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Jade Fashion & Co., Inc. v. Harkham Industries, Inc.

California Court of Appeals, Second District, Seventh Division

August 18, 2014

JADE FASHION & CO., INC., Plaintiff and Respondent,
HARKHAM INDUSTRIES, INC., et al., Defendants and Appellants.

APPEAL from a judgment of the Superior Court of Los Angeles County No. BC479461, James R. Dunn, Judge.

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[Copyrighted Material Omitted]

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Sussman Shank, John A. Schwimmer, Clifford S. Davidson; Law Offices of Gary Freedman and Gary Freedman for Defendants and Appellants.

Resch Polster & Berger, Robert W. Barnes and Sandra Khalili for Plaintiff and Respondent.



Appellants Harkham Industries, Inc. and Uri Harkham (collectively “Harkham Industries”) appeal from the trial court’s grant of summary judgment in favor of respondent Jade Fashion & Co., Inc. We affirm.


I. The Parties’ Agreement

Jade Fashion is in the business of manufacturing and selling garments to other businesses. Starting in Spring 2010, Jade Fashion and Harkham Industries entered into a series of purchase orders agreements under which Harkham

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Industries purchased certain garments from Jade Fashion at specified quantities and prices. In 2011, Harkham Industries had cash flow problems and fell behind on its payment obligations to Jade Fashion. As of November 28, 2011, Harkham Industries owed Jade Fashion the principal balance of $341,628.77 for the goods.

In November 2011, Sandra Khalili, counsel for Jade Fashion, and David Meniane, the Chief Financial Officer at Harkham Industries, had several communications about the outstanding debt that Harkham Industries owed to Jade Fashion. According to Meniane, Khalili initially demanded that Harkham Industries pay off the entirety of the debt by the end of 2011. After further negotiations, Khalili and Meniane agreed that Harkham Industries would have until February 2012 to repay the debt and would make weekly payments toward the satisfaction of the debt until the balance due was paid. The amount of each weekly payment was determined by dividing the total debt by the number of weeks remaining before the February 2012 deadline for paying off the entirety of the debt. Khalili and Meniane further agreed that, if Harkham Industries made all payments timely, it could take a discount of $17,500 from the total amount that was owed. Following these communications, Jade Fashion and Harkham Industries entered into a written agreement on November 28, 2011 regarding the repayment of the debt (the “Agreement”).

As set forth in the Agreement, Harkham Industries acknowledged that it owed Jade Fashion a total of $341,628.77 for the purchased goods. Harkham Industries agreed to pay “the weekly sum of $25,000 to Jade [Fashion] by wire transfer commencing on Friday, December 2, 2011 and on each Friday thereafter for a total amount of $341,628.88[1] until the entire balance due is paid in full.” Uri Harkham, the Chief Executive Officer of Harkham Industries, agreed to execute a continuing guaranty for the repayment of the debt, including the principal balance, accrued interest, collection costs, and attorneys’ fees. In exchange, Jade Fashion agreed to release the balance of the goods in Harkham Industries’ then pending orders upon its receipt of the first two installment payments. Jade Fashion further agreed that if Harkham Industries “timely make[s] each installment payment when due, [it] may deduct $17,500 from the final installment due.” The Agreement also included the following provision: “Time is of the essence with respect to each of the payments set forth herein and if [Harkham Industries] fails to make full and timely payment of any of the weekly payments, [Harkham Industries] will not

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be entitled to the discount of $17,500 and the remaining balance due by [Harkham Industries] shall be immediately due and payable.”

The Continuing Guaranty that was concurrently signed by Uri Harkham similarly provided that Harkham Industries owed Jade Fashion the principal sum of $341,628.77, which was “currently due and payable.” It further stated that Jade Fashion “agreed to forbear on the immediate collection of the Debt in full on the condition that [Harkham Industries] make installment payments of principal and interest pursuant to a scheduled approved by [the parties] concurrently herewith, ” and that Jade Fashion was “willing to agree to accept repayment of the Debt in accordance with the Payment Plan provided that [Uri Harkham] personally guaranties [sic] the repayment of the Debt.” The guaranty extended to “all principal, interest, late charges, fees, remedial advance reimbursements, future advances, costs of collection and attorneys’ fees” related to the debt.

Under the Agreement, the weekly installment payments were due on December 2, 9, 16, 23, and 30, 2011, on January 6, 13, 20, and 27, 2012, and on February 3, 10, 17, and 24, 2012. Harkham Industries timely made its first two installment payments on December 2 and 9, 2011, respectively. Jade Fashion in turn released all of the remaining goods in Harkham Industries’ purchase orders in accordance with the Agreement. Following its receipt of the goods, however, Harkham Industries ceased making all of the weekly installment payments when they were due. Of the 13 scheduled payments, Harkham Industries did not fully and timely pay the installments that were due on December 16 and 23, 2011, on January 20 and 27, 2012, and on February 3, 2012. Each of these five installments was paid in full, but from three to 12 days late.[2]

On February 10, 2012, two weeks before the final installment was due, Harkham Industries made three payments to Jade Fashion―a wire transfer of $25,000, a check for $30,000, and a check for $39,128.77. The wire transfer of $25,000 and the check for $30,000 reflected a part of the principal balance that was owed for the goods. The check for $39,128.77 reflected the remaining principal balance less the $17,500 discount, which Harkham Industries contended was the final payment due. Jade Fashion accepted the $25,000 wire transfer and the $30,000 check. It refused to cash the $39,128.77 check, asserting that Harkham Industries’ failure to timely make

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all of the weekly installment payments precluded it from applying the $17,500 discount to its final payment.

On February 15, 2012, Khalili sent Harkham Industries a letter in which she demanded payment of the principal balance of $17,500, plus interest and attorney’s fees incurred in collection of the debt. She also indicated that the $39,128.77 check could be credited to Harkham Industries’ account if the balance due was paid. Harkham Industries refused to make the requested payment.

II. Jade Fashion’s Lawsuit Against Harkham Industries

On February 23, 2012, Jade Fashion filed a civil action against Harkham Industries asserting causes of action for breach of contract, goods sold and delivered, open book account, account stated, and breach of guaranty. The complaint alleged that Harkham Industries breached the parties’ written agreement by failing to comply with the payment terms set forth in the agreement, including refusing to pay the remaining principal balance of $17,500 for the goods it had purchased from Jade Fashion. The complaint sought damages in the amount of $56,628.77 (the sum of the $17,500 discount and the $39,128.77 uncashed check), plus interest and attorneys’ fees.

On March 2, 2012, based on erroneous information provided by Jade Fashion’s bank, Khalili sent a letter to counsel for Harkham Industries in which she represented that the $30,000 check issued on February 10, 2012 had been returned due to unavailable funds, and demanded that the unpaid amount be wired to Jade Fashion by the following business day. After making that payment and then confirming that the original check had in fact been paid, Harkham Industries filed a cross-complaint against Jade Fashion and its counsel for fraud, conversion, and unjust enrichment. The trial court granted the special motion to strike brought by Jade Fashion and its counsel pursuant to Code of Civil Procedure section 425.16 and dismissed each cause of action in the cross-complaint.[3]

III. Jade Fashion’s Motion for Summary Judgment

On September 21, 2012, Jade Fashion filed a motion for summary judgment. Jade Fashion argued that it was entitled to judgment as a matter of law on each of its claims because the undisputed facts established that Harkham Industries breached the parties’ written agreement by failing to pay the ...

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