Performance Of Leased Contract: Repudiated, Substituted, And Excused - - CA Commercial Law

Section § 10401

This section of the law outlines the obligations and rights of parties in a lease contract. Both parties should honor each other's expectations for due performance. If one party has valid reasons to doubt the other party's performance, they can request a written assurance that things will be done as agreed. While waiting for that assurance, they can pause their own duties if it's reasonable. If the assurance isn't provided within 30 days, it's considered a breach of contract. For businesses, what is considered real doubt and an adequate assurance should follow usual business practices. Even if a party accepts something that doesn't conform to the contract, they can still require assurance for future performance.

(a) A lease contract imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired.

(b) If reasonable grounds for insecurity arise with respect to the performance of either party, the insecure party may demand in writing adequate assurance of due performance. Until the insecure party receives that assurance, if commercially reasonable the insecure party may suspend any performance for which he or she has not already received the agreed return.

(c) A repudiation of the lease contract occurs if assurance of due performance adequate under the circumstances of the particular case is not provided to the insecure party within a reasonable time, not to exceed 30 days after receipt of a demand by the other party.

(d) Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered must be determined according to commercial standards.

(e) Acceptance of any nonconforming delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance.

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(Amended by Stats. 1991, Ch. 111, Sec. 33. Effective July 15, 1991.)

Section § 10402

This section addresses what happens if a party backs out of a lease agreement, excluding consumer leases, before they've fulfilled their obligations. If this results in a significant impact on the lease's value, the other party can take certain actions. They can wait for the other party to change their mind, demand assurance that the agreed performance will happen, or use any other legal options available for defaults. Additionally, the affected party can stop their own performance, or if they are the lessor (the one renting out the goods), they can take steps to handle the goods involved. This section does not change how consumer lease issues are handled, as other laws apply to them.

(a) If either party repudiates a lease contract, other than a consumer lease, with respect to a performance not yet due under the lease contract, the loss of which performance will substantially impair the value of the lease contract to the other, the aggrieved party may:

(1) For a commercially reasonable time, await retraction of repudiation and performance by the repudiating party;

(2) Make demand pursuant to Section 10401 and await assurance of future performance adequate under the circumstances of the particular case; or

(3) Resort to any right or remedy upon default under the lease contract or this division, even though the aggrieved party has notified the repudiating party that the aggrieved party would await the repudiating party’s performance and assurance and has urged retraction. In addition, whether or not the aggrieved party is pursuing one of the foregoing remedies, the aggrieved party may suspend performance or, if the aggrieved party is the lessor, proceed in accordance with the provisions of this division on the lessor’s right to identify goods to the lease contract notwithstanding default or to salvage unfinished goods (Section 10524).

(b) The rights and remedies of the parties to a consumer lease in connection with a repudiation of that lease shall be determined under other laws, and this section shall not affect the applicability or interpretation of those laws.

repudiation lease contract commercially reasonable aggrieved party assurance of performance default remedies lessor identify goods salvage unfinished goods non-consumer lease significant impairment await retraction future performance suspend performance consumer lease exclusion

(Amended by Stats. 1991, Ch. 111, Sec. 34. Effective July 15, 1991.)

Section § 10403

This law explains that a party who backs out of a lease can change their mind and agree to the lease again before their next action under the lease is required. However, this is only possible if the other party hasn't canceled the lease, made significant changes because of the backing out, or clearly decided the backing out is definite. The party who backed out needs to clearly communicate their intention to proceed with the lease and may also need to give any specific assurances required. If the backing out is taken back, the original lease rights are restored, but the other party can be excused for any delays caused by the initial backing out.

(a) Until the repudiating party’s next performance is due, the repudiating party can retract the repudiation unless, since the repudiation, the aggrieved party has canceled the lease contract or materially changed the aggrieved party’s position or otherwise indicated that the aggrieved party considers the repudiation final.

(b) Retraction may be by any method that clearly indicates to the aggrieved party that the repudiating party intends to perform under the lease contract and includes any assurance demanded under Section 10401.

(c) Retraction reinstates a repudiating party’s rights under a lease contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

lease contract repudiating party retract repudiation aggrieved party performance due cancel lease materially changed position final repudiation method to retract assurance demanded reinstates rights due excuse allowance for delay

(Amended by Stats. 1991, Ch. 111, Sec. 35. Effective July 15, 1991.)

Section § 10404

This law says that if the original arrangement for where and how goods are to be picked up or delivered becomes impractical through no one's fault, and another reasonable option is available, then that substitute method should be used. Also, if a payment method fails because of government rules, the lessor can stop the delivery unless the lessee finds another acceptable way to pay. If goods have already been delivered, using the payment method allowed by the government rules fulfills the lessee's obligation, unless those rules are unfair or harmful.

