True Leases and Disguised Security Interests 1

Taylor v. Subway Equipment Leasing Corp. 3

In Re Murray 10

Jarrells v. Mr. C's Rent to Own 16

In Re Paz 22

NationsBank of North Carolina, N.A., v. Capital Associates International. Inc. 28

NEC Technologies v. Nelson 33

BMW Financial Services, N.A., Inc. v. Smoke Rise Corporation 39

Walnut Equipment Leasing Co. v. Moreno 41

Siemens Credit Corp. v. Newlands 48

Vacation Village, Inc. v. Hitachi America, Ltd. 56

Mercedes-Benz Credit Corp. v. Lotito 58

Ghionis v. Deer Valley Resort Co., Ltd. 65

Colonial Pacific Leasing Corp. v. McNatt 71

Colorado Interstate Corporation v. The CIT Group/Equipment Financing, Inc. 77

AT&T Credit Corporation v. Transglobal Telecom Alliance, Inc. 87

Friedland Family Enterprises v. Amoroso 92

Hollerbach & Andrews Equipment Company, Inc. v. Southern Concrete Pumping, Inc. 97
 
 

NOTE: "Lease"is defined in Uniform Commercial Code §2A-103(j). However, in order to determine whether a transaction will be treated as a lease, we turn most often, not to this definition, but rather to the definition of "security interest" in §1-201(37).

1) Laura Lawyer obtains a set of twenty computers and software for her law firm from Acme Office Supply. The agreement between the parties is entered into on July 12, 1996 and it provides that the law firm will pay $3,333.33 per month for 30 months for a total of $100,000. A dispute arises concerning the performance of the computers and payment of the monthly amounts and the parties go to court. Although the agreement identifies Laura as the "lessee" and Acme as the "lessor," Laura contends that the parties intended the transaction to be treated as a sale with Acme retaining a security interest. (In other words, Laura contends the agreement is a "disguised" security interest," or a "lease intended for security." ) She produces a tape recording of the parties' negotiating session which clearly indicates both parties intended a sale with a security interest. Assuming there is no bar to the admission of the tape, such as the parol evidence rule (2A-202), of what relevance is evidence of the parties' intent?

2) Is there a true lease if the agreement provides that Laura has the right to terminate at any time, and for any reason, and that upon termination Laura will not owe anything for the remainder of the term of the lease?

3) Assume the agreement provides that Laura has no right to terminate the lease. Can the court conclude from that fact alone that the transaction is a disguised security interest?

4) Assume the agreement provides that Laura has no right to terminate and as of July 12, 1996, the reasonable expectation was that at the end of the 30 month term of the lease, the equipment would be worth $10,000. However, due to the failure of the computers to be Y2K compliant, as of January 12, 1999 the computers are worth $0. Is the agreement a true lease or a disguised security interest?

5) Same facts as in #4 except on July 12, 1996 the reasonable expectation is that the computers will be worth $0 at the end of term of the lease. True lease?

6) Laura has no right to terminate and the lease provides that at the end of the term Laura can become the owner of the computers by paying an additional $500. True lease?

7) The lease provides that Laura is to pay for services and maintenance of the computers as well as any taxes and insurance. She contends that this proves the agreement is a disguised security interest because the agreement confers indicia of ownership upon her. If this were a true lease, according to Laura, the lessor as owner would have an expectation that at the end of the term he would regain possession and therefore would retain the indicia of ownership.

8) Assume that at the time of contracting the computers were expected to have a value of $30,000 by the end of the lease term. However, the lease provides that Laura is obligated to renew the lease for another 30 months for $1,00 per month. Is this a true lease?

9) Assume that at the time of contracting, the computers were expected to have a value of $5,000 at the end of the lease term. The lease granted Laura the option to renew the lease for 6 months for $800 per month. Is this a true lease?

10) At the time of contracting, the computers were expected to have a value of $30,000 by the end of the lease term. The lease contained no option to renew or to become the owner, and the lessee was not required to renew the lease. Nevertheless, at the end of the lease term, Laura renewed for another 30 months at $1,000 per month. Was the lease a true lease at the end of the first term? Has the lease changed its character and become something else at the end of the second term?

11) Does the scheme employed by §1-201(37) make sense in the case of new equipment employing advanced technology? Can the parties make any reasonable estimate of the "remaining economic life" of advanced computer systems? An unanticipated breakthrough next month may make equipment purchased in December obsolete by next May. On the other hand, the Boeing 707 was anticipated to have a useful life of twelve years, but actually had a much longer one.

KENNETH J. MEYERS, Bankruptcy Judge.

This matter is before the Court on cross-motions for summary judgment on Banterra Bank's Complaint to Determine Extent, Validity, and Priority of Liens. The issue before the Court is whether an agreement between the debtor and the defendant constitutes a "true lease" or whether it is, in fact, a disguised security agreement pursuant to s 1-201(37) of the Illinois Uniform Commercial Code.

The debtor in this case, Susan Elaine Taylor, owned several Subway Sandwich Shops in southern Illinois. In August 1993, she entered into an agreement with the defendant, Subway Equipment Leasing Corporation ("Subway"), to "lease" equipment valued at $26,009.75 for her restaurant in Herrin, Illinois. Pursuant to the terms of the agreement, debtor, in addition to making a security deposit of $2,500, was required to make monthly payments of $702.27 for a term of 60 months. Although Subway reserved the right to terminate the contract in the event of default, there was no provision that expressly allowed the debtor to terminate the agreement. The only way the debtor could be free of the obligations of the "lease" prior to expiration of the sixty month term was to purchase the equipment. Attached to the agreement was a "buyout calculation schedule" which indicated the buyout option price for the equipment after each month of the lease. According to that schedule, at the expiration of sixty months, the debtor had the option to purchase the equipment for $2,600.97. [FN1] The contract specifically provided that the debtor was entitled only to the exclusive use of the property and that title to the equipment would remain in Subway unless and until the debtor exercised the purchase option. Subway Lease, p 16.

FN1. The contract provided that Ms. Taylor could apply her security deposit against this amount so, at the conclusion of the "lease," she could own the equipment by paying an additional $100.97.

On February 7, 1994, the debtor executed a promissory note and security agreement in favor of the plaintiff, Banterra Bank ("Banterra"). In connection with that transaction, the debtor granted Banterra a security interest in the equipment that was the subject of the Subway agreement. At this time, the debtor had not exercised her option to purchase the equipment from Subway. Banterra *484 subsequently filed a UCC-1 financing statement with the Illinois Secretary of State evidencing its security interest. On February 28, 1996, the debtor filed for Chapter 7 bankruptcy protection. Banterra then filed this adversary proceeding to determine the validity and priority of its lien. The parties agreed to have the subject equipment sold and the proceeds placed in the Court registry pending the resolution of this adversary. It is undisputed that the equipment was sold to a third party for $14,058.47.

Banterra argues that the contract between the debtor and Subway is not a "true lease," but is, rather, a security agreement subject to UCC filing requirements. The Bank maintains that because Subway failed to file a UCC financing statement perfecting its interest in the equipment, [FN2] its lien is superior to that of Subway's and, therefore, it is entitled to recover the proceeds of the sale. Subway, on the other hand, argues that its agreement with the debtor is, in fact, a lease which was violated by the debtor when she granted the Bank a security interest in the equipment. Subway maintains that the debtor actually had no ownership interest in the property to give to Banterra and that the Bank's lien, therefore, is void.

FN2. The agreement between the debtor and Subway authorized Subway to file a financing statement if it wished to do so. Paragraph 17 of that contract specifically states: "It is understood between the Lessor and the Lessee that this agreement is regarded by them as a true lease and not a contract for security[,] and the reservation by the Lessor of the right to file a financing statement is solely for the purpose of allowing it to maintain on record a notice of its right in the equipment." Subway Lease at p 17.

It is well established that the existence, nature, and extent of a security interest in property is controlled by state law. In re Powers, 983 F.2d 88 (7th Cir.1993); In re Meeks, BK No. 95-40734 (Bankr.S.D.Ill.Dec. 15, 1995). The standard for determining whether a transaction constitutes a "true lease" or a security agreement is set forth in Section 1-201(37) of the Illinois Uniform Commercial Code. Pursuant to that provision, [w]hether a transaction creates a lease or a security interest is determined by the facts of each case; however, 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 * * * * * *

(d) 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.

810 ILCS 5/1-201(37) (emphasis added).

In any analysis under s 1-201(37), the intent of the parties is no longer the primary consideration. [FN3] Rather, the focus is on the "economic realities" of the transaction. Meeks at 4; In re Lerch, 147 B.R. 455, 460 (Bankr.C.D.Ill.1992); William D. Hawkland et al, Article 9: Secured Transactions; Sales of Accounts, Contract Rights and Chattel Paper s 9-102:04 (1996). Under this approach, the lease will be construed as a security interest as a matter of law if the debtor cannot terminate the lease and one of the enumerated requirements is satisfied. Lerch at 460. If the Court determines that the transaction is not a disguised security agreement*485 per se, it must then look at the specific facts of the case to determine whether the "economics of the transaction" suggest such a result. Id.; Meeks at 4.

FN3. Section 1-201(37) was amended effective January 1, 1992. The previous version of the statute required that the agreement be analyzed in light of the parties' intent. It stated, in pertinent part: Whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does not make the lease one intended for security. Ill.Rev.Stat. ch. 26, p 1-201(37). Under the prior codification, the courts adopted numerous subjective tests to discern the parties' actual intent. However, because leases and security agreements can sometimes share common characteristics, these "tests" often produced unreliable and inconsistent results. For this reason, the section was amended to provide a more objective standard for distinguishing between the two types of transactions. See J. White & R. Summers, Uniform Commercial Code, s 30- 3(b) (4th ed.1995).

In determining whether the transaction in this case is a security agreement as a matter of law, the first issue the Court must address is whether the agreement is subject to termination by the debtor/lessee. While the defendant admits that the agreement does not expressly provide the debtor with the right to terminate the agreement, it maintains that the monthly "buyout" provisions in the contract are the equivalent of an option to terminate and should be construed as such. The Court disagrees.

