Unpublished Disposition, 919 F.2d 145 (9th Cir. 1990)

MEMORANDUM^* 

The RTS-AmNet equipment lease provides that in the event of a constructive total loss, AmNet (the lessee) must either pay RTS (the lessor) the "stipulated loss value" of the lost equipment or purchase replacement equipment for RTS. Master Agreement of Lease, Article 11.1, ER 84-85; Article 18, ER 94-95. RTS claims that the defectiveness of the equipment was an event of constructive total loss and that AmNet breached the lease by (1) failing to pay stipulated loss values; and (2) returning the defective equipment rather than replacement equipment at the end of the lease.

Under the lease, AmNet's failure to perform any contractual obligation after 30 days notice from RTS constitutes a default. Article 12.1.1, ER 86-87. When the loss allegedly occurred (at the outset of the lease), AmNet neither paid the loss value nor gave RTS title to replacement equipment. But RTS didn't give AmNet notice of noncompliance as required by the lease. Since 30 days' notice is a condition precedent to default and RTS gave no notice, AmNet did not default. National Telefilm Assoc., Inc. v. Pamandia Prods., Inc., 42 A.D.2d 514, 344 N.Y.S.2d 418, 419 (1973) (where notice is a condition precedent to breach, failure to give notice precludes recovery on the contract); see also Filmline (Cross-Country) Prods., Inc. v. United Artists Corp., 865 F.2d 513, 518 (2d Cir. 1989) (applying New York law).

The district court advanced two reasons for excusing RTS's failure to give notice. First, the district court found that AmNet never gave RTS notice that the equipment was defective, violating lease Article 11.1. This, the court concluded, excused RTS from providing Article 12.1.1 notice of default. The record, however, conclusively demonstrates that AmNet gave RTS notice that the equipment was defective and worthless; RTS does not contend otherwise on appeal.¹ 

The district court's second theory was that AmNet had cured the default by replacing the equipment, making notice of default unnecessary. However, under Article 11, AmNet could only exercise its replacement option "upon ... notice from Lessor [RTS] to Lessee [AmNet]." Article 18.1, ER 94 (emphasis added). It received no such notice from RTS and therefore did not exercise its option under the contract.² 

Finally, RTS contends that AmNet's removal of the equipment constituted a default for which no notice was required. Article 12.1.6, ER 88. However, unlike an actual or constructive total loss, removal of the equipment does not entitle RTS to stipulated loss values or replacement equipment. At most, RTS is entitled to whatever damages flowed from removal of the equipment. RTS has not shown and cannot show any damages arising from the equipment's removal. It was defective and worthless when AmNet moved it to storage, and it was defective and worthless when AmNet returned it to RTS. Moreover, AmNet kept paying RTS throughout the lease, just as if the equipment were in place. No harm, no foul.

The judgment of the district court is REVERSED and the case is REMANDED for the entry of judgment in favor of defendant. AmNet, as the prevailing party, is entitled to all costs, including attorneys' fees. Article 12.3, ER 89.