Matter of Marhoefer Packing Co.

Marhoefer Packing Company, Inc. (Marhoefer) (debtor) obtained two sausage-stuffing machines from Robert Reiser & Company, Inc. (Reiser) (creditor). One of the machines was obtained under a conditional sale contract, for which the security interest was perfected, and the other was obtained under a “lease.” Under the lease terms, there was an initial four-year term with monthly payments. At the end of the four-year term, there were two options for Marhoefer. Under the first, Marhoefer could purchase the machine for just under $10,000, which was less than the market value of the machine. Under the second, Marhoefer could renew the lease for an additional four years; at the conclusion of this second term, Marhoefer could then purchase the machine for $1. Marhoefer filed for bankruptcy during the first four years. The trustee sought to sell the machine on the grounds that the lease was in reality a security interest that Reiser had failed to perfect. Reiser claimed that the lease was a true lease that had breached and it was therefore entitled to the machine. The bankruptcy court sided with Reiser. The trustee appealed to the district court, which reversed and sided with the trustee. The district court reasoned that the presence of the one-dollar option following the second four-year term created a conclusive presumption that the lease was a security. Reiser appealed.