Creditors Adjustment Bureau v. Imani

Filed 8/9/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
CREDITORS ADJUSTMENT 2d Civil No. B316546
BUREAU, INC., (Super. Ct. No. 56-2013-
00438287-CU-BA-VTA)
Plaintiff, Cross-defendant (Ventura County)
and Respondent,
v.
RAY IMANI,
Defendant, Cross-
complainant and Appellant.
Over twenty five years ago, we stated the
unremarkable: “The purpose of the law of contracts is to protect
the reasonable expectations of the parties . . . . There is . . . a
price to be paid for breach of contract.” (Ben-Zvi v. Edmar Co.
(1995) 40 Cal.App.4th 468, 475.) Here, we protect the reasonable
expectations of the parties. And there is still a price to be paid
for breach of contract.
Ray Imani appeals the order denying his motion to
vacate the judgment entered against him for $251,200.13 after he
failed to pay $30,000 as required pursuant to a stipulation for
entry of judgment. Appellant contends the trial court erred
because the judgment is an unenforceable penalty and is
therefore void. We disagree. The stipulated judgment, which
respondent agreed to accept is the exact amount of damages
suffered by respondent. Although appellant characterizes the
stipulated damages as a penalty and/or liquidated damage
provision, it is not. A party to a contract, here a lease and then a
stipulated settlement, cannot pick and choose favorable aspects of
the agreements while jettisoning the unfavorable aspects. A
person should not be rewarded for a breach of contract.
“He who takes the benefit must bear the burden.”
(Civ. Code, § 3521.) Appellant took the benefit of the original
lease. This gave him a long-term lease for what we assume was
the market price for a commercial real property lease. He took
the benefit of the settlement agreement. This was an extremely
favorable financial settlement. And now, after years of defaults,
he seeks the benefit of the settlement agreement. Were we to
reverse, this would, in essence, be a decree awarding specific
performance of the 2015 stipulated judgment. He who seeks
equity, must do equity and have “clean hands.” Appellant has
not acted equitably and he does not have “clean hands.” The time
for performance pursuant to the breached 2015 stipulated
judgment has expired. We will affirm the order denying the
motion to vacate the $251,200.13 judgment.
Facts and Procedural History
In January 2012, appellant leased a hair salon space
from Baldwin Park Plaza LLC (landlord). The lease was for a
term of 10 years and provided for a monthly base rent of $2,695,
monthly common area charges of $605 and an annual increase in
the base rent of 3%. Rent payments were to begin on March 1,
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2012. In August 2012, appellant failed to pay the rent. He
vacated the premises in December 2012 without paying any
additional rent.
The landlord assigned its interest in the lease to
respondent, which filed a lawsuit to collect over $400,000 in
unpaid past and future rent due. The landlord acted in good
faith and mitigated the damages. It eventually found a new
tenant for the space and reduced its damages claim to
$257,546.17.
Trial was set for January 2015. Respondent
appeared with counsel and appellant appeared in pro per. The
parties reached a settlement which they documented in a hand-
written stipulation for entry of judgment that was signed by all
parties and recited in open court.
The stipulation for entry of judgment requires
appellant to pay respondent $30,000 in 24 consecutive monthly
payments of $1,250 starting April 1, 2015. If appellant defaulted
on any payment, respondent would provide a 10-day written
notice of default. On the 11th day, if the default had not been
cured, respondent could “declare the then entire balance due and
payable, together with reasonable attorneys’ fees and costs in the
collection of said obligation . . . . In such event, judgment shall be
immediately entered in the sum of $251,200.13 together with
reasonable attorneys fees in favor of [respondent] and against
[appellant], . . . less any sums received by [respondent].”
Appellant acknowledged that “he has read and agreed to the
terms of the stipulated judgment, and that he does not dispute
the amount of the stipulated judgment, and further acknowledges
that the amount of $251,200.13 is due and owing, but has agreed
to pay the amount of $30,000.00 to fully and finally resolve all
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claims and all related claims.” Appellant also agreed to sign a
formal version of the stipulation prepared by respondent’s
counsel and to file a request for dismissal of his cross-complaint.
Appellant defaulted immediately. He did not make
any of the payments required by the stipulation. He also failed to
sign the formal stipulation for entry of judgment. Consequently,
in June 2015, judgment was entered against appellant for the
stipulated amount of respondent’s actual damages, $251,200.13.
This was his second breach of contract.
Six years later, appellant filed a motion to vacate the
judgment. He contended, as he does here, that the judgment is
void because the amount of the stipulated judgment ($251,200)
bears no reasonable relationship to the damages caused by his
failure to pay respondent $30,000. The trial court denied the
motion, concluding, appellant “failed to meet his burden to show
that the stipulated judgment was unreasonable under the
circumstances existing at the time the contract was made.”
Standard of Review
We review de novo the question of whether the
stipulation for entry of judgment constitutes an enforceable
contract or whether it is an impermissible liquidated damages
provision or a void and unenforceable penalty pursuant to Civil
Code section 1671, subdivision (b). (See generally Jade Fashion
& Co. v. Harkam Industries, Inc. (2014) 229 Cal.App.4th 635(Jade Fashion); Graylee v. Castro (2020) 52 Cal.App.5th 1107,
1113; Vitatech International, Inc. v. Sporn (2017) 16 Cal.App.5th
796, 807-808 (Vitatech International).)
Discussion
The stipulation for entry of judgment requires
appellant to pay $30,000 in monthly payments of $1,250 for 24
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months, until the settlement amount of $30,000 was paid in full.
The stipulation further provides that, if he fails to make any of
those payments, judgment will immediately be entered against
him for the full amount owing on the lease, $251,200.13. This
amount is not referred to in the stipulation as “liquidated
damages.” Appellant claims that the legal effect is the same,
however, because the stipulation predetermines the damages
respondent will recover on appellant’s failure to pay the
settlement amount. (Vitatech International, supra, 16
Cal.App.5th at p. 810.)
