Unidroit Convention on International Financial Leasing in United States

Unidroit Convention on International Financial Leasing

(28 May 88)

THE STATES PARTIES TO THIS CONVENTION,

RECOGNISING the importance of removing certain legal impediments to
the international financial leasing of equipment, while maintaining a
fair balance of interests between the different parties to the
transaction,

AWARE of the need to make international financial leasing more
available,

CONSCIOUS of the fact that the rules of law governing the traditional
contract of hire need to be adopted to the distinctive triangular
relationship created by the financial leasing transaction,

RECOGNISING therefore the desirability of formulating certain uniform
rules relating primarily to the civil and commercial law aspects of
international financial leasing,

HAVE AGREED as follows:

CHAPTER I – SPHERE OF APPLICATION AND GENERAL PROVISIONS

Article 1

1. – This Convention governs a financial leasing transaction as
described in paragraph 2 in which one party (the lessor),

(a) on the specifications of another party (the lessee), enters into
an agreement (the supply agreement) with a third party (the supplier)
under which the lessor acquires plant, capital goods or other equipment
(the equipment) on terms approved by the lessee so far as they concern
its interests, and

(b) enters into an agreement (the leasing agreement) with the lessee,
granting to the lessee the right to use the equipment in return for the
payment of rentals.

2. – The financial leasing transaction referred to in the previous
paragraph is a transaction which includes the following characteristics:

(a) the lessee specifies the equipment and selects the supplier
without relying primarily on the skill and judgment of the lessor;

(b) the equipment in acquired by the lessor in connection with a
leasing agreement which, to the knowledge of the supplier, either has
been made or is to be made between the lessor and the lessee; and

(c) the rentals payable under the leasing agreement are calculated so
as to take into account in particular the amortisation of the whole or a
substantial part of the cost of the equipment.

3. – This Convention applies whether or not the lessee has or
subsequently acquires the option to buy the equipment or to hold it on
lease for a further period, and whether or not for a nominal price or
rental.

4. – This Convention applies to financial leasing transactions in
relation to all equipment save that which is to be used primarily for the
lessee’s personal, family or household purposes.

Article 2

In the case of one or more sub-leasing transactions involving the same
equipment, this Convention applies to each transaction which is a
financial leasing transaction and is otherwise subject to this Convention
as if the person from whom the first lessor (as defined in paragraph 1 of
the previous article) acquired the equipment were the supplier and as if
the agreement under which the equipment was so acquired were the supply
agreement.

Article 3

1. – This Convention applies when the lessor and the lessee have
their places of business in different States and:

(a) those States and the State in which the supplier has its place of
business are Contracting States; or

(b) both the supply agreement and the leasing agreement are governed
by the law of a Contracting State.

2. – A reference in this Convention to a party’s place of business
shall, if it has more than one place of business, mean the place of
business which has the closest relationship to the relevant agreement and
its performance, having regard to the circumstances known to or
contemplated by the parties at any time before or at the conclusion of
that agreement.

Article 4

1. – The provisions of this Convention shall not cease to apply
merely because the equipment has become a fixture to or incorporated in
land.

2. – Any question whether or not the equipment has become a fixture
to or incorporated in land, and if so the effect on the rights inter se
of the lessor and a person having real rights in the land, shall be
determined by the law of the State where the land is situated.

Article 5

1. – The application of this Convention may be excluded only if each
of the parties to the supply agreement and each of the parties to the
leasing agreement agree to exclude it.

2. – Where the application of this Convention has not been excluded
in accordance with the previous paragraph, the parties may, in their
relations with each other, derogate from or vary the effect of any of its
provisions except as stated in Articles 8(3) and 13(3)(b) and (4).

Article 6

1. – In the interpretation of this Convention, regard is to be had to
its object and purpose as set forth in the preamble, to its international
character and to the need to promote uniformity in its application and
the observance of good faith in international trade.

2. – Questions concerning matters governed by this Convention which
are not expressly settled in it are to be settled in conformity with the
general principles on which it is based or, in the absence of such
principles, in conformity with the law applicable by virtue of the rules
of private international law.

CHAPTER II – RIGHTS AND DUTIES OF THE PARTIES

Article 7

1. – (a) The lessor’s real rights in the equipment shall be valid
against the lessee’s trustee in bankruptcy and creditors, including
creditors who have obtained an attachment or execution.

