This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2002).







Lyon Financial Services, Inc.,

d/b/a The Manifest Group,

with its principal offices located in

Marshall, Minnesota,





Protech Plumbing & Heating, Inc.,

a Colorado corporation, and

Timothy McPhee, individually,



Filed March 2, 2004


Lansing, Judge


Lyon County District Court

File No. C7-02-744



Kevin K. Stroup, Stoneberg, Giles & Stroup, P.A., 300 O’Connell Street, Marshall, MN  56258(for respondent)


Richard A. Beens, Brian T. Benkstein, Felhaber, Larson, Fenlon & Vogt, P.A., Suite 4200, 225 South Sixth Street, Minneapolis, MN  55402(for appellants)


            Considered and decided by Wright, Presiding Judge, Lansing, Judge, and Hudson, Judge.

U N P U B L I S H E D   O P I N I O N


Lyon Financial Services, Inc. sued Protech Plumbing & Heating Inc. and its president (collectively Protech) for breach of a finance lease for the purchase of software.  The district court rejected Protech’s affirmative defense that the lease violated the Minnesota Consumer Fraud Act, and Protech appeals.  Because we conclude that the Consumer Fraud Act does not apply to this Uniform Commercial Code finance lease between businesses and that, even if the act applied, the lease did not constitute an assignment that would trigger the act’s set-off provisions, we affirm. 



            Protech is a plumbing and heating service company based in Estes Park, Colorado; Lyon is a Minnesota corporation.  At the time of this action Protech’s president, Timothy McPhee, had over ten years’ experience in the plumbing industry, including previous experience as the co-owner of a business similar to Protech.  Protech has about fifty-seven employees and operates about thirty-five vehicles. 

In August 2000, Protech agreed to purchase from a supplier, Contractors Management Services (CMS), two items for its business: a Rotobrush duct-cleaning machine, which cost about $9,000, and specialized computer software, which cost $18,965.  CMS gave Protech the options of writing a check for the equipment, using a credit card, or financing the purchase through a finance lease.  Protech chose to finance the purchase with a lease, and CMS suggested that Protech contact a broker, who then referred the business to Lyon for a fee.  Under this arrangement, Lyon paid CMS directly after Protech executed a delivery guarantee for the equipment. 

McPhee, as president of Protech, signed a lease with Lyon, d/b/a The Manifest Group, to rent the Rotobrush and the computer software.  McPhee also signed a personal guaranty of the lease.  The lease contained a provision that on signing, Protech’s “promises herein will be irrevocable and unconditional in all respects” and stated that “you may contact the above supplier for your warranty rights, if any, which we transfer to you for the term of this lease.”  The lease expressly stated that Lyon made no warranties of merchantability or fitness for use relating to the software.  The lease also provided:



Although the Rotobrush performed as specified, the computer software proved to be defective and unusable.  Protech, on its own, adjusted payments under the lease to pay fully for the Rotobrush but not to pay for the software.  McPhee received notification in late 2001 that CMS was no longer in business.  

After sending Protech a notice of default, Lyon sued in contract to recover damages under the lease.  Protech asserted the defense that the Minnesota Consumer Fraud Act, Minn. Stat. § 325F.69 (2002) applied to the transaction, and that under Minn. Stat. § 325F.69, subd. 2(4), because Lyon was an assignee of CMS, Protech was entitled to set off its damages from any recovery under the lease.  Before trial, the parties stipulated that the lease was a finance lease subject to the provisions of the Uniform Commercial Code.

After a bench trial, the district court ordered judgment for Lyon and awarded damages of $29,450.20, the sum remaining on the lease, plus interest, costs and disbursements.  The district court found that McPhee negotiated directly with the vendor of the software, not Lyon; that McPhee did not ask Lyon about the quality of the product purchased; that McPhee had experience in buying software products; and that Lyon first learned of Protech’s claims that it was responsible for the defective software when Protech sued.  The district court concluded that, although an injunction might have been available under Minn. Stat. § 325F.69, subd. 1, the transaction did not involve an assignment that would trigger consumer-fraud protection.



On appeal Protech argues that the district court erred as a matter of law when it concluded that the Minnesota Consumer Fraud Act, Minn. Stat. § 325F.69 (2002), does not apply to the transaction between Protech and Lyon, and that the lease did not constitute an assignment of CMS’s right to recover on its sales contract with Protech.  The facts are not disputed and, thus, we review de novo the application of law to the contract.  Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn., 664 N.W.2d 303, 311 (Minn. 2003); O’Malley v. Ulland Bros., 549 N.W.2d 889, 892 (Minn. 1996). 

Lyon and Protech stipulated at trial that the lease between them was a finance lease, subject to the provisions of the Uniform Commercial Code, Minn. Stat. § 336.2A-103(1)(g) (2002).  The code defines “finance lease” as a lease in which lessor does not supply, select, or manufacture goods; the lessor acquires the goods or a right to possess them in conjunction with the lease; and “the lessee receives a copy of the contract evidencing the lessor’s purchase of the goods or a disclaimer statement on or before signing the lease contract,” or as a condition to effectiveness of the lease contract.  Id.

The facts are undisputed that Lyon did not supply the defective software, and the lease signed by McPhee contained a disclaimer stating that Lyon made no warranties of merchantability and did not otherwise take responsibility for the performance or defective nature of the software.  Protech does not assert that this lease is a consumer lease under the U.C.C.  See Minn. Stat. § 336.2A-103(1)(e) (2002) (defining “consumer lease”).  To constitute a consumer lease the transaction must be between a lessor regularly engaged in the business of leasing or selling and a lessee who is an individual and who takes under the lease primarily for a personal, family, or household purpose with total payments to be made under the lease not to exceed $25,000.  Id.  Protech maintains, instead, that this nonconsumer finance lease is subject to the Minnesota Consumer Fraud Act because the Article 2A code provision,Minn. Stat. § 336.2A-104(1)(d) (2002), links to the act by providing that “[a] lease, although subject to this article, is also subject to any applicable . . . (d) consumer protection statute of this state.”  (Emphasis added.)