The Seventh Circuit has issued two opinions which discuss a lessee's right to terminate a lease under s 1-201(37). In In re Marhoefer Packing Co., Inc., 674 F.2d 1139 (7th Cir.1982), the lessee entered into a four-year lease of equipment. The agreement provided that at the end of the lease term, the lessee could either terminate the contract and return the property with no further obligation, purchase the equipment for a substantial sum, or renew the contract for an additional four-year term. If the lessee chose to renew the lease, it was then given the option to purchase the equipment for one dollar at the conclusion of the term. The court, in explaining why the Marhoefer transaction was not a security agreement as a matter of law, stated: In our view, the conclusive presumption provided under [section 1- 201(37) ] applies only where the option to purchase for nominal consideration necessarily arises upon compliance with the lease (citation omitted). It does not apply where the lessee has the right to terminate the lease before that option arises with no further obligation to continue paying rent. Id. at 1142-43 (emphasis added). [FN4]

FN4. In support of its reasoning the Marhoefer court quoted: It is ... essential in order to make a conditional sale ... that the buyer should be bound to take title of the property, or at least to pay the price for it. Therefore, a lease which provides for a certain rent in installments is not a conditional sale if the buyer can terminate the transaction at any time by returning the property .... Id. at 1143 (quoting S. Williston, The Law Governing Sales of Goods at Common Law and Under the Uniform Sales Act s 336, p. 528 (1909)) (emphasis added).

Similarly, in Powers v. Royce Inc., 983 F.2d 88 (7th Cir.1993), the Seventh Circuit found that the agreement in question was a "true lease," even though it contained an option to purchase the goods for nominal consideration at the end of the lease term, because it allowed the lessee to terminate the agreement after the initial two-week rental period without any further obligation. In comparing the leases in Marhoefer and Powers, the court noted that the Marhoefer contract resemble[d] the Royce Agreements in one critical respect: under both agreements, the lessee was under no obligation to make the installment payments that would ultimately allow the lessee to exercise or refuse the option to own the goods.... In other words, [in the Marhoefer contract], because the lessee could terminate the lease at any time, the presence of an option to acquire the goods for a nominal price did not convert the leases into installment sales. The same conclusion applies to the Royce Agreements: even though the lessee [could] acquire the goods at the end of the lease's term, the lessee [was] under no obligation to make the payments that [would] allow him to exercise the option. Powers, 983 F.2d at 91 (emphasis added). See also TKO Equipment Co. v. C & G Coal Co., 863 F.2d 541, 543 (7th Cir.1988) (lease found to be a "true lease," even though it contained a buyout option, where lessee could have returned the goods without obligation).

Reasoning from these decisions, it follows that an option to terminate a lease differs from a buyout option in that, under a termination clause, a lessee is free to cease performance under the contract without incurring further obligation. In this case, the lease did not provide the debtor with the opportunity to terminate the agreement at any time. Rather, in order to be released from this agreement, the debtor was required to purchase the property pursuant to the defendant's buyout schedule. She could *486 not simply return the equipment to the defendant and walk away. The lease here was not subject to termination by the debtor and, therefore, satisfies the first criterion for finding a security agreement under s 1-201(37).

The Court must now address the second criterion, which is whether the option to purchase the equipment at the end of the lease constituted nominal consideration. Unfortunately, there is no "bright line" test for determining "nominal" consideration. Some courts have evaluated the nominality of an option price by comparing it to the total rent to be paid. National Equip. Rental Ltd. v. Priority Electronics Corp., 435 F.Supp. 236, 238-239 (E.D.N.Y.1977). Still others have compared the option price to the original cost of the equipment. Percival Constr. Co. v. Miller & Miller Auctioneers, 532 F.2d 166, 171 (10th Cir.1976). [FN5] The standard for determining nominality in the Seventh Circuit was announced in Marhoefer where the Court held:

FN5. The court in Percival Construction adopted a "percentage test" as its guide for determining nominality. There, the court held that an option price that was less than 25% of the property's original value constituted nominal consideration. 532 F.2d at 171. Similarly, White and Summers take the position that payment of less than 50% of the predicted fair market value of the equipment should be considered nominal. 4 J. White & R. Summers, Uniform Commercial Code, s 30-3 (4th ed.1995). This Court declines to adopt such guidelines. Rather, the determination of nominality shall be made based on the facts and circumstances of each case.

[I]n determining whether an option price is nominal, the proper figure to compare it with is not the actual fair market value of the leased goods at the time the option arises, but their fair market value at that time as anticipated by the parties when the lease is signed.

Marhoefer, 674 F.2d at 1144-1145. See also In re Triple B Oil Producers, Inc., 75 B.R. 461 (Bankr.S.D.Ill.1987). [7] The parties here have stipulated that the equipment was worth $26,009.75 at the time the lease was signed. Further, there was evidence at the hearing on summary judgment indicating that the projected fair market value of the equipment after 60 months would be fifty-percent (50%) of its original value, or $13,004.88. Gilbert Stern Aff., Supp. to Pltf.'s Mot.Sum.Judg. at 2. [FN6] Pursuant to the Subway agreement, the debtor had the option to purchase the equipment after 60 months for $2,600.97 or approximately twenty-percent (20%) of that projected fair market value. Banterra argues that such an option price is "clearly nominal." The Court disagrees.

FN6. At the hearing on summary judgment, when asked whether he disputed the valuation of the equipment contained in Mr. Stern's affidavit, Subway's counsel stated that he did not dispute the value so much as the fact that the plaintiff's valuation focused only on the option price at the end of the lease and not on the other option prices that were offered to the debtor/lessee throughout the course of the lease. In its brief Subway asserted that the projected fair market value of the equipment at the end of the 60-month term was the stated option price of $2,600.97. Def's Mem. Opp. Pltf's Mot. Sum. Judg. at 7.

Section 1-201(37)(x) of the Illinois Uniform Commercial Code provides, in pertinent part, that 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." 810 ILCS 5/1-201(37)(x). This codification of what has traditionally been referred to as the "economic realities" test focuses on whether the lessee has, in light of all of the facts and circumstances, no sensible alternative but to exercise the purchase option. In re Fogelsong 88 B.R. 194 (Bankr.C.D.Ill.1988). See also 1D Peter F. Coogan et. al, Secured Transactions under U.C.C. s 30.02[4][c][iii] (1990). Under this test, if only a fool would fail to exercise the purchase option, the option price is generally considered nominal and the transaction characterized as a disguised security agreement. Fogelson at 196; 4 J. White & R. Summers, Uniform Commercial Code s 30-3 at p. 13 (4th ed.1995). Applying this test to the facts here, it is evident that the option price representing twenty-percent of the equipment's projected fair market value is not so "economically compelling" that a lessee would have no reasonable alternative but to exercise the purchase option, and, therefore, this option amount does not constitute nominal *487 consideration. [FN7] See Western Enterprises, Inc. v. Arctic Office Machines, Inc., 667 P.2d 1232 (Alaska 1983) (court held that lower court finding that purchase option price in purported lease of 20% of value of property was not nominal).

FN7. Admittedly, the similarity between the amount of the security deposit and the amount of the final buyout is suspect. However, because the lease reserves to the lessee the option to have the deposit returned, the Court is constrained to find that $2,600.97 is the buyout amount rather than $100.

Having concluded that the option price in this case is not nominal, the Court cannot, as a matter of law, categorize this contract as a security agreement under s 1-201(37). However, this conclusion does not necessarily render summary judgment inappropriate. Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56; In re Stevens, No. 90-31144, Adv. No. 91- 3061, slip op. at 2 (Bankr.S.D.Ill. Nov. 11, 1992). In this case, there is no dispute between the parties as to the material facts. Therefore, the Court can proceed to analyze the agreement in light of the following factors to determine whether the economics of the transaction indicate a security agreement rather than a "true lease": (1) whether the lessee has the option to renew the lease or to become the owner of the property; (2) whether the amount of rent exceeds the fair market value of the property; (3) whether the debtor is responsible for payment of taxes, insurance and other costs incident to ownership; and (4) whether the useful life of the property exceeds the length of the term of the lease. In re Meeks, No. 95-40734, slip op. at 5 (Bankr.S.D.Ill.Dec. 15, 1995). See also Marhoefer, 674 F.2d 1139; In re Spears, 146 B.R. 772 (Bankr.S.D.Ill.1992).

Although the agreement in this case does not grant the debtor a renewal option, it does grant the debtor an option to become the owner of the equipment. Section 1-201(37) specifically provides that "[a] transaction does not create a security agreement merely because it provides that ... the lessee has an option to renew the lease or to become the owner of the goods...." 810 ILCS 5/1-201(37)(c) (emphasis added). In evaluating the circumstances under which the existence of an option might create a security agreement, the Seventh Circuit has focused on whether the lessee has the right to terminate the agreement prior to exercising the purchase option. In Marhoefer the court held that the inclusion of a purchase option does not necessarily create a security agreement if the lessee also has a right to terminate the contract at any time prior to the option arising. Marhoefer 674 F.2d at 1143. Similarly, in In re Powers, 983 F.2d 88 (7th Cir.1993), the court concluded that the agreement in that case was a "true lease" because "even though the lessee [could] acquire the goods at the end of the lease's term, the lessee [was] under no obligation to make the payments that [would] allow him to exercise that option." Id. at 91. As explained above, the lessee in this case did not have the right to terminate the agreement at any time. The only way she could unburden herself from the lease obligations was to purchase the equipment. This rigidity suggests that the agreement in this case was not a lease but, rather, was one intended for security.

Second, the Court must consider whether the amount of rental payments due under the lease exceeds the fair market value of the property. Courts have generally held that "[i]f the total rental payments under the lease equal or exceed the purchase price, then a security agreement is indicated." 1D Coogan, Secured Transactions Under U.C.C. s 30.02[4][c][v] at 30-66. While the importance of this test has been reduced under the amendments to s 1-201(37), it is not without relevance. Under the current version of s 1-201(37), [a] transaction does not create a security interest merely because it provides that: (a) 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 *488 greater than the fair market value of the goods at the time the lease is entered into.... 810 ILCS 5/1-201(37)(a) (emphasis added). Again, although the Court cannot rely on this factor exclusively in classifying a contract as a security agreement, it is still an important consideration in evaluating the economics of the transaction. Here, the parties agree that the original value of the equipment was $26,009.75. Pursuant to the terms of the agreement, the debtor was obligated to make monthly rental payments of $702.27 to Subway for a period of sixty months. At the conclusion of the lease, the debtor would have paid $42,136.20 for the equipment, an amount substantially more than its fair market value. Therefore, this, too, is indicative of a security agreement rather than a lease.

