Tripping on a Skipped Step
by Ron Davis
Sometimes too much attention to details can result in failure to consider the obvious.
Case in point: Three family members who wanted to lease space at a suburban Atlanta shopping center to operate a restaurant there. The three gained a number of important concessions and promises from the shopping center owner before assuming the lease, but they did so before they completed a major task--forming the corporation that would become the actual tenant at the center.
The shopping center is Crossville Village, in Roswell, and the three family members were very prudent before assuming the lease of an existing restaurant tenant of the center. They met with the shopping center’s principals, who told them, first, a lease had been signed with TGI Friday to operate a restaurant at the center and stimulate business there and, second, that the shopping center would be renovated to provide a new, updated look. Finally, the center’s principals said that they would erect a large new pylon sign near a nearby highway and that they were “working on” securing a major tenant to move into the shopping center’s vacant anchor space.
The family members responded that “in the event the parties contract with each other,” they would organize and charter a corporation to be called “Skipper Sams, Inc.” and that Skipper Sams, Inc., would be the party assuming the lease.
A few months later, the three family members did in fact incorporate Skipper Sams, then assumed the lease as planned and opened their restaurant.
But TGI Fridays subsequently backed out of its lease agreement with the shopping center, and the plans to renovate the shopping center and erect a sign never materialized. Nor did an anchor tenant ever lease space there.
Skipper Sams soon saw its business decline, especially after competing restaurants moved into the surrounding area. The three family members eventually began paying rent only sporadically, and the shopping center owner ultimately ordered Skipper Sams to vacate the premises.
Skipper Sams responded by suing the shopping center owner, claiming its principals had made “false and fraudulent” representations. Skipper Sams also argued that the representations the principals made were a “material part of a contract or agreement” between the two parties.
The shopping center principals pointed out, however, that any representations they made were to the three family members and not to Skipper Sams, the actual tenant. In fact, the principals added, Skipper Sams did not even exist when the representations were allegedly made.
A Georgia appellate court agreed with the shopping center owner, explaining, “The representations were made during the meetings between the center’s principals and the three family members, and it is undisputed that Skipper Sams was not incorporated [at that time]. Since Skipper Sams was nonexistent at the time of the meetings, it could not have relied upon the representations so as to sustain a lawsuit for fraud or negligent misrepresentation. Nor could a nonexistent corporation have reached a contractual agreement with the center’s owner at the time of the meetings so as to sustain a lawsuit for breach of contract based on the representations.” (Skipper Sams v. Roswell-Holcomb, 543 S.E.2d 765 [Ga.App. 2000])
Decision: December 2000
Published: May 2001