41-02.1-38. (2A-308) Special rights of creditors.
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/nd/title-41/chapter-41-02-1-leases/41-02-1-38·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
1. A creditor of a lessor in possession of goods subject to a lease contract may treat the
lease contract as void if as against the creditor retention of possession by the lessor is
fraudulent under any statute or rule of law, but retention of possession in good faith
and current course of trade by the lessor for a commercially reasonable time after the
lease contract becomes enforceable is not fraudulent.
2. Nothing in this chapter impairs the rights of creditors of a lessor if the lease contract
becomes enforceable, not in current course of trade but in satisfaction of or as security
for a pre-existing claim for money, security, or the like, and the lease contract is made
under circumstances which under any statute or rule of law apart from this chapter
would constitute a fraudulent transfer or voidable preference. 3. A creditor of a seller may treat a sale or an identification of goods to contract for sale
as void if as against the creditor retention of possession by the seller is fraudulent
under any statute or rule of law, but retention of possession of the goods under a lease
contract entered into by the seller as lessee and the buyer as lessor in connection with
the sale or identification of the goods is not fraudulent if the buyer bought for value and
in good faith.
41-02.1-39. (2A-309) Lessor's and lessee's rights when goods become fixtures. 1. In this section:
a. Goods are "fixtures" when they become so related to particular real estate that an
interest in them arises under real estate law.
b. A "fixture filing" is the filing, in the office where a record of a mortgage on the real
estate would be recorded, of a financing statement covering goods that are or are
to become fixtures and conforming to the requirements of subsections 1 and 2 of
section 41-09-73.
c. A lease is a "purchase money lease" unless the lessee has possession or use of
the goods or the right to possession or use of the goods before the lease
agreement is enforceable.
d. A mortgage is a "construction mortgage" to the extent it secures an obligation
incurred for the construction of an improvement on land, including the acquisition
cost of the land, if the recorded writing so indicates.
e. "Encumbrance" includes real estate mortgages and other liens on real estate and
all other rights in real estate that are not ownership interests. 2. Under this chapter a lease may be of goods that are fixtures or may continue in goods
that become fixtures, but no lease exists under this chapter of ordinary building
materials incorporated into an improvement on land. 3. This chapter does not prevent creation of a lease of fixtures under real estate law. 4. The perfected interest of a lessor of fixtures has priority over a conflicting interest of an
encumbrancer or owner of the real estate if either of the following exists:
a. The lease is a purchase money lease, the conflicting interest of the
encumbrancer or owner arises before the goods become fixtures, the interest of
the lessor is perfected by a fixture filing before the goods become fixtures or
within ten days thereafter, and the lessee has an interest of record in the real
estate or is in possession of the real estate.
b. The interest of the lessor is perfected by a fixture filing before the interest of the
encumbrancer or owner is of record, the lessor's interest has priority over any
conflicting interest of a predecessor in title of the encumbrancer or owner, and the
lessee has an interest of record in the real estate or is in possession of the real
estate. 5. The interest of a lessor of fixtures has priority over the conflicting interest of an
encumbrancer or owner of the real estate if any of the following are met:
a. The fixtures are readily removable factory or office machines, readily removable
equipment that is not primarily used or leased for use in the operation of the real
estate, or readily removable replacements of domestic appliances that are goods
subject to a consumer lease, and before the goods become fixtures the lease
contract is enforceable.
b. The conflicting interest is a lien on the real estate obtained by legal or equitable
proceedings after the lease contract is enforceable.
c. The encumbrancer or owner has consented in writing to the lease or has
disclaimed an interest in the goods as fixtures.
d. The lessee has a right to remove the goods as against the encumbrancer or
owner. If the lessee's right to remove terminates, the priority of the interest of the
lessor continues for a reasonable time.
6. Notwithstanding subdivision a of subsection 4 but otherwise subject to subsections 4
and 5, the interest of a lessor of fixtures including the lessor's residual interest is
subordinate to the conflicting interest of an encumbrance of the real estate under a
construction mortgage recorded before the goods become fixtures if the goods
become fixtures before the completion of the construction. To the extent given to
refinance a construction mortgage, the conflicting interest of an encumbrancer of the
real estate under a mortgage has this priority to the same extent as the encumbrancer
of the real estate under the construction mortgage. 7. In cases not within the preceding subsections, priority between the interest of a lessor
of fixtures including the lessor's residual interest and the conflicting interest of an
encumbrancer or owner of the real estate who is not the lessee is determined by the
priority rules governing conflicting interests in real estate. 8. If the interest of a lessor of fixtures including the lessor's residual interest has priority
over all conflicting interests of all owners and encumbrancers of the real estate, the
lessor or the lessee may on default, expiration, termination, or cancellation of the lease
agreement by the other party but subject to the provisions of the lease agreement and
this chapter, or if necessary to enforce other rights and remedies under this chapter of
the lessor or the lessee, remove the goods from the real estate, free and clear of all
conflicting interests of all owners and encumbrancers of the real estate, but the party
removing the goods must reimburse any encumbrancer or owner of the real estate
who is not the lessee and who has not otherwise agreed for the cost of repair of any
physical injury, but not for any diminution in value of the real estate caused by the
absence of the goods removed or by any necessity of replacing them. A person
entitled to reimbursement may refuse permission to remove until the party seeking
removal gives adequate security for the performance of this obligation. 9. Even though the lease agreement does not create a security interest, the interest of a
lessor of fixtures including the lessor's residual interest is perfected by filing a financing
statement as a fixture filing for leased goods that are or are to become fixtures in
accordance with the relevant provisions of the chapter on secured transactions
(chapter 41-09).
41-02.1-40. (2A-310) Lessor's and lessee's rights when goods become accessions. 1. Goods are "accessions" when they are installed in or affixed to other goods. 2. The interest of a lessor or a lessee under a lease contract entered into before the
goods became accessions is superior to all interests in the whole except as stated in
subsection 4. 3. The interest of a lessor or a lessee under a lease contract entered into at the time or
after the goods became accessions is superior to all subsequently acquired interests
in the whole except as stated in subsection 4 but is subordinate to interests in the
whole existing at the time the lease contract was made unless the holders of such
interests in the whole have in writing consented to the lease or disclaimed an interest
in the goods as part of the whole. 4. The interest of a lessor or a lessee under a lease contract described in subsection 2 or
3 is subordinate to the interest of:
a. A buyer in the ordinary course of business or a lessee in the ordinary course of
business of any interest in the whole acquired after the goods became
accessions.
b. A creditor with a security interest in the whole perfected before the lease contract
was made to the extent that the creditor makes subsequent advances without
knowledge of the lease contract. 5. When under subsection 2 or 3 a lessor or a lessee of accessions holds an interest that
is superior to all interests in the whole, the lessor or the lessee may on default,
expiration, termination, or cancellation of the lease contract by the other party, but
subject to the provisions of the lease contract and this chapter, or if necessary to
enforce the lessor's or lessee's other rights and remedies under this chapter, remove
the goods from the whole, free and clear of all interests in the whole. However, the
lessor or the lessee must reimburse any holder of an interest in the whole, who is not
the lessee and who has not otherwise agreed, for the cost of repair of any physical
injury but not for any diminution in value of the whole caused by the absence of the
goods removed or by any necessity for replacing them. A person entitled to
reimbursement may refuse permission to remove until the party seeking removal gives
adequate security for the performance of this obligation.