An analysis of the third factor further indicates that the agreement is not a lease but a security agreement. Under the agreement, the lessee bears all costs of insurance, taxes, and maintenance for the equipment as well as the risk of loss in the event of damage to the property. The Court is aware that the Seventh Circuit places minimal emphasis on this factor, having stated, in Marhoefer, that "[c]osts such as taxes, insurance and repairs are necessarily borne by one party or the other. They reflect less the true character of the transaction than the strength of the parties' respective bargaining positions." Marhoefer at 1146. However, the assignment of costs and risk in this case, when coupled with the fact that Subway disclaimed all warranties that are generally found in a lease, is a relevant consideration tending to show the agreement is not a "true lease." See In re Maritt, 155 B.R. 12, 13 (Bankr.D.Idaho 1993) (lessor's disclaimer of warranties is a relevant consideration in determining the actual nature of the parties' agreement).

By contrast, the final factor that must be analyzed, whether the useful life of the property exceeds the length of the term of the lease, supports a finding that the agreement is a lease. In general, courts have held that where the useful life of the property exceeds the term of the lease, the agreement is, in fact, a true lease. Marhoefer at 1145. Although there was conflicting evidence at the hearing on summary judgment concerning the projected fair market value of the equipment at the end of the lease period, this discrepancy is irrelevant. Banterra's evidence indicates that after 60 months, the equipment in question would retain fifty-percent of its value ($13,000). Gilbert Stern Aff., Supp. to Pltf.'s Mot. Sum. Judg. at 2. Subway, on the other hand, argued that the fair market value of the equipment after 60 months would be only $2,600. It is undisputed that the property has subsequently been sold to a third party for $14,058.47. Thus, regardless of the figure the Court uses, it is evident the useful life of the property in this case would exceed the term of the lease.

Although the analysis under this final test favors a finding of a lease, consideration of all of the other factors leads the Court to conclude that the agreement is not a lease, but is, in fact, a security agreement. The problem with agreements such as the one in this case is that the lessors/drafters attempt to draft the document so that it is capable of functioning as either a lease or a security agreement, depending on the situation. While it is true that the agreement here has several characteristics of a lease, other more compelling features require its interpretation as a security agreement, the most significant being the absence of a right to terminate the agreement by the lessee. Therefore, for the reasons stated herein, the Court finds that the subject agreement is a security agreement rather than a true lease. Plaintiff Banterra Bank's motion for summary judgment is granted, and defendant's cross- motion for summary judgment is, accordingly, denied.

THOMAS M. TWARDOWSKI, Bankruptcy Judge.

Before the court is the motion of CoreStates Bank, N.A. ("movant") requesting relief from the automatic stay and/or turnover of property ("motion") in the possession of debtor, Edmond C. Murray ("debtor"). The issue presented is whether a document denominated "Motor Vehicle Lease and Disclosure Statement" ("Lease") is in fact a "true lease" or alternatively, an installment purchase agreement with a security interest. For the reasons stated herein, we conclude that the Lease is a true lease subject to assumption or rejection by debtor pursuant to s 365(a) of the United States Bankruptcy Code ("Code"), 11 U.S.C. s 365(a). Consistent with this conclusion, debtor shall be provided an opportunity either to reject the Lease or to assume the Lease and cure past defaults.

It is well established that the determination of whether a particular agreement constitutes a lease or a security agreement for purposes of 11 U.S.C. s 365 is to be made by reference to state law. E.g. In re Bumgardner, 183 B.R. 224, 225 (Bankr.D.Idaho 1995); Phoenix Pipe & Tube, L.P., 154 B.R. 197, 199 (Bankr.E.D.Pa.1993). Turning to the law of Pennsylvania, we find that 13 Pa.C.S.A. s 1201 provides the applicable standard for determining whether a transaction creates a lease or a security agreement.
We observe that 13 Pa.C.S.A. s 1201 was amended in 1992 to incorporate into Pennsylvania law revised s 1-201(37) of Article 2A of the Uniform Commercial Code ("UCC"). See U.C.C. Art. 2A, s 1- 201(37) (Supp.1995) (historical notes); 1A J. White & R. Summers Article 2A Leases of Goods 8 (3d ed. 1991). The former version of the statute was much less detailed than its current iteration and led to the development of inconsistent views among courts regarding the criteria to be applied in determining whether an agreement creates a true lease or a security interest. See e.g. Carlson v. Giacchetti, 35 Mass.App.Ct. 57, 616 N.E.2d 810, 812 (1993); White & Summers at p. 14. In contrast, the revised statute provides standardized provisions intended to focus a court's inquiry on the most salient criteria for distinguishing between true leases and those intended for security. White & Summers at p. 9. In the words of one commentator, in amending U.C.C. s 1-201(37) the drafters attempted to "re-assert the significance of residual value as the touchstone of the common law definition of true leases." Naples, A Review and Analysis of the New Article 2A, 93 Com.L.J. 342, 349 (1988); accord, Bumgardner, 183 B.R. at 228; Carlson, 616 N.E.2d at 813.

We observe that revised U.C.C. s 1-201(37) consists of several new paragraphs and detailed standards which are to be employed in determining the lease/security interest issue. The following analysis, established by the Bankruptcy Court in In re Lerch, 147 B.R. 455 (Bankr.C.D.Ill.1992) (applying I.C. s 28-1-201(37), an Illinois statute that is substantially similar to 13 Pa.C.S.A. s 1201), provides guidance in applying the new statute. Accord, In re Zaleha, 159 B.R. 581, 583 (Bankr.D.Idaho 1993). The initial portion of the first sentence of the second unnumbered paragraph contains the basic direction that the determination is made based on the facts of each case. The latter portion of the first sentence of the second unnumbered paragraph starting with the word "however" creates an exception to the basic direction that the determination is made on the facts of each case, as it provides that without looking at all the facts, a lease will be construed as a security interest if a debtor cannot terminate the lease, and if one of the four enumerated terms is present in the lease. Absent a mandated classification [e.g. that the agreement is a security interest], the determination is based on the facts of the case. At this point the third unnumbered paragraph comes into effect. Focussing on the economics of the transaction, it states that a security interest is not created merely because it contains any of the five terms enumerated in [that] paragraph. Id. at 460.
Having thus explored the background of the changes made to 13 Pa.C.S.A. s 1201(6), as well as their practical application, we turn to the facts of this case. Here, we observe that since debtor has the ability to terminate the Lease unilaterally prior to the end of the lease term, the Lease cannot be deemed a security interest as a matter of law under the exception provided in 13 Pa.C.S.A. s 1201(6)(i). [FN8] Lerch, 147 B.R. at 460. Therefore, the lease/security interest issue must be "determined by the facts of [the] case." 13 Pa.C.S.A. s 1201(6). Our attention is thus directed to an examination of the non-exclusive list of factors enumerated in 13 Pa.C.S.A. s 1201(6)(ii). Lerch, 147 B.R. at 460. The key emphasis at this point of the inquiry is on whether movant retains a meaningful residual interest in the Vehicle. See Bumgardner, 183 B.R. at 228; see also In re Aspen Impressions, Inc., 94 B.R. 861, 866 (Bankr.E.D.Pa.1989) (discussing the revisions made to U.C.C. s 1-201(37) prior to their enactment in Pennsylvania).
FN8. Had debtor not been granted the right to terminate the Lease prior to the expiration of its term and if one of the four factors outlined in 13 Pa.C.S.A. s 1201(6)(i)(A)-(D) could be established, the Lease would be deemed a security agreement under s 1201(6)(i).
Our analysis is facilitated by the fact that the Lease contains a fixed price purchase option. As explained by the Bankruptcy Court in Lerch, this circumstance was used in an example discussed in the Comments. In pertinent part, the Comments state: The relationship of the second paragraph of this subsection to the third paragraph ... deserves to be explored. The fixed price purchase option provides a useful example. A fixed price purchase option in a lease does not in and of itself create a security interest. This is particularly true if the fixed price is equal to or greater *316 than the reasonably predictable fair market of the goods at the time the option is to be performed. A security interest is created only if the option price is nominal and the conditions stated in the introduction to the second paragraph of this subsection are met. U.C.C. s 1-201(37) (historical notes) (emphasis added).
In the instant case, the only evidence in the record concerning the reasonably predictable fair market value of the Vehicle at the time that the purchase option was to be performed is the Lease itself, which establishes an End of Term Price of $6,894.47, and the testimony of movant's witness Hirst. Hirst testified that the End of Term Price represented movant's estimate of the end of term residual value of the Vehicle calculated at the time the Lease was executed. Movant's estimate of the fair market value of the Vehicle is consistent with 13 Pa.C.S.A. s 1201(6)(iii)(B) which generally provides that "reasonably predictable fair market value" is to be determined with reference to the facts and circumstances extant at the time the transaction is entered into, not at a later time, e.g., at the end of the lease term when the actual fair market value can be determined with certainty. Id. Debtor, whose burden it is prove that the Lease is other than what it purports to be, Zaleha, 159 B.R. at 586, neither offered evidence to rebut movant's proof of the Vehicle's estimated residual value of $6,894.47 nor introduced any evidence to show that this sum is nominal. Thus, the fact that the fixed option purchase price is equal to movant's estimate of the residual value strongly supports the conclusion that the Lease is a true lease. Lerch, 147 B.R. at 461; Comments, U.C.C. s 1-201(37) (historical notes).
Debtor contends, however, that the Lease creates a security interest because under its terms he has assumed responsibility for many of the usual semblances of ownership of a motor vehicle, e.g. the risk of loss and payment of taxes and fees, maintenance costs, etc. The statute is clear, however, that a transaction does not create a security interest merely because "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." 13 Pa.C.S.A. s 1201(6)(ii)(B). Contrary to debtor's position, these kinds of factors are typical of "net" leases, Lerch, 147 B.R. at 461, and "reflect less the character of the transaction than the strength of the parties' respective bargaining positions." In Marhoefer Packing Co., Inc., 674 F.2d 1139, 1146 (7th Cir.1982).
Debtor also contends that the economics of the transaction compels the conclusion that it is a security agreement rather than a true lease. In this regard, debtor posits that the Lease is identical to an installment purchase, and should therefore be construed as creating a security interest, because the present value of the lease payments and the end of term price is approximately equal to the price at which movant purchased the Vehicle. [FN9] This argument, however, ignores subsections (A) and (E) of 13 Pa.C.S.A. s 1201(6)(ii), which state that a transaction does not create a security interest merely because the present value of the lease payments is "substantially equal to or greater than the fair market value of the goods at the time the lease is entered into," id. at s 1201(6)(ii)(A), or because the lessee can become the owner of the Vehicle by paying a sum that is equal to its "reasonably predictable fair market value" at the end of the lease term. Id. at s 1201(6)(ii)(E).
FN9. Hirst testified that movant purchased the Vehicle from D'Ambrosio's Dodge-North, Inc. for the sum of $23,372.00.
Furthermore, in order for the Lease to have created a security interest it must have provided debtor with some ownership interest in the Vehicle. In re Winston, 181 B.R. 589, 594 (Bankr.N.D.Ala.1995). The evidence establishes, however, that the Lease provided debtor only with the use and possession of the Vehicle which was at all times owned by movant. The evidence further established that debtor's use of the Vehicle was defined by a set term, at the completion of which debtor was obligated to either return *317 the Vehicle or pay movant a fixed purchase price equal to the reasonably predictable fair market value of the Vehicle at the end of the term. Neither anything in the Lease nor the evidence presented at the hearing supports debtor's claim to an ownership interest in the Vehicle.
Based on the foregoing, we conclude that debtor has not satisfied his burden of demonstrating that the Lease is a security agreement rather than a true lease as denominated on its face. Consistent with this conclusion, debtor shall be provided a reasonable opportunity to assume or reject the Lease pursuant to the provisions of 11 U.S.C. s 365. An Order consistent with the foregoing Opinion shall be entered.

