 11-9-102(1)(b)"; in subsection (2), substituted "subsection (3) of this Code section and in Code Section 11-9-407," for "subsections (3) and (4)," and "subsection (4) of this Code section" for "subsection (5)"; deleted subsection (3), which read: "A provision in a lease agreement which (i) prohibits the creation or enforcement of a security interest in an interest of a party under the lease contract or in the lessor's residual interest in the goods, or (ii) makes such a transfer an event of default, is not enforceable unless, and then only to the extent that, there is an actual transfer by the lessee of the lessee's right of possession or use of the goods in violation of the provision or an actual delegation of a material performance of either party to the lease contract in violation of the provision. Neither the granting nor the enforcement of a security interest in (i) the lessor's interest under the lease contract or (ii) the lessor's residual interest in the goods is a transfer that materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the lessee within the purview of subsection (5) unless, and then only to the extent that, there is an actual delegation of a material performance of the lessor. For purposes of this subsection: (a) a party's 'performance' includes its rights as well as its duties; and (b) a party creating or enforcing (or seeking to create or enforce) a security interest that the lease contract prohibits or makes an event of default has the burden of proving that such a transfer does not involve an actual delegation of a material performance."; redesignated former subsections (4) through (8) as present subsections (3) through (7), respectively; substituted "subsection (4) of this Code section" for "subsection (5)" at the end of subsection (3); in subsection (4), substituted "subsection (3) of this Code section and to Code Section 11-9-407" for "subsections (3) and (4) " in the introductory language, in paragraph (4)(a), substituted "If" for "if" at the beginning and substituted "subsection (2) of Code Section 11-2A-501" for "Code Section 11-2A-501(2)" at the end, and, in paragraph (4)(b), substituted "If paragraph (a) of this subsection" for "if paragraph (a)" at the beginning, and substituted "determining the extent of liability for damages under this paragraph" for "clause (b)(2)" in the last sentence.

RESEARCH REFERENCES

U.L.A.

- Uniform Commercial Code (U.L.A.) § 2A-303.


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