## Facts

- On May 8, 1996, David C. Fox entered a written agreement with Patrick Hurley, an authorized Snap‑On Tools dealer, to obtain two pieces of air‑conditioning equipment for Fox’s business.
- The agreement required Fox to pay $9,784.55 for the equipment in 48 monthly installments.
- The agreement gave Fox an option to purchase the equipment at the end of the term for $1.00.
- The agreement also provided that if Fox canceled or terminated early, he would become immediately liable for the total outstanding balance.
- On May 20, 1996, Hurley filed a financing statement with the Ohio Secretary of State covering the agreement and listing Snap‑On Credit Corporation as the assignee.
- Fox fell behind on the monthly payments and, on June 23, 1997, returned the equipment to Snap‑On.
- At the time of the return, Fox owed approximately $10,212.39; the equipment was appraised at $4,000, and Snap‑On applied that amount as a credit, leaving a remaining balance of about $6,212.39.
- About two months later, Fox filed a voluntary Chapter 7 petition; John J. Hunter was appointed as the Chapter 7 trustee.
- The trustee filed an adversary proceeding alleging that Fox’s prepetition return of the equipment was a preferential transfer avoidable under 11 U.S.C. § 547(b).
- Snap‑On moved for summary judgment, arguing (1) the deal was a true lease so Fox had no realizable ownership interest transferred, and (2) even if the agreement created a security interest, the return of the equipment on default was not preferential.

## Issues

1. Whether the agreement was a true lease or a secured transaction under Ohio law, affecting whether the returned equipment represented an interest of the debtor in property for § 547(b) purposes.
2. Whether, under § 547(b)(5)’s hypothetical Chapter 7 comparison, the prepetition return of the equipment enabled Snap‑On to receive more than it would have received if the transfer had not been made.
3. Whether Snap‑On was entitled to summary judgment on the trustee’s preference claim.

## Decision

- The court denied Snap‑On’s motion for summary judgment.
- The court held that the agreement’s characterization could not be resolved as a matter of law on the record presented; the $1 end‑of‑term purchase option and the noncancellable, full‑term payment obligation supported treating the “lease” as a secured transaction.
- The court further held that genuine disputes remained on whether the equipment’s return satisfied § 547(b)(5), which requires a comparison to what Snap‑On would have received in a Chapter 7 liquidation if the return had not occurred.
- The court scheduled the matter for pretrial proceedings.

## Legal Principles

- To avoid a transfer as preferential under 11 U.S.C. § 547(b), the trustee must prove each statutory element; § 547(b)(5) asks whether the creditor received more from the transfer than it would have received in a hypothetical Chapter 7 liquidation if the transfer had not occurred.
- Under 11 U.S.C. § 547(g), the trustee bears the burden of proving the avoidability of a transfer under § 547(b) by a preponderance of the evidence.
- Summary judgment is appropriate only when there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law; the nonmovant must point to specific facts showing a triable issue.
- For bankruptcy purposes, calling a contract a “lease” is not controlling; courts look to the transaction’s economic substance, using applicable state law, to determine whether it is a true lease or a transaction that creates a security interest.
- Under Ohio’s UCC-based test, when a lessee’s obligation is for the full term and not subject to termination by the lessee, and the lessee can become the owner for nominal consideration (such as a $1 option), the arrangement may be treated as creating a security interest rather than a true lease.
- Section 547(b)(5) applies a liquidation comparison rather than a simple inquiry into the creditor’s contractual default rights; where a creditor is undersecured, questions about collateral value and liquidation outcomes can affect whether the creditor received more by repossession or surrender than it would have received through bankruptcy administration.

## Conclusion

The bankruptcy court denied Snap‑On’s request for summary judgment because the record did not allow the court to decide, as a matter of law, whether Fox’s “lease” was actually secured financing and whether the June 1997 return of the equipment gave Snap‑On a better recovery than it would have received in a Chapter 7 liquidation without the transfer.


Hunter v. Snap-On Credit Corp. (In re Fox), 229 B.R. 160 (1998)