18. On many occasions, Jules Kutner and/or Kutner Buick lent large sums of money to Chalfont Industries and cashed checks for Chalfont Industries.
19. On March 4, 1982, Chalfont filed a petition in the United States Bankruptcy Court for the Eastern District of Pennsylvania under Chapter 11 of the Bankruptcy Act. The proceeding was converted to a liquidation proceeding pursuant to Chapter 7 on August 8, 1982.
20. There is no evidence that Jules Kutner or any employee of Kutner Buick lacked good faith in accepting the assignment of the $ 50,023.00 cashier's check.
21. There is no evidence that Jules Kutner or any employee of Kutner Buick knew or had reason to know of Crawford's attempts to stop or reclaim the cashier's check.
22. There is no evidence that Jules Kutner or any employee of Kutner Buick knew or had reason to know of the occurrence or substance of any conversations between Crawford and employees of Chalfont.
23. There is no evidence that the failure of Jules Kutner or any employee of Kutner Buick to make any inquiries about the cashier's check stemmed from any desire to evade knowledge of Crawford's efforts to stop the check.
24. There is no evidence that Jules Kutner or any employee of Kutner Buick knew or had reason to know that the redrafted agreement containing the "buy-back" clause had been altered before Crawford signed it.
Conclusions of Law
1. I have jurisdiction over the parties and the subject matter. 28 U.S.C. § 1335.
2. Kutner Buick is a holder in due course of the $ 50,023.00 cashier's check dated February 17, 1982. Under 13 Pa. C.S.A. § 3302(a), a holder in due course is a holder who takes the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or of any defenses against or claims to it on the part of any person.
3. The only relevant defenses that defeat the claim of a holder in due course are fraud in the factum and such illegality as would render the obligation of the party a nullity. 13 Pa. C.S.A. § 3305; Exchange International Leasing Corp. v. Consolidated Business Forms Co., 462 F. Supp. 626, 628 (W.D. Pa. 1978).
4. I find no fraud in the factum. The instrument in question is the cashier's check that Crawford sent to Chalfont Industries, not the underlying contract between Crawford and Chalfont. Crawford had knowledge of the character and terms of the cashier's check when he secured it and when he instructed his son to mail it.
5. I find no illegality sufficient to defeat the claim of a holder in due course. Crawford alleges the "Distribution Agreement" is a franchise agreement pursuant to 16 C.F.R. § 436.1 et seq. and that under that section, Chalfont was required to make certain disclosures to Crawford which it failed to make. Even assuming, without deciding, that the agreement is a franchise agreement, Chalfont's failure to disclose information does not render the contract void ab initio. An agreement between parties which violates a statute is illegal, unenforceable, and void ab initio only if the subject of the agreement is specifically proscribed by statute. See O'Brien v. O'Brien Steel Construction Co., 440 Pa. 375, 379-80, 271 A.2d 254, 256 (1970); Fitzpatrick v. Shay, 314 Pa. Super. 450, 458-59, 461 A.2d 243, 247-48 (1983); Shafer v. A.I.T.S., Inc., 285 Pa. Super. 490, 494, 428 A.2d 152, 154 (1981). It may be that Crawford as victim of the illegality could unilaterally disavow the contract, but clearly Jerome Kutner, as the perpetrator of the violation, could not use his own dereliction as a defense. Ergo, while Chalfont's failure to disclose may render the contract voidable, the contract does not require any wrongdoing and is therefore not void. (See U.C.C. § 3-305 Official Comment, para. 5: "If under the local law the effect is to render the obligation of the instrument entirely null and void, the defense may be asserted against a holder in due course. If the effect is merely to render the obligation voidable at the election of the obligor, the defense is cut off.")
6. Kutner Buick is entitled to the proceeds of the $ 50,023.00 cashier's check because Crawford failed to establish any real defenses to defeat Kutner Buick's claim as a holder in due course.