We reject appellant’s theory. The amount of damages
was not “predetermined” in 2015. It was the actual amount of
damages then due and owing. That appellant was able to settle
for a fraction of what was owed should not be used against
respondent. Had appellant agreed to pay half of what was owed,
$125,000, he would undoubtedly claim that there was a 50%
“penalty.” Respondent’s “more than reasonable” settlement
terms should not be used against it to show “liquidated damages”
or a “penalty.”
Civil Code section 1671 provides that a liquidated
damages clause “is valid unless the party seeking to invalidate
the provision establishes that the provision was unreasonable
under the circumstances existing at the time the contract was
made.” (Id., subd. (b).) A provision will be considered
unreasonable “if it bears no reasonable relationship to the range
of actual damages that the parties could have anticipated would
flow from a breach. The amount set as liquidated damages ‘must
represent the result of a reasonable endeavor by the parties to
estimate a fair average compensation for any loss that may be
sustained.’” (Ridgley v. Topa Thrift & Loan Ass’n. (1998) 17
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Cal.4th 970, 977 (Ridgley), quoting Garrett v. Coast of Southern
Fed. Sav. & Loan Assn. (1973) 9 Cal.3d 731,739.)
An unenforceable penalty, by contrast, “‘operates to
compel performance of an act [citation] and usually becomes
effective only in the event of default [citation] upon which a
forfeiture is compelled without regard to the damages sustained
by the party aggrieved by the breach [citation]. The
characteristic feature of a penalty is its lack of proportional
relation to the damages which may actually flow from failure to
perform under a contract. [Citations.]’” (Ridgley, supra, 17
Cal.4th at p. 977.)
We cannot isolate the relevant breach of contract as
only the breach of settlement agreement or stipulation for entry
of judgment and excluding the underlying contract. Here, the
$251,200.13 damage provision in the stipulation for entry of
judgment is not arbitrarily drawn from thin air. It is the actual
and stipulated amount of damages. This is not a penalty or a
liquidated damage provision. We cannot delete the terms of the
stipulated judgment calling for monthly payments and we cannot
add a provision to the terms of the stipulated judgment allowing
a seven-year moratorium on monthly payments. Money has a
value over time. Appellant has had the use of the money for
seven years. Respondent has been deprived of the use of the
money for seven years.
Respondent correctly relies upon appellant’s
admission in the stipulation that he did not dispute the amount
of the stipulated judgment and that $251,200.13 was in fact due
and and owing on the lease. Reliance upon Jade Fashion, supra,
229 Cal.App.4th 635 is appropriate. There, Jade Fashion agreed
to sell garments to Harkham at an agreed price. It then refused
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to release the garments because Harkham failed to pay for them.
Before either party filed suit, Harkham admitted that it owed
Jade Fashion approximately $341,000. It agreed to make weekly
payments of $25,000 until the entire balance was paid in full.
Jade Fashion agreed to release the garments after it received the
first two payments. The parties further agreed that, if Harkham
“‘timely make[s] each installment payment when due, [it] may
deduct $17,500 from the final installment due.’” (Id. at p. 639.)
If any installment was late, however, Harkham “‘will not be
entitled to the discount of $17,500 and the remaining balance due
. . . shall be immediately due and payable.’” (Id. at pp. 639-640.)
Harkham made all of the required payments, but five were late.
It nevertheless deducted $17,500 from its final principal
payment. Jade Fashion refused to accept the final payment and
sued to recover the unpaid balance.
The court of appeal held the $17,500 timely payment
discount was not an unenforceable penalty or forfeiture because
the agreement between Jade Fashion and Harkham “was not an
agreement to settle or compromise a disputed claim. Rather, it
was an agreement to forbear on the collection of a debt that was
admittedly owed for goods that had been delivered so long as
timely installment payments were made.” (Jade Fashion, supra,
229 Cal.App.4th at p. 648.) The $17,500 discount “was not
liquidated damages for a breach of contract, nor was it an
additional payment over and above any debt that was owed.” (Id.
at p. 649.) Instead, the $17,500 was part of the original $341,000
debt and Harkham’s failure to pay that amount caused Jade
Fashion actual damage.
Respondent contends, and we agree, that its
stipulation for entry of judgment is like the agreement at issue in
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Jade Fashion because appellant, like Harkham, admitted that he
owed the entire $251,000. The stipulation here states that
appellant “does not dispute the amount of the stipulated
judgment, and further acknowledges that the amount of
$251,200.13 is due and owing . . . .” Respondent contends, and we
agree, that this statement establishes that appellant was not
compromising a disputed claim when he signed the stipulation.
Nothing in Greentree Financial Group, Inc. v.
Executive Sports, Inc. (2008) 163 Cal.App.4th 495 or Vitatech
International, supra, 76 Cal.App.5th 769, compel a contrary
conclusion. Why? Those cases involved disputed claims and
here, appellant admitted owing the $251,200.13 as unpaid rent,
i.e., damages. Appellant’s financial wound was self-inflicted.
Disposition
The order denying appellant’s motion to vacate the
stipulated judgment is affirmed. Respondent is awarded its costs
on appeal.
CERTIFIED FOR PUBLICATION.
YEGAN, J.
We concur:
GILBERT, P. J.
PERREN, J.
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Matthew P. Guasco, Judge
Superior Court County of Ventura
______________________________
Law Offices of Shahin Motallebi and Shahin
Motallebi for Defendant, Cross-complainant and Appellant.
Law Offices of Kenneth J. Freed, Kenneth J. Freed
and David E. Weeks, for Plaintiff, Cross-defendant and
Respondent.