O.C.G.A. § 11-1-201 (2019)

Annotations

Editor’s notes. Ga. L. 1993, p. 633, which amended this Code section, provides, in § 5, not codified by the General Assembly: “This Act shall become effective on July 1, 1993, for all lease contracts that are first made or that first become effective between the parties on or after that date. This Act shall not apply to any lease first made or that first became effective between the parties before July 1, 1993, or to any extension, amendment, modification, renewal, or supplement of or to any such lease contract, unless the parties thereto specifically agree in writing that such lease contract, as extended, amended, modified, renewed, or supplemented, shall be governed by this Act.” Ga. L. 2010, p. 481, § 3-1/HB 451, not codified by the General Assembly, provides that: “This Act applies to a document of title that is issued or a bailment that arises on or after the effective date of this Act. This Act does not apply to a document of title that is issued or a bailment that arises before the effective date of this Act even if the document of title or bailment would be subject to this Act if the document of title had been issued or bailment had arisen on or after the effective date of this Act. This Act does not apply to a right of action that has accrued before the effective date of this Act.” This Act became effective May 27, 2010. Ga. L. 2010, p. 481, § 3-2/HB 451, not codified by the General Assembly, pro-

vides that: “A document of title issued or a bailment that arises before the effective date of this Act and the rights, documents, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this Act as if such amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.” This Act became effective May 27, 2010. U.S. Code. The bankruptcy law, referred to in paragraph (23) of this Code section, is codified as 11 U.S.C. § 101 et seq. Law reviews. For article on the 1963 amendment to the Georgia Uniform Commercial Code, see 14 Mercer L. Rev. 378 (1963). For note, “The Law of Evidence in the Uniform Commercial Code,” see 1 Ga. L. Rev. 44 (1966). For comment on Sherrock v. Commercial Credit Corp., 290 A.2d 648 (Del. S. Ct. 1972), see 10 Ga. St. B.J. 110 (1973). For article, “Lease or Security Interest: A Classic Problem of Commercial Law,” see 28 Mercer L. Rev. 599 (1977). For comment on Perini Corp. v. First Nat’l Bank, 553 F.2d 398 (5th Cir. 1977), see 27 Emory L.J. 393 (1978). For article on Georgia cases dealing with commercial law from June 1977 through May 1978, see 30 Mercer L. Rev. 15 (1978). For article, “The Good Faith Purchase Idea and the Uniform Commercial Code,” see 15 Ga. L. Rev. 605 (1981). For article surveying developments in Georgia commercial law from mid-1980 through mid-1981, see 33 Mercer L. Rev. 33 (1981). For article discussing judicial activism in cases involving claims and defenses under the Uniform Commercial Code, see 17 Ga. L. Rev. 569 (1983).

For comment, “Lender Liability for Breach of the Obligation of Good Faith Performance,” see 36 Emory L.J. 917 (1987). For article, “Impracticability As Risk Allocation: The Effect of Changed Circumstances upon Contract Obligations for the Sale of Goods,” see 22 Ga. L. Rev. 503 (1988).

For note on 1992 amendment of this Code section, see 9 Ga. St. U.L. Rev. 168 (1992). For note on 1993 amendment of this Code section, see 10 Ga. St. U.L. Rev. 34 (1993).

JUDICIAL DECISIONS ANALYSIS GENERAL CONSIDERATION AGREEMENT BUYER IN ORDINARY COURSE OF BUSINESS CONSPICUOUS TERM OR CLAUSE GOOD FAITH HOLDER NOTICE PUBLIC SALE SECURITY INTEREST SIGNATURE UNAUTHORIZED SIGNATURE OR ENDORSEMENT General Consideration UCC definitions inapplicable to criminal prosecution. Thogerson v. State, 224 Ga. App. 76, 479 S.E.2d 463, 1996 Ga. App. LEXIS 1337 (1996). The drawer of a check made payable to a third party was deemed to have used the instrument in contemplation of its presentment for payment upon the action of a collecting bank and, thus, was engaged in a transaction governed by the UCC subject to the damage limitation provision of O.C.G.A. § 11-4-103. Farr v. Trust Co. Bank, 220 Ga. App. 423, 469 S.E.2d 501, 1996 Ga. App. LEXIS 223 (1996).

unwritten agreement with an individual concerning a vehicle was not a lease because the claimant offered no evidence that the individual had the right to voluntarily terminate the individual’s payment obligation under the agreement, i.e., to pay less than the full amount of consideration under the lease, or that the individual could purchase the vehicle only after paying additional consideration. United States v. Bushay, 34 F. Supp. 3d 1260, 2014 U.S. Dist. LEXIS 107043 (N.D. Ga. 2014), vacated, 621 Fed. Appx. 968, 2015 U.S. App. LEXIS 11282 (11th Cir. 2015).

