DJM Jewelry v. Premchand

Filed 10/16/06 DJM Jewelry v. Premchand CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from a judgment of the Superior Court of Los Angeles County. Michael L. Stern, Judge. Affirmed.

Kenneth Lance Haddix for Defendant and Appellant.

Stephen H. Mattern for Plaintiff and Respondent.

___________________________

Shah Premchand (“Premchand”) appeals from a judgment entered against him after a bench trial on DJM Jewelry’s (“DJM”) complaint alleging causes of action including an open book account. On appeal, Premchand claims sufficient evidence did not support the trial court’s finding an open book account existed between these parties. Instead, Premchand asserts each of the parties’ transactions constituted a separate contract, and that DJM’s claims as to the oldest of these contracts were barred under the applicable statute of limitation governing breach of contract. As we shall explain, the claim has no merit. Substantial evidence supports the trial court’s ruling that an open book account, rather than individual contracts existed between these parties. Since the complaint was filed within four years of the date of the last entry in that account, the court properly concluded the action was not barred by the statute of limitation. Accordingly, we affirm.

FACTUAL AND PROCEDURAL SUMMARY

DJM and Premchand were engaged in the jewelry business. On at least 80 occasions between May 4, 1999, and January 31, 2001, DJM provided precious stones (“merchandise”) on consignment to Premchand for sale to third parties. The parties recorded each of these consignments on separate, pre-printed forms they called “memoranda.” The total value of the merchandise listed in these memoranda was $74,220.55. Between January 25, 2002, and August 8, 2002, Premchand made several payments to DJM totaling $1536. These payments were recorded on individual memoranda chosen by Premchand.

On February 27, 2004, after numerous requests by DJM but without further payments by Premchand, DJM brought action against Premchand for breach of contract, account stated and open book account. After a one-day bench trial, the trial court issued a statement of decision in which it concluded that DJM was entitled to a judgment based on an open book account for the entire amount of its claim ($72,684.55) plus interest and court costs. Premchand filed a timely appeal from the judgment.

DISCUSSION

On appeal, appellant Premchand makes two related claims. First, Premchand argues each of the memoranda should be treated as a separate contract or transaction. Second, Premchand asserts the manner and form in which DJM kept the records of this account should disqualify it from consideration as a book account under Code of Civil Procedure section 337a.

STANDARD OF REVIEW

“Whether a book account exists between parties is a question of fact.” (Cochran v. Rubens (1996) 42 Cal.App.4th 481, 485.) “Where the ruling that is the subject of appeal turns on the trial court’s determination of disputed facts, the appropriate standard of review on appeal is ‘sufficiency of the evidence.’ Evidence is sufficient if there is ‘substantial’ evidence to support the ruling. Such evidence must be must be reasonable in nature, credible, and of solid value.” (Id. at p. 486.) In reviewing a claim of insufficiency of evidence, the appellate court must consider the whole record, view the evidence in the light most favorable to the judgment, presume every fact the trier of fact could reasonably deduce from the evidence, and defer to the trier of fact’s determination of the weight and credibility of the evidence. (In re Marriage of Mix (1975) 14 Cal.3d 604, 614; Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925.) “The ultimate test is whether it is reasonable for a trier of fact to make the ruling in question in light of the whole record.” (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 652.) Even where evidence is not in conflict, but conflicting reasonable inferences could be drawn from the admitted facts, the appellate court must defer to the trial court’s choice among conflicting reasonable inferences. (Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 633-634.)

I. The Memoranda Were Not Separate Transactions But Comprised One

Continuous, Open, Current Account

An open book account is “‘[a]n account with one or more items unsettled; also an account with dealings still continuing.’ . . . ‘A “continuous, open, current account” is an account which is not interrupted or broken, not closed by settlement or otherwise; . . . a running, connected series of transactions.’” (Mercantile Trust Co. v. Doe (1914) 26 Cal.App. 246, 253.) “‘An account is also open whenever there have been current dealings between the parties, which are kept unclosed with the expectation of further transactions between them.’” (Id. at p. 254.)

Code of Civil Procedure section 337, subdivision (2) provides that an action to recover a balance due on a book account may be commenced within four years from the date of the last item or entry in the account. (County of L.A. v. Continental Corp. (1952) 113 Cal.App.2d 207, 211.)

However, “where a contract is divisible, and thus, breaches of its severable parts give rise to separate causes of action, the statute of limitation will generally begin to run at the time of each breach; in other words, each cause of action for breach of a divisible part may accrue at [a] different time for purposes of determining whether an action is timely under the applicable statute of limitations.” (Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375, 1377.)

