Opinion
NOT TO BE PUBLISHED
Appeal from judgments of the Superior Court of Orange County Nos. 04CC10197, 04CC10457, 04CC12007, 05CC08597, 05CC10457 & 05CC11067, Steven L. Perk, Judge.
Cooksey, Toolen, Gage, Duffy & Woog and Steven E. Ernest for Cross-complainant and Appellant.
Lee & Rosenberger, Gregg A. Rapoport; Business Legal Partners and Gregg A. Rapoport for Cross-defendants and Respondents Mortgage Sense, Inc., Scott Hemp, Charles Suh, Johnston & Associates, Inc., Audio Fonix, Inc., Michael H. Garza, Ronald P. Evans and Organic by Nature, Inc.
Law Offices of John J. Stifter and John J. Stifter for Cross-defendants and Respondents Charles Suh, Johnston & Associates, Inc., Audio Fonix, Inc., Michael H. Garza and Ronald P. Evans.
OPINION.
RYLAARSDAM, ACTING P. J.
Cross-complainant Popular Leasing USA, Inc. appeals from adverse summary judgments in two consolidated actions. Its appeal in Case No. G037867 is from a judgment in favor of cross-defendants Mortgage Sense, Inc. and Scott Hemp. Its appeal in Case No. G038677 is from judgments in favor of cross-defendants Charles Suh, Johnston & Associates, Inc., Audio Fonix, Inc., Michael H. Garza, Ronald P. Evans and Organic By Nature, Inc. Each cross-complaint was based on an equipment rental contract between a company called NorVergence, Inc., not a party to the proceedings, and cross-defendants. The contracts were assigned to Popular Leasing and its cross-complaints alleged that cross-defendants defaulted on their lease payments.
Each of the equipment rental agreements gave NorVergence the right to assign the contract and provided that the renter’s duty to make payments was unconditional and not dependent on the problems that might be encountered with the equipment. (We quote the relevant contractual provisions in full below.) Cross-defendants’ motions for summary judgment were predicated on the proposition that the equipment rental agreement did not go into effect until the equipment was installed and installation never took place. In addition, the motions asserted that cross-defendants never accepted the equipment or, in the alternative, that they effectively rescinded their acceptance.
Popular Leasing contends that the unconditional duty to make payments under the equipment rental agreements deprived cross-defendants of these defenses. Because the contracts qualified under California Commercial Code, section 9403 (all further statutory references are to this code unless otherwise stated), Popular Leasing is entitled to a status equivalent to a holder in due course. We therefore agree with its contentions and reverse the summary judgments.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Equipment Rental Agreements
NorVergence entered into separate agreements to lease equipment with Johnston & Associates, Inc. (Suh guaranteed the debt), with Audio Fonix, Inc. (Garza guaranteed the debt), with Organic By Nature, Inc. (two different agreements), and with Mortgage Sense, Inc. (Hemp guaranteed that debt). NorVergence sold its rights under these contracts to cross-complainant.
Each of the agreements contained the following clauses relevant here:
“Rent/Term of Rental: . . . Your acceptance of the equipment will be conclusively and irrevocably established upon the receipt by us of your confirmation (verbal or written) of such acceptance. . . . The term of this rental begins on a date designated by us after receipt of all required documentation and acceptance by us (‘commencement date’) and continues for the number of months designated as ‘rental term’ on the face of this rental. The rental payments are payable in advance periodically as stated in or on any schedule to this rental. You agree to pay an interim rental payment in the amount of one-thirtieth . . . of the rental payment for each day from and including the effective date (‘which shall be the date the equipment is installed’) until the day preceding the commencement date.
[¶] . . . [¶]
“Assignment: You may not sell, pledge, transfer, assign or subrent the equipment or this rental. We may sell, assign or transfer all or any part of this rental and/or equipment without notifying you. The new owner will have the same rights that we have but not our obligations. You agree you will not assert against the new owner any claims, defenses, or set-offs that you may have against us.
[¶] . . . [¶]
“Article 2A statement: You agree that if Article 2A of the Uniform Commercial Code is deemed to apply to this rental, this rental will be considered a finance lease thereunder. You waive your rights and remedies under Article 2A of the UCC.