Agreement

Buyer in Ordinary Course of Business

Agreement governs rights and liabilities of parties. - It is elementary that under the law of contracts the agreement itself governs the rights and liabilities of the parties. Nothing in the Uniform Commercial Code as adopted in Georgia requires a different result. Tri-County Livestock Auction Co. v. Bank of Madison, 228 Ga. 325, 185 S.E.2d 393, 1971 Ga. LEXIS 560 (1971). Agreement not a lease. - Claimant’s

Buyer’s special relationship with seller does not preclude buyer from being buyer in the ordinary sense. - Although the fact that a person had a special relationship with the seller would not preclude the person from being a buyer in the ordinary course, this factor, along with other factors that the sale was not handled in every material way as a sale out of inventory to any retail customer, may preclude such person from

Buyer in Ordinary Course of Business (Cont’d) being a buyer in the ordinary course of business. Hanington v. Palmer, 103 B.R. 348, 1989 Bankr. LEXIS 1158 (Bankr. M.D. Ga. 1989). Knowledge of security interest. - A buyer who merely knows of a security interest of another party covering certain goods constitutes a buyer in ordinary course of business and takes free of that security interest, whereas a buyer who knows that the sale actually violates some term of the security agreement not waived by the secured party takes subject to that security interest. First Nat’l Bank v. Atlanta Classic Cars, Inc., 184 Ga. App. 784, 363 S.E.2d 16, 1987 Ga. App. LEXIS 2406 (1987). Although a bank’s security interests in equipment were properly perfected and remained so throughout a buyer’s acquisition of the equipment from the debtor, those security interests were deemed never to have been perfected as against a purchaser for value when the bank failed to file timely continuation statements, under O.C.G.A. § 11-9-515(b), and the buyer took free of the security interests under O.C.G.A. § 11-9-317(b) because the buyer did not have actual knowledge of the security interests. Four County Bank v. Tidewater Equip. Co., 331 Ga. App. 753, 771 S.E.2d 437, 2015 Ga. App. LEXIS 229 (2015). Fractionalizing not permitted. - Fractionalizing was not allowed by O.C.G.A. § 11-1-201(9) to permit labeling a transferee a buyer in the ordinary course of business to the extent that the purchase price was not in satisfaction of a money debt, but not a buyer in the ordinary course of business to the extent that the purchase price was in satisfaction of a money debt. First Nat’l Bank v. Proceeding Ayres Aviation Holdings, Inc. (In re Ayres Aviation Holdings, Inc.), 342 B.R. 104, 2006 Bankr. LEXIS 675 (Bankr. M.D. Ga. 2006). Because plaintiff cellular telephone trademark holder’s packages contained terms and conditions inside and language on the outside of the packages that referenced those terms and conditions, there was a valid “shrink-wrap” contract be-

tween the holder and purchasers of the cell phones, and allegations that defendant competitor removed the phones from their original packaging and shipped the phones outside the United States sufficiently raised a reasonable expectation that discovery would reveal evidence that the competitor was aware of the terms and conditions, was afforded an opportunity to reject the terms and conditions, and failed to reject the terms and conditions, such that a breach of contract claim was plausible, and, because the allegations indicated a lack of good faith by the competitor, the bona fide purchaser for value and buyer in the ordinary course defenses under O.C.G.A. §§ 11-1-201 and 11-2-403(1)(a) were not available. Tracfone Wireless, Inc. v. Zip Wireless Prods., 716 F. Supp. 2d 1275, 2010 U.S. Dist. LEXIS 60639 (N.D. Ga. 2010). Conspicuous Term or Clause Disclaimer of implied warranty was adequate. - Where the disclaimer was in letters larger than any other type on the form, where significant portions of the disclaimer were capitalized, thus distinguishing them from other language on the form, and where the language was conspicuously set forth, the limitation of the implied warranty of merchantability met the requirements of O.C.G.A. § 11-2316(2). Harris v. Sulcus Computer Corp., 175 Ga. App. 140, 332 S.E.2d 660, 1985 Ga. App. LEXIS 2040 (1985). Warranty disclaimer language was “conspicuous” where it appeared in capital letters, in a separate paragraph on the front of an invoice, and in a type style which was otherwise employed on the form only with regard to language relating to the limitation of remedies. Apex Supply Co. v. Benbow Indus., Inc., 189 Ga. App. 598, 376 S.E.2d 694, 1988 Ga. App. LEXIS 1472 (1988). Roofing material vendor’s disclaimer of warranty, which stated in capitalized letters that the vendor made no warranties, express or implied, including merchantability or fitness for a particular purpose, except as expressly stated therein, was sufficient to preclude an action against the vendor for breach of the implied warranties of merchantability and fitness. Steele v. Gold Kist, Inc., 186 Ga. App. 569, 368 S.E.2d 196, 1988 Ga. App. LEXIS 412 (1988).

