Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Alameda County Super. Ct. No. HG05212787
Siggins, J.
Lyon Financial Services, Inc. (Lyon) appeals from a judgment in its favor against Elaine Wallace following a court trial. Lyon contends the trial court erred when it awarded damages to Wallace as a setoff against Lyon’s recovery for Wallace’s breach of a lease for a copy machine. We agree with Lyon and reverse the setoff of damages in Wallace’s favor.
FACTS
Respondent Elaine Wallace is an attorney who required a copy machine for her law practice that was capable of scanning documents. She was a customer of MBA of California (MBA), a company that sold and serviced office equipment. Wallace leased a number of copiers from MBA beginning in 1997 under a copier solution agreement. The copier solution agreement combines a copier lease and its service contract into one document. In September 2001, Wallace amended her copier solution agreement with MBA in order to trade up to a copy machine that could scan documents. The amended copier solution agreement specified a monthly payment of $2,420, of which $2,200 was for the lease payment and $220 was for copier service.
The copier solution agreement allowed Wallace to cancel the agreement if the machine did not work properly after she provided 60 days’ written notice to MBA and afforded MBA an opportunity to cure any problem. The agreement also allowed MBA, but not Wallace, to assign its rights. The assignment provision read in full: “You have no right to sell, transfer, encumber, subrent, or assign the Equipment or this Agreement. We may sell, transfer, or assign ownership of the Equipment and/or Agreement. This action will not affect your rights under this Agreement. If we do assign ownership of the Equipment and/or Agreement, the new owner will have the same rights and benefits we have and will not have to perform our obligations.”
A month after Wallace amended her copier solution agreement in order to acquire the copier with a scanning feature, MBA assigned its ownership of the copier and its rights under the lease to Lyon. Lyon provides financing services for office equipment across the United States, and frequently does so by purchasing leases that originate through equipment sellers. Lyon does not sell office equipment. The assignment provides that MBA “sells, assigns, and transfers to [Lyon] all of [MBA’s] right, title, and interest in and to (a) the equipment covered by the Agreement and (b) [MBA’s] rights as Owner under the Agreement, including the right to receive rent thereunder.” Shortly after the assignment, Lyon filed a UCC [California Uniform Commercial Code] Financing Statement asserting a security interest in the copier.
Lyon includes U.S. Bancorp Office Equipment Finance Services, which is the fictitious business named used by Lyon in California.
From the time Wallace took delivery of the copier, the scanning function never worked properly and MBA undertook ongoing efforts to repair the machine. Meanwhile, Wallace fell behind in her lease payments and Lyon undertook ongoing efforts to get paid for the lease. It was Wallace’s practice to periodically pay large sums toward the lease and not remit payments every month.
In August 2003, Wallace was advised that Lyon had assumed the lease. Wallace or her employees later told representatives of Lyon that she was having trouble with the scanning function on the copier. It was Lyon’s practice to refer the complaints to MBA because MBA was responsible for maintenance and Lyon was not. In spite of all the difficulties, Wallace never exercised her option to terminate the contract by providing 60 days’ written notice as specified in the copier solution agreement.
The problem copier was replaced in March 2005. At the time, Wallace had 17 months remaining on the lease and owed $16,439.04 for missed payments. Lyon repossessed the copier and sued Wallace for breach of the lease.
PROCEEDINGS IN THE TRIAL COURT
Lyon’s complaint alleged a single cause of action for breach of contract based upon Wallace’s failure to make all the lease payments. Wallace answered the complaint and filed a cross-complaint against MBA. In her answer Wallace asserted as an affirmative defense that Lyon was not entitled to relief because Wallace had at all times informed MBA of the problems with the copier and MBA failed to correct them. Her cross-complaint alleged that MBA breached the copier solution agreement by failing to timely remit her payments to Lyon and failing to timely apprise Lyon of material facts and circumstances regarding the transaction. Wallace also sought to have MBA indemnify her for any liability she may have to Lyon.
Wallace dismissed her cross-complaint with prejudice after settling with MBA for $10,000. Lyon’s complaint proceeded to a court trial. The court concluded that Wallace was in arrears and owed Lyon for monthly payments due under the copier solution agreement and 17 months of payments remaining on the lease when the copier was repossessed. The total amount of money owed by Wallace to Lyon was $60,898.29. The court also concluded that Wallace never gave written notice to terminate the agreement for cause, and that the requirement for written notice was never waived by the parties’ conduct or course of dealing.
Wallace received a credit of $1,500 against the amount owing to Lyon for the repossession value of the deficient copier. She was also awarded damages based upon a considerable setoff claim. The court concluded that by virtue of the assignment Lyon became the lessor of the copier and was bound by all the terms of the lease agreement, including the duty to provide a copier with a functional document scanner. Since Wallace had verbally informed MBA and Lyon of her dissatisfaction with the scanning feature on the copier, the court concluded she had provided them notice of their breach and rejected the copier within a reasonable time as required by the California Uniform Commercial Code. Pursuant to sections 10501 and 10508 et seq., the court concluded Wallace was entitled to an award of damages. Accordingly, Wallace was awarded damages of $53,449.50 as a setoff against the award in favor of Lyon. Lyon thus recovered a judgment in the amount of $7,448.79 plus attorney fees and costs.
All further statutory references are to the California Uniform Commercial Code.
Lyon timely appealed and challenges the award of damages to Wallace that offset Lyon’s recovery.
