Tennessee Code Annotated
Tenn. Code Ann. § 47-1-203 (2026)
Lease distinguished from security interest
✓ current as of May 2026
- (a) Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
- (b) A transaction in the form of a lease creates a security interest if the consideration that 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 and is not subject to termination by the lessee; and:
- (1) The original term of the lease is equal to or greater than the remaining economic life of the goods;
- (2) The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;
- (3) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; or
- (4) The lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.
- (c) A transaction in the form of a lease does not create a security interest merely because:
- (1) The present value of the consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered into;
- (2) The lessee assumes risk of loss of the goods;
- (3) The lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording, or registration fees, or service or maintenance costs;
- (4) The lessee has an option to renew the lease or to become the owner of the goods;
- (5) The lessee has an option to renew the lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed; or
- (6) The lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed.
- (d) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease agreement if the option is not exercised. Additional consideration is not nominal if:
- (1) When the option to renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed; or
- (2) When the option to become the owner of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time the option is to be performed.
- (e) The "remaining economic life of the goods" and "reasonably predictable" fair market rent, fair market value, or cost of performing under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered into.
Acts 2008, ch. 930, § 1.
Notes of Decisions
Cited in 25
cases, 1981–2018 · leading case: Dick Broad. Co., Inc. of Tennessee v. Oak Ridge FM, Inc., 395 S.W.3d 653 (Tenn. 2013).
Dick Broad. Co., Inc. of Tennessee v. Oak Ridge FM, Inc., 395 S.W.3d 653 (Tenn. 2013). “2012) (formerly codified at Tenn.Code Ann. § 47-1-203 (2001)).”
Solomon v. First Am. Nat'l Bank of Nashville, 774 S.W.2d 935 (Tenn. Ct. App. 1989). “See T.C.A. § 47-1-203. Within these limitations, the portion of Ms.”
Notredan, LLC v. Old Repub. Exch. Facilitator Co., 875 F. Supp. 2d 780 (W.D. Tenn. 2012). “For example, Plaintiff cites for support Tenn. Code Ann. § 47-1-203 for the proposition that the UCC imposes on Defendant a duty to conduct its business in good faith.”
Walker v. First State Bank, 849 S.W.2d 337 (Tenn. Ct. App. 1992). “1981), the court held that the obligation of good faith found in the UCC counterpart to T.C.A. § 47-1-203 (UCC 1-203) applies only to duties imposed by the UCC.”
Smith v. First Union Nat'l Bank of Tennessee, 958 S.W.2d 113 (Tenn. Ct. App. 1997). “Lastly, we turn our attention to the question of “good faith” as those terms relate to contracts at common law and as set forth in T.C.A. § 47-1-203, assuming without deciding that T.”
Spectra Plastics, Inc. v. Nashoba Bank, 15 S.W.3d 832 (Tenn. Ct. App. 1999). “See Tenn.Code Ann. § 47-1-203 (1996). The official comments to this statute, however, explain that this statute “does not support an independent cause of action for failure to perform or enforce in good faith.”
Am. City Bank of Tullahoma v. W. Auto Supply Co., 631 S.W.2d 410 (Tenn. Ct. App. 1981). “There is no express statutory duty placed upon a creditor in Tennessee to amend its previously filed financing statement when it becomes aware that the debtor has changed its name or identity from a partnership to a sole proprietorship.”
Sanders v. First Nat'l Bank in Great Bend, 114 B.R. 507 (M.D. Tenn. 1990). “Sanders signed the agreement to support its contention that the bank breached the implied duty of good faith created by Tenn.Code Ann. § 47-1-203. The implied duty of good faith, however, goes to the performance or enforcement of the contract, not its execution.”
Huntington Nat'l Bank v. Hooker, 840 S.W.2d 916 (Tenn. Ct. App. 1991). “Tennessee Code Annotated Section 47-1-203 provides: “Every contract or duty within chapters 1 through 9 of this title imposes an obligation of good faith in its performance or enforcement.”
Morris v. MacK's Used Cars, 824 S.W.2d 538 (Tenn. 1992). “Furthermore, the UCC, pursuant to T.C.A. § 47-1-203, imposes an obligation of good faith in the performance or enforcement of every contract.”
HMF TRUST v. Bankers Trust Co., 827 S.W.2d 296 (Tenn. Ct. App. 1991). “§ 39-3-904 and a breach of the implied duty in good faith and fair dealing, both under the common law and as required by T.C.A. § 47-1-203. The trust agreement and various other documents were attached to the complaint as exhibits and are a part of the pleadings.”
Lane v. John Deere Co., 767 S.W.2d 138 (Tenn. 1989). “T.C.A. § 47-1-203. “Good faith” means honesty in fact in the conduct or transaction concerned.”
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