Disclaimer inadequate. - Where a paragraph in a lease purporting to disclaim implied warranties of merchantibility and fitness was in the same size font as the rest of the printed terms and, although separately numbered, was not otherwise set apart from the other paragraphs, the language was not “conspicuous” within the meaning of O.C.G.A. § 11-1-201(10). Bailey v. Tucker Equip. Sales, Inc., 236 Ga. App. 289, 510 S.E.2d 904, 1999 Ga. App. LEXIS 40 (1999). A reasonable person would not necessarily have noticed and understood that, by the mere mention of “as is” in the context in which it appeared in a lease agreement, without any mention of any warranties or any disclaimers of warranties, he or she was agreeing to forego any rights to lease a piece of equipment in fit and suitable working condition. Bailey v. Tucker Equip. Sales, Inc., 236 Ga. App. 289, 510 S.E.2d 904, 1999 Ga. App. LEXIS 40 (1999). Notice conspicuous. - Limitation of liability language on a directory advertising order that appeared in all capital letters satisfied O.C.G.A. § 11-1-201(10). Elliott Irrigation Co. v. L. M. Berry & Co., No. 1:03-CV-2776-CC, 2005 U.S. Dist. LEXIS 4573 (N.D. Ga. Mar. 14, 2005). Statement of payment in full conspicuous. - Deposit of a check constituted an accord and satisfaction under O.C.G.A. § 11-3-311 of a settlement agreement in a debt dispute as a dispute under O.C.G.A. § 13-4-103(b)(1) existed as to the fee portion of the settlement and the letter sent with the check contained a conspicuous statement under O.C.G.A. § 11-1-201(10) that the tender of the check was full payment and satisfaction of the settlement. Blitch v. Walker Pharm., 295 Ga. App. 347, 671 S.E.2d 842, 2008 Ga. App. LEXIS 1376 (2008). Good Faith Determination of “good faith” is a question of fact requiring consideration of all circumstances attending a transaction; however, where facts of relevant event are clear and fully developed in motion for summary judgment, it remains only for court to determine proper legal

inference to be drawn from the facts. First Nat’l Bank v. Trust Co., 510 F. Supp. 651, 1981 U.S. Dist. LEXIS 17970 (N.D. Ga. 1981). The 1996 amendments of the UCC definitions of “good faith” and “holder in due course” (O.C.G.A. §§ 11-3-103 and 11-3-302) did not apply retroactively to transactions before their effective date; rather, the definitions in O.C.G.A. §§ 111-201 and 11-3-302 (former version) applied. Choo Choo Tire Serv., Inc v. Union Planters Nat’l Bank, 231 Ga. App. 346, 498 S.E.2d 799, 1998 Ga. App. LEXIS 458 (1998). Illustrative cases. - A bank was a good faith purchaser for value of certain cars under the following circumstances: The proprietor of a used-car business maintained a special checking account with the bank; the proprietor purchased cars from a car auction company with checks drawn upon this account; the proprietor then executed a promissory note to the bank, which loaned the proprietor the purchase price and took a security interest in the car; the account became overdrawn and the bank refused to honor the checks made out to the auction company. Georgia Cas. & Sur. Co. v. Tennille Banking Co. (In re Smith), 51 B.R. 904, 1985 Bankr. LEXIS 5556 (Bankr. M.D. Ga. 1985). Bank actions in failing to inform customers of a rule change on signature verification, allowing an employee of customer to place funds in a checking account from the customer’s line of credit, and arranging personal loans for the employee were not evidence of a lack of good faith on the part of the bank in paying forged checks. Eason Publications, Inc. v. Nationsbank, 217 Ga. App. 726, 458 S.E.2d 899, 1995 Ga. App. LEXIS 587 (1995). Holder Bank not holder of instrument lacking joint payee’s endorsement. - A bank never became a holder in due course where a check made payable jointly to the bank’s customer and a third party was never endorsed by the third party before deposit in the bank. Citizens & S. Nat’l Bank v. Sun Belt Elec. Constructors, Inc., 64 B.R. 377, 1986 Bankr. LEXIS 5426 (Bankr. N.D. Ga. 1986).