On appeal, Premchand argues evidence presented at trial demonstrated both Premchand and DJM contemplated the memoranda were to be treated separately and independently from each other. Specifically, he points to the evidence: (1) each memorandum was separately signed; (2) the memoranda contained pre-printed terms; and (3) payments were recorded on individual memoranda. Therefore, given this evidence, Premchand claims the trial court should have treated each memorandum as a separate transaction for the purpose of determining the statute of limitation. We examine this evidence in turn.

A. Signed Statements

First, to support his claim that each memorandum indicated a separate contract, Premchand points to the fact that he signed each of the memoranda. Premchand’s own testimony, however, implied he might have signed the memoranda to acknowledge receipt of the merchandise listed on the memorandum. The court could also reasonably infer that, by his signature, he was merely attesting to the parties’ agreement as to the value of those items. While it may be reasonable to infer from Premchand’s signature that the parties intended to create contracts as appellant contends, in order to prevail on appeal, Premchand must show that no other reasonable inference could be drawn from that signature. Appellant has failed to meet his burden on this point.

B. Pre-Printed Terms

Second, Premchand contends that the parties were bound by certain pre-printed terms appearing on the face of each memorandum. These terms plainly stated: “Merchandise Must Be Returned in 5 Days!”; and “This is the entire contract. This is what the parties agreed to.”

According to Premchand’s argument, each time he failed to return the merchandise listed on a particular memorandum to DJM within five days after receiving that merchandise, Premchand breached the “contract” between the parties contained in that memorandum. Premchand further points out the four-year statute of limitation for breach of contract commences on the date of that breach. (See Code Civ. Proc., § 337.) Since DJM filed its complaint against Premchand on February 27, 2004, the statute of limitation for breach of contract should have barred all claims contained in that complaint for consignments the parties entered into prior to February 22, 2000.

The parties to a written or oral contract may provide, however, by agreement or conduct, that money due under such contract shall be the subject of an account between them. (See Warda v. Schmidt (1956) 146 Cal.App.2d 234, 237.) In that event, a cause of action arising therefrom is on the account and not on the underlying contract. (See ibid.) Moreover, a book account is created by the agreement or conduct of the parties thereto, (See ibid.) “and may be shown by the circumstances attending the dealings between the parties.” (Mercantile Trust Co. v. Doe, supra, 26 Cal.App. at p. 254.)

In Warda, the court refused to enforce the terms of a contract where the conduct of the parties showed that they had ignored those terms. There, the court found an open book account where the installment-payment provisions of a contract were never followed by the parties and all payments actually made were on account.

Such was the situation in this case. Here, the parties’ conduct clearly indicated their complete disregard for the pre-printed terms and provisions appearing on the face of the memoranda. At trial Premchand testified he was not even aware of the five-day provision and never honored it. Jack Yomtoubian, testifying on behalf of DJM, stated he did not consider Premchand had breached his agreement with DJM until months after the last of the consignments -- when Premchand had stopped making payments. In sum, Premchand never honored and DJM never sought to enforce this five-day provision. As in Warda, we will not enforce terms the parties themselves choose by their actions to ignore.

Furthermore, it strains credulity to believe, according to Premchand’s argument, that while DJM certainly would have known Premchand was already in breach of every previous “contract” between them, DJM still continued to provide merchandise to Premchand. The Warda court warned that an argument such as this “cannot be utilized under the guise of a book account as a device to extend the statute of limitations beyond the time it would run on the contractual obligation.” (Warda v. Schmidt, supra, 146 Cal.App.2d at p. 237.) Nor should the memoranda in the current case be used to shorten the statute so that one of the parties may avoid a financial obligation. On this point, the California Supreme Court’s position is clear: “We will not accept post hoc rationalizations for actions already taken.” (Laurel Heights Improvement Assn. v. Regents of University of California (1988) 47 Cal.3d 376, 425.)

C. Partial Payments

Third, Premchand asks us to find significance in the fact his payments to DJM were recorded on and applied to particular memoranda (of Premchand’s choosing) and not physically deducted from a running total. While Premchand cited DJM’s alleged “need” to apply these payments in this fashion, DJM’s Jack Yomtoubian repeatedly testified that he viewed the dealings as one lump-sum account.

Similarly, in Mercantile, respondent argued that each of his individual purchases of coal from appellant constituted a separate and distinct transaction because the items became due as each shipment of coal was delivered and the payments that were made corresponded to these individual items and not to an account carrying a running total. (See Mercantile Trust Co. v. Doe, supra, 26 Cal.App. at p. 251.)

The Mercantile court, however, rejected this argument. Stating that “the nature of the account . . . was to be determined from all the facts and circumstances,” (id. at p. 258) the court in Mercantile looked to the evidence of the parties’ entire course of conduct and found that “[appellant] had been purchasing coal from [respondent] for many years and the evidence was that the account had been carried along on [respondent’s] book sometimes for months, [appellant] paying from time to time.” (Id. at p. 252.) The Mercantile court found on these facts that defendant’s individual purchases of coal were “running and continuous dealings“ between the parties, constituting an open book account despite the coincidence that payments lined up exactly with debits.