(b) For the purposes of this paragraph “trustee in bankruptcy”
includes a liquidator, administrator or other person appointed to
administer the lessee’s estate for the benefit of the general body of
creditors.

2. – Where by the applicable law the lessor’s real rights in the
equipment are valid against a person referred to in the previous
paragraph only on compliance with rules as to public notice, those rights
shall be valid against that person only if there has been compliance with
such rules.

3. – For the purposes of the previous paragraph the applicable law is
the la of the State which, at the time when a person referred to in
paragraph 1 becomes entitled to invoke the rules referred to in the
previous paragraph, is :

(a) in the case of a registered ship, the State in which it is
registered in the name of the owner (for the purposes of this
sub-paragraph a bareboat charterer is deemed not to be the owner);

(b) in the case of an aircraft which is registered pursuant to the
Convention on International Civil Aviation done at Chicago on 7 December
1944, the State in which it is so registered;

(c) in the case of other equipment of a kind normally moved from one
State to another, including an aircraft engine, the State in which the
lessee has its principal place of business;

(d) in the case of all other equipment, the State in which the
equipment is situated.

4. – Paragraph 2 shall not affect the provisions of any other treaty
under which the lessor’s real rights in the equipment are required to be
recognised.

5. – This article shall not affect the priority of any creditor
having:

(a) a consensual or non-consensual lien or security interest in the
equipment arising otherwise than by virtue of an attachment or execution,
or

(b) any right of arrest, detention or disposition conferred
specifically in relation to ships or aircraft under the law applicable by
virtue of the rules of private international law.

Article 8

1. – (a) Except as otherwise provided by this Convention or stated in
the leasing agreement, the lessor shall not incur any liability to the
lessee in respect of the equipment save to the extent that the lessee has
suffered loss as the result of its reliance on the lessor’s skill and
judgment and of the lessor’s intervention in the selection of the
supplier or the specifications of the equipment.

(b) The lessor shall not, in its capacity of lessor, be liable to
third parties for death, personal injury or damage to property caused by
the equipment.

(c) The above provisions of this paragraph shall not govern any
liability of the lessor in any other capacity, for example as owner.

2. – The lessor warrants that the lessee’s quiet possession will not
be disturbed by a person who has a superior title or right, or who claims
a superior title or right and acts under the authority of a court, where
such title, right or claim is not derived from an act or omission of the
lessee.

3. – The parties may not derogate from or vary the effect of the
provisions of the previous paragraph in so far as the superior title,
right or claim is derived from an intentional or grossly negligent act or
omission of the lessor.

4. – The provisions of paragraphs 2 and 3 shall not affect any
broader warranty of quiet possession by the lessor which is mandatory
under the law applicable by virtue of the rules of private international
law.

Article 9

1. – The lessee shall take proper care of the equipment, use it in a
reasonable manner and keep it in the condition in which it was delivered,
subject to fair wear and tear and to any modification of the equipment
agreed by the parties.

2. – When the leasing agreement cones to an and the lessee, unless
exercising a right to buy the equipment or to hold the equipment on lease
for a further period, shall return the equipment to the lessor in the
condition specified in the previous paragraph.

Article 10

1. – The duties of the supplier under the supply agreement shall also
be owed to the lessee as if it were a party to that agreement and as if
the equipment were to be supplied directly to the lessee. However, the
supplier shall not be liable to both the lessor and the lessee in respect
of the same damage.

2. – Nothing in this article shall entitle the lessee to terminate or
rescind the supply agreement without the consent of the lessor.

Article 11

The lessee’s rights derived from the supply agreement under this
Convention shall not be affected by a variation of any term of the supply
agreement previously approved by the lessee unless it consented to that
variation.

Article 12

1. – Where the equipment is not delivered or is delivered late or
fails to conform to the supply agreement:

(a) the lessee has the right as against the lessor to reject the
equipment or to terminate the leasing agreement; and

(b) the lessor has the right to remedy its failure to tender
equipment in conformity with the supply agreement,

as if the lessee had agreed to buy the equipment from the lessor under
the same terms as those of the supply agreement.

2. – A right conferred by the previous paragraph shall be exercisable
in the same manner and shall be lost in the same circumstances as if the
lessee had agreed to buy the equipment from the lessor under the same
terms as those of the supply agreement.