The procedural benefit afforded by O.C.G.A. § 13-7-7 is not available to a party who is the original payee of negotiable paper even though the original payee may qualify as a “holder” under O.C.G.A. § 11-1-201. Jones v. FDIC, 151 Ga. App. 619, 260 S.E.2d 751, 1979 Ga. App. LEXIS 2664 (1979). A party can establish status as holder of instruments sued on by producing the instruments in evidence. James Talcott, Inc. v. Allahabad Bank, Ltd., 444 F.2d 451, 1971 U.S. App. LEXIS 10368 (5th Cir.), cert. denied, 404 U.S. 940, 92 S. Ct. 280, 30 L. Ed. 2d 253, 1971 U.S. LEXIS 555 (1971). Possession. - Although the corporation met the requirements for being a holder in due course to the extent that it took the promissory note regarding the mortgage for value, in good faith, and without notice of any claim to the instrument, the corporation was not a holder in due course because it was not in possession of the promissory note at the time it purchased the mortgage; since it was not in possession, it failed to achieve holderin-due-course status and the bank’s security interest prevailed. Provident Bank v. Morequity, Inc., 262 Ga. App. 331, 585 S.E.2d 625, 2003 Ga. App. LEXIS 731 (2003), cert. denied, No. S03C1718, 2003 Ga. LEXIS 1047 (Ga. Nov. 17, 2003). Payee of a check who never received possession of the check and who was unaware that the check had been made out to the payee was not a “holder” of the check. Jenkins v. Wachovia Bank, Nat’l Ass’n, 309 Ga. App. 562, 711 S.E.2d 80, 2011 Ga. App. LEXIS 403 (2011). Pursuant to O.C.G.A. § 11-1-201(20)(a), the holder of a check is entitled to negotiate the check, and a holder is one who has possession of the check. Sun Nurseries, Inc. v. Lake Erma, LLC, 316 Ga. App. 832, 730 S.E.2d 556, 2012 Ga. App. LEXIS 667 (2012), cert. denied, No. S12C1867, 2012 Ga. LEXIS 882 (Ga. Nov. 5, 2012).

knowledge. Hopkins v. Kemp Motor Sales, Inc., 139 Ga. App. 471, 228 S.E.2d 607, 1976 Ga. App. LEXIS 1850 (1976). Where security interest in an automobile was not properly recorded and was documented only in divorce decree’s incorporated agreement, the secured party failed to carry burden of proving that buyer had actual knowledge of secured party’s interest, even assuming the buyer had knowledge of the divorce. Freeman v. Bentley, 205 Ga. App. 409, 422 S.E.2d 435, 1992 Ga. App. LEXIS 1202 (1992). Shortly after a bank made a loan to a farmer, it mailed a cotton gin written notice of its security interest in the farmer’s cotton crop. As the gin’s president admitted reading the bank’s letter, the gin had “actual knowledge” of the bank’s security interest under O.C.G.A. § 11-1201(25), (27), despite the president’s claim that no documentation had been enclosed with the letter. Bank of Dawson v. Worth Gin Co., 295 Ga. App. 256, 671 S.E.2d 279, 2008 Ga. App. LEXIS 1350 (2008). Notice not required. - Lessor was not required to comply with the notice provisions of O.C.G.A. §§ 10-1-36 and 119-504 because the motor vehicle lease agreement the lessor entered into with the lessee was intended to be a true lease and not to evince a secured transaction; the lessor retained a meaningful reversionary interest in the car because the option price was more than nominal since the purchase option price was approximately one-third of the car’s value, and the agreement contained no provision purporting to grant the lessee equity in the vehicle prior to exercise of the purchase option. Aniebue v. Jaguar Credit Corp., 308 Ga. App. 1, 708 S.E.2d 4, 2011 Ga. App. LEXIS 103 (2011). Jury question. - Where there is conflicting evidence on the nature and extent of the debtor’s knowledge, the debtor should not be estopped from raising lack of notice as a defense. Rather, the question of “reasonable notification” should be submitted to the jury. Comfort Trane Air Conditioning Co. v. Trane Co., 592 F.2d 1373, 1979 U.S. App. LEXIS 15418 (5th Cir. 1979).

Notice

Public Sale

Knowledge refers to actual knowledge. - Knowledge of a fact is defined in the Uniform Commercial Code as actual

When sale is commercially reasonable. - Sale is commercially reasonable where it is done in public, during business

Holder (Cont’d)

hours, upon adequate notice within reasonable time of repossession, and under conditions reasonably calculated to bring fair market price. Hardin v. Norlin Music, Inc., 159 Ga. App. 167, 283 S.E.2d 21, 1981 Ga. App. LEXIS 2535 (1981). Burden of showing reasonable conduct of sale. - Secured party bears burden under O.C.G.A. § 11-1-201(31.1) to show that sale was conducted in reasonable fashion. Hardin v. Norlin Music, Inc., 159 Ga. App. 167, 283 S.E.2d 21, 1981 Ga. App. LEXIS 2535 (1981). Opportunity for competitive bidding required. - Where advertised sale under O.C.G.A. § 11-1-201(31.1) is held as scheduled, and proper notice is given, any person has right to enter competitive bid. Opportunity for competitive bidding is established and that is all that is required, even if no third party bids at sale. Hardin v. Norlin Music, Inc., 159 Ga. App. 167, 283 S.E.2d 21, 1981 Ga. App. LEXIS 2535 (1981). To require that secured party rebut mere supposition that bidding may have been chilled would be unfair. Hardin v. Norlin Music, Inc., 159 Ga. App. 167, 283 S.E.2d 21, 1981 Ga. App. LEXIS 2535 (1981). Security Interest “Magic words” not required. - Georgia law does not require “magic words” to create a valid security interest. Rather, the court must refer to the general law of contracts and determine whether the parties intended to create a security agreement. National Traveler, Inc. v. Paccom Leasing Corp., 110 B.R. 619, 1990 Bankr. LEXIS 238 (Bankr. M.D. Ga. 1990). Filing requirements do not apply to leases. - Where the agreement is a lease it is beyond the requirements for filing O.C.G.A. § 11-1-201. Sanders v. Commercial Credit Corp., 398 F.2d 988, 1968 U.S. App. LEXIS 6170 (5th Cir. 1968). A “lease intended as security” is one which has the ultimate intent of a sale. In re Atlanta Times, Inc., 259 F. Supp. 820, 1966 U.S. Dist. LEXIS 10458 (N.D. Ga. 1966), aff’d, 383 F.2d 606, 1967 U.S. App. LEXIS 4987 (5th Cir. 1967). Three elements for determining whether a lease is a security agree-

