In re Pillowtex, Inc.
United States Court of Appeals for the Third Circuit
349 F.3d 711 (2003)
Duke Energy Royal LLC (Duke) installed energy-saving equipment in facilities operated by Pillowtex Corporation (Pillowtex) under an eight-year Master Energy Services Agreement calling for monthly payments designed to fully repay Duke's costs within five years, even though the equipment's useful life was 20 to 25 years and the parties intended the deal as a true lease; at the term's end Duke could remove and replace the equipment (at its own cost), abandon it, extend the agreement, or sell it to Pillowtex, and Pillowtex's own witness testified the parties expected Duke to simply abandon it given removal costs. When Pillowtex filed for bankruptcy two years in and stopped paying, Duke sought to compel payment as under a lease, while Pillowtex argued the deal created an unperfected security interest; the district court agreed with Pillowtex under the economic-realities test, and Duke appealed.
Whether, under the Uniform Commercial Code, an agreement creates a security interest if the economic realities of the transaction are more similar to a sale than a lease, regardless of the parties' actual intent.