SW Legal Educational Publishing

Lease Is a Sale When No Residual Value Payments Due
Description A five-year lease that resulted in complete ownership of machinery at the end of the five years, with no further payment due, was a sale contract, not a lease.
Topic Contracts
Key Words Lease, Sale
C A S E   S U M M A R Y
Facts In an action stemming from an accident involving machinery, the following question was raised: If machinery is leased from one party to another for five years for five annual installments, and at the end of the lease the leasing party owns the machinery with no further payments required, was the contract a lease or a sale?
Decision Regardless of what the parties called the arrangement, in a contract entitled "Machinery Lease with Option to Buy," it was a sale. "A true lease is indicated by a purchase option for fair market value and rental charges that show an indication to compensate the lessor for loss of value over the lease term." Here the alleged rental payments were excessive and there was no option purchase price at the end.
Citation merican Family Mutual Insurance Co. v. Jepson, ---F.3d--- (1998 WL 348413, 8th Cir.)
148 F. 3d 954 (8th cir., 1998)

Back to Contracts Listings

©1997-2000  South-Western, a division of Cengage Learning, Inc. Cengage Learning is a trademark used herein under license.