1. (a) Subject to the provisions of § 28:2A-303, 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 (b) of this section and § 28:2A-511(d), 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:

   1. (1) The lessor was deceived as to the identity of the lessee;
   2. (2) The delivery was in exchange for a check which is later dishonored; or
   3. (3) The delivery was procured through fraud punishable as larcenous under the criminal law.
2. (b) 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. (c) 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 the District of Columbia or of another jurisdiction takes no greater rights than those provided both by this section and by the certificate of title statute.

Uniform Commercial Code Comment

“Value”. Section 1-201(44).

“Sublease”. Section 2A-103(1)(w).

“Sale”. Section 2-106(1).

“Rights”. Section 1-201(36).

“Merchant”. Section 2-104(1).

“Lessor”. Section 2A-103(1)(p).

“Lessee in the ordinary course of business”. Section 2A-103(1)(o).

“Lessee”. Section 2A-103(1)(n).

“Leasehold interest”. Section 2A-103(1)(m).

“Lease contract”. Section 2A-103(1)(l).

“Lease”. Section 2A-103(1)(j).

“Goods”. Section 2A-103(1)(h).

“Good faith”. Sections 1-201(19) and 2-103(1)(b).

“Entrusting”. Section 2-403(3).

“Delivery”. Section 1-201(14).

“Buyer in the ordinary course of business”. Section 2A-103(1)(a).

Definitional Cross References: “Buyer”. Section 2-103(1)(a).

Cross References:Sections 2-403, 2A-103(1)(a), 2A-304 and 2A-305(2).

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 official comment.

There appears to be some overlap between Section 2-403(2) and Section 2A-305(2) 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)) makes clear that this reference was necessary to treat entrusting in the context of a lease.

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), 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) 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.

Purposes: This section, a companion to Section 2A-304, 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 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). Rohweder v. Aberdeen Product. Credit Ass’n, 765 F.2d 109 (8th Cir.1985).

Changes: While Section 2-403 was used as a model for this section, the provisions of Section 2-403 were significantly revised to reflect leasing practice and to integrate this Article with certificate of title statutes.

Uniform Statutory Source:Section 2-403.

History

July 22, 1992, D.C. Law 9-128, § 2(b), 39 DCR 3830

July 25, 1995, D.C. Law 11-30, § 7(c), 42 DCR 1547

Prior Codifications

1981 Ed., § 28:2A-305.

Section References

This section is referenced in § 28:2A-104, § 28:2A-105, § 28:7-209, and § 28:7-503.