Sales and Leases - A Problem-based Approach, 2016a

Chapter 20. Article 2A -- Leases of Goods
20.1. History of Article 2A. In the 1980s, commercial leasing of goods became wide-scale. For
example, most airlines began to lease, rather than buy, their fleet of airplanes. Leasing became
popular for several reasons, including tax and accounting advantages. Although Article 2 in § 2-
102 purports to apply to “transactions in goods,” most operative provisions relate only to sales of
goods. For example, the definition of “contract” and “agreement” under § 2-106 are limited to
those relating to the sale of goods. To govern leases of goods, the Uniform Law Commission
promulgated Article 2A in 1987, and revised it in 1990. Currently, every state except Louisiana
has enacted Article 2A. Amended Article 2A, like Amended Article 2, has been withdrawn from
consideration.
20.1.1. For further reading on Article 2A, see Amelia H. Boss and Stephen T. Whelan,
The ABCs of the UCC: Article 2A Leases, Kelly S. Murphy, Survey: Lease Law, 16 U.
Ark. Little Rock L. Rev. 153 (1994), and Michael I. Spak, Pledge Allegiance to the Code:
Dodging the Draft with Liberty and Leases for All, 13 J. L. & Com. 79 (1993).
20.2. Definition of Lease. It is important to initially distinguish between a lease and a sale with
a reservation of a security interest, because the rights of the parties and the rights of third parties
vary depending upon the type of transaction involved. The UCC looks at the substance of the
transaction, and not the form of the transaction or what the parties may call it. For example, if a
law firm enters into a 24-month “lease” of a copy machine, with the right to purchase it for $1.00
at the end of the term, this will be treated as a sale rather than a lease, regardless of the title of the
agreement.
20.2.1. Section 2A-103(1)(j) defines a “lease” as “a transfer of the right to possession and
use of the goods for a term in return for some consideration.” The crucial factor is that in
a true lease, the lessor enjoys a reversionary interest in the property; that is, it will come
back to the lessor at the end of the lease.
20.2.2. The definition adds that “a sale, including a sale on approval or a sale or return, or
retention or creation of a security interest is not a lease.”
20.2.2.1. A “sale” is defined at § 2-106(1) as “the passing of title from the seller to
the buyer for a price.”
20.2.2.2. “Security interest” is defined in § 1-201(b)(35) as “an interest in
personal property or fixtures which secures payment or performance of an
obligation.” Section 1-203, “Lease Distinguished from Security Interest,”
elaborates on the distinction.
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