Lease of goods Flashcards
does article 9 apply to a True Lease
No, only when a lease is disguised at a lease is it a security interest
how to determine if a lease is a lease
we look at all aspects of the transaction, althouth there are some factors that if present automatically count as a security intetest.
The crucial factor is that consideration paid by the lessee for the right to possess and use the good is an obligation for the term of the lease and the leasee cannot terminate it. if this factor is met, we now need to trigger one of four other factors to be considered a security interest.
can we look at the intent of the parties when creating a lease
no, this has been expreseely changed over the years.
definition of termination a lease and how it applies.
power to end the K, other than default
if you can return the product but early but are still liable for the entire term of the lease, it is likely a security interest. MAST at 21
contrast if you can retrun the product early, and you do not need to pay…this is said to be “subject to termination” and likely a lease.
what are the four factors that a triggered if you cannot terminate a lease conclusively establish a security interest. Factor one
The remaining economic life of the good: there needs to be a residual economic value left. cannot be nominal.
if lease exceeds economic life this is not good also.
Factor Two to determine if a lease is a security interest
Does the owner HAVE/required to renew the lease or make a payment for the product at the end of the term.
NOTE: there is no reason to evaluate how much consideration was paid, it is is required it is a security interest
Factor Three and fourth factor to determine if a lease is a security interest
the option to renew the lease at little to no consideration or the option to become the owner of the produce at little to no consideration
it is not nominal it is is tied to the fair market value to rent or fair market value to purchase the item. Fair market value is determined at the time of the option to extend or purchase
to avoid nominal issues the lease should just say lesee will pay FMV
what is nominal under a lease
less than lesees reasonably predictable cost of performance under the agreement. determined with regards to facts and circumstances at the time the transaction was entered into (the very beginning)
the relevant factor is comparing the option consideration to the reasonably predictable cost of performing under the lease. NOT THE DOLLAR AMOUNT, you can pay a heafty sum and still have an issue.
six factors standing alone merely do not create a security interest:
factor #1