ment: one, there must be an agreement by the lessee to pay lessor a set amount; two, amount must be equivalent to value of leased goods; and three, lessee must become owner or have option to become owner of leased goods. If any one of these elements is lacking, the lease is not a financing agreement but is a true lease. Trax, Inc. v. Wood, 7 B.R. 543, 1980 Bankr. LEXIS 4447 (Bankr. N.D. Ga. 1980); Shamrock Rental Co. v. Huffman, 63 B.R. 737, 1986 Bankr. LEXIS 5476 (Bankr. N.D. Ga. 1986). Lease not a security agreement. - In a Chapter 13 bankruptcy, in which an automobile lease required the debtor to surrender possession of vehicle at the end of the lease, unless the debtor exercised the debtor’s option to purchase vehicle, and the debtor was not required to purchase the vehicle or renew the lease, and the debtor could not purchase the vehicle at the end of the lease for a nominal amount - rather, the end-of-lease purchase price exceeded the market value of the vehicle at that point - pursuant to O.C.G.A. § 11-1-201(37), the lease was a true lease, not a security agreement, and the debtor, thus, had to assume the lease or surrender the vehicle, rather than paying the lessor’s claim in accordance with 11 U.S.C. § 1325(a)(5). Freeway Auto Credit v. Bonner (In re Bonner), No. 0650472 RFH, 2006 Bankr. LEXIS 1497 (Bankr. M.D. Ga. July 19, 2006). Security agreement need not be in any particular form. The requirements are as follows: (1) there must be a writing; (2) the language must reflect an intent to create a security interest; (3) the writing must reasonably describe the collateral; and (4) the agreement must be signed by the debtor. Trust Co. Bank v. Walker, 35 B.R. 237, 1983 Bankr. LEXIS 4944 (Bankr. N.D. Ga. 1983). Article 9 applies to lease intended as security interest, but not to bona fide leases. United Counties Trust Co. v. Mac Lum, Inc., 643 F.2d 1140, 1981 U.S. App. LEXIS 13681 (5th Cir. 1981). While the terms of the agreement created a lease rather than a secured transaction, any ambiguity caused by the option purchase price at the end of the lease ceased to exist when the parties

Security Interest (Cont’d) entered into the addendum, prior to performance by either party, which made the purchase price the fair market value. Summerhill Neighborhood Dev. Corp. v. Telerent Leasing Corp., 242 Ga. App. 142, 528 S.E.2d 889, 2000 Ga. App. LEXIS 115 (2000). Name given to transaction by parties not conclusive. - Whether lease is intended as security is to be determined by facts of each case; name which parties give it is not conclusive. Ford Motor Credit Co. v. Dowdy, 159 Ga. App. 666, 284 S.E.2d 679, 1981 Ga. App. LEXIS 2758 (1981). Motor vehicle lease agreement. - Considering the facts of the case in light of the plain language of the Georgia Code, an agreement giving debtor right to possession and use of a new truck in return for certain payments constituted a lease under Georgia law, even though the contract did not give debtor the power to terminate the agreement prior to the expiration of the term of the agreement. In re Paz, 179 B.R. 743, 1995 Bankr. LEXIS 386 (Bankr. S.D. Ga. 1995). The best test for determining the intent of an agreement which provides for an option to buy - that is, whether it is a lease or a security agreement - is a comparison of the option price with the market value of the equipment at the time the option is to be exercised. Such a comparison shows whether the lessee is paying actual value (evidencing a lease) or acquiring the property at a substantially lower price (evidencing a security agreement). Mejia v. Citizens & S. Bank, 175 Ga. App. 80, 332 S.E.2d 170, 1985 Ga. App. LEXIS 2024 (1985). When an alleged automobile lease agreement contains an option to purchase the leased vehicle, the “best test” for determining the agreement’s purpose and the parties’ contractual intent is a comparison of the option price with the market value of the equipment at the time the option is to be exercised. If the lessees can acquire the property under the purchase option for little or no additional consideration in relation to its true value, the lease is one intended for security. If the lessees are required to pay at least a reasonable

