Opinion
No. 04 Civ. 4449 (NRB).
November 1, 2004
Daniel J. Kornstein, Esq., Kornstein Veisz Wexler Pollard, LLP, New York, NY, Counsel for Plaintiff.
Curt Meltzer, Esq., Jennifer Kelly, Esq., Meltzer LoPresti, LLP, New York, NY, Counsel for Defendant.
MEMORANDUM AND ORDER
Plaintiff Shanghai Join Buy Company, Ltd. ("plaintiff" or "Shanghai") brings this action against PSTEX Group, Inc. ("defendant" or "PSTEX"). Plaintiff has moved for summary judgment on its claims. For the reasons set forth below, plaintiff's motion is granted.
BACKGROUND
Shanghai is a Chinese corporation that manufactures and sells women's knitwear clothing. PSTEX is a New York corporation that imports women's knitwear clothing. Beginning in February 2002, Shanghai sold shipments of clothing to PSTEX on a regular basis. PSTEX accepted Shanghai's shipments without complaint and, initially, made monthly payments to Shanghai for the goods that Shanghai shipped. See Declaration of Yang Wei-Min ("Wei-Min Decl.") ¶¶ 4-5.
Unless otherwise noted, the following facts are taken from the parties' statements pursuant to Local Civil Rule 56.1 (the "56.1 Statements").
PSTEX disputes this fact summarily with the statement that "Defendant did not accept delivery without complaint." Def. 56.1 Statement ¶ 4. However, in support of that statement, PSTEX cites only a declaration submitted by its president, Pilot Leng (the "Leng Declaration"). The Leng Declaration contains only one paragraph that addresses defective shipments. It states: "Shipments from Shanghai Join Buy were often late and defective. I was planning to set this amount off from any amount that PSTEX Group, Inc. came to owe Shanghai Join Buy in the future." Leng Decl. ¶ 11. Thus, regardless whether it now believes that any shipment was defective, PSTEX does not dispute Shanghai's contention that PSTEX never complained about defective shipments at the time those shipments were received. The Court must therefore accept Shanghai's contention as true.
PSTEX's practice was to sell the goods it received from Shanghai to a company called "S.W.A.K." See Leng Decl. ¶ 3. PSTEX contends that, in the latter half of the year 2003, S.W.A.K. stopped paying for the goods that PSTEX was supplying.See id. ¶ 3. In August 2003, PSTEX filed a lawsuit against S.W.A.K. to recover a resulting $3.2 million debt. See id. ¶ 4. Several months thereafter, S.W.A.K. filed for bankruptcy protection. See id.
PSTEX eventually stopped making monthly payments to Shanghai and informed Shanghai that PSTEX had no money to pay its debts. On December 16, 2003, Messrs. Leng and Wei-Min (Shanghai's Vice-General Manager) met in person to discuss the situation. At that meeting the two men executed an agreement (the "Agreement") that "unanimously confirm[s]" that PSTEX "has failed to pay [Shanghai] the sum of US$2,742,508 for women's knitwear purchased from [Shanghai] during 2002-2003." Affidavit of Daniel J. Kornstein ("Kornstein Aff."), Ex. B. The December 16, 2003 Agreement states that it "is effective upon execution" and further provides:
2. In order to discharge its payment obligation, [PSTEX] hereby promises that it shall pay US$800,000 by January 10, 2004. Thereafter [PSTEX] shall pay US$150,000 every month, and the entire remaining unpaid balance shall be repaid by December 2004.
3. According to the Chinese policy that exported goods are entitled to the return of VAT, [PSTEX] shall compensate [Shanghai] 4% of the amount for the 2002-2003 exported goods unpaid before December 31, 2003 (US2,742,508) for the loss of VAT. VAT shall be settled after the payment of the US$2,742,508 has been completed.Id.
