Unpublished Disposition, 905 F.2d 1541 (9th Cir. 1987)

MEMORANDUM^* 

The Oldhams are debtors in possession in a Chapter 11 bankruptcy who leased a motor home and boat from American Leasing. They appeal the bankruptcy court's determination that the leases were true leases, rather than disguised sales with security interests. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm.

BACKGROUND

In July 1986, American Leasing purchased a boat and motor home at the Oldham's request. It purchased the boat from Exclusive Leasing, a company in which Mr. Oldham has an interest, and purchased the motor home from the Oldhams.

Washington law required an inspection of the vehicles before American could apply for new title certificates. Because there was a delay in obtaining the inspection certificates, title on the motor home was registered on February 13, 1987, and title on the boat was registered on April 21.

Immediately after buying the boat and motor home, American leased them to the Oldhams. Sometime prior to May 1987, the Oldhams ceased making lease payments and, on May 7, they filed a bankruptcy petition.

American sought to compel in bankruptcy court an acceptance of the leases under 11 U.S.C. § 365. The Oldhams objected, arguing that the leases were actually disguised security agreements, so the boat and motor home were assets of the bankruptcy estate.

The bankruptcy court found that the leases were true leases rather than disguised sales with security interests. It said that American was entitled to retain the proceeds of the sale of both items of equipment, and could claim a deficiency of $59,720 as an unsecured claim. The district court affirmed.

ANALYSIS

We review de novo the bankruptcy court's decision. Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986). We review the bankruptcy judge's findings of fact for clear error, id., and the ultimate determination whether the leases are true leases de novo. Cf. Swift Dodge v. Commissioner, 692 F.2d 651, 652 (9th Cir. 1982) ("Whether the agreement is a 'sale' or a 'lease' for federal tax purposes is a question of law and is therefore fully reviewable on appeal").

The Oldhams argue that the bankruptcy judge erred in determining that the leases were true leases rather than disguised security interests. Under Washington law, Article 9 of the UCC applies to any transaction which is intended to create a security interest in personal property. See Wash.Rev.Code Sec. 62A.9-102(1) (A). Security interest is defined as follows:

"Security interest" means an interest in personal property or fixtures which secures payment or performance of an obligation.... Unless a lease or consignment is intended as security, reservation of title thereunder is not a "security interest" but a consignment is in any event subject to the provision on consignment sales (RCW 62A.3-326). Whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.

Wash.Rev.Code Sec. 62A.1-201(37) (emphasis added).

In applying this provision, the Washington courts have listed factors which should be considered in determining whether a lease was intended as security. See Courtright Cattle Co. v. Dolsen Co., 94 Wash. 2d 645, 619 P.2d 344, 350 (1980); Rainier Nat'l Bank v. Inland Mach. Co., 29 Wash. App. 725, 631 P.2d 389, 394-95, review denied, 96 Wash. 2d 1009 (1981).¹ 

The bankruptcy judge held that this transaction was a true lease rather than a disguised sale. He based this conclusion on these facts: (1) there was no option to purchase at any price; (2) the equipment had to be returned at the end of the lease period; (3) the equipment would have a substantial value at the termination of the leases; and (4) although the leases contained a provision allowing the debtor equity in the equipment in the case of loss or damage, the Oldhams never acquired any such equity.²  These findings were not clearly erroneous.

We hold that the transactions were true leases rather than sales with a security interest.³  See 1 R. Anderson, Uniform Commercial Code Sec. 1-201:268, at 320 (3d ed. 1981) ("When a lease of personal property requires the lessee to return the property to the lessor at the expiration of the lease and does not give the lessee any right to renew the lease or purchase the property, the transaction is a lease and not a secured transaction."); In re Marhoefer Packing Co., Inc., 674 F.2d 1139, 1145 (7th Cir. 1982) ("An essential characteristic of a true lease is that there be something of value to return to the lessor after the term.").

AFFIRMED.