price, if not a price equal to or greater than the actual value of the automobile, at option time in order to exercise their purchase option, the agreement is intended to be and is in fact a true lease and not a disguised security transaction. Woods v. General Elec. Credit Auto Lease, Inc., 187 Ga. App. 57, 369 S.E.2d 334, 1988 Ga. App. LEXIS 572 (1988). Factors tending to establish that “lease” transaction is a conditional sale are: lessor’s purchase of equipment from supplier; requirement that lessee be responsible for payment of all taxes, insurance and expenses for repairs, an initial down payment, and additional payment of security deposit. Ford Motor Credit Co. v. Dowdy, 159 Ga. App. 666, 284 S.E.2d 679, 1981 Ga. App. LEXIS 2758 (1981). Additional factors which tend to establish that a transaction is a conditional sale instead of a true lease include an initial down payment and the requirement that the lessee be responsible for payment of taxes and insurance. Walton v. Howard, 198 Ga. App. 804, 403 S.E.2d 90, 1991 Ga. App. LEXIS 292 (1991). Lease creating security interest. - A lease will create a security interest if: (a) it secures payment or performance of an obligation upon personal property reserved by the lease; and (b) the lease is intended as security. Such intention is to be determined objectively on the basis of the facts of the case. Citizens & S. Equip. Leasing, Inc. v. Atlanta Fed. Sav. & Loan Ass’n, 144 Ga. App. 800, 243 S.E.2d 243, 1978 Ga. App. LEXIS 1792 (1978). A lease-purchase agreement meeting the requirements of O.C.G.A. § 10-1681 constituted a true lease, not a security agreement, and was subject to § 365 of the Bankruptcy Code, 11 U.S.C. § 365. Central Rents, Inc. v. Johnson, 203 B.R. 498, 1996 Bankr. LEXIS 1617 (Bankr. S.D. Ga. 1996). Lease disguised as security agreement. - Creditor’s unqualified right to require the debtor to repurchase equipment during or at termination of a purported lease, coupled with a letter agreement that was intended to insure the return of the creditor’s investment and a return on the investment of a certain percentage indicated that the lease was a disguised security agreement. Moore v.

Emery (In re Am. Steel Prod., Inc.), 203 B.R. 504, 1996 Bankr. LEXIS 1616 (Bankr. S.D. Ga. 1996). “Lease” which requires lessee to purchase the property upon cancellation. - An agreement termed a “lease,” which requires the lessee to purchase the vehicle upon cancellation, is equivalent to a secured sale, even though the lessor retains all indicia of ownership. Pierce v. Leasing Int’l, Inc., 142 Ga. App. 371, 235 S.E.2d 752, 1977 Ga. App. LEXIS 2735 (1977). Where a “lessee” has not been given an option to purchase collateral at a nominal price, but is under a contractual duty to make the purchase, it is the purchaser, and the “lessor” is the seller and secured party. USI Capital & Leasing v. Medical Oxygen Serv., Inc., 36 B.R. 341, 1984 Bankr. LEXIS 6461 (Bankr. N.D. Ga. 1984). Lease of equipment providing that title remain in lessor and for redelivery to lessor at expiration of term. - A lease of equipment for five years at an agreed price, with title to the property remaining in the lessor and with delivery of possession of the equipment to lessor to be made at the expiration of the lease, cannot be construed as the creation of a security interest. McGuire v. Associates Capitol Servs. Corp., 133 Ga. App. 408, 210 S.E.2d 862, 1974 Ga. App. LEXIS 1089 (1974). Lessee becoming owner for nominal, or no, consideration upon compliance with lease. - An agreement whereby upon compliance with the terms of a 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 makes the lease one intended for security. Mann Inv. Co. v. Columbia Nitrogen Corp., 173 Ga. App. 77, 325 S.E.2d 612, 1984 Ga. App. LEXIS 2730 (1984). A lease agreement covering machinery and equipment was a security instrument, rather than a true lease, where the agreement provided that “the Lessee shall have the option to purchase . . . for the sum of $1.00” and there was evidence which indicated the machinery and equipment were worth much more