3. – The lessee shall be entitled to withhold rentals payable under
the leasing agreement until the lessor has remedied its failure to tender
equipment in conformity with the supply agreement or the lessee has lost
the right to reject the equipment.

4. – Where the lessee has exercised a right to terminate the leasing
agreement, the lessee shall be entitled to recover any rentals and other
sums paid in advance, less a reasonable sum for any benefit the lessee
has derived from the equipment.

5. – The lessee shall have no other claim against the lessor for
non-delivery, delay in delivery or delivery of non-conforming equipment
except to the extent to which this results from the act or omission of
the lessor.

6. – Nothing in this article shall affect the lessee’s rights against
the supplier under Article 10.

Article 13

1. – In the event of default by the lessee, the lessor may recover
accrued unpaid rentals, together with interest and damages.

2. – Where the lessee’s default is substantial, then subject to
paragraph 5 the lessor may also require accelerated payment of the value
of the future rentals, where the leasing agreement so provides, or may
terminate the leasing agreement and after such termination:

(a) recover possession of the equipment; and

(b) recover such damages as will place the lessor in the position in
which it would have been had the lessee performed the leasing agreement
in accordance with its terms.

3. – (a) The leasing agreement may provide for the manner in which
the damages recoverable under paragraph 2 (b) are to be computed.

(b) Such provision shall be enforceable between the parties unless it
would result in damages substantially in excess of those provided for
under paragraph 2 (b). The parties may not derogate from or vary the
effect of the provisions of the present sub-paragraph.

4. – Where the lessor has terminated the leasing agreement, it shall
not be entitled to enforce a term of that agreement providing for
acceleration of payment of future rentals, but the value of such rentals
may be taken into account in computing damages under paragraphs 2(b) and
3. The parties may not derogate from or vary the effect of the provisions
of the present paragraph.

5. – The lessor shall not be entitled to exercise its right of
acceleration or its right of termination under paragraph 2 unless it has
by notice given the lessee a reasonable opportunity of remedying the
default so far as the same may be remedied.

6. – The lessor shall not be entitled to recover damages to the
extent that it has failed to take all reasonable steps to mitigate its
loss.

Article 14

1. – The lessor may transfer or otherwise deal with all or any of its
rights in the equipment or under the leasing agreement. Such a transfer
shall not relieve the lessor of any of its duties under the leasing
agreement or alter either the nature of the leasing agreement or its
legal treatment as provided in this Convention.

2. – The lessee may transfer the right to the use of the equipment or
any other rights under the leasing agreement only with the consent of the
lessor and subject to the rights of third parties.

CHAPTER III – FINAL PROVISIONS

Article 15

1. – This Convention is open for signature at the concluding meeting
of the Diplomatic Conference for the Adoption of the Draft Unidroit
Conventions on International Factoring and International Financial
Leasing and will remain open for signature by all States at Ottawa until
31 December 1990.

2. – This Convention is subject to ratification, acceptance or
approval by States which have signed it.

3. – This Convention is open for accession by all States which are
not signatory States as from the date it is open for signature.

4. – Ratification, acceptance, approval or accession is effected by
the deposit of a formal instrument to that effect with the depositary.

Article 16

1. – This convention enters into force on the first day of the month
following the expiration of six months after the date of deposit of the
third instrument of ratification, acceptance, approval or accession.

2. – For each State that ratifies, accepts, approves, or accedes to
this Convention after the deposit of the third instrument of
ratification, acceptance, approval or accession, this Convention enters
into force in respect of that State on the first day of the month
following the expiration of six months after the date of the deposit of
its instrument of ratification, acceptance, approval or accession.

Article 17

This Convention does not prevail over any treaty which has already
been or may be entered into; in particular it shall not affect any
liability imposed on any person by existing or future treaties.

Article 18

1. – If a Contracting State has two or more territorial units in
which different systems of law are applicable in relation to the matters
dealt with in this Convention, it may, at the time of signature,
ratification, acceptance, approval or accession, declare that this
Convention is to extend to all its territorial units or only to one or
more of them, and may substitute its declaration by another declaration
at any time.

2. – These declarations are to be notified to the depositary and are
to state expressly the territorial units to which the Convention extends.

