Cedar-Fieldstone Marketplace, LP v. T.S. Fitness, Inc.

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17-P-791 Appeals Court
CEDAR-FIELDSTONE MARKETPLACE, LP vs. T.S. FITNESS, INC.,1 &
another.2
No. 17-P-791.
Bristol. February 2, 2018. - March 15, 2018.
Present: Milkey, Massing, & Shin, JJ.
Guaranty. Contract, Lease of real estate, Release from
liability, To guarantee rent payments. Release. Real
Property, Lease.
Civil action commenced in the Superior Court Department on
June 18, 2015.
The case was heard by Renee P. Dupuis, J., on motions for
summary judgment.
John A. Walsh for the defendants.
John F. White, Jr., for the plaintiff.
MILKEY, J. In this case, we consider whether the release
of a landlord's claims against a tenant for unpaid rent pursuant
to a lease precluded the landlord from bringing a collection
1 Doing business as Escape to Fitness.
2 Thomas W. Sheridan.
2
action against a guarantor of the lease. We conclude that it
did not.
Background. The defendant T.S. Fitness, Inc. (tenant),
rented commercial property in New Bedford from the plaintiff,
Cedar-Fieldstone Marketplace, LP (landlord). In 2011, those
parties agreed to a modification of the then-existing lease
between them. To secure the tenant's payment obligations under
the modified lease, the tenant's president, the defendant Thomas
W. Sheridan, executed a personal guaranty, which was
memorialized in a detailed, three-page document. Under the
terms of the guaranty, Sheridan's liability was "co-extensive
with that of [the t]enant," except that it was capped at a
specified amount, $52,271.06. The existence of that cap appears
to explain why the document is captioned a limited guaranty.
Except for the cap on his liability, Sheridan's obligations
under the guaranty are set forth expansively, as we will review
in detail later. The guaranty states that "[n]o waiver or
modification of any provision of this [g]uaranty nor any
termination of the [g]uaranty shall be effective unless in
writing, signed by [the l]andlord."
After the lease modification, the tenant subsequently
defaulted on the lease, prompting the landlord to bring a
summary process action against it in District Court. That
action was resolved through an agreement for judgment in
3
February of 2013. The parties to the agreement for judgment
were the parties to the summary process action, that is, the
landlord and the tenant. Sheridan himself signed the agreement
for judgment, but he did so in his capacity as president of the
tenant.
The essence of the agreement for judgment was that the
landlord allowed the tenant to occupy the premises for an
additional three months, and that the tenant agreed to vacate
the premises after that and to make agreed-to monthly use and
occupancy payments in the interim. The body of the agreement
for judgment included a paragraph through which the tenant
expressly (and broadly) released its potential claims against
the landlord. Curiously, there is no corresponding provision
that addresses what claims the landlord agreed to release.
However, in prefatory "whereas" clauses, there is language that
could be taken to suggest that the agreement for judgment was
intended to resolve the entirety of the dispute between the
parties.3
3 The relevant language is as follows:
"WHEREAS, by this Agreement, the [landlord] and [the
tenant] desire to settle the [District Court summary
process action] and any and all of the disputes, if any,
arising out of [that action];
"WHEREAS, by this Agreement, the [landlord] and [the
tenant] also desire to settle any and all of the disputes,
if any, arising out of the [l]ease, whether or not such
4
After the agreement for judgment had been executed, the
landlord brought a collection action in Superior Court against
both the tenant and Sheridan seeking over $100,000 in unpaid
rent. Relying on the prefatory language quoted in note 3,
supra, a Superior Court judge (first motion judge) ruled, as a
matter of law, that the agreement for judgment barred the
landlord's only count (breach of contract) against the tenant.4
That count eventually was dismissed, and the landlord took no
appeal from that ruling when the judgment ultimately issued.
However, a second Superior Court judge (second motion
judge) ruled on summary judgment that the landlord's counts
against Sheridan as guarantor were not similarly barred.5
Because it was undisputed that the unpaid rent exceeded the
specified amount that Sheridan had agreed to guarantee
disputes could have been raised by the [tenant] within this
court proceeding;
"WHEREAS, the [landlord] and [the tenant] have agreed
that it is in their mutual interest to resolve fully and
finally all of the disputes which were, have been, or could
have been raised in connection with the [summary process
action] and/or [the l]ease, whether or not such disputes
could have been raised by the [tenant] within this court
proceeding."
4 It appears that the first motion judge issued this ruling
in response to the landlord's efforts to obtain a default
judgment against the tenant.
5 In the last two counts of his complaint, the landlord
asserts that Sheridan is liable pursuant to the guaranty and
requests declaratory relief as to Sheridan's liability pursuant
to the guaranty.
