CHAPTER 330

FORMERLY

SENATE BILL NO. 413

AN ACT TO AMEND TITLE 6 OF THE DELAWARE CODE RELATING TO THE UNIFORM COMMERCIAL CODE.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE (Three-fifths of all members elected to each house thereof concurring therein):

Section 1. Amend § 1-105(2), Subtitle I, Title 6 of the Delaware Code by striking “Section 8-106" in said subsection and substituting in lieu thereof “Section 8-110".

Section 2. Amend § 1-201(37), Subtitle I, Title 6 of the Delaware Code by striking said subsection in its entirety, and substituting in lieu thereof the following:

""Security interest" means an interest in personal property or fixtures which secures payment or performance of an obligation. The term also includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to Article 9. The special property interest of a buyer of goods on identification of those goods to a contract for sale under Section 2-401 is not a “security interest”, but a buyer may also acquire a “security interest” by complying with Article 9. Except as otherwise provided in Section 2-505, the right of a seller or lessor of goods under Article 2 or 2A to retain or acquire possession of the goods is not a “security interest”, but a seller or lessor my also acquire a “security interest” by complying with Article 9. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (Section 2-401) is limited in effect to a reservation of a “security interest”.

Whether a transaction creates a lease or security interest is determined by the facts of each case. However:

(a) A transaction creates a security interest if the consideration 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 not subject to termination by the lessee, and

(i) the original term of the lease is equal to or greater than the remaining economic life of the goods;

(ii) 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;

(iii) the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement; or

(iv) the lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.

(b) A transaction does not create a security interest merely because it provides that:

(i) 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;

(ii) the lessee assumes risk of loss of the goods, or agrees to pay taxes, insurance, filing, recording, or registration fees, or service or maintenance costs with respect to the goods;

(iii) the lessee has an option to renew the lease or to become the owner of the goods;

(iv) 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

(v) 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.

(c) For purposes of this subsection (37):

(i) Additional consideration is not nominal if (i) 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 (ii) 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. 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;

(ii) “Reasonably predictable” and “remaining economic life of the goods” are to be determined with reference to the facts and circumstances at the time the transaction is entered into; and

(iii) “Present value” means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain. The discount is determined by the interest rate specified by the parties if the rate is not manifestly unreasonable at the time the transaction is entered into; otherwise, the discount is determined by a commercially reasonable rate that takes into account the facts and circumstances of each case at the time the transaction was entered into."

Section 3. Amend § 9-406(i), Subtitle I, Title 6 of the Delaware Code by deleting the word “or” at the end of subsection 9-406(i)(3), and by deleting the period at the end of subsection 9-406(i)(4) after the words “as amended from time to time”, and by inserting at the end of subsection 9-406(i)(4) the following punctuation mark”;” and word “or”.

Section 4. Amend § 9-406(i), Subtitle I, Title 6 of the Delaware Code by adding a new subsection (5) which shall read as follows,

“(5) an interest in a partnership or limited liability company.”

Section 5. Amend § 9-408(e), Subtitle I, Title 6 of the Delaware Code by deleting the word “or” at the end of subsection 9-408(e)(2), and by deleting the period at the end of subsection 9-408(e)(3) after the words “as amended from time to time”, and by inserting at the end of subsection 9-408(e)(3) the following punctuation “;” and the word “or”.

Section 6. Amend § 9-408(e), Subtitle I, Title 6 of the Delaware Code by adding a new subsection (4) which shall read as follows;

“(4) an interest in a partnership or limited liability company.”

Section 7. This Act shall become effective immediately upon enactment into law.

Approved June 27, 2002