than $1.00 upon the termination date of the lease. Melton v. J.M. Kenith Co., 182 Ga. App. 184, 355 S.E.2d 115, 1987 Ga. App. LEXIS 1646 (1987). Computer equipment lease agreement was “true lease,” where the terms of the lease required payment of more than a “nominal” price to exercise an option to purchase the equipment. Third Century, Inc. v. Morgan, 187 Ga. App. 718, 371 S.E.2d 262, 1988 Ga. App. LEXIS 821 (1988). Rental purchase agreements between a rent-to-own business and renter were true leases where, even though they contained some provisions found in secured sales agreements, the renter could return the property without any further obligation, was not required to renew the agreements or purchase the property, or to make a down payment or security deposit, the company was responsible for maintaining and paying taxes on the property, and the agreements expressly provided that the renter intended to rent rather than purchase the property and would not own the property unless the renter bought it or acquired ownership as provided by the agreements. Mr. C’s Rent to Own v. Jarrells, 205 B.R. 994, 1997 Bankr. LEXIS 135 (Bankr. M.D. Ga. 1997). Contract to lease washing machine for one week, with option to renew lease “for an additional term at the conclusion of each term or rental period, by the payment to the lessor of the rental payment,” was a “true lease” and no security interest was created therein. Elcan Invs., Inc. v. Kirk, 187 Ga. App. 676, 371 S.E.2d 146, 1988 Ga. App. LEXIS 828 (1988). Telephone equipment lease agreement was a true lease, not a secured transaction, where the initial term was for five years and the lessee was not required to renew the lease or purchase the equipment at the end of the term and did not have the option to renew the lease or purchase the property at the end of the term for a nominal consideration. Carter v. Tokai Fin. Servs., Inc., 231 Ga. App. 755, 500 S.E.2d 638, 1998 Ga. App. LEXIS 527 (1998). Agreement to “lease” equipment for a fixed period for an amount which ap-

Security Interest (Cont’d) proximated the original purchase price, with an option to purchase for no additional consideration, was a security agreement rather than a true lease. Tri Leasing Corp. v. Fulton Textiles, Inc., 116 B.R. 302, 1990 Bankr. LEXIS 1391 (Bankr. N.D. Ga. 1990). Three-year “lease agreement contract,” by which “lessee” would make monthly payments and, at the end of the three years, without any additional payments, would own the leased equipment, was a security agreement and not a lease. National Traveler, Inc. v. Paccom Leasing Corp., 110 B.R. 619, 1990 Bankr. LEXIS 238 (Bankr. M.D. Ga. 1990). Agreement which did not stipulate a purchase price but indicated an intent to negotiate a purchase price was a true lease, and not a conditional sale. Chapman v. Avco Fin. Servs. Leasing Co., 193 Ga. App. 147, 387 S.E.2d 391, 1989 Ga. App. LEXIS 1418 (1989). Farmers Home Administration. - Despite the fact that the form executed by the debtors did not contain a clause that “granted” a security interest to the Farmers Home Administration (FmHA), considering other language in the form, including a heading “Security Agreement (chattels and crops),” a reference to the FmHA as the “Secured Party,” and a provision which read: “It is the purpose and intent of this instrument that . . . this instrument shall secure payment of the note,” the debtors did grant the FmHA a security interest in crops, livestock and offspring, farm equipment, and farm products. United States v. Hollie, 42 B.R. 111, 1984 Bankr. LEXIS 5348 (Bankr. M.D. Ga. 1984). Evidence indicative of motor vehicle lease agreement. - In a “motor vehicle lease” agreement involving a question as to whether the agreement was really a security transaction, the fact that the original lessor was in the automobile rental business and that the lessor did not require a financing statement indicated that a true lease agreement was involved. Mejia v. Citizens & S. Bank, 175 Ga. App. 80, 332 S.E.2d 170, 1985 Ga. App. LEXIS 2024 (1985). Summary judgment premature without Bright-Line test. - Trial court

erred in entering summary judgment for a lessor without addressing whether the parties’ contract for a car was a lease or a security agreement under the Bright-Line Test. Coleman v. DaimlerChrysler Servs. of N. Am., LLC, 276 Ga. App. 336, 623 S.E.2d 189, 2005 Ga. App. LEXIS 1246 (2005). Signature Maker’s intent. - Whatever a maker intends as the maker’s signature is the maker’s signature and gives effect to the maker’s contract. Kohlmeyer & Co. v. Bowen, 126 Ga. App. 700, 192 S.E.2d 400, 1972 Ga. App. LEXIS 1255 (1972). A complete signature is not necessary. - Under O.C.G.A. § 11-1-201(39) a complete signature is not necessary to constitute an authentication, as it may be printed and may be on any part of the document including a billhead or letterhead. Evans v. Moore, 131 Ga. App. 169, 205 S.E.2d 507, 1974 Ga. App. LEXIS 1359 (1974). Signature of face does not authenticate title retention agreement on back. - Placing of initials and/or signature on face of documents does not suffice to authenticate title retention agreement on reverse and as a consequence does not entitle it to priority over disputed collateral. Food Serv. Equip. Co. v. First Nat’l Bank, 121 Ga. App. 421, 174 S.E.2d 216, 1970 Ga. App. LEXIS 1238 (1970). Absence of notary seal. - Jury verdict imposing liability on guarantors for a debt of a corporation was reversed where there was no evidence that the guarantors wrote their names on or otherwise signed the guaranty, where a witness’s opinion that the guaranty “appeared” to be executed by the guarantors lacked any basis whatsoever, other than the fact that their names appeared on the signature lines, and where the notary attestation was invalid, if for no other reason, because the guaranty did not contain a notary seal. Friedrich v. APAC-Georgia, Inc., 265 Ga. App. 769, 595 S.E.2d 620, 2004 Ga. App. LEXIS 259 (2004). Unauthorized Signature or Endorsement Apparent authority to execute indorsements. - Where its president-treasurer had at least apparent authority - if

