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Gros v. Seattle Office Systems Inc.

September 30, 1996

LE GROS, BUCHANAN AND PAUL, P.S., A WASHINGTON P.S. CORPORATION, RESPONDENT/ CROSS-APPELLANT,
v.
SEATTLE OFFICE SYSTEMS, INC. (D/B/A S.O.S., A CORPORATION; AND DANKA INDUSTRIES, INC., A CORPORATION; HOLLIS AND JANE DOE MILLER, INDIVIDUALS FORMING A MARITAL COMMUNITY; AND BILL AND JANE DOE FREEMAN, INDIVIDUALS FORMING A MARITAL COMMUNITY, DEFENDANTS, TOKAI FINANCIAL SERVICES, INC. (D/B/A MASTER LEASE, A CORPORATION, APPELLANT/CROSS- RESPONDENT.



Appeal from Superior Court of King County. Docket No: 95-2-02642-7. Date filed: 05/31/95. Judge signing: Hon. Robert S. Lasnik.

Authored by Faye C. Kennedy. Concurring: Mary K. Becker, Ronald E. Cox

The opinion of the court was delivered by: Kennedy

KENNEDY, A.C.J. -- Tokai Financial Services, Inc. (Tokai), appeals the default judgment entered against it and the dismissal of its counterclaim against the law firm of Le Gros, Buchanan and Paul (Le Gros). The trial court refused to vacate the default judgment in favor of Le Gros, entered after Tokai failed to timely respond to an action brought by Le Gros regarding a copy machine lease between the two parties. Tokai contends that it was an abuse of discretion to not vacate the default judgment. We agree and reverse.

FACTS

Tokai provides financing for the acquisition of office machinery through lease agreements. Seattle Office Systems (SOS) is authorized by Tokai to enter into lease agreements for equipment, the purchase of which is financed by Tokai. The lease agreements, made by using Tokai's pre-printed form, are reviewed and executed by Tokai if found to be acceptable.

In November 1992, Le Gros entered into an agreement with SOS to lease a copy machine financed by Tokai. The pre-printed lease agreement signed by Le Gros contained a space entitled "Lease Term in Months." The space was first filled in with 60, but a line was then drawn through the entire section.

Six days after signing the first lease, Le Gros signed a second lease which was identical to the first except that: (1) the "Lease Term in Months" was left blank; and (2) the monthly payment for the first 24 months was increased from $1018.16 to $1050.62. That same day, an SOS employee signed an agreement prepared by Le Gros stating that Le Gros could elect after 24 months to extend or to discontinue the lease. The lease, but not the discontinuation agreement, was returned to Tokai, which executed it soon thereafter.

At the end of 24 months, Le Gros informed Tokai and SOS that it was terminating the copy machine lease and requested that the copier be removed from its premises. When the copier was not removed, Le Gros filed suit, alleging breach of contract, violation of the Washington Consumer Protection Act, and trespass. After Tokai failed to timely respond, Le Gros obtained a money judgment by default.

Four days after the default judgment was entered, Tokai filed a notice of appearance. Tokai then moved to vacate the default judgment, claiming that the failure to timely respond was due to its registered agent's delay in sending the complaint to Tokai's attorney and the attorney's failure to take immediate action due to a heavy court schedule and considerable absences from the office. Tokai's motion to vacate was granted as to Le Gros' Consumer Protection Act claim, but the court upheld the default judgment as to all of Le Gros' other claims.

Tokai then paid the money judgment, filed its answer (which contained a counterclaim for damages for Le Gros' failure to pay the lease payments for months 25-60), and moved for summary judgment as to its counterclaim. Tokai also again moved, on different grounds, to vacate the default judgment. In response, Le Gros moved to dismiss Tokai's counterclaim under CR 12(b)(6), arguing, among other things, that the doctrine of res judicata precluded relitigation of the issue of the lease term, which it contended had been determined to be 24 months by the default judgment. The trial court granted the motion and dismissed Tokai's counterclaim. Le Gros voluntarily dismissed its Consumer Protection Act claim.

Tokai appeals.

Discussion

CR 55(c)(1) provides that a court may set aside a default judgment for good cause shown and upon such terms as the court deems just. A trial court's decision on a motion to vacate a judgment is reviewed for an abuse of discretion. State v. Hardesty, 129 Wash. 2d 303, 317, 915 P.2d 1080 (1996) (citing In re Adamec, 100 Wash. 2d 166, 173, 667 P.2d 1085 (1983); State v. Scott, 92 Wash. 2d 209, 212-13, 595 P.2d 549 (1979); State v. Hall, 32 Wash. App. 108, 111, 645 P.2d 1143, review denied, 97 Wash. 2d 1037 (1982)). The party moving to vacate has the burden of showing: (1) that there is substantial evidence to support at least a prima facie defense to the claim asserted by the opposing party; (2) that the moving party acted with due diligence after notice of entry of the default judgment; (3) that no substantial hardship will result to the opposing party if the default judgment is vacated; and (4) that its failure to timely appear in the action and answer the opponent's claim was the result of mistake, inadvertence, surprise, or excusable neglect. White v. Holm, 73 Wash. 2d 348, 352, 438 P.2d 581 (1968). Because Le Gros has not claimed that vacation of the default judgment would work a substantial hardship, only the first, second, and fourth elements of the four-part White test are at issue here.

We find substantial evidence in the record from which Tokai can demonstrate a prima facie defense. Both parties contend that the lease document clearly demonstrated the lease term on its face, but disagree as to whether the term was for 24 or 60 months. Although the "Lease Term in Months" portion of the lease was left blank, the lines immediately above it identified the "Number of Lease Payments" as 60: 24 followed by 36. The fact that a total of 60 months was therefore indicated on the lease form provides substantial evidence from which Tokai can demonstrate a prima facie defense to Le Gros' claim that the lease was only for 24 months. Tokai also claims that SOS lacked actual or apparent authority to enter into the discontinuation agreement and failed to notify Tokai that it had done so. In addition, Tokai was duly diligent ...


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