PSTEX contends that the Agreement does not accurately represent the entirety of the parties' discussions. The Leng Declaration states that Shanghai "represented to PSTEX Group, Inc. that in an effort to keep PSTEX Group Inc. in business and ultimately be paid money's [sic] due, that Shanghai Join Buy would continue to manufacture for PSTEX Group, Inc. if PSTEX Group, Inc. agreed to the payment and schedule enunciated in the December 16, 2003 agreement." Leng Decl. ¶ 7. The Leng Declaration further states that "[a]ll parties were aware that without Shanghai Join Buy's promise to continue to manufacture for PSTEX Group, Inc., PSTEX Group, Inc. would not be able to make payments to Shanghai Join Buy, or be able to stay in business since, it had no money to pay another manufacturer to make its orders." Id. ¶ 8.
Plaintiff argues in its reply papers that the Leng Declaration is defective because it was not sworn in compliance with 28 U.S.C. § 1746 or Local Civil Rule 1.10. Pl. Reply at 7. As is explained below, however, regardless whether the Leng Declaration was properly sworn, it does not present a genuine issue of material fact. Therefore, it is unnecessary to rule on plaintiff's argument.
Defendant contends that, after the Agreement was signed, Shanghai refused PSTEX's requests to continue shipping goods. Both parties agree that defendant failed to make any of the payments set forth in the Agreement. Def. 56.1 Statement ¶ 8. On June 14, 2004, plaintiff filed the present action, which seeks to recover the monies owed to plaintiff under breach of contract, goods sold and delivered and declaratory judgment causes of action. Plaintiff's motion for summary judgment is now before us.
DISCUSSION
A motion for summary judgment must be granted if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In deciding a motion for summary judgment, the evidence submitted must be viewed in the light most favorable to the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Summary judgment must be granted "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Golden Pacific Bancorp. v. F.D.I.C., 375 F.3d 196, 200 (2d Cir. 2004) (internal citations and quotation marks omitted).
Because it is not clear from the parties' submissions where various relevant events took place, there is obviously a question whether New York or foreign law applies to this case. However, because the parties have assumed in their papers that New York law applies, the Court will, without deciding the issue, do the same for purposes of deciding plaintiff's motion.
The crux of defendant's opposition to plaintiff's motion is a contention that the Agreement was premised on an assumption that Shanghai would continue to manufacture merchandise for PSTEX while PSTEX paid down its debt. Because that assumption did not come to pass, PSTEX argues that it should not be held liable to repay the amounts it agreed to pay in the Agreement. Specifically, PSTEX argues that: (i) the Agreement was either void or never validly formed because it lacked consideration; (ii) the purpose underlying the Agreement, which was to allow the companies to continue doing business with each other, was frustrated when Shanghai refused to ship goods to PSTEX after the Agreement was signed; (iii) Shanghai's continued shipment of goods was an unsatisfied condition precedent underlying the Agreement; and (iv) plaintiff's failure to ship goods subsequent to the Agreement's execution discharged any obligation by defendant to perform. None of these arguments can succeed.
On its face, the Agreement is valid and binding. PSTEX acknowledged its debt to Shanghai and agreed to make scheduled payments against that debt. Shanghai agreed to accept PSTEX's scheduled payments in satisfaction of the debt and in lieu of suing immediately on it. Plainly, there was valid consideration.See, e.g., Baskin-Robbins Inc. v. SN Prinja, Inc., 78 F. Supp. 2d 226, 231 (S.D.N.Y. 1999) (pre-existing debt is valid consideration for promise to pay debt). Defendant's argument that "[t]he only consideration supporting the December 16, 200[3] agreement was Shanghai Join Buy's promise to continue to manufacture for PSTEX," Pl. Opp'n at 2, simply misstates the Agreement.