[¶] . . . [¶]
“Your duty to make the rental payments is unconditional despite equipment failure, damage, loss or any other problem. Renter is renting the equipment ‘as is,’ without any warranties, express or implied, including warranties of merchantability or fitness for a particular purpose in connection with this agreement. If the equipment does not work as represented by the manufacturer or supplier, or if the manufacturer or supplier or any other person fails to provide service or maintenance or if the equipment is unsatisfactory for any other reason, you will make any such claim solely against the manufacturer or supplier or other person and will make no claim against us.
[¶] . . . [¶]
“No warranties: We are renting the equipment to you ‘as is’. We make no warranties, express or implied, including warranties of merchantability or fitness for a particular purpose in connection with this agreement. We transfer to you for the term of this rental all warranties, if any, made by manufacturer or supplier to us. . . . You agree to continue making payments to us under the rental regardless of any claims you may have against the supplier or manufacturer. You waive any rights which would allow you to: (a) cancel or repudiate the rental; (b) reject or revoke acceptance of the equipment; (c) grant a security interest in the equipment; (d) accept partial delivery of the equipment; (e) ‘cover’ by making any purchase or rental of substitute equipment; and (f) seek specific performance against us.
“You understand that any assignee is a separate and independent company from rentor/manufacturer and that neither we nor any other person is the assignee’s agent. You agree that no representation, guarantee or warranty by the rentor or any other person is binding on any assignee, and no breach by rentor or any other person will excuse your obligation to any assignee.” (Capitalization and bold omitted.)
2. The Acceptance Certificates
Each of the parties to the contracts with NorVergence signed a document entitled “Delivery and Acceptance Certificate.” This document provided: “The undersigned certifies that it has received and accepted all the equipment described in the equipment rental agreement between NorVergence, Inc. (rentor), and the undersigned [name of cross-defendant] (renter) dated . . . . The equipment conforms with our requirements. There are no side agreements or cancellation clauses given outside the equipment rental agreement. I have reviewed and I understand all of the terms and conditions of the equipment rental agreement.
I agree that the rental payment under the equipment rental agreement will begin 60 days from the date of this delivery and acceptance certificate and shall continue thereafter for the full length of the stated initial term of the equipment rental agreement and in accordance with its terms and conditions. I was not induced to sign this by any assurances of the rentor or anyone else. I have had a reasonable opportunity to inspect the goods.” (Capitalization and bold omitted.)
3. The Motions for Summary Judgment
Cross-defendants moved for summary judgment. They based their contention that the equipment leases were not enforceable on the following grounds: (1) the equipment was never installed and the lease never became effective, (2) they never had an opportunity to inspect the equipment and therefore did not accept it, and (3) they rescinded their acceptance of the equipment. The gravamen of their argument is that installation of the equipment was a condition precedent to the effectiveness of the equipment rental agreements. Cross-defendants also contend that they did not realize what they were signing when they signed the acceptance certificates.
Cross-defendants maintain that according to the equipment rental agreements “the contract’s ‘[e]ffective [d]ate’ was the date on which the leased equipment was ‘installed,” which was to occur prior to the ‘[c]ommencement [d]ate’ of the . . . [r]ental [t]erm of sixty months.” The trial court agreed with this interpretation of the contract and ruled that the equipment rental agreement never went into effect.
DISCUSSION
The facts and contracts in this case are indistinguishable from those in this court’s decision in Wells Fargo Bank Minnesota N. A. v. B.C.B.U. (2006) 143 Cal.App.4th 493 (Wells Fargo). The type of financing instruments involved in Wells Fargo and in these cases are subject to section 9403, which provides in relevant part: “(b) Except as otherwise provided in this section, an agreement between an account debtor and an assignor not to assert against an assignee any claim or defense that the account debtor may have against the assignor is enforceable by an assignee that takes an assignment that satisfies all of the following conditions: [¶] (1) It is taken for value. [¶] (2) It is taken in good faith. [¶] (3) It is taken without notice of a claim of a property or possessory right to the property assigned. [¶] (4) It is taken without notice of a defense or claim in recoupment of the type that may be asserted against a person entitled to enforce a negotiable instrument under subdivision (a) of Section 3305. [¶] (c) Subdivision (b) does not apply to defenses of a type that may be asserted against a holder in due course of a negotiable instrument under subdivision (b) of Section 3305.” (§ 9403, subds. (b) & (c).)