DISCUSSION
In general, an assignee does not become obligated to perform the duties of an assignor by merely accepting an assignment. (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 740, pp. 824-825.) But an assignee may be required to perform the duties imposed by a contract where the assumption of duties may be implied from the assignee’s acceptance of the contract’s benefits. (Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 745.) Whether an assignee has accepted such benefits and assumed such duties is determined by the intent of the parties as indicated by their acts, the subject matter of the contract or their words. (Ibid.) Based upon the facts in any particular case, an assignee may be so involved in a lease transaction that the assignee may justifiably be viewed as the original creditor. (LaChapelle v. Toyota Motor Credit Corp. (2002) 102 Cal.App.4th 977, 983.)
Here, the evidence was largely undisputed and the trial court’s determination that Lyon, as a result of the assignment from MBA, became the lessor of the copy machine was a legal conclusion resulting from the court’s application of the facts to the legal principles governing the scope of an assignment. Since the resolution of this appeal requires that we critically consider the application of those legal principles to the facts found by the trial court, our review is de novo. (See Crocker National Bank v. City and County of San Francisco (1989) 49 Cal.3d 881, 888.) When we review the effect of the assignment from MBA to Wallace de novo, we conclude the trial court erred and the damage award to Wallace must be reversed.
There appears to be no dispute that Lyon became the owner of the copier and the assignee of the lease in order to secure its right to receive Wallace’s stream of lease payments. The language of the assignment states that Lyon acquired the copier and MBA’s rights under the lease, specifically the right to receive lease payments. Shortly after the assignment, Lyon filed a UCC Financing Statement to secure its interest in the copier. Moreover, Lyon’s business is to provide financing for office equipment. It does not sell copiers and has no responsibility to repair them. Lyon referred all the complaints it received from Wallace about the copier to MBA. The lease states that MBA “may sell, transfer, or assign ownership of the Equipment and/or Agreement. This action will not affect your rights under this Agreement. If we do assign ownership of the Equipment and/or Agreement, the new owner will have the same rights and benefits we have and will not have to perform our obligations.” These facts do not demonstrate an intent that Lyon was to be bound by all of MBA’s obligations under the lease or that Lyon was so involved in the transaction that it could justifiably be viewed as the lessor.
In her trial testimony, Wallace stated that she did not know of Lyon’s status as an owner of the copier and assignee of the lease until long after the assignment. The fact that Wallace was unaware of Lyon’s involvement does not transform the nature of the assignment. As a national bank, Lyon is authorized to use third parties to conduct business. (See SPGGC, LLC v. Ayotte (D.N.H. 2006) 443 F.Supp.2d 197, 205.) It is immaterial that Wallace thought she was dealing with MBA rather than Lyon when she was contacted for late payments or complaining about the copier.
If anything, Wallace’s lack of notice of the assignment provided a basis for her cross-complaint against MBA. (See Harry Hall & Co. v. Cons. Packing Co. (1942) 55 Cal.App.2d 651, 655.)
Wallace could have avoided liability for the lease payments by exercising her right to send a notice of cancellation after affording MBA an opportunity to cure in accordance with the lease agreement. But she did not, and her failure to do so was not excused by the trial court. Had she done so, Lyon would have had the right to seek recourse against MBA for monies that would otherwise be due Lyon under the lease. This right of recourse in Lyon’s favor is another factor that indicates the assignment and transfer of the copier was for financing purposes and was not a general commercial assignment.
In this respect, Lyon’s rights were no greater than MBA’s under the lease. Wallace could have terminated the lease due to the copier’s deficiencies and Lyon was required to honor her written notice of termination. (Cf. Royal Bank Export Finance Co. v. Bestways Distributing Co. (1991) 229 Cal.App.3d 764, 768.)
Lyon paid money to acquire the copier and MBA’s rights to receive the lease payments. Those rights included an assurance from MBA of Lyon’s right to receive payments even if the lease were cancelled. All the evidence shows the assignment was for the purpose of giving Lyon a security interest in the copier. The trial court concluded that Lyon became the lessor of the copier by virtue of that assignment and awarded Wallace damages as measured in the California Uniform Commercial Code. But section 10303, subdivision (e) provides that an assignment like the one from MBA to Lyon may transfer rights under a contract without transferring duties. It provides in part: “A transfer of ‘the lease’ or of ‘all my rights under the lease,’ or a transfer in similar general terms, is a transfer of rights and, unless the language or the circumstances, as in a transfer for security, indicate the contrary, the transfer is a delegation of duties by the transferor to the transferee.” (§ 10303, subd. (e), italics added.) Here, the circumstances all demonstrate that Lyon acquired its interests in the lease and the copier as security, and it was error to charge Lyon with MBA’s duties as the lessor.
Our conclusion is fortified by the official comment to section 10303 where it states that: “Subsection [(e)] states a rule of construction that distinguishes a commercial assignment, which substitutes the assignee for the assignor as to rights and duties, and an assignment for security or financing assignment, which substitutes the assignee for the assignor only as to rights. . . . Whether a buyer of leases is the holder of a commercial assignment, or an assignment for security or financing assignment should be determined by the language of the assignment or the circumstances of the assignment.” (U. Com. Code com., reprinted at 23C West’s Ann. U. Com. Code (2002 ed.) foll. § 10303, p. 404.) Here, the language and circumstances of the assignment from MBA to Lyon compel the conclusion that the assignment was one of rights, not duties, and was done for security or financing purposes. The award of setoff damages to Wallace must be reversed.
In light of our conclusion, we will not address appellant’s separate argument that the award to Wallace should be reversed based upon principles of collateral estoppel.
CONCLUSION
The award of setoff to respondent Wallace for cover, incidental and consequential damages in the amount of $51,949.50 is reversed. The judgment is otherwise affirmed. Appellant shall recover its costs on appeal.
We concur: Pollak, Acting P.J., Jenkins, J.