To the extent defendant argues that the "real" consideration underlying the Agreement is explained in the Leng Declaration, which alleges an oral promise by Shanghai to continue manufacturing for PSTEX, that argument is precluded by the parol evidence rule, under which extrinsic evidence cannot be admitted to add to or vary the terms of an unambiguous contract. See, e.g., R/S Assocs. v. New York Job Dev. Auth., 98 N.Y.2d 29, 33, 744 N.Y.S.2d 358, 360 (2002).
Defendant's statement that the Leng Declaration "is admissible as parol evidence because the declaration demonstrates facts tending to the conclusion that the contract in question lacked performance of consideration, an essential element of a contract," Pl. Surreply at 3, is simply wrong on the law. In an apparent effort to escape the parol evidence rule, defendant characterizes the Leng Declaration as evidence of a "collateral oral agreement that does not vary the terms of the [Agreement]."Id. However, if any such "collateral oral agreement" does not vary the terms of the Agreement, it is hard to see how it could be relevant to this case. Moreover, because nothing that defendant has submitted suggests that any essential terms of the alleged "collateral oral agreement" were agreed to, no reasonable juror could conclude that any "collateral oral agreement" actually existed. In particular, there is no evidence that the parties agreed to how much additional merchandise plaintiff would manufacture, at what price that merchandise would be sold to PSTEX or on what schedule the additional goods would be delivered. See, e.g., Shann v. Dunk, 84 F.3d 73, 78 n. 3 (2d Cir. 1996) (no contract formed under New York law when essential terms are lacking). The importance of such terms cannot be overemphasized. Without a pricing structure that would permit both resale by PSTEX and actual pay-down of the existing debt, any such deal would have been economic suicide for Shanghai. Such economic unreality cannot be presumed. At most, the Leng Declaration shows that PSTEX hoped for or expected Shanghai to continue shipping goods, but the evidence certainly does not suggest any meeting of the minds.
Defendant's third and fourth arguments are closely related and must be rejected for the same reason. The claim that plaintiff orally agreed to continue to supply goods while defendant made periodic payments on its debt simply cannot be inferred from the Agreement, and extrinsic evidence is not admissible to demonstrate otherwise.
Finally, defendant's claim that the Agreement's purpose was frustrated when plaintiff refused to continue to supply goods during the repayment period must also fail. The "basic test" under New York law of whether a contract's purpose has been frustrated is "whether the parties contracted on a basic assumption that a particular contingency would not occur."Profile Publ'g and Mgmt. Corp. APS v. Musicmaker.com, Ind., 242 F. Supp. 2d 363, 365 (S.D.N.Y. 2003) (internal citation and quotation marks omitted). The purpose of the Agreement was clear on its face: to give defendant the opportunity to pay its debt over time. There is no evidence in the Agreement that continued supply was even contemplated, let alone assumed. Therefore, there has been no frustration of purpose.
Because the Agreement is valid and binding, and because defendant breached the Agreement by failing to make any of the scheduled payments, plaintiff is entitled summary judgment on its contract claim. Damages must therefore be awarded in the amount of plaintiff's loss, which is $2,742,508 plus the 4% VAT adjustment ($109,700.32), the value of the contract. Plaintiff is also entitled to prejudgment interest in the amount of nine percent per annum "from a single reasonable intermediate date" within the payment schedule set forth in the Agreement. N.Y. C.P.L.R. §§ 5001, 5004; Terwilliger v. Terwilliger, 206 F.3d 240, 249 (2d Cir. 2000).
Because plaintiff prevails on its contract theory, which entitles plaintiff to all of the monetary relief it seeks, we do not rule on plaintiff's goods sold and delivered theory. Similarly, because this Order grants plaintiff an enforceable judgment for the amount stated in the Agreement, we do not rule on plaintiff's request for declaratory relief stating that the entire debt is due immediately.
CONCLUSION
Plaintiff's motion for summary judgment is granted. The Clerk of the Court is respectfully requested to enter judgment for plaintiff in the amount of $2,852,208.32, plus interest accruing from July 1, 2004, and to close this case on the Court's docket.IT IS SO ORDERED.