A US clothing distributor is suing a retailer for fraud and breach of contract that it contends made it impossible for the distributor to arrange the letters of credit (L/Cs) it needed to carry on its business.

Nazareth International alleges in a suit filed 10 June 2004 that J C Penney's malicious conduct destroyed its business.

Business destroyed

Nazareth argues that J C Penney used intentional manipulation to avoid paying the distributor the fair market price for its goods, as well as to extort cost concessions from Nazareth in order to reduce the amount of money that J C Penney owed Nazareth.

As a consequence of J C Penney's alleged fraudulent behaviour, Nazareth was forced to terminate key employees and its business was destroyed.

Money still owing

New York-based Nazareth was formed in April 2002 to design, sell and import apparel for its retail customers, and in the same month the new company entered into an agreement with J C Penney to supply it with apparel.

Nazareth then sold and delivered US$750,784 of apparel to the retailer and extended payment terms to J C Penney. The retailer has yet to pay Nazareth US$360,752 that it is said to still owe under the contract.

Penalties

In an attempt to keep its business from failing, Nazareth says it waived penalties it could have imposed on J C Penney and agreed to accept a US$50,000 reduction in its payment if the retailer would pay the balance remaining. J C Penney agreed, but apparently reneged on its promise and failed to pay.

Because of J C Penney's conduct, Nazareth's factoring facility, which provided the capital necessary for it to operate its business in the form of L/Cs and factoring of receivables, was revoked. Consequently, Nazareth's business was destroyed.

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