## Facts

- In September 2005, Robert Bougher entered into an agreement titled “Lease Agreement” with Generic Financing and Leasing Corp. (Generic) concerning a semi-truck.
- The agreement ran through November 2008 and required Bougher to pay about $43,000 in monthly installments of $1,099.
- The agreement was nonterminable by Bougher and required him to pay for repairs, licenses, permits, taxes, and insurance associated with the truck.
- At the end of the term, Bougher had an option to purchase the truck for $3,190.
- Bougher used the truck to haul loads for Gangloff Industries, Inc. (Gangloff).
- In March 2007, the truck broke down. Gangloff paid for repairs costing more than $6,000, and Bougher agreed to reimburse Gangloff.
- Several months later, Bougher suffered a medical incident and died.
- At the request of Bougher’s wife, Gangloff took possession of the truck and retained it while asserting a lien for the unpaid repair charges.
- Generic demanded the truck and then sued Gangloff for immediate possession and damages, claiming it owned the truck under the “lease.”
- Gangloff countered that the “lease” was actually a secured transaction and that Gangloff’s possessory lien for repairs had priority.
- In January 2008, the trial court granted possession of the truck to Generic, and Gangloff appealed.

## Issues

1. Whether the agreement titled “Lease Agreement” was a true lease or a transaction creating a security interest under Indiana’s U.C.C.
2. If the agreement created a security interest, whether Gangloff’s statutory possessory lien for repair charges had priority over Generic’s security interest.

## Decision

- The court held the “Lease Agreement,” despite its label, created a security interest rather than a true lease.
- The court held Gangloff qualified for a statutory possessory lien for the reasonable value of repair charges and that the lien depended on Gangloff’s possession of the truck.
- The court held that, under Indiana’s U.C.C. priority rule for possessory liens, Gangloff’s lien had priority over Generic’s security interest because the lien statute did not provide otherwise.
- The judgment awarding possession to Generic was reversed and the case was remanded for further proceedings.

## Legal Principles

- Whether an agreement is a true lease or a secured transaction depends on the transaction’s economic substance, not the label used by the parties. See Indiana’s U.C.C. (including the lease/security-interest distinction in U.C.C. § 1-203 as adopted).
- A nonterminable payment obligation combined with lessee-borne ownership-type costs (repairs, taxes, insurance, permits) and an end-of-term purchase option that is low in relation to the overall payments can support treatment as a security interest.
- Indiana’s motor-vehicle repair lien statute (Ind. Code § 9-22-5-15) grants a lien to an entity that performs repairs (or supplies labor/materials/storage/towing) at the request of the vehicle’s owner for the reasonable value of the charges.
- A possessory lien is generally perfected and maintained by retaining possession of the goods; surrender of possession can defeat the lien unless possession is lost by compulsion of law.
- Under Ind. Code § 26-1-9.1-333 (U.C.C. § 9-333), a qualifying possessory lien has priority over a security interest in the same goods unless the statute creating the lien expressly provides a different priority rule.

## Conclusion

The Indiana Court of Appeals reclassified Generic’s truck “lease” as an Article 9 security interest and held that Gangloff’s statutory possessory lien for repair charges—kept effective through possession—took priority over Generic’s security interest, requiring reversal of the trial court’s possession award and remand.


Gangloff Industries, Inc. v. Generic Financing and Leasing, Corp., 907 N.E.2d 1059 (2009)