The opinion of the court was delivered by: DIAMOND
Plaintiff, Exchange International Leasing Corporation, (hereinafter Exchange) brought the instant suit to recover rental payments from defendant, Consolidated Business Forms, (hereinafter Consolidated) arising out of defendant's leasing of a Phillips business computer. Plaintiff is the named lessor of said computer by virtue of an assignment from the original lessor, third party defendant, Northern Leasing and Financial Corporation, (hereinafter Northern).
It has been established through the ruling on a prior motion for summary judgment filed by plaintiff that the aforesaid assignment conferred upon plaintiff the status of a holder in due course under Section 3-302 of the Uniform Commercial Code (hereinafter U.C.C.), 12A P.S. § 3-302 and that the defendant's only plausible defense was misrepresentation under Section 3-305(2) (c) of the U.C.C., 12A P.S. § 3-305(2)(c). The matter now before the court is plaintiff's second motion for summary judgment in which it claims that no genuine issue of misrepresentation exists. For the reasons set forth below, we conclude that there is no genuine issue of a material fact regarding the misrepresentations defense and that the defendant was not the victim of misrepresentation within the meaning of § 3-305(2)(c) and, therefore, grant the motion.
The facts relevant to the disposition of this matter may be summarized as follows: After several weeks of discussion and correspondence with fourth party defendant, Benchmark Systems, Inc. (hereinafter Benchmark), a Pittsburgh area sales representative for third party defendant, Phillips Business Systems, Inc., (hereinafter Phillips), Consolidated decided to acquire a Phillips computer. Because Consolidated was not in a position to purchase the $ 25,000.00 computer outright, a 66-month lease-purchase was arranged. Northern Leasing, not Phillips or Benchmark, was the lessor of the equipment under a lease signed on November 22, 1974. The lease contained a common waiver-of-defense clause, which stated essentially that rental obligations were not conditioned on the fulfilling of any express or implied warranties. Northern assigned the lease to Exchange in April, 1975. Exchange subsequently instituted this suit alleging that shortly after the assignment Consolidated defaulted in its rental payments.
Consolidated filed an answer in which it claimed that its rental obligations had been excused by the breach of certain performance guarantees made to it by Benchmark during negotiations. In ruling on an earlier motion for summary judgment by Exchange, however, Judge Knox of this court ruled that this defense was not available to Consolidated, since Exchange was a holder in due course within the meaning of Section 3-302 of the U.C.C. and that therefore, Consolidated could only avail itself of the defenses enumerated in Section 3-305 of the U.C.C. Of those 3-305 defenses, the one contained in subsection (2)(c) dealing with misrepresentation was raised by Consolidated. Exchange had also sought summary disposition of the 3-305(2)(c) defense, but Judge Knox denied summary judgment in that regard for the reason that the record was insufficient to permit the conclusion that no genuine issue of material fact existed as to the 3-305(2)(c) claim.
In order to rule on the instant motion we must consider (1) the meaning of "misrepresentation" under 3-305(2)(c); (2) the factual basis in support of the allegations of misrepresentation relied on by Consolidated; and (3) whether or not there exists a genuine issue of a material fact which if true would constitute a defense.
Turning first to the meaning of "misrepresentation", 3-305(2)(c) states:
"To the extent that a holder is a holder in due course he takes the instrument free from
"(2) all defenses of any party to the instrument with whom the holder has not dealt except
"(c) such misrepresentation as has induced the party to sign the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms . . ."
Thus, to establish the defense, one must not only have had no knowledge of a document's character or essential terms, but also have had no "reasonable opportunity" to acquire such knowledge. Comment 7 to 3-305 elaborates by stating that in determining what constitutes a "reasonable opportunity" factors such as the age, intelligence, and business experience of the signator, his ability to read English, and the representations made to him and his reason to rely on them are to be considered.
The reported Pennsylvania decisions interpreting 3-305(2)(c) while few in number are nonetheless uniform in holding that only fraud in the factum, as opposed to fraud in the inducement, is a defense under 3-305.
This view is in accord with comment 7 and also the view expressed by certain scholars in the area.