not actual authority - to execute indorsements, a corporation could not defeat such indorsements merely by alleging that in truth and in fact the officer had no such authority and that the officer’s act in indorsing the paper had not been ratified.

Bank S. v. Midstates Group, Inc., 185 Ga. App. 342, 364 S.E.2d 58, 1987 Ga. App. LEXIS 2503 (1987); Holliday Constr. Co. v. Sandy Springs Assocs., 198 Ga. App. 20, 400 S.E.2d 380, 1990 Ga. App. LEXIS 1526 (1990).

OPINIONS OF THE ATTORNEY GENERAL A contract of guaranty is a collateral “obligation” which is just as enforceable as

any other contract. 1971 Op. Att’y Gen. No. 71-69.

RESEARCH REFERENCES Am. Jur. 2d. 11 Am. Jur. 2d, Bills and Notes, §§ 54, 84 et seq., 186, 236 et seq., 287 et seq., 361 et seq., 387. 12 Am. Jur. 2d, Bills and Notes, §§ 586, 631. 13 Am. Jur. 2d, Business Trusts, § 1. 15A Am. Jur. 2d, Commercial Code, § 1 et seq. 17A Am. Jur. 2d, Contracts, §§ 1-3. 27A Am. Jur. 2d, Equity, §§ 1, 207. 53A Am. Jur. 2d, Money, § 1. 67 Am. Jur. 2d, Sales, §§ 10-27, 31. 68A Am. Jur. 2d, Secured Transactions, § 31 et seq. Am. Jur. Proof of Facts. Status as “Buyer in Ordinary Course of Business,” 2 POF2d 165. Ratification of Forged or Unauthorized Signature, 7 POF2d 675. Am. Jur. Pleading and Practice Forms. 14 Am. Jur. Pleading and Practice Forms, Insolvency, § 2. C.J.S. 82 C.J.S., Statutes, § 309. U.L.A. Uniform Commercial Code (U.L.A.) § 1201. ALR. Character of bill of lading contemplated by a guaranty of payment of a draft with bill of lading attached, 13 A.L.R. 166. Right of trustee in bankruptcy as regards property held in trust for bankrupt, 16 A.L.R. 552; 138 A.L.R. 1349. Right of surety who discharges obligation due to government to be subrogated to priority or preference of latter, 24 A.L.R. 1502; 83 A.L.R. 1131. Right of receiver, assignee, or trustee in bankruptcy to possession and administration of collateral validly pledged by his insolvent, 28 A.L.R. 409.

What money is legal tender, 31 A.L.R. 246. Public records as affecting one’s character as a holder in due course of negotiable paper, 37 A.L.R. 860. Branch banks, 50 A.L.R. 1340; 136 A.L.R. 471. Construction, application, and effect of statute relating to question as to time as essence of contract, 79 A.L.R. 410. Who must sign and form of signature, in case of partnership, in order to comply with statute of frauds, 114 A.L.R. 1005. Branch banks, 136 A.L.R. 471. Right of trustee in bankruptcy as regards property held in trust for bankrupt, 138 A.L.R. 1349. What constitutes a “public sale,” 4 A.L.R.2d 575. Right to follow chattel into hands of purchaser who took in payment of preexisting debt, 11 A.L.R.3d 1028. Extent of duty of transferee of bulk sale to investigate regarding seller’s creditors under Uniform Commercial Code Article 6, 67 A.L.R.3d 1056. Construction and effect of UCC § 2316(2) providing that implied warranty disclaimer must be “conspicuous,” 73 A.L.R.3d 248. Who is “person in business of selling goods of that kind” within provision of UCC § 1-201(9) defining buyer in ordinary course of business for purposes of UCC § 9-307(1), 73 A.L.R.3d 338. Maintenance of computer terminal in retail store for purpose of effecting transfer of funds between financial institution and its depositors as conduct of banking business by store, 73 A.L.R.3d 1282. Equipment leases as security interest

within Uniform Commercial Code § 1201(37), 76 A.L.R.3d 11. Who is “buyer in ordinary course of business” under the Uniform Commercial Code, 87 A.L.R.3d 11.

What constitutes “money” within meaning of Uniform Commercial Code, 40 A.L.R.4th 346.