## Facts

- A warehouse company obtained a fleet of vehicles under four “Non‑Maintenance Lease Agreements” with an automobile dealer; the dealer assigned its interests to a finance company.
- Each agreement had a fixed term (24 or 36 months) with monthly payments calculated to cover predetermined depreciation plus an additional amount treated as interest.
- At the end of each term, the vehicles were to be sold; the debtor received any surplus above the agreed depreciated value and owed any deficiency if the sale price fell short.
- The debtor was required to insure the vehicles for the finance company’s benefit, pay taxes and fees, cover maintenance and repairs, and indemnify the finance company against loss.
- The written agreements did not contain a formal end-of-term purchase option for the debtor.
- The finance company did not file a U.C.C. Article 9 financing statement.
- After the debtor filed bankruptcy, the trustee claimed the transactions were security agreements creating an unperfected security interest subordinate to the trustee.

## Issues

1. Whether the agreements labeled as “leases” were, in substance, true leases or security agreements governed by U.C.C. Article 9.
2. If the agreements created a security interest, whether the finance company’s failure to perfect made its interest subordinate to the bankruptcy trustee.

## Decision

- The court of appeals affirmed the lower courts.
- The agreements were security agreements rather than true leases based on the transactions’ economic substance.
- Because the finance company did not perfect under Article 9, its interest was subordinate to the trustee’s rights.

## Legal Principles

- Courts classify a transaction by its economic substance rather than the contract label.
- A lease-like form may be a security agreement when the lessee bears ownership-type burdens (insurance, taxes, maintenance, indemnity) and assumes the residual risk and benefit of disposition value.
- Payment terms reflecting depreciation plus a finance charge support characterization as secured financing rather than rent for use.
- The absence of an express purchase option is not determinative if the overall structure allocates ownership economics to the lessee.
- An unperfected Article 9 security interest is subordinate to a bankruptcy trustee’s priority as a lien creditor at the commencement of the case.

## Conclusion

The court held that open-end automobile “leases” that shift residual value risk and ownership burdens to the user function as Article 9 security agreements; because the creditor did not perfect, the bankruptcy trustee had priority in the vehicles.


In re Tulsa Port Warehouse Co., 690 F.2d 809 (10th Cir. 1982)