WITNESS: /s/ Conger RENTER: Lilla Lipton LESSOR: Mr Cs CO-RENTER: Johnnie B. Jarrells
*996 Respondent later signed on June 21, 1996, a Rental Purchase Agreement for an air conditioner. This agreement is on the same form as the prior Rental Purchase Agreement for the living room furniture. The agreement for the air conditioner provides that the rental term is weekly. The rent is $28 per week. The estimated fair market value of the air conditioner is $595. Respondent must renew the agreement for fifty-two weeks if she wants to own the air conditioner.
The Rental Purchase Agreements provide that the rental terms are week to week for the air conditioner and month to month for the furniture. Respondent can return the property at the end of any term without any further obligation. Respondent is not required to renew the agreements or to purchase the property. Movant is responsible for maintaining and paying any taxes assessed on the property.
Respondent essentially was current on her payments to Movant when Respondent filed a petition under Chapter 13 of the Bankruptcy Code on July 2, 1996. Respondent's Chapter 13 plan proposes to pay in full the remaining lease payments, plus interest, to Movant over the three-and-one-half-year term of the Chapter 13 plan. Respondent's Chapter 13 plan treats Movant as having fully secured claims. Respondent argues that the Rental Purchase Agreements are secured sales agreements which can be modified through her Chapter 13 plan.
Respondent has worked for the same employer for twenty-five years. Respondent cannot afford the weekly and monthly payments called for in the Rental Purchase Agreements. Respondent, however, can pay the balance owed to Movant over the term of her Chapter 13 plan.
Movant argues that the Rental Purchase Agreements are true leases. Movant argues that Respondent must faithfully perform the terms of the agreements if she wants to retain the furniture and air conditioner.
The issue presented is whether the Rental Purchase Agreements are true leases or secured sales agreements. "The legislative history to section 365 of the Bankruptcy Code states that whether a lease constitutes a security agreement should be determined by state law. A security interest in personal property is subject to Georgia's version of the uniform Commercial Code." National Traveler, Inc. v. Paccom Leasing Corp. (In re National Traveler, Inc.), 110 B.R. 619, 620 (Bankr.M.D.Ga.1990). In In re Paz, [FN2] Judge Walker, speaking for the Bankruptcy Court for the Southern District of Georgia, stated:
FN2. 179 B.R. 743 (Bankr.S.D.Ga.1995).
The Georgia Legislature amended O.C.G.A. s 11-1-201(37) in 1993 to provide a codified distinction between documents creating security interests and lease agreements. The agreement before the Court, having been entered into after the effective date of the amendments, is subject to scrutiny under the amended law. 179 B.R. at 746.
The court also stated:
The 1993 amendment to section 11-1-201(37) is largely consistent with Georgia case law prior to the amendment. The amendment provides a yardstick for the Court to measure the facts of each individual case. 179 B.R. at 747.
Section 11-1-201(37) of the Georgia Code [FN3] provides: [Omitted.]
FN3. O.C.G.A. s 11-1-201(37) (Supp.1996).
In National Traveler, Inc. v. Paccom Leasing Corp. (In re National Traveler, Inc.), [FN4] this Court stated:
FN4. 110 B.R. 619 (Bankr.M.D.Ga.1990).
Georgia law does not require "magic words" to create a valid security interest. Rather, the court must refer to the general law of contracts and determine whether the parties intended to create a security agreement. United States v. Hollie (In re Hollie), 42 B.R. 111, 117 (Bankr.M.D.Ga.1984). The determining factor is the intention of the parties at the time the agreement was entered into as construed in light of facts and circumstances as they existed at that time. Citizens & Southern Equipment Leasing, Inc. v. Atlanta Federal Savings & Loan Assoc., 144 Ga.App. 800, 805, 243 S.E.2d 243, 247 (1978). A document is construed according to the intent of the parties as ascertained from factors that distinguish true leases from security agreements. Leasing Service Corp. v. River City Construction, Inc., 743 F.2d 871, 878 (11th Cir.1984). The best test for determining the intent of an agreement which provides for an option to buy is a comparison of the option price with the market value of the equipment at the time the option is to be exercised. Such a comparison shows whether the lessee is paying actual value or acquiring the property at a substantially lower price. Mejia v. Citizens & Southern Bank, 175 Ga.App. [80] at 82, 332 S.E.2d [170] at 172 [ (1985) ]; Ford Motor Credit Co. v. Dowdy, 159 Ga.App. at 667, 284 S.E.2d at 680. If the lessee has the option to become the owner of the property for no additional or for a nominal consideration, the lease is deemed to be intended for security. Any determination of whether consideration is nominal must be made on a case-by-case basis. Mejia v. Citizens & Southern Bank, 175 Ga.App. at 82, 332 S.E.2d at 172. 110 B.R. at 621.
Georgia courts also have considered other factors in determining the intent of the parties. In Ford Motor Credit Co. v. Dowdy, [FN5] the Georgia Court of Appeals stated:
FN5. 159 Ga.App. 666, 284 S.E.2d 679 (1981), overruled on other grounds, Adams v. D & D Leasing Co. of Georgia, Inc., 191 Ga.App. 121, 381 S.E.2d 94 (1989), cert. denied.
Whether [an agreement] is intended as security is to be determined by the facts of each case; the name which the parties give it is not conclusive.... Other factors present in this case which are listed in Davis Brothers as quoted from In re Transcontinental Industries, Inc., 3 UCC Rep. 235 [1965 WL 8366] (N.D.Georgia 1965) as tending to establish that the transaction is a conditional sale are: the lessor's purchase of the equipment from a supplier; the requirement that the lessee be responsible for the payment of all taxes, insurance and expenses for repairs, an initial down payment, and an additional payment of security deposit. ... The predominate opinion appears to be that a true lease may or may not contain an option to purchase, its effect rather than its presence being the predominative [sic] element.
284 S.E.2d at 680-81.
In Woods v. General Electric Credit Auto Lease, Inc., [FN6] the Georgia Court of Appeals stated:
FN6. 187 Ga.App. 57, 369 S.E.2d 334 (1988).
Although the [car lease agreement] does contain certain provisions more likely to be found in a security transaction, for example, that the appellant and her husband would be responsible for all necessary vehicle repairs, vehicle maintenance, taxes and vehicle insurance, examination of the *999 document reveals that these factors are not controlling. Mejia, supra 175 Ga.App. at 82, 332 S.E.2d 170.
The Agreement specifically is labeled a lease and consistently refers to appellant and her husband as lessees. It includes the original lessor's assignment to the appellee of "all right, title and interest in and to the leased vehicle and to this lease...." Moreover, it expressly provides "that this ... is a true lease...." While these factors are not dispositive in construing the nature of the Agreement, see generally, Mejia, supra at 81, 332 S.E.2d 170 and Ford Motor Credit Co., supra 159 Ga.App. at 667, 284 S.E.2d 679, they are entitled to reasonable weight, as they are an indicator of the parties' contractual intent and the purpose of the Agreement.
Other factors indicative of a true lease, and which are present in this case include (a) that the original lessor was apparently in the automobile leasing business, Mejia, supra 175 Ga.App. at 82, 332 S.E.2d 170; (b) that the lessor did not require a financing statement, Mejia, supra at 82, 332 S.E.2d 170; and (c) that the Agreement expressly provided that the lessees "have absolutely no equity or other ownership rights in the vehicle," unless they exercise their option to purchase the vehicle, see generally Ford Motor Credit Co., supra 159 Ga.App. at 667, 284 S.E.2d 679, and cases cited therein. Additionally, the leasing of automobiles by individuals, as well as by business entities, is not an uncommon practice today. ... This Agreement on its face required no "initial down payment," and the security deposit, which was refundable, was roughly equivalent to the amount required for a monthly leasing payment. Such an amount is not unreasonable and entirely consistent with a lease transaction.
369 S.E.2d at 335-36.
Turning to the case at bar, the Court notes that the Rental Purchase Agreements contain provisions that are found both in a true lease and in a sales agreement. Respondent is not required to make any additional payments when the agreements terminate to own the property. Movant's trade name implies that customers who rent will someday own the property. The agreements are entitled "Rental Purchase Agreement." These factors support Respondent's contention that the agreements are secured sales agreements.
The agreements, however, also contain provisions found in a true lease. Respondent can return the property at the end of any weekly or monthly term without any further obligation. Respondent is not required to renew the agreements or to purchase the property. Respondent was not required to make a down payment or security deposit. Movant is responsible for maintaining the property and paying any taxes assessed on the property. The agreements expressly provide that, by signing the agreements, Respondent intends to rent rather than purchase the property. The agreements expressly provide that Respondent will not own the property unless she buys it or acquires ownership as provided by the terms of the agreements.
The Court, having considered the facts presented and the applicable Georgia law, is persuaded that the Rental Purchase Agreements are true leases.
 