5
($52,271.06),6 the second motion judge granted summary judgment
in the landlord's favor against Sheridan in that amount.
Accordingly, judgment issued ordering Sheridan to pay the
landlord $52,271.06, plus attorney's fees and costs.7 Sheridan
appealed, arguing that he no longer could be liable under the
guaranty once the tenant's underlying liability was resolved by
the agreement for judgment. We affirm.
Discussion. For purposes of our analysis, we will assume,
without deciding, that the first motion judge was correct to
conclude that the agreement for judgment barred the landlord's
collection count against the tenant. The limited issue we face
is whether, based on that premise, the landlord's counts against
Sheridan as guarantor also were barred.
The argument that Sheridan makes on appeal is a narrow one.
It is undisputed that Sheridan himself was not a party to the
agreement for judgment, and he makes no claim that he was an
6 After reviewing the summary judgment record, the second
motion judge concluded that "[t]here does not appear to be any
factual dispute that the total amount of [the tenant's] debt
exceeds the extent of [Sheridan's] guaranty." Sheridan does not
challenge this on appeal.
7 Pursuant to the guaranty, Sheridan had agreed to pay the
landlord "all of [the l]andlord's expenses including but not
limited to reasonable attorneys' fees incurred in enforcing this
[g]uaranty."
6
intended third-party beneficiary of it.8 Thus, Sheridan is not
claiming that when the parties terminated the summary process
action through the agreement for judgment, they in fact agreed
that his obligations as guarantor had been released as part of a
comprehensive settlement. Rather, he argues that once the
tenant no longer was liable under the lease, he automatically
was relieved of his guaranty obligations as a matter of law.9 He
bases this contention on what he characterizes as the "black
letter legal principle that a guarantor's obligations are
8 Moreover, any such claim would have failed as a matter of
law, because the agreement for judgment expressly states that
it was not intended to create any third-party beneficiaries.
See Cumis Ins. Soc., Inc. v. BJ's Wholesale Club, Inc., 455
Mass. 458, 464 (2009) ("Where the parties have expressly and
unambiguously stated an intention to exclude third-party
beneficiaries, that intent is controlling"). In addition,
reading the agreement for judgment as having been intended to
cover the landlord's claims against Sheridan would be at odds
with common sense and the reasonable expectations of the
parties. See Chambers v. Gold Medal Bakery, Inc., 83 Mass. App.
Ct. 234, 245-246 (2013), citing Schaer v. Brandeis Univ., 432
Mass. 474, 478 (2000). Where the landlord's summary process
case against the tenant appears to have rested on solid footing,
it is highly implausible that the landlord would have given up
its guaranty rights against Sheridan merely in return for the
tenant's agreement to move out by a date certain three months
later and to pay use and occupancy in the interim.
9 Sheridan additionally contends that the landlord's counts
against him as guarantor were barred by claim preclusion, based
on Sheridan's claim that he "as a matter of law [was] a privy of
[the tenant]" in the earlier summary process action. There is
no merit to that argument. Indeed, Sheridan could not properly
have been joined as a defendant in the summary process action.
See Cummings Properties, LLC v. Cepoint Networks, LLC, 78 Mass.
App. Ct. 287, 289 (2010).
7
coextensive with those of the principal obligor." We are
unpersuaded.
To be sure, the cases do recite that "the liability of the
guarantor cannot exceed the liability of the debtor." See 275
Washington St. Corp. v. Hudson River Intl., LLC, 465 Mass. 16,
30 (2013). However, that principle is of more limited
application than Sheridan warrants. It stands for the
straightforward proposition that a guarantor's own liability is
bounded by the scope of the underlying liability that he has
guaranteed.10 Thus, in the case at hand, Sheridan's liability
under the guaranty could not exceed the tenant's payment
obligations that arose under the terms of the lease. See ibid.However, it is a different question altogether whether a
subsequent negotiated compromise of such underlying liability
affected Sheridan's obligations as guarantor of the tenant's
lease obligations.
We consider it self-evident that parties negotiating the
terms of a guaranty would be free to agree that a subsequent
release of a principal obligor's underlying debt would result in
a discharge of the guarantor's own obligations. But we see
nothing in the case law or elsewhere that requires such a term
10Similarly, where the principal obligor has agreed to take
on additional liability, the guarantor is not liable for that
"unless he had knowledge of it and consented thereto." Davis v.
Wells, 254 Mass. 118, 127 (1925).
8
as a matter of law. Put differently, we see 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. Rather, what the
parties to a guaranty agree to in this regard is simply a matter
of contractual intent. After all, "[a] guaranty is a contract
'like all other contracts.'" Federal Financial Co. v. Savage,
431 Mass. 814, 817 