Like the parties in Mercantile, DJM and Premchand had been doing business together for years, the account between them had been carried forward for months and Premchand paid from time to time. It is not reasonable to hold, therefore, as Premchand contends, the subject account was not an open book account because payments were haphazardly applied to individual memoranda.

Nor, ultimately, is it reasonable to conclude that simply because each separate consignment in a long series of consignments may be viewed as a separate transaction, signed and subject to its own terms, the parties meant these to constitute individual, separate contracts. In our view, the evidence of the parties’ conduct as presented at trial was sufficient to support the trial court’s conclusion that the account between them was an open, continuous and current account.

II. The Manner And Form Of Keeping The Records Did Not Disqualify The

Transactions As A Book Account

Premchand contends that even if the memoranda represented an open, continuous, current account, the manner and form of their execution did not meet the requirements of California law in order to qualify as a book account. In other words, “the trial court erred in finding that the writings memorializing transactions between the parties constituted a book account within the meaning of Section 337a of the Code of Civil Procedure.” Code of Civil Procedure section 337a defines a “book account” as “a detailed statement which constitutes the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relation, and shows the debits and credits in connection therewith, and against whom and in favor of whom entries are made, is entered in the regular course of business as conducted by such creditor or fiduciary, and is kept in a reasonably permanent form and manner and is (1) in a bound book, or (2) on a sheet or sheets fastened in a book or to backing but detachable therefrom, or (3) on a card or cards of a permanent character, or is kept in any other reasonably permanent form and manner.”

Here, DJM and Premchand recorded their transactions on form memoranda which DJM ordered from a printer. These came bound together in sets of 25 to 50 and the forms produced two instant copies of the original. The memoranda, when completed, listed the parties to the transaction, described each jewelry item, and assigned a dollar value to each item. The original, executed records of the transactions between DJM and Premchand were kept together in a box or tray in DJM’s office, one of the copies was given to Premchand and, according to DJM’s Jack Yomtoubian, one set of copies remained bound together.

“The extent of what need and need not be shown on an open book account is largely, as in so many evidentiary matters, a matter of degree, the determination of which is a matter lying within the judicial discretion of the trial judge.” (Pacific States Steel Corp. v. Isaacson Iron Works (1963) 320 F.2d 645, 649-650.)

As the trial court properly found, these memoranda clearly constituted detailed statements of 80 consignment transactions between DJM and Premchand. Each memorandum was clear as to the debtor and creditor: each listed DJM as the consignor and was signed by Premchand as the consignee. The memoranda showed the debits and credits in connection with the transactions by showing the value of the merchandise received by Premchand and by showing the credits to Premchand when he returned merchandise or made a payment.

The trial court also perceived no issue as to whether the consignment relationship, wherein one party is holding the property of another is, by definition, also a contractual or fiduciary relationship. This relationship was at once referenced and established by the reading into the record of the following pre-printed term appearing on the memoranda: “The merchandise shall remain in the property of DJM Jewelry Diamond Importers and shall be returned on demand or payment in full made at that time.”

In addition, the memoranda were created in the ordinary course of business. The parties were jewelry merchants. Here, they were trading precious stones in the normal time and place of business, i.e., during normal business hours at DJM’s office. At the time, both Premchand and DJM were clearly experienced and knowledgeable in the jewelry business. Their testimony indicated that consignments such as theirs were typical of the jewelry trade. Their testimony further indicated that the particular methods they used in these transactions conformed to standard operating procedure between gem dealers in general. In fact, Premchand testified that he used similar forms to conduct his own consignment business.

Moreover, the memoranda were made over the course of two years and documented 80 consignment transactions between these two parties. Each memorandum was executed in exactly the same way. DJM’s agent, Jack Yomtoubian, created them at the time he provided merchandise to Premchand. Premchand signed the memoranda when he received the merchandise. Payments were noted on the memoranda at the time of payment. If nothing else, these facts alone strongly indicated that the memoranda at least represented the ordinary course of business between Premchand and DJM.

Finally, as the trial court found, the account was kept in a reasonably permanent form and manner. Premchand contends that in order to satisfy the reasonably permanent prong of Code of Civil Procedure section 337a and thus establish an open book account, a general book, binder or ledger is required and, absent proof that one existed, none existed. At trial, DJM produced the complete set of the original memoranda and a comprehensive accounting produced from them. However, while DJM testified to the existence of a bound set of completed “invoices” which “stays at the office,” DJM failed to produce this bound set at trial.

Contrary to Premchand’s contention, however, there is no requirement that the written records be bound together in some kind of book in order to qualify as a book account. Under the express terms of the statute, a book is only one of several ways the records may be maintained. The only requirement is that the records be kept in a reasonably permanent form and manner.