 

This matter comes before the Court on Motion for Relief From Stay filed by Gold Key Lease, Inc., ("Gold Key") a creditor in this Chapter 13 case. At issue is the characterization of an agreement as either a lease which must be assumed or rejected, or a security instrument capable of bifurcation into secured and unsecured component claims. This is a core matter pursuant to 28 U.S.C. s 157(b)(2)(G). Based on the following discussion, the Court will deny Gold Key's Motion for Relief From Stay subject to the requirement that Debtor amend his plan.

THIS MATTER comes before the court following a non-jury trial on October 4, 1994. This case is a declaratory judgment action filed by the plaintiff, NationsBank of North Carolina, N.A., as Trustee for the NationsBank and Designated Subsidiaries Retirement Plan and Trust ("NationsBank") against the defendant, Capital Associates International, Inc. ("Capital Associates") seeking a determination as to the ownership and title to certain property located in Mecklenburg County, North Carolina. More specifically, the action seeks a determination of ownership and title with regard to a specified list of property hereinafter referred to as the "disputed items." The issue of damages is also before the court.

In this action to enforce an excess mileage provision in a motor vehicle lease, the plaintiff lessor appeals from the trial court's denial of its motion for summary judgment. Because there is no question of material fact regarding plaintiff's right to enforce the provision, we granted its application for interlocutory appeal and now reverse. Defendant Smoke Rise Corporation leased a BMW automobile from plaintiff, and the corporation's president, defendant William Probst, personally guaranteed the lease. The lease, as modified in an extension agreement, provided that at the end of the lease term defendants could purchase the vehicle for $16,863.75, the estimated end-of-term wholesale value of the vehicle. It also provided that if defendants returned the vehicle rather than exercising their option to purchase it, they would have to pay a charge of "up to 15 cents" for each mile the vehicle had been driven in excess of 85,011 miles. Defendants chose not to purchase the vehicle and returned it with an odometer reading of 180,409 miles, but they refused to pay for the excess mileage. Plaintiff seeks $14,309.70, which is 15 cents times 95,398 (the difference between 180,409 and 85,011 miles), plus attorney fees.
In their defense, Smoke Rise and Probst contend the excess mileage provision is unconscionable because the $14,309.70 charge is almost as much as the projected end-of-term value of the car, and is considerably more than their experts say the actual value of the car is with 180,409 miles. Unconscionability is evaluated by looking at the circumstances at the time the contract was originally made, however, and determining whether, in light of the commercial needs of the particular trade involved, the agreement is one which " 'no sane man not acting under a delusion would make and ... no honest man would take advantage of.' [Cits.]" R.L. Kimsey Cotton Co. v. Ferguson, 233 Ga. 962, 966(3), 214 S.E.2d 360 (1975); accord Zepp v. Mayor etc. of Athens, 180 Ga.App. 72, 79(2), 348 S.E.2d 673 (1986). See also OCGA s 11- 2A-108. In the context of a corporation leasing a luxury vehicle, an excess mileage charge of 15 cents per mile is not unreasonable and certainly does not shock the conscience. Such a charge serves the necessary commercial function of compensating for out-of-the-ordinary usage which will affect the residual value of the car. If *470 at the end of the term defendants discovered the excess mileage charge was too high relative to the value of the car, they could have exercised their option to purchase it. But they did not do so, and now they cannot complain about a charge they agreed to pay.
Defendants' argument that the provision is too indefinite to enforce is also without merit. Plaintiff is entitled to anything up to 15 cents per mile, and that includes 15 cents per mile. And the fact that it was willing to take less earlier in the dispute does not undermine its right to 15 cents per mile.
The excess mileage provision is clear and unambiguous and must be enforced as written. See Saf-T-Green of Atlanta v. Lazenby Sprinkler Co., 169 Ga.App. 249, 250, 312 S.E.2d 163 (1983). Accordingly, the trial court erred in denying plaintiff's motion for summary judgment.
Judgment reversed.
 
 

Plaintiff, Walnut Equipment Leasing Company, appeals a trial court judgment rejecting its claims against defendants, Clarence and Glenda Moreno d/b/a P & M Texaco, for unpaid rent for the lease of a tire changer. We reverse and render.

