A more thorough explanation:

A merchant lessee is a person who leases goods in the ordinary course of business from a person who sells or leases goods of that kind. This person must do so in good faith and without knowledge that the lease is in violation of a third party's ownership rights, security interest, or leasehold interest. The definition excludes pawnbrokers.

For example, if a car dealership leases a car from another dealership to use as a loaner car for customers, they would be considered a merchant lessee because they are in the business of selling and leasing cars and are leasing a car in the ordinary course of business.

Another example would be a restaurant leasing kitchen equipment from a supplier. Since the restaurant is in the business of preparing and serving food, and the supplier is in the business of selling or leasing kitchen equipment, the restaurant would be considered a merchant lessee.