Leases & Securities

Question 1

Lease (Defined)

Answer 1

Temporary possession, use, and enjoyment of goods, with the expectation that the goods will be returned to the owner with some expected residual interest of value remaining at the end of the lease term

Question 2

True Lease (Defined)

Answer 2

Reasonable likelihood the lessor will retain some residual interest in the goods

Question 3

Disguised Lease (Defined

Answer 3

Intended for security–sold on credit but retains a special right to foreclose if the seller fails to pay the price

Question 4

Security Interest (Defined)

Answer 4

An inchoate interest contingent on default and limited to the remaining secured debt

Question 5

Sale vs Lease: Economic Realities Test

Answer 5

Whether a reasonable likelihood exists that at the time the transaction was entered, the lessor will receive the goods back at a time when they still hold meaningful economic life

Question 6

Sale vs Lease: One Factor Test

Answer 6

if the agreement can be terminated at will by the lessee then the agreement will be considered a true lease

Question 7

UCC Article 9 applies to . . .

Answer 7

any transaction intended to create a security interest in personal property or fixtures, including interests created by contract such as a lease intended as security.