In their motions for summary judgment cross-defendants did not supply evidence to suggest that the four conditions of section 9403, subdivision (b) were not met. Nor do they so contend here. Therefore section 9403 applies to these transactions.
Section 3305, referenced in section 9403, deals with holders in due course and provides that simple contract defenses, such as failure of consideration, are not available against such holders. (Equico Lessors, Inc. v. Mines (1978) 84 Cal.App.3d 374, 377.) Cross-defendants’ contention that NorVergence failed to properly install the equipment is an argument based on failure of consideration, a defense not available to them under section 9043. In Wells Fargo the defendants also claimed they never accepted the goods. (Wells Fargo, supra, 143 Cal.App.4th. at p. 499.) Cross-defendants attempt to distinguish Wells Fargo by contending that: (1) the lease required installation of the equipment before it became effective and (2) the acceptance certificates were procured by fraud.
The first contention is based on the last sentence of the provision that provides: “The term of this rental begins on a date designated by us after receipt of all required documentation and acceptance by us (‘commencement date’) and continues for the number of months designated as ‘rental term’ on the face of this rental. The rental payments are payable in advance periodically as stated in or on any schedule to this rental. You agree to pay an interim rental payment in the amount of one-thirtieth . . . of the rental payment for each day from and including the effective date (‘which shall be the date the equipment is installed’) until the day preceding the commencement date.” (Italics added.)
We read this last sentence to apply to the obligation to pay pro-rata rental payments from date of installation until date of commencement. The first sentence of this very provision makes it clear that there is no condition precedent to the commencement date of the agreement other than seller’s receipt of the required documentation.
Cross-defendants’ second contention, that the acceptance certificates were procured by fraud, was not the basis of the trial court’s grant of summary judgment. This argument is based upon declarations, described below, by persons who were the sole witnesses to the events described. The trial court has discretion to deny summary judgment under these circumstances. (Code Civ. Proc., § 437c, subd. (e).) Because the summary judgments were not based on this ground we cannot determine how the trial court would have exercised its discretion in this regard. Moreover, as we explain below, the facts alleged in the declarations, if they are evidence of fraud at all, do not show the kind of fraud that is a defense to a claim by a holder in due course.
The fraud claims are based on declarations from parties containing the following statements. Garza declared that he was told by the NorVergence representative “that I needed to sign a document to confirm that the equipment had been delivered, and that the document was for no other purpose.” Amy Sandoval, president of cross-defendant Organic By Nature, Inc., described the circumstances under which she signed the acceptance certificate by stating that NorVergence’s representative told her she needed “to sign forms before any equipment could be delivered . . . . The forms were attached together on a clipboard, and since the forms bearing the heading ‘Delivery and Acceptance Certificate’ were partly obscured by other papers on the same clipboard, their headings were not visible at the time I signed them.” Hemp similarly stated that the form was hidden behind another paper. Suh stated in his declaration that he signed the form “based on the representative’s statement that they were meant solely to confirm delivery of the equipment.”
In essence all of the declarants stated they signed the certificates without reading them. But under section 3305, as incorporated in section 9403, the only type of fraud available as a defense against a holder in due course is “fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms . . . .” (§ 3305, subd. (a)(1).) In each instance described in the declarations supporting cross-defendants’ motions, the declarants had an opportunity to learn what it was they were signing. Allegedly, they chose not to do so. We fail to see fraud under the asserted facts, but even if there were, it does not meet the requirement under section 3305.
The rationale supporting our conclusion was well stated in Wells Fargo: “Sound policy also supports our understanding that section 9403 must govern the instant dispute between an assignee with holder in due course status and an account debtor (lessee). Securitization is the modern version of the historical practice of financing by factoring, in which a factor bought a creditor’s accounts by paying a percentage of the face value and receiving an assignment of the accounts. [Citation.] Enforcing a waiver of defenses, save for those that would be good against a holder in due course of a negotiable instrument, promotes the transfer of accounts by allowing a purchaser to rely on the face of the documents. Thus, the lessee, like the maker of a negotiable instrument, bears the risk of putting into the stream of commerce documents that appear regular on their face but have underlying flaws.” (Wells Fargo, supra, 143 Cal.App.4th at p. 501.)
DISPOSITION
The summary judgments are reversed. Appellant shall recover its costs on appeal.
WE CONCUR: FYBEL, J., IKOLA, J.