A Guaranty May Be Enforceable Even If Collection Of The Underlying Debt Is Barred

by Nutter McClennen & Fish LLP
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In Cedar-Fieldstone Marketplace, LP v. T.S. Fitness, Inc., the Massachusetts Appeals Court considered whether a release of a landlord’s claims against a tenant for unpaid rent precluded the landlord from bringing a collection action against the guarantor of the lease. The court held that the landlord was not precluded from seeking payment from the guarantor for unpaid rent.

T.S. Fitness, Inc. (“Tenant”) rented commercial property from Cedar-Fieldstone Marketplace, LP (“Landlord”) in New Bedford, Massachusetts. To secure Tenant’s payment obligations under the lease, the president of Tenant (“Guarantor”) executed a personal guaranty. Tenant defaulted, and Landlord brought a summary process action against it in District Court. The action was resolved through an agreement for judgment (the “Agreement”). The Agreement allowed Tenant to continue to occupy the premises for three months and to make monthly use and occupancy payments. After three months, Tenant was to vacate the premises. Guarantor was not a party to that Agreement.

Landlord brought a collection action in Superior Court against Tenant and Guarantor seeking unpaid rent. A Superior Court judge held that the Agreement barred Landlord’s claim against Tenant. A second Superior Court judge ruled on summary judgment that Landlord’s count against Guarantor, however, was not barred. Guarantor appealed, arguing that he could not be liable under the Guaranty because Tenant’s underlying liability was resolved by the Agreement.

The court was unpersuaded by Guarantor’s argument. The court stated that it saw “no legal bar to a guarantor’s agreeing—as part of the negotiated terms of a guaranty—that his obligation to fund the underlying debt would survive a settlement of that debt between the principal obligor and the recipient of the guaranty.” As such, the court looked to the terms of the guaranty to determine the intent of the parties.

The court considered several aspects of the guaranty in analyzing the intent of the parties. First, the court noted that it was an absolute and unconditional guaranty, that Guarantor’s liability was joint and several, and that there were no procedural actions Landlord had to take as a precondition to seeking recovery from Guarantor. Next, the court highlighted language in the guaranty that stated that the liability of Guarantor would not be diminished or modified by any consent or release between Landlord and Tenant. Finally, the court emphasized that the guaranty stated that Landlord’s rights “are intended to be distinct, separate and cumulative and no exercise or partial exercise of any such right or remedy therein or herein mentioned is intended to be in exclusion of or a waiver of any of the others.”

The court held that the express terms of the guaranty were clear: the guaranty intended to provide Landlord a means for collecting unpaid rent, and the rights of Landlord against Guarantor were independent of its rights to collect unpaid rent from Tenant. Accordingly, Landlord was entitled to collect from Guarantor. 

This case highlights important aspects in both drafting and enforcing a guaranty. To the extent a guaranty clearly provides that the guarantor’s obligations are not affected by a release of the principal obligor, and the agreement releasing the principal obligor does not suggest otherwise, the guaranty should remain enforceable.

This advisory was prepared by Juliaana DiGesu and Beth Mitchell, members of Nutter’s Real Estate Department.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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