Sometime prior to November 30, 1989, Larry Brown, a salesman for Webb Equipment Company, Inc. ("Webb") of Shreveport, Louisiana, approached Clarence and Glenda Moreno, d/b/a P & M Texaco (the "Morenos"), regarding the sale of a tire changer for use in their automobile service station. After Brown unloaded the machine and demonstrated its capabilities and safety features, Mr. Moreno decided that it suited the station's needs and orally agreed to either lease the tire changer or purchase it for $2,600.00. After consulting two certified public accountants, Mr. Moreno opted to lease the machine for tax purposes.
The lease was arranged through Walnut Equipment Leasing Company, Inc. ("Walnut"), a Pennsylvania corporation. Brown presented a Walnut lease application to the Morenos, which described the exact tire **329 changer selected (Hofmann TC 12 SE, Serial Number 1971091), listed P & M Texaco's and Webb's addresses, and indicated that Brown was the Webb salesman responsible for the transaction. On November 30, 1989, Mr. Moreno, on behalf of "P & M Texaco Service," wrote a $312.00 check payable to Walnut, representing the first monthly rental payment and the last two monthly rental payments, as a security deposit.
Brown then presented a Walnut lease form to the Morenos, which was signed by both of them sometime during December, 1989, and was accepted by Walnut on January 4, 1990. According to the terms of the lease, the Morenos *2 were to pay monthly rentals of $104.00 for 39 months. At the end of the lease, the Morenos were to have no ownership interest in the tire changer and no option to purchase the machine. Additionally, Paragraph II of the lease contained a warranty disclaimer, which provided that Walnut made no representations or warranties of any kind, express or implied, as to the condition of the equipment, its merchantability or its fitness. On January 4, 1990, Walnut issued a purchase order to Webb requesting purchase of the Hofmann TC 12 SE, tire changer, Serial Number 1971091, and requesting delivery to P & M Texaco. [FN1]
FN1. It is unclear when the tire changer was actually delivered. Mr. Moreno testified that it was delivered before he wrote the November 30, 1989, check to Walnut. However, Walnut's president, Mr. Shapiro, testified that it was customary for the equipment to be delivered only after Walnut accepted the lease and issued a purchase order to the supplier. Apparently the request for delivery of the tire changer to P & M Texaco in the January 4, 1990, purchase order was merely a formality.
Mr. Moreno also signed a document entitled "Certificate of Acceptance and Satisfaction," whereby he acknowledged receipt of the tire changer, and stated that he read and understood the terms of the lease. The certificate further provided that the Morenos had selected both the equipment and the supplier from whom the tire changer was purchased, and that neither the supplier nor the salesman were Walnut agents. Additionally, the certificate stated that the Morenos understood that Walnut made no warranties, express or implied, as to the condition of the equipment, and that Walnut would not be liable to the Morenos for losses or damages caused by the equipment or its use. Finally, the certificate provided that if the equipment did not operate as represented by the supplier or if it was not satisfactory for any reason, the Morenos would assert their claims solely against the supplier, Webb, and would nevertheless pay Walnut all of the rent due under the lease. *3
Walnut followed up the transaction by telephoning Mr. Moreno on two different occasions to confirm that he was satisfied, and that he understood the terms of the lease and his obligations thereunder. The contents of both conversations were memorialized by Joan Demow, a Webb employee, through a written telephone memorandum. The first telephone call was placed on January 8, 1990. According to the memorandum, Mr. Moreno confirmed receipt of the tire changer and stated that he was satisfied. He also acknowledged that Walnut was not responsible for service, repairs or maintenance of the leased equipment.
On or about February 2, 1990, the tire changer "blew up" while a P & M Texaco employee was repairing a tire. The tire and rim being repaired were damaged, and the tire changer was rendered unusable. Mr. Moreno contacted Brown to advise of the malfunction, who later came out to the service station to inspect the tire changer. After inspecting the machine, Brown decided that it was necessary to take it to Webb, in Shreveport, for repair. A few days later, Brown telephoned Mr. Moreno to inform him that it would cost approximately $2,000.00 to repair the tire changer. Mr. Moreno objected to the high cost of the repairs, since a new machine could be purchased for $2,600.00.
The Morenos refused to pay for the repairs. They also discontinued making monthly rental payments to Walnut. After making several oral and written demands for payment, Walnut sued the Morenos in Pennsylvania, and on August 1, 1990, obtained a "default" judgment for $5,463.64, representing accelerated and back lease payments, late charges, collection fees and taxes. On December **330 27, 1990, Walnut filed an "Ex Parte Petition for Enforcement of Foreign Judgment," in *4 Caldwell Parish, Louisiana, requesting that the court recognize the Pennsylvania judgment.
On January 31, 1991, the Morenos answered Walnut's petition to enforce the Pennsylvania judgment. Therein, they generally denied Walnut's allegations and specifically pled that the Pennsylvania court lacked personal jurisdiction over them. They also claimed that the tire changer was defective and that it was not suitable for the purposes for which it was intended. The Morenos also reconvened against Walnut and Webb, claiming that the tire changer should have been repaired pursuant to the warranty provisions affiliated with the purchase/lease. The Morenos prayed for dismissal of Walnut's claims, rescission of the lease, and attorney fees and costs.
[Portions omitted.]
After considering the testimony and other evidence presented, the *5 trial court ruled in favor of the Morenos, declaring the lease null and void and ordering Walnut to refund all previously made payments. The trial court concluded that:
... the lessor simply cannot be allowed to exact a waiver of the obligation of warranting fitness from vices and defects while retaining the right to collect rent for the entire thirty-nine (39) month term, even if equipment proves defective less than one (1) month after commencement of the lease.
[Portions discussing choice of law omitted.]
*9 WAIVER OF WARRANTIES UNDER PENNSYLVANIA LAW Having found that Pennsylvania law governs all aspects of the lease, except those relating to default, remedies and charges, we now turn to the effectiveness of the waiver of warranty provision under that state's law. [6] Pennsylvania's "Sales" articles are based substantially upon those set forth in Article 2 of the Uniform Commercial Code, and are located at 13 Pa.C.S.A. ss 2101 through 2725. Although the transaction at issue involves a lease, rather than a sale, the Pennsylvania courts have found that the "warranty" and "waiver of warranty" provisions applicable to sales, 13 Pa.C.S.A. ss 2313 through 2316, may be applied by analogy to leases. [FN4] Cucchi v. Rollins Protective Services Co., 524 Pa. 514, 574 A.2d 565 (1990); Keblish v. Thomas Equipment, Ltd., 427 Pa.Super. 93, 628 A.2d 840 (1993); Fetrow, Uniform Commercial Code--Pennsylvania Applies Article 2 Warranty Provisions to Personal Property Lease Transactions--Cucchi v. Rollins Protective Services, 64 Temp.L.Rev. 355 (1991).
FN4. It is noteworthy that, effective July 9, 1993, the Pennsylvania legislature enacted the "Uniform Commercial Code Modernization Act," Act No. 1992-97. By this legislation, Article 2A, Leases, was codified at 13 Pa.C.S.A. s 2A101 et seq. The Article 2A warranty provisions for leases are essentially the same as those for sales.
The applicable warranties are set forth in 13 Pa.C.S.A. ss 2314 and 2315, which provide, in pertinent part, that: s 2314. Implied warranty; merchantability; usage of trade (a) Sale by merchant.--Unless excluded or modified (section 2316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.... *10 (b) Merchantability standards for goods.--Goods to be merchantable must be at least such as: * * * * * *
(3) are fit for the ordinary purposes for which such goods are used. s 2315. Implied warranty: fitness for particular purpose Where the seller at the time of contracting has reason to know: (1) any particular purpose for which the goods are required; and (2) that the buyer is relying on the skill or judgment of the seller to select or furnish suitable goods; **333 there is unless excluded or modified under s 2316 (relating to exclusion or modification of warranties) an implied warranty that the goods shall be fit for such purpose.
To exclude or modify the implied warranty of merchantability, according to 13 Pa.C.S.A. s 2316, the written contract language must mention merchantability and must be conspicuous. To exclude or modify the implied warranty of fitness, the exclusion must be in writing and conspicuous. The statute also provides that, "Language to exclude all implied warranties of fitness is sufficient if it states, for example, that 'There are no warranties which extend beyond the description on the face hereof.' "
A term is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. 13 Pa.C.S.A. s 1201. See also, Keblish, supra; Moscatiello v. Pittsburgh Contractors Equipment Company, 407 Pa.Super. 363, 595 A.2d 1190 (1991), appeal denied, 529 Pa. 650, 602 A.2d 860 (1992). Additionally, language in the body of a form is conspicuous if it is in larger or other contrasting type or color. 13 Pa.C.S.A. s 1201.
Some of the important characteristics that Pennsylvania courts consider when determining whether a reasonable person should have noticed the disclaimer *11 include: (1) the placement of the clause in the document (beginning/end or front/back of document); (2) the size of the disclaimer's print; and (3) whether the disclaimer was highlighted or called to the reader's attention by being in all caps or a different type style. Keblish, supra; Moscatiello, supra; U.S. Leasing Corporation v. Stephenson Equipment, Inc., 230 Pa.Super. 181, 326 A.2d 472 (1974).
The waiver of warranty provision at issue provides:
II WARRANTIES--LESSEE AGREES THAT LESSOR HAS MADE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, NATURE OR DESCRIPTION, EXPRESS OR IMPLIED AS WITH RESPECT TO ANY OTHER MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OR USE OF THE EQUIPMENT, ITS MERCHANTABILITY, OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. (Caps and bold in original.) This provision is located on the front side of the lease, which is one page in length with printed information on both sides. Furthermore, it is located almost directly in the middle of the front page of the lease, and is immediately noticeable because it is in larger type, all caps and boldfaced. The majority of the printed information is smaller in size, not boldfaced and not capitalized. It is the only capitalized and boldfaced paragraph that is listed under the section entitled TERMS AND CONDITIONS OF LEASE.
We find that the warranty disclaimer here is sufficiently noticeable to satisfy the conspicuousness requirement of 13 Pa.C.S.A. s 2316. The warranty disclaimer also satisfies the remaining requirements of 13 Pa.C.S.A. s 2316 because it is "written" and makes specific reference to "merchantability."
As such, the Morenos waived any breach of warranty claims that they may have had against Walnut. According to the terms of the lease, the Morenos bore *12 the risk that the tire changer was merchantable and that it would be fit for its particular purpose. A waiver of claims against Walnut for nonsatisfactory condition or defective conditions of the leased equipment was an effective allocation of foreseeable risks.
FAIRNESS AND UNCONSCIONABILITY
The Morenos have obligated themselves to tender all rental payments, regardless of the condition of the tire changer. This is provided for in the lease, which has the phrase, "THIS LEASE IS NON-CANCELLABLE" (bold and caps in original), typed just above the signature lines on the front page. Further, the "Certificate of Acceptance and Satisfaction," signed by Mr. Moreno, provided that:
Lessee further acknowledges the following:
e) that if the equipment is not properly installed, does not operate as represented by supplier, or is unsatisfactory for any **334 reason, Lessee shall make claim on account thereof solely against supplier and shall nevertheless pay Lessor all rent payable under this Lease; Lessee hereby waiving any and all rights, claims and set-offs against the Lessor that might otherwise have arisen under the Lease agreement. (Emphasis added.)
The Morenos contend that enforcement of both these provisions and the warranty disclaimer would be unfair because: (1) Mr. Moreno is an unsophisticated lessee who was not given an opportunity to read the lease, and was not explained the terms of the lease; (2) it is unconscionable to require Mr. Moreno to waive all warranties, while at the same time demanding the payment of all rentals due under the lease. We disagree.
*13 Mr. Moreno testified that he completed seven years of formal education and received a General Equivalency Diploma or G.E.D. He is able to read and write. Furthermore, Mr. Moreno has been an insurance agent for ten years, and is the proprietor of his own insurance agency. While Mr. Moreno has no college education or formal corporate titles, he is a small businessman with significant experience in business matters. His insurance agency has apparently been successful enough to remain open for a number of years. As owner, Mr. Moreno must have some influence on the business and its success must be attributable to him. Furthermore, the nature of the insurance business leads us to believe that Mr. Moreno must understand the purpose of entering into written contracts, and the significance of reading contractual terms before signing an instrument.
Mr. Moreno is not uneducated and unsophisticated in business matters. He admitted that he did not read the lease, and acknowledged that he should have done so. Under Pennsylvania law, in the absence of proof of fraud, the failure to read a contract one signs is an unavailing excuse or defense, and can not justify an avoidance, modification or nullification of the contract or any provision thereof. Estate of Brant, 463 Pa. 230, 344 A.2d 806 (1975); Stanley A. Klopp, Inc. v. John Deere Co., 510 F.Supp. 807 (E.D.Pa.1981), affirmed, 676 F.2d 688 (3d Cir.1982).
With regard to the Morenos' claims of unconscionability, we look to 13 Pa.C.S.A. s 2302, which provides: (a) Finding and authority of court.--If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made, the court may:
(1) refuse to enforce the contract;
*14 (2) enforce the remainder of the contract without the unconscionable clause; or (3) so limit the application of any unconscionable clause as to avoid any unconscionable result. (b) Evidence by parties.--When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
Although this provision is contained within Pennsylvania's "Sales" Articles, it has been applied to leases. Bishop v. Washington, 331 Pa.Super. 387, 398, 480 A.2d 1088, 1093 (1984), citing Leasing Service Corp. v. Broetje, 545 F.Supp. 362 (S.D.N.Y.1982). Whether a contract or clause is unconscionable is a question of law. Stanley A. Klopp, supra. Generally the party challenging a contract or a particular contract term has the burden of proving unconscionability. Bishop, supra.
According to the Pennsylvania Supreme Court, the test of unconscionability is twofold. First, for a contract or a term to be unconscionable, the party signing the contract must have lacked a meaningful choice in accepting the challenged provision. Second, the challenged provision must unreasonably favor the party asserting it. Witmer v. Exxon Corp., 495 Pa. 540, 551, 434 A.2d 1222, 1228 (1981).
The Morenos have failed to meet their burden of proving that, as the parties signing the lease, they lacked a meaningful choice in accepting the terms and conditions thereof. Mr. Moreno testified that he debated about **335 whether to lease or purchase the tire changer. After consulting with two certified public accountants, he opted to lease the machine for tax advantages. There is no evidence that Mr. Moreno attempted to negotiate or change any terms of the lease. *15 Additionally, Walnut was not the only lease financing company available. Had they objected to the terms of the lease and Walnut refused to modify them, the Morenos could have requested that Webb suggest another lessor or the Morenos could have found their own leasing company. If this avenue proved impractical, the Morenos simply could have purchased the tire changer from Webb. Where, as here, a contract provision affects commercial entities with meaningful choices at their disposal, the clause in question will rarely be deemed unconscionable. Vasilis v. Bell of Pennsylvania, 409 Pa.Super. 396, 399, 598 A.2d 52, 54 (1991).
We also find that these provisions do not unreasonably favor Walnut. They are provisions commonly found in three-party lease transactions, and the Morenos are not left without recourse.
[Remainder of opinion discussing role of financing lessor is omitted.]

