by Ron Davis
The owner of a Tennessee shopping center has forced the partners who guaranteed a tenant lease to honor their commitment assuring that all tenant rental payments are made.
The shopping center is Cool Springs Galleria Mall, located in the Nashville area, and the partners are the principals of CG&C Enterprises, Inc., which in 1995 leased space at the center with their guarantee that they would be personally responsible for CG&C’s rental payments.
But they signed the guarantee some 20 days before they signed the lease itself. So when CG&C fell behind it paying the rent, they argued that because the lease was not executed when they signed the guarantee, they were relieved of any obligation.
The owner of the shopping center nevertheless sued the partners, seeking $53,228 in back rent and other charges. A county court, however, agreed with the partners, ruling that although the guarantee stated that it was “in consideration of the foregoing lease,” the lease was not in existence at the time the guarantee was executed. Therefore, the judge concluded, the guarantee was not binding.
The shopping center owner appealed that ruling.
A Tennessee appellate court reversed the lower court decision, explaining, “The guarantors point out, as did the trial court, that the guarantee was signed approximately 20 days before the ‘foregoing lease’ was executed. As the guarantee states that it is ‘in consideration of the foregoing lease’ and such lease had not been executed by time the guarantee was signed, the guarantors argue that the guarantee lacks consideration and is therefore unenforceable. However, most guarantees are executed before the contracting parties are bound; they are part of the consideration that makes the deal happen.”
And the judges added this: “In addition, a guarantor in a commercial transaction is to be held to the full extent of his engagements, and the words of the guarantee will be taken as strongly against the guarantor as the sense will admit.... Guarantors are not favored under our law.” (Galleria Associates, L.P. v. Mogk, 34 S.W.3rd 874 [Tenn.Ct.App. 2000])
Decision: December 2000
Published: April 2001