(a) If without fault of the lessee, the lessor, and the supplier, the agreed berthing, loading, or unloading facilities fail or the agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable, but a commercially reasonable substitute is available, the substitute performance must be tendered and accepted.

(b) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation:

(1) The lessor may withhold or stop delivery or cause the supplier to withhold or stop delivery unless the lessee provides a means or manner of payment that is commercially a substantial equivalent; and

(2) If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the lessee’s obligation unless the regulation is discriminatory, oppressive, or predatory.

lessee lessor supplier commercially impracticable substitute performance berthing facilities loading facilities unloading facilities carrier availability domestic regulations foreign regulations means or manner of payment withhold delivery substantial equivalent discriminatory regulation

(Amended by Stats. 1991, Ch. 111, Sec. 36. Effective July 15, 1991.)

Section § 10405

This law outlines what happens if a lessor or supplier can't deliver goods due to unforeseen events or necessary compliance with government orders. If something unexpected happens that was not anticipated when the lease was made, and it makes delivery impossible, the delay or failure to deliver isn’t considered a breach of contract. If only part of their ability to deliver is affected, they can choose how to fairly distribute their remaining products among customers. They must inform their lessee quickly if they expect a delay or can't deliver, and let them know how much they'll be getting if there's limited availability.

Subject to Section 10404 on substituted performance, the following rules apply:

(1) Delay in delivery or nondelivery in whole or in part by a lessor or a supplier who complies with paragraphs (2) and (3) is not a default under the lease contract if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the lease contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order, whether or not the regulation or order later proves to be invalid.

(2) If the causes mentioned in paragraph (1) affect only part of the lessor’s or the supplier’s capacity to perform, he or she shall allocate production and deliveries among his or her customers but at his or her option may include regular customers not then under contract for sale or lease as well as his or her own requirements for further manufacture. He or she may so allocate in any manner that is fair and reasonable.

(3) The lessor seasonably shall notify the lessee and in the case of a finance lease the supplier seasonably shall notify the lessor and the lessee, if known, that there will be delay or nondelivery and, if allocation is required under paragraph (2), of the estimated quota thus made available for the lessee.

substituted performance contingency lessor supplier impracticable delivery government regulation allocation of production delay notification nondelivery fair distribution production capacity unforeseen events valid orders basic assumption finance lease

(Amended by Stats. 1991, Ch. 111, Sec. 37. Effective July 15, 1991.)

Section § 10406

If a lessee finds out that there's a major delay or some sort of justified allocation affecting their lease, they have a couple of options. They can either end the lease contract if the delay seriously impacts the whole lease, or, if it's not a finance lease, they can agree to change the lease to reflect the available goods, with an adjustment on what they owe. They need to do this in writing. Also, if they don't respond to the lessor's notification within 30 days, the lease for those affected deliveries will end.

(a) If the lessee receives notification of a material or indefinite delay or an allocation justified under Section 10405, the lessee may by written notification to the lessor as 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 (Section 10510):

(1) Terminate the lease contract (subdivision (b) of Section 10505); or

(2) Except in a finance lease, modify the lease contract by accepting the available quota in substitution, with due allowance from the rent payable for the balance of the lease term for the deficiency but without further right against the lessor.

(b) If, after receipt of a notification from the lessor under Section 10405, the lessee fails so to modify the lease agreement within a reasonable time not exceeding 30 days, the lease contract lapses with respect to any deliveries affected.

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(Amended by Stats. 1991, Ch. 111, Sec. 38. Effective July 15, 1991.)

Section § 10407

In a finance lease that's not for a consumer, once the lessee (the person leasing) accepts the goods, they can't back out or change their promises in the contract. These promises can be enforced against the lessee and others, such as anyone who might take over the lease. This rule stays in place unless the other party in the contract agrees to change it. This section also notes that the rule doesn’t alter any other laws about making lease promises final when goods are accepted.

(a) In the case of a finance lease that is not a consumer lease the lessee’s promises under the lease contract become irrevocable and independent upon the lessee’s acceptance of the goods.

(b) A promise that has become irrevocable and independent under subdivision (a):

(1) Is effective and enforceable between the parties, and by or against third parties including assignees of the parties; and

(2) Is not subject to cancellation, termination, modification, repudiation, excuse, or substitution without the consent of the party to whom the promise runs.

(c) This section does not affect the validity under any other law of a covenant in any lease contract making the lessee’s promises irrevocable and independent upon the lessee’s acceptance of the goods.

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(Amended by Stats. 1991, Ch. 111, Sec. 39. Effective July 15, 1991.)