This dispute arose from a finance lease [FN1] entered into between Vacation Village and GECC for the lease-purchase of a
business telephone system and related equipment (collectively referred to as "the equipment") which were manufactured and supplied by Hitachi. Vacation Village arranged for the purchase of the Hitachi equipment through RCA Corporation. Vacation Village assigned its contract right to purchase the equipment to GECC. GECC completed the purchase and then leased the equipment to Vacation Village, with an option for Vacation Village to purchase the equipment upon lease expiration.
FN1. GECC did not select, manufacture or supply the equipment that is the subject matter of the agreement between GECC and Vacation Village. GECC merely provided Vacation Village with the financial assistance necessary to accommodate the acquisition of the equipment. Moreover, Vacation Village directed GECC where to acquire the equipment. Thus, the agreement between GECC and Vacation Village was a finance lease. See NRS 104A.2103(1)(g).
Shortly after the equipment was installed at Vacation Village, problems developed with its operation and use. As a result, Vacation Village filed an action in the district court against Hitachi alleging that Hitachi breached the implied warranty of merchantability by selling GECC defective equipment which ultimately was leased to Vacation Village.
[Portions omitted.]
Warranty of Merchantability
Hitachi manufactured and supplied GECC with telephone equipment that was the subject matter of the finance lease between Vacation Village and GECC. The UCC provides that unless excluded or modified, **747 there is an implied warranty that a good is merchantable and suitable for the particular purpose for *485 which it is sold. See NRS 104.2314; NRS 104.2315. Nonetheless, Hitachi asserts that it was not subject to the implied warranties under the UCC because the finance lease between Vacation Village and GECC was a lease and not a sale. In support of this proposition, Hitachi cites to U C Leasing, Inc. v. Laughlin, 96 Nev. 157, 160, 606 P.2d 167, 169 (1980), where this court held that a "true lease" is not subject to the provisions of Nevada's UCC. However, Hitachi's reliance on U C Leasing is misplaced. The precedent set forth in U C Leasing has been abrogated by the subsequent enactment of NRS 104A (UCC--Leases). 1989 Nev.Stat., ch. 166, s 1 at 340. These statutes took effect on January 1, 1990, and provide for an implied warranty of merchantability in finance lease agreements. See NRS 104A.2209. Vacation Village and GECC entered into the finance lease subsequent to the enactment of NRS 104A, thus, the implied warranty of merchantability applies to the instant situation.
Vertical Privity
Hitachi asserts that the agreement between GECC and Vacation Village expressly provides that GECC is not required to enforce the manufacturer's warranties on behalf of itself or on behalf of Vacation Village, indicating that Vacation Village was not intended as a third-party beneficiary of the agreement between Hitachi and GECC. However, Hitachi offers no authority in support of this proposition. Moreover, whether GECC was required to enforce Hitachi's warranties on behalf of Vacation Village is not dispositive of whether Hitachi's warranties extend to Vacation Village. [9] In pertinent part, NRS 104A.2209 provides that:
1. The benefit of the supplier's promises to the lessor under the supply contract and of all warranties, whether express or implied ... extends to the lessee to the extent of the lessee's leasehold interest under a finance lease related to the supply contract....
(Emphasis added.) Vacation Village is the lessee under a finance lease with GECC, and as such, the implied warranties of merchantability extend to Vacation Village. In addition, this court has held that "lack of privity between the buyer and manufacturer does not preclude an action against the manufacturer for the recovery of economic losses caused by breach of warranties." Hiles Co. v. Johnston Pump Co., 93 Nev. 73, 79, 560 P.2d 154, 157 (1977) (citations omitted). Thus, Vacation Village can bring *486 a complaint against Hitachi for breach of warranty despite Vacation Village's lack of privity with Hitachi.
CONCLUSION
Appellants' complaint sets forth allegations sufficient to make out the elements of a right to relief. Moreover, appellants' complaint gave fair notice to respondent of the nature and basis of a legally sufficient claim and the relief requested. Consequently, the district court's dismissal of appellants' complaint for failure to state a claim upon which relief can be granted was error. Accordingly, the district court's order of dismissal is reversed and remanded for proceedings consistent with this opinion.

