In re Del-Maur Farms, Inc.

In 2007, Del-Maur Farms, Inc. (Del-Maur) (debtor) entered into an agreement with CoBank Farm Credit Leasing Services Corporation (CoBank) (creditor). The agreement took the form of a lease and provided that Del-Maur would make 60 monthly installment payments of $1,206.41 for a Grow Master pig-sorting system. The agreement provided that Del-Maur could purchase the Grow Master at the end of 60 months for $6,584.40, which was 10 percent of the Grow Master’s original cost. The agreement provided that if Del-Maur did not exercise its purchase option, the lease would automatically renew for 12 months with a projected monthly renewal rent of $579.25. The agreement stated that upon expiration of that renewal term, Del-Maur could either return the Grow Master or purchase the Grow Master for an amount equal to its then-fair market value. The agreement provided that Del-Maur’s obligation to pay rent and perform its other duties under the agreement was irrevocable. Del-Maur subsequently filed for bankruptcy. CoBank filed a claim in the bankruptcy proceeding and sought preferential treatment available to lessors under 11 U.S.C. § 365. Del-Maur objected, asserting that the agreement regarding the Grow Master was not actually a lease and was instead a purchase agreement and security interest. In analyzing Del-Maur’s objection, the court considered whether the agreement should be a security agreement or a lease under Nebraska’s statutory Uniform Commercial Code (UCC).