AI-assisted research summary: A buyer or sublessee can obtain leasehold rights in leased goods from the lessee, and in some ordinary-course transactions can take free of the existing lease.
55-2A-305. Sale or sublease of goods by lessee. (1) Subject to the provisions of Section 55-2A-303 NMSA 1978, a buyer or sublessee from the lessee of goods under an existing lease contract obtains, to the extent of the interest transferred, the leasehold interest in the goods that the lessee had or had power to transfer, and except as provided in Subsection (2) and Section 55-2A- 511(4) NMSA 1978, takes subject to the existing lease contract. A lessee with a voidable leasehold interest has power to transfer a good leasehold interest to a good faith buyer for value or a good faith sublessee for value, but only to the extent set forth in the preceding sentence. When goods have been delivered under a transaction of lease the lessee has that power even though: (a) the lessor was deceived as to the identity of the lessee; (b) the delivery was in exchange for a check which is later dishonored; or (c) the delivery was procured through fraud punishable as larcenous under the criminal law. (2) A buyer in the ordinary course of business or a sublessee in the ordinary course of business from a lessee who is a merchant dealing in goods of that kind to whom the goods were entrusted by the lessor obtains, to the extent of the interest transferred, all of the lessor's and lessee's rights to the goods, and takes free of the existing lease contract. (3) A buyer or sublessee from the lessee of goods that are subject to an existing lease contract and are covered by a certificate of title issued under a statute of this state or of another jurisdiction takes no greater rights than those provided both by this section and by the certificate of title statute. History: 1978 Comp., § 55-2A-305, enacted by Laws 1992, ch. 114, § 42. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. Uniform Statutory Source: — Section 2-403 [55-2-403 NMSA 1978]. Changes: — While Section 2-403 [55-2-403 NMSA 1978] was used as a model for this section, the provisions of Section 2-403 [55-2-403 NMSA 1978] were significantly revised to reflect leasing practice and to integrate this Article with certificate of title statutes. Purposes: — This section, a companion to Section 2A-304 [55-2A-304 NMSA 1978], states the rule with respect to the leasehold interest obtained by a buyer or sublessee from a lessee of goods under an existing lease contract. Cf. Section 2A-304 [55-2A-304 NMSA 1978] official comment. Note that this provision is consistent with existing case law, which prohibits the bailee's transfer of title to a good faith purchaser for value under Section 2-403(1) [55-2-403 NMSA 1978]. Rohweder v. Aberdeen Product. Credit Ass'n, 765 F.2d 109 (8th Cir. 1985). Subsection (2) is also consistent with existing case law. American Standard Credit, Inc. v. National Cement Co., 643 F.2d 248, 269-70 (5th Cir.1981); but cf. Exxon Co., U.S.A. v. TLW Computer Indus., 37 U.C.C. Rep. Serv. (Callaghan) 1052, 1057-58 (D.Mass.1983). Unlike Section 2A-304(2) [55-2A-304 NMSA 1978], this subsection does not contain any requirement with respect to the time that the goods were entrusted to the merchant. In Section 2A-304(2) [55-2A-304 NMSA 1978] the competition is between two customers of the merchant lessor; the time of entrusting was added as a criterion to create additional protection to the customer who was first in time: the existing lessee. In subsection (2) the equities between the competing interests were viewed as balanced. There appears to be some overlap between Section 2-403(2) and Section 2A-305(2) [55-2-403 and 55-2A-305 NMSA 1978, respectively] with respect to a buyer in the ordinary course of business. However, an examination of this Article's definition of buyer in the ordinary course of business (Section 2A-103(1)(a)) [55-2A-103 NMSA 1978] makes clear that this reference was necessary to treat entrusting in the context of a lease. Subsection (3) states a rule of construction with respect to a transfer of goods from a lessee to a buyer or sublessee, where the goods are subject to an existing lease and covered by a certificate of title. Cf. Section 2A-304 [55-2A-304 NMSA 1978] official comment. Cross References: — Sections 2-403, 2A-103(1)(a), 2A-304 and 2A-305(2) [55-2-403, 55-2-103, 55-2A-304 and 55-2A-305 NMSA 1978, respectively]. "Buyer". Section 2-103(1)(a) [55-2-103 NMSA 1978]. "Buyer in the ordinary course of business". Section 2A-103(1)(a) [55-2A-103 NMSA 1978]. "Delivery". Section 1-201(14) [55-1-201 NMSA 1978]. "Entrusting". Section 2-403(3) [55-2-403 NMSA 1978]. "Good faith". Sections 1-201(19) and 2-103(1)(b) [55-1-201 and 55-2-103 NMSA 1978, respectively]. "Goods". Section 2A-103(1)(h) [55-2A-103 NMSA 1978]. "Lease". Section 2A-103(1)(j) [55-2A-103 NMSA 1978]. "Lease contract". Section 2A-103(1)(l) [55-2A-103 NMSA 1978]. "Leasehold interest". Section 2A-103(1)(m) [55-2A-103 NMSA 1978]. "Lessee". Section 2A-103(1)(n) [55-2A-103 NMSA 1978]. "Lessee in the ordinary course of business". Section 2A-103(1)(o) [55-2A-103 NMSA 1978]. "Lessor". Section 2A-103(1)(p) [55-2A-103 NMSA 1978]. "Merchant". Section 2-104(1) [55-2-104 NMSA 1978]. "Rights". Section 1-201(36) [55-1-201 NMSA 1978]. "Sale". Section 2-106(1) [55-2-106 NMSA 1978]. "Sublease". Section 2A-103(1)(w) [55-2A-103 NMSA 1978]. "Value". Section 1-201(44) [55-1-201 NMSA 1978].