This issue presented for decision in this case is whether a leasing company which is closely affiliated with an automobile manufacturer, a distributor and a dealer, yet still a separate entity, is subject to a customer's defense of breach of warranty. The specific question here is whether the leasing company may enforce a vehicle lease over a defense that the vehicle suffers from manufacturing defects in breach of the new car warranty. We hold that enforcement must await determination of the breach of warranty issues.
Defendant selected a luxury car offered for sale by Ray Catena Motor Car Corp. (Catena) and chose to lease the vehicle. Using a form of lease provided by plaintiff, Mercedes-Benz Credit Corporation (MBCC), Catena as lessor and defendant as lessee executed a lease on July 10, 1993, for a new Mercedes Benz model 500SL, at the monthly rate of $1,419 for forty-eight months. The total monthly payments would be $68,112 with a stated residual value of $53,585. The lease provided for simultaneous assignment by Catena to MBCC, "pursuant to the terms of the Dealer Automobile Purchase and Lease Assignment by and between Lessor and [MBCC]," and the certificate of title was issued to MBCC.
The terms of the lease purported to insulate MBCC from liability for breach of any warranty or any claim by defendant with respect to the car. The pertinent parts of the relevant paragraphs state: 6. VEHICLE WARRANTIES AND DISCLAIMERS.
To the extent they are assignable, you [lessor] agree to assign to me [defendant] all your rights and remedies under the manufacturer's standard written warranties applicable to the vehicle. I acknowledge that you make no express **290 warranties regarding the vehicle as to its condition, merchantability, or fitness for use, that you disclaim any implied warranties and that I am leasing it from you "as is".
19. ABATEMENT
The monthly rent shall be paid for the full term of the lease ... without setoff, counterclaim, reduction, abatement, suspension, deferment, or any other defense because of ... unsatisfactory performance of the vehicle or for any other reason whatever including, but not limited to, mechanical or warranty problems.... *28 Paragraph nineteen also provided that defendant agreed to use the manufacturer's dispute resolution system before taking any action against MBCC if there was a dispute regarding the manufacturer's warranty.
When defendant leased the car, he received warranties on the vehicle from both the manufacturer and the dealer. The warranty from the manufacturer provided that Mercedes-Benz of North America (MBNA) would "make any repairs or replacements necessary, to correct defects in material or workmanship." Catena, as the authorized Mercedes dealer, was a "co-warrantor." Both the express warranties and any warranties implied by law were to last for either forty-eight months or 50,000 miles, whichever came first.
Defendant paid the monthly rent on the lease for twenty-five months, but he was continually dissatisfied with the car's performance. He experienced repeated problems with it and frequently returned to Catena for repairs during that period of time. Aside from scheduled maintenance, forty-eight days were used to perform $22,269 of warranty work at Catena. Defendant admits he never informed MBCC of problems with the car, but rather, dealt with personnel at the Catena dealership, because it was his belief that the two entities were the same.
Frustrated at the fact that the car repeatedly manifested problems and could not seem to be repaired properly, defendant stopped paying on the lease in July 1995. In November 1995, MBCC filed an action against defendant in the Law Division, alleging that defendant was in default of payments due on the lease. It therefore requested a writ of replevin ordering defendant to turn over the vehicle, as well as damages for monies due and unpaid under the lease. Defendant filed an answer with separate defenses and a counterclaim against MBCC; one of the separate defenses asserted that MBCC breached the applicable warranties "in conspiracy with the third-party defendants" and thereby breached the lease. Also included was a third-party action against MBCC, Catena, MBNA, and Mercedes-Benz A.G. *29 MBAG), a German company that manufactured the automobile in question. MBNA, MBCC and MBAG are each subsidiaries of Daimler-Benz A.G., a German corporation.
Defendant surrendered the car in January 1996, and MBCC eventually sold it at auction. When the final credits and charges were totaled, MBCC claimed defendant owed it $34,443.13 including attorneys' fees and costs of $5,506.06. [FN1] MBCC was granted summary judgment in that amount and defendant's counterclaim was dismissed with prejudice. The order granting that relief was certified as a final judgment, pursuant to R. 4:42-2, leaving the third-party action to be prosecuted.
FN1. The figures were not contested.
The motion judge found that using MBCC as a leasing company "was a convenience, but there's nothing here to suggest anything other than a separate entity. Obviously [the third-party defendants] worked together because--it becomes a very convenient arrangement. But that does not destroy the separateness of [MBCC] in the context of the role it played in this lease arrangement." The judge did not otherwise attempt to analyze the relationships among the third-party defendants or explain why MBCC was clothed with "separateness," despite the unrefuted allegations of the many indicia of a working relationship involving MBNA, MBCC and Catena.
On appeal, defendant contends summary judgment was erroneously granted because: **291 (1) the disclaimer and waiver provisions of the lease were unenforceable and he is entitled to relief under the "lemon law," N.J.S.A. 56:12-29 to -49, and (2) because the car was so defective, there was a breach of express and implied warranties. Regardless of the legal analyses expressed by the parties, we believe the starting point must be Unico v. Owen, 50 N.J. 101, 232 A.2d 405 (1967). In Unico, a consumer responded to an advertisement to purchase 140 record albums and a stereo from Universal Stereo *30 Corporation. The purchase price was financed through a retail installment contract and note providing for a down payment and thirty-six monthly payments. Universal was to deliver the records over a six-year period. Universal and the buyer entered into an installment contract, which consisted of "11 fine print paragraphs." [FN2] The contract was directly assigned to a lender, Unico, as patently contemplated. The "reasonable and normal expectation" of the buyer was that "performance of the delivery obligation was a condition precedent to his undertaking to make installment payments." Id. at 106, 232 A.2d 405. However, there was a clause stating that if the contract was assigned, the buyer's liability to the assignee would be "immediate and absolute and not affected by any default whatsoever of the Seller signing this contract." The buyer also agreed not to set up any defense viable against the seller if sued by the note's assignee for nonpayment. Ibid.
FN2. The Court's opinion makes no mention of a disclaimer of warranty clause in the contract.
Unico was a "partnership formed expressly for the purpose of financing Universal Stereo Corporation" which had "a substantial degree of control of [the] entire business" of Universal. Id. at 114, 232 A.2d 405. Specifically, Unico set forth the credit qualifications of buyers, the requirements for making the notes and the endorsements, and the maximum length of term for the consumer contracts involved. Id. at 114-15, 232 A.2d 405. The Court summarized this control as one in which Unico "had a thorough knowledge of the nature and method of operation of Universal's business [and] also exercised control over it." Id. at 115, 232 A.2d 405. "To say the relationship between Unico and the business operations of Universal was close, and that Unico was involved therein, is to put it mildly." Id. at 115-16, 232 A.2d 405.
The buyer received the stereo and the first delivery of twelve albums and he paid the next succeeding twelve monthly installments, but he never received another record album. When Unico *31 sought payment several months later, the buyer advised that payments would be resumed if the albums were delivered. None were delivered because Universal was insolvent, and Unico sued for the balance due on the note plus attorneys fees. The trial court found Unico was not a holder in due course of the note and Universal's breach of the contract barred recovery.
On appeal, our Supreme Court noted the disparity of more than two years between the payment obligation and the delivery obligation. Calling this "hyper-executory," the Court expressed concern over this disparity in rights between buyer and seller or transferee. Together with the provisions governing the defenses against the assignee, the Court described the arrangement as "designed to put the buyer-consumer in an unfair and burdensome legal strait jacket" from which there was no "escape no matter what the default of the seller, while permitting the note-holder, contract-assignee to force payment from [the buyer] while enveloping itself in the formal status of holder in due course." Id. at 115, 232 A.2d 405. The
Supreme Court upheld the buyer's right to defend against the suit for payment on the note based on the seller's alleged default. Holder in due course status was neither necessary nor desirable when the transferee knew a great deal about, or controlled or participated in, the underlying transaction. Id. at 109-110, 232 A.2d 405. Consistent with other decisions protecting the consumer in transactions involving a consumer and a commercial entity, such as Henningsen v. Bloomfield Motors, 32 N.J. 358, 161 A.2d 69 (1960), the Court explained that courts should give special scrutiny to such contracts to ensure that they were consistent with "principles of equity and public policy." Unico, supra, 50 N.J. at 112, 232 A.2d 405. **292 Underlying these decisions was the inequality in bargaining power between the typical consumer and lender; the lender had not only more economic and bargaining power, but greater expertise, along with the ability to write adhesion contracts that unduly favored the lender. Id. at 110, 232 A.2d 405.
*32 Accordingly, the Court declared that in "consumer good sales cases," holder in due course status would be denied to finance companies whose "involvement with the seller's business is ... close, and whose knowledge of ... the terms of the underlying sale agreement is ... pervasive." Id. at 116, 232 A.2d 405. [FN3] The Court relied on decisions from other states which also denied holder in due course status in cases involving not only individual buyers, but commercial ones as well. See Commercial Credit Corp. v. Orange County Mach. Wks., 34 Cal.2d 766, 214 P.2d 819 (1950); Local Acceptance Co. v. Kinkade, 361 S.W.2d 830 (Mo.1962); International Finance Corp. v. Rieger, 272 Minn. 192, 137 N.W.2d 172 (1965); Mutual Finance Co. v. Martin, 63 So.2d 649 (Fla.1953).
F3. The protection was extended to the plaintiff not in his capacity as "buyer" but rather as "consumer." Thus, the policy of consumer protection supporting this holding applies equally to buyers as well as lessees. See A-Leet Leasing Corp. v. Kingshead Corp., 150 N.J.Super. 384, 392, 375 A.2d 1208 (App.Div.) (" 'in this day of expanding rental and leasing enterprises,' the consumer who leases a product should be given protection equivalent to the consumer who purchases."), certif. denied, 75 N.J. 528, 384 A.2d 508 (1977).
The Court explained its holding succinctly: For purposes of consumer goods transactions, we hold that where the seller's performance is executory in character and when it appears from the totality of the arrangements between dealer and financer that the financer has had a substantial voice in setting standards for the underlying transaction, or has approved the standards established by the dealer, and has agreed to take all or a predetermined or substantial quantity of the negotiable paper which is backed by such standards, the financer should be considered a participant in the original transaction and therefore not entitled to holder in due course status. [Id. at 122-23, 232 A.2d 405.]
The Court, however, reserved decision on the very issue presented in this case: "whether, when the buyer's claim is breach of warranty as distinguished from failure of consideration, the seller's default as to the former may be raised as defenses against the financer." Id. at 123, 232 A.2d 405. The Court also struck as unconscionable the clause in which the buyer promised that in the event the lender sued, the buyer would waive any defenses *33 otherwise good against the seller. Id. at 123-25, 232 A.2d 405. The legalistic waiver provision, buried in a small-print contract, was "fraught with opportunities for misuse" and therefore would be stricken as unconscionable. Id. at 125, 232 A.2d 405. Citing N.J.S.A. 12A:2-302 and 12A:9-206, the Court observed "in the enactment of these two sections of the Code an intention to leave in the hands of the courts the continued application of common law principles in deciding in consumer goods cases whether such waiver clauses as the one imposed on Owen in this case are so one-sided as to be contrary to public policy." Ibid. We now take the next step and hold that a consumer lessee may raise a breach of warranty against the lessor when there is a sufficiently close relationship between the seller, the manufacturer and the lessor, and that an attempt to disclaim such obligations by contract is unenforceable.
In Unico and here, there is a tripartite contract involving a consumer, a buyer, and a financer. The difference, however, is that Unico involved a loan with an affiliated company, while this case involves a lease with an affiliated company. However, that makes no difference. These two types of arrangements are truly similar, especially from the individual consumer's perspective. In each case, a financing company supplies capital to an individual buyer in order to acquire a product, here an automobile.
As in Unico, the relationship between the lessor (MBCC) and the dealer (Catena) and the manufacturer (MBNA and Daimler-Benz) is very close. MBCC created the lease form and authorized personnel at dealerships to execute the leases essentially on its behalf. **293 Although MBCC was not literally dominating the sales component of Mercedes-Benz's business, the fact remains that MBCC had a close involvement with Catena and MBCC's knowledge of "the terms of the underlying sale agreement" was extensive. Unico, 50 N.J. at 116, 232 A.2d 405. Thus, there is sufficient closeness between the financer and the seller here to justify treating this case similarly to Unico.
*34 The disparity in bargaining power evident in Unico, which cannot be denied as a reason for the decision, is also sufficiently similar in this case. Decisions like Unico are plainly based, in part, on economic disparity or knowledge disparity between buyer and seller/lender. And, although the buyer here was able to afford a luxury car with high monthly payments and was a successful businessman, more able than most consumers to evaluate lease and finance options, he is still an individual consumer subject to the pressures attendant to an adhesion contract.
In addition, study of Article 2A of the Uniform Commercial Code is required as a source of public policy because it will govern all leasing transactions after January 10, 1995. L. 1994, c. 114, s 12. Although not applicable to this transaction which was made a year before the legislation was enacted, the Code imposes on certain lessors both implied and express warranties with respect to the goods. See N.J.S.A. 12A:2A-212, -213. Nothing in the adoption of Article 2A, as a source of public policy governing lease law, bars extending the rule of Unico (dealing with failure of consideration as a defense to a loan contract) to this case (dealing with breach of warranty as a defense to a lease contract). To the contrary, the comments to Article 2A make it clear that the courts will determine, case-by-case, whether finance lessors that are "affiliate[s] of the supplier of goods" should answer for a seller's warranty. Official Comment to U.C.C. s 2A-101, "Finance Leases"; Official Comment to U.C.C. s 2A-103(h).
Expanding the defenses which may be asserted against a lessor in a consumer goods transaction involving close ties between seller, manufacturer and lessor requires a balancing of the rights of the consumer and these entities. A major consideration of Unico is protection of consumer expectations and rights, such as the notion that if a consumer buys a product and that product is defective, the consumer does not have to pay for it unless its warranties were validly disclaimed; rather, it will be repaired or the purchase price will be returned. This is a sound and reasonable expectation to protect. Thus, if a consumer bought a new car *35 and received warranties on it, absent unusual circumstances it would be expected that the seller will answer for any defects and fix them. Similarly, where a truly independent lender finances a consumer's acquisition of a car, it is ordinarily expected that the lender will not be responsible if the car is a "lemon." But the financing agency here is not truly independent, and is instead an affiliated company with relations so close to the actual seller that they are equivalent to the relationship the court scrutinized in Unico.
Of course in Unico, the seller was insolvent and the consumer could only look to the lender as a source of recovery. Here, plaintiff's reasonable expectations as a consumer can be satisfied by Catena or MBNA if the warranties were breached. Other jurisdictions have subjected an affiliated financer to warranty liability when the seller cannot answer for a breach of warranty. See U.S. Roofing v. Credit Alliance Corp., 228 Cal.App.3d 1431, 279 Cal.Rptr. 533 (1991) (a lessor may disclaim warranties in equipment selected solely by the lessee provided that the lessee "has an adequate remedy against the manufacturer or supplier for any defect in the equipment.")
We hold, however, that the financial stability of the expected warrantor is not the qualifier to assertion of a breach of warranty as a defense to a suit for breach of the lease or the loan on which the original sale was based. Here, the trial judge entered judgment in MBCC's favor without exploring whether there had been a breach of warranty in this case. In other words, the third-party claims against Catena, MBNA and MBAG were left unresolved. Implicitly, the trial judge also dismissed defendant's second defense to the suit against him, that MBCC breached the applicable warranties "in conspiracy **294 with the third-party defendants" and thereby breached the lease.
We think this was incorrect. Thus, if defendant proves the car to be defective and that he was damaged thereby, the case becomes a question of which component in the chain of distribution of Mercedes-Benz products will bear the loss caused by a *36 manufacturing defect: the manufacturer, its financing company, or its franchisee. Of course, that loss could be more than, less than or the same as the damages proved by MBCC for defendant's failure to maintain the lease.
From this, it follows that the judge erred in granting judgment in MBCC's favor without determining whether there was a breach of warranty in this case. Thus, the order of the trial judge is proper if deemed a partial summary judgment in MBCC's favor, subject to the outcome of defendant's proofs on his second separate defense against MBCC, that is, the breach of warranty claims. We so modify the ruling. This disposition of the MBCC-defendant claim also allows for a more orderly apportionment of credits and debits between the parties and provides for satisfaction by each party of its particular responsibilities. See Freeman v. Hubco Leasing, Inc., 253 Ga. 698, 324 S.E.2d 462 (1985)(where lessor and dealer were brother-sister corporations, lessor's money damages under the lease can be setoff against dealer's liability for damages attendant on revocation of acceptance and lessor is estopped from separate execution on its judgment).
Therefore, if defendant fails to show the car is defective, MBCC will have an award against defendant. On the other hand, if defendant succeeds in showing the car is defective, his liability to MBCC may be erased or reduced. In addition, MBCC or defendant or both may have awards against the third-party defendants. We express no view on these issues, but hold instead that the trial court acted precipitously in granting summary judgment resolving the MBCC-defendant claims, defenses, and counterclaims at this point in the litigation.
This disposition recognizes the disparity in economic power between a consumer like defendant and companies like the third-party defendants. The latter are clearly more able than an individual consumer to "absorb the impact of a single imprudent or unfair exchange." Unico, supra, 50 N.J. at 110, 232 A.2d 405. Again, although MBCC's damages are uncontested, the trial court should hear from defendant on his breach of warranty claims. It *37 should also hear the other parties' evidence on the breach of warranty issues and only then enter final judgment. Rather than allowing these affiliated companies to inequitably squeeze plaintiff, MBCC will not be permitted to collect sums due from him until the third-party claims are resolved and the breach of warranty issues decided. Freeman, supra, 324 S.E.2d at 469; see also Hallowell v. American Honda Motor Co., Inc., 297 N.J.Super. 314, 688 A.2d 110 (App.Div.1997). Such a disposition also promotes judicial economy by preventing piecemeal appellate review of a single case.
The designation of the order granting summary judgment to MBCC as a final judgment is reversed. The order is deemed to be one of partial summary judgment and the matter is remanded to the Law Division for reconsideration of factual proofs on defendant's breach of warranty claims and entry of a final judgment. We do not retain jurisdiction.