The case law is equally clear. In Millet v. Bradbury (1895) 109 Cal. 170, the Court stated, with relation to a mutual account,[1] that the form in which the account is kept is immaterial. “‘The particular mode of keeping the account, whether on book or loose scraps of paper, or without any written charges, or whether it is all kept in one shape or in different forms . . . is unimportant. If all the items in the expectation of the parties have reference to, and are to be adjusted in, one accounting, it may be considered as one transaction, so far as the statute of limitations is concerned.’” (Id. at pp. 173-174.)

In Egan v. Bishop (1935) 8 Cal. App. 2d 119, the court found that an attorney’s docket of court cases and a separate journal for office charges constituted a book account although no single ledger account combined the entries made in the docket and the journal. The Egan court stated the guiding principle thus: “The law does not prescribe any standard of bookkeeping practice which all must follow, regardless of the nature of the business of which the record is kept. We think it makes no difference whether the account is kept in one book or several so long as they are permanent records, and constitute a system of bookkeeping as distinguished from mere private memoranda.” (Id. at p. 122; see also Warda v. Schmidt, supra, 146 Cal.App.2d at p. 238, [“[i]f there is an account relation between the parties the requirements as to the character of the book or books and the manner in which the account must have been kept to be acceptable as a book account under section 337, subdivision 2, supra, are not very stringent.”].)

The cases following the passage of Code of Civil Procedure section 337a were consistent with this approach.[2] (See Pacific States Steel Corp. v. Isaacson Iron Works, supra, 320 F.2d 645 [statute codified the preexisting case law of California on the subject].)[3]

In Costerisan v. DeLong (1967) 251 Cal.App.2d 768, e.g., respondent’s individual purchases of hay were recorded on separate ledger sheets and kept in a manila folder in plaintiff’s office, the court held this method of accounting, when kept in the regular course of business, qualified as a book account under the statute. In Costerisan, the court interpreted Code of Civil Procedure section 337a thus: “[a]dverting to the broad language of section 337a, ‘kept in any other reasonable form and manner,’ it seems manifest that the Legislature intended to adopt the liberal approach of Egan in defining the term book account.” (Costerisan v. DeLong, supra, 251 Cal.App.2d at p. 771.)

Seen in this light, DJM’s method for keeping the accounting records between these parties easily satisfied the requirement that they be kept in a reasonably permanent form and manner. The written records were kept together in a separate box in DJM’s office. These records were accessible to the parties -- Premchand was able to find the memoranda and write his payments on them. DJM’s box or tray is reasonably analogous to the files in Egan and Costerisan.

Moreover, the mere fact that DJM was able to assemble and produce a complete set of memoranda and compile an accurate accounting from them, which was undisputed and admitted without objection into evidence at trial some seven years after the first of these memoranda was executed, attests to the permanence of these records.

In sum, the memoranda memorializing these transactions were detailed, arose out of a fiduciary relationship, were kept in the ordinary course of business, and in a reasonably permanent manner. We therefore agree with the trial court that the statutory requirements of Code of Civil Procedure section 337a have been satisfied in order to qualify the transactions between the DJM and Premchand as a book account.[4]

Sufficient evidence supported the trial court’s determination that an open book account existed between these parties. The complaint was filed within four years from the date of the last entry on that account. Accordingly, the statute of limitation for a book account did not bar the complaint.

DISPOSITION

The judgment is affirmed. DJM to recover costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

WOODS, J.

We concur:

PERLUSS, P.J. ZELON, J.

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Analysis and review provided by Poway Property line Lawyers.

[1] “The evident purpose of the amendment, subdivision 2, section 337 of the

Code of Civil Procedure, was to put an open book account upon the same basis.” (Furlow Pressed Brick Co. v. Balboa Land & Water Co. (1921) 186 Cal. 754, 763.)

[2] Indeed, the current proliferation of paperless, electronic accounting systems demands this liberal reading of the statute. The principles that were useful in 1895 are only more so now.

[3] Cf. Foothill Ditch Co. v. Wallace Ranch Water Co. (1938) 25 Cal.App.2d 555, and Tabata v. Murane (1946) 76 Cal.App.2d 887, both of which predate Code of Civil Procedure section 337a.

[4] Premchand also contends the trial court’s ruling that the statute of limitation had run on DJM’s claim for breach of contract was inconsistent with its ruling that the statute of limitation had not run on DJM’s claim for open book account. The question for determination in the instant case, however, is whether the record discloses evidence to support a recovery under any of the counts in the complaint. Clearly the record in this case supports the trial court’s judgment for respondent on an open book account. (See Baird v. Ocequeda (1937) 8 Cal.2d 700, 703 [inconsistent theories “not fatal to the judgment” where evidence in the record supports plaintiff’s recovery on either theory].)