Court of Appeal (Ga.) Holds Vehicle Lease is a “True Lease” That Does Not Require Post-Repossession Notice Applicable to Security Agreements

In Aniebue v. Jaguar Credit Corporation, — S.E.2d — 2011 WL 522039 (Ga.App.2011), the Georgia Court of Appeal rejected a vehicle lessee’s argument that a post-repossession notice applicable to security agreements was required because the lease was not a ‘true lease’ but, rather, a disquised security agreement.  The Court of Appeal explained:

Aniebue argues that the trial court erred in granting JCC’s motion for summary judgment because JCC failed to provide him notice as required under OCGA § 10-1-36 and 11-9-504(3). The applicability of these sections, however, “depends upon whether the contract denominated a lease by the parties is a true lease or is a disguised secured transaction. If the lease is not a security transaction the notice provisions are inapplicable, and the [post-surrender] sale was properly conducted.” (Citation and punctuation omitted.) Mejia v. Citizens & Southern Bank, 175 Ga.App. 80, 81 (332 S.E.2d 170) (1985).  ¶  Under Georgia’s version of the UCC, “[w]hether a transaction creates a lease or security interest is determined by the facts of each case.” OCGA § 11-1-201(37). That statute “defines the distinction between a ‘true lease’ and a security interest in an agreement involving … a purchase option [by] focusing the inquiry on the economics of the transaction, not the intent of the parties.” (Citation and punctuation omitted.) Coleman v. DaimlerChrysler Servs. of North America, 276 Ga.App. 336, 337 (623 S.E.2d 189) (2005). Accordingly, under OCGA § 11-1-201(37), “a transaction creates a security interest if [1] the consideration the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease not subject to termination by the lessee, and … [2][t]he lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.” OCGA § 11-1-201(37). . . . [A]pplication of the Bright-Line Test under OCGA § 11-1-201(37) “does not necessarily end the analysis.” Coleman v. DaimlerChrysler Servs., 276 Ga.App. 336 at 339. Rather, we have recognized that “the key issue the Court must determine is whether the lessor retains a meaningful residual interest at the end of the lease term. If there is a meaningful reversionary interest … the parties have signed a lease, not a security agreement. If there is no reversionary interest, the parties have signed a security agreement, not a lease.” (Citations and punctuation omitted.) Id. Courts across the country have applied various tests in determining whether the lessor retained a meaningful reversionary interest under the UCC. We conclude that the test employed in In re QDS Components, 292 BR 313, 342 (S D Ohio 2002), is appropriate for application in this case. That test analyzes two factors: “(1) whether the purchase option price is nominal; and (2) whether the agreement contains any provision for the lessee’s acquisition of equity in the vehicle.” (Citation omitted.) In re QDS Components, 292 BR at 342. We have already concluded that the option price must be considered more than nominal, and a review of the Agreement shows no provision purporting to grant the Aniebues’ equity in the vehicle prior to exercise of the purchase option. Thus, we conclude that JCC retained a meaningful reversionary interest in the car. ¶ Under these circumstances, we find that the lease agreement entered into by the parties was intended to be a true lease and not to evince a secured transaction. Accordingly, JCC was not required to comply with the notice provisions of OCGA §§ 11-9-504(3) and 10-1-36, and the trial court did not err on this ground in granting summary judgment in favor of appellee and against appellant.