Jade Fashion & Co. v. Harkham Industries, Inc.
229 Cal. App. 4th 635
| Cal. Ct. App. | 2014Background
- Jade Fashion and Harkham Industries agreed (written Agreement and Continuing Guaranty, Nov. 28, 2011) that Harkham owed $341,628.77 for goods and would pay $25,000 weekly; if all installments were timely paid, Harkham could deduct $17,500 from the final payment.
- Harkham made the first two payments on time but paid five installments late (3–12 days late). On Feb. 10, 2012 Harkham wired $25,000 and wrote checks for $30,000 and $39,128.77; Jade refused to cash the $39,128.77 check, asserting the discount was lost due to late payments.
- Jade sued for breach of contract and related common counts seeking the unpaid balance; Harkham counterclaimed (later struck) and contested enforceability of the discount, ambiguity of “time is of the essence,” unclean hands, and sought Khalili’s deposition.
- The trial court granted Jade’s summary judgment: found the Agreement unambiguous, the $17,500 was part of the admitted debt (not an unlawful penalty), Jade credited the $30,000 overpayment, and awarded Jade $26,628.77 plus interest and attorneys’ fees; Harkham appealed.
- The Court of Appeal affirmed, holding (inter alia) the discount was not an unenforceable liquidated-damages penalty, the contract language was unambiguous, the alleged misconduct did not prejudice Harkham, and the trial court did not abuse discretion in denying a continuance for deposition.
Issues
| Issue | Plaintiff's Argument (Jade) | Defendant's Argument (Harkham) | Held |
|---|---|---|---|
| Enforceability of $17,500 discount | Discount is part of original admitted debt; lost if installments not timely—so breach entitles Jade to full balance. | Discount is an unenforceable penalty/forfeiture (bears no reasonable relation to actual damages). | Held: Discount is part of the admitted $341,628.77 debt, not a liquidated-damages penalty; enforceable. |
| "Time is of the essence" / contract ambiguity | Contract language is clear: timely payment is condition to discount; no extrinsic evidence creates a triable ambiguity. | Oral negotiations and course of performance show parties did not require strict punctuality; ambiguity exists. | Held: Provision unambiguous; provisional extrinsic evidence considered but did not create a triable issue; interpretation as matter of law. |
| Unclean hands re: $30,000 letter/overpayment | N/A (Jade credited the $30,000 and reduced its claim). | Khalili’s allegedly false letter about a returned $30,000 check was fraudulent and supports unclean hands/prevents relief. | Held: Even if misrepresentation occurred, Harkham suffered no prejudice because Jade credited the $30,000; unclean hands defense fails. |
| Request for continuance to depose Jade’s counsel (Khalili) | N/A (opposed continuance; asserted privilege). | Khalili’s deposition was essential to oppose summary judgment and would produce facts critical to defenses. | Held: Trial court did not abuse discretion; Harkham failed to show facts essential to opposition or why deposition would produce them. |
Key Cases Cited
- Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (summary judgment burden-shifting and review standard)
- Ridgley v. Topa Thrift & Loan Assn., 17 Cal.4th 970 (definition and test for unenforceable penalties/liquidated damages)
- Sybron Corp. v. Clark Hosp. Supply Corp., 76 Cal.App.3d 896 (unenforceable stipulated judgment as penalty)
- Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (analysis of settlement-default provisions as penalties)
- Purcell v. Schweitzer, 224 Cal.App.4th 969 (late payment triggering full original liability held penal in context of settlement)
- Harbor Island Holdings v. Kim, 107 Cal.App.4th 790 (deferred/conditional forgiveness treated as potential penalty when disproportionate)