The Minnesota Consumer Fraud Act, which prohibits the use of fraud, misrepresentation, or deceptive trade practices in connection with the sale of merchandise, was enacted to curb deceptive practices and address unequal bargaining power often present in consumer transactions.  Minn. Stat. § 325F.69, subd. 1; Ly v. Nystrom, 615 N.W.2d 302, 308 (Minn. 2000).  In defined circumstances, the Minnesota Supreme Court has applied the Consumer Fraud Act to protect a business person acting as a consumer in an isolated, one-on-one purchase of a restaurant.  See Ly, 615 N.W.2d at 310 (noting that Consumer Fraud Act “was intended to protect a broad, though not limitless, range of individuals from fraudulent and deceptive trade practices”).  The exceptional circumstances present in Ly, however, are not present in the transaction between Protech and Lyon.  McPhee was an experienced businessman who had previously bought software products, the software was purchased exclusively for business purposes, and McPhee did not ask Lyon any questions about the quality of the product Protech purchased from CMS.

Of equal significance, the payment contract at issue contained a classic “hell or high water” clause, which provided that on acceptance of the goods, Protech’s promises under the lease contract became irrevocable and unconditional.  See Minn. Stat. § 336.2A-407, subd. 1 (2002); Minn. Stat. Ann. § 336.2A-407, U.C.C. cmt., para. 1 (West 2002) (noting irrevocable and independent nature of covenants in nonconsumer finance lease, subject to obligations of good faith and lessee’s revocation of acceptance).  Courts have generally enforced “hell or high water” clauses in nonconsumer financial leases.  See, e.g., Colo. Interstate Corp. v. CIT Group/Equip. Fin., Inc., 993 F.2d 743, 749 (10th Cir. 1993) (holding that when lessee agreed to terms of lease containing “hell or high water” clause, it agreed to continue making rent payments despite any claim it might have against lessor or lessor’s assignee, and it assumed risk of lessor’s nonperformance); Benedictine Coll. v. Century Office Prods., 853 F. Supp. 1315, 1324 (D. Kan. 1994) (noting that  “‘[h]ell or high water’ provisions are common in equipment lease financing instruments, and absent unequal bargaining power or unconscionability such provisions have been uniformly enforced by the courts”) (citations omitted); In re O.P.M. Leasing Servs., Inc., 21 B.R. 993, 1008 (Bankr. S.D.N.Y. 1982) (relying on “hell or high water clause,” granting summary judgment to assignee of debtor in bankruptcy, who was lessor under finance lease, on assignee’s counterclaim for accelerated rentals due under an equipment lease).  Protech has not alleged that the lease was unconscionable, that Lyon had notice that the software was defective, or that Protech ever revoked its acceptance of the goods.  On these facts, the district court did not err in concluding that the Consumer Fraud Act does not apply to Lyon’s cause of action against Protech.

Even if this dispute came within the purview of the Minnesota Consumer Fraud Act, however, the provisions of the act would not apply to Protech because Lyon is not an assignee of CMS for the purpose of applying a set-off defense under the act.  See Minn. Stat. § 325F.69, subd. 2(4) (allowing buyer or lessee to assert right of setoff as defense against claim of assignee to contract).  Protech argues that because Lyon operated as the assignee of CMS’s vendor rights, Protech should be allowed to set off its damages for CMS’s breach of contract against Lyon’s right to recover under the lease. But “[i]t is important not to confuse an assignment, which is a present transfer, with a contract, which is a promise of future performance.”  Minn. Mut. Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286 (Minn. App. 1993) (citing E. Allan Farnsworth, Contracts § 11.3 (Little Brown, 1982)), review denied (Minn. Oct. 19, 1993).

CMS initially directed Protech to a funding source for financing the software purchase but gave Protech the option of alternate methods of payment.  Protech proceeded to lease the equipment directly from Lyon.  This lease formed a separate contract, creating direct rights between Protech and Lyon, rather than simply assigning the right to collect funds under a previous sales contract with CMS.  Further, this finance lease expressly and conspicuously disclaimed warranties from Lyon, stating that the supplier was not an agent of Lyon and that nothing the supplier stated could affect Protech’s rights under the lease.  See Minn. Stat. § 336.2A-103(1)(g) (providing, as one requirement of finance lease, that lessee receive disclaimer statement disclosing all warranties provided by lessor and supplier and informing lessee in conspicuous manner that no warranties are provided other than those in statement). 

This interpretation is consistent with the statutory framework of Article 2A, which contemplates that a finance lessee must normally look to the supplier, rather than to the finance lessor, to perform the essential warranties and covenants arising from the sale of the goods.  Minn. Stat. Ann. § 336.2A-407, U.C.C. cmt., para. 1; Minn. Stat. Ann. § 336.2A-103, U.C.C. cmt., para. (g) (West 2002); see Minn. Stat. Ann. § 336.2A-209, U.C.C. cmt., para. 1 (West 2002) (noting that “[t]he function performed by the lessor in a finance lease is extremely limited”).  McPhee was afforded the chance to purchase the business software with cash or credit; he chose the lease with Lyon as a financing alternative and had the opportunity to read the finance lease’s terms, which included a conspicuous disclaimer provision.  Under the terms of the agreement and the facts presented in this appeal, Protech’s remedy for seeking damages for the defective software was against CMS, the supplier, rather than Lyon, the finance lessor.  The district court did not err in concluding that no assignment occurred.