3. – If, by virtue of a declaration under this article, this
Convention extends to one or more but not all of the territorial units of
a Contracting State, and if the place of business of a party is located
in that State, this place of business, for the purposes of this
Convention, is considered not to be in a Contracting State, unless it is
in a territorial unit to which the Convention extends.

4. – If a Contracting State makes no declaration under paragraph 1,
the Convention is to extend to all territorial units of that State.

Article 19

1. – Two or more Contracting States which have the same or closely
related legal rules on matters governed by this Convention may at any
time declare that the Convention is not to apply where the supplier, the
lessor and the lessee have their places of business in those States. Such
declarations may be made jointly or by reciprocal unilateral
declarations.

2. – A Contracting State which has the same or closely related legal
rules on matters governed by this Convention as one or more
non-Contracting States may at any time declare that the Convention is not
to apply where the supplier, the lessor and the lessee have their places
of business in those States.

3. – If a State which is the object of a declaration under the
previous paragraph subsequently becomes a Contracting State, the
declaration made will, as from the date on which the Convention enters
into force in respect of the new Contracting State, have the affect of a
declaration made under paragraph 1, provided that the new Contracting
State joins in such declaration or makes a reciprocal unilateral
declaration.

Article 20

A Contracting State may declare at the time of signature,
ratification, acceptance, approval or accession that it will substitute
its domestic law for Article 8(3) if its domestic law does not permit the
lessor to exclude its liability for its default or negligence.

Article 21

1. – Declarations made under this Convention at the time of signature
are subject to confirmation upon ratification, acceptance or approval.

2. – Declarations and confirmations of declarations are to be in
writing and to be formally notified to the depositary.

3. – A declaration takes effect simultaneously with the entry into
force of this Convention in respect of the State concerned. However, a
declaration of which the depositary receives formal notification after
such entry into force takes effect on the first day of the month
following the expiration of six months after the date of its receipt by
the depositary. Reciprocal unilateral declarations under Article 19 take
effect on the first day of the month following the expiration of six
months after the receipt of the latest declaration by the depositary.

4. – Any State which makes a declaration under this Convention may
withdraw it at any time by a formal notification in writing addressed to
the depositary. Such withdrawal is to take effect on the first day of the
month following the expiration of six months after the date of the
receipt of the notification by the depositary.

5. – A withdrawal of a declaration made under Article 19 renders
inoperative in relation to the withdrawing State, as from the date on
which the withdrawal takes effect, any joint or reciprocal unilateral
declaration made by another State under that article.

Article 22

No reservations are permitted except those expressly authorised in
this Convention.

Article 23

This Convention applies to a financial leasing transaction when the
leasing agreement and the supply agreement are both concluded on or after
the date on which the Convention enters into force in respect of the
Contracting States referred to in Article 3(1)(a), or of the Contracting
State or States referred to in paragraph 1(b) of that article.

Article 24

1. – This Convention may be denounced by any Contracting State at any
time after the date on which it enters into force for that State.

2. – Denunciation is effected by the deposit of an instrument to that
effect with the depositary.

3. – A denunciation takes effect on the first day of the month
following the expiration of six months after the deposit of the
instrument of denunciation with the depositary. Where a longer period for
the denunciation to take effect is specified in the instrument of
denunciation it takes effect upon the expiration of such longer period
after its deposit with the depositary.

Article 25

1. – This Convention shall be deposited with the Government of
Canada.

2. – The Government of Canada shall:

(a) inform all States which have signed or acceded to this Convention
and the President of the International Institute for the Unification of
Private Law (Unidroit) of:

(i) each new signature or deposit of an instrument of
ratification, acceptance, approval or accession, together
with the date thereof;

(ii) each declaration made under Articles 18, 19 and 20;

(iii) the withdrawal of any declaration made under Article 21 (4);

(iv) the date of entry into force of this Convention;

(v) the deposit of an instrument of denunciation of this
Convention together with the date of its deposit and the date
on which it takes effect;

(b) transmit certified true copies of this Convention to all signatory
States, to all States acceding to the Convention and to the President of
the International Institute for the Unification of Private Law
(Unadroit).

IN WITNESS WHEREOF the undersigned plenipotentiaries, being duly
authorised by their respective Governments, have signed this Convention.

DONE at Ottawa, this twenty-eighth day of May, one thousand nine
hundred and eighty-eight, in a single original, of which the English and
French texts are equally authentic.