In re Warne
United States Bankruptcy Court for the District of Kansas
2011 WL 1303425 (2011)
The debtor entered a five-year agreement with Dakota Financial, L.L.C. (plaintiff) to lease a semi-tractor truck, expressly labeled a lease rather than a secured purchase, requiring a $31,100 security deposit and periodic rental payments, with no early termination right and the debtor bearing risk of loss; the debtor wasn't required to renew at the end of the term, and the security deposit (net of any damage) would be refunded if unused. The debtor could optionally buy the truck at lease-end for $31,100, even though the truck's fair market value at that point would likely run $20,000-$40,000. About a year into the lease, the debtor filed for bankruptcy, and Dakota moved to compel the bankruptcy trustee to either assume or reject the agreement as a lease.
Whether, if an agreement does not meet the bright-line test under UCC section 1-203(b) for a security interest, it is nonetheless treated as a lease if the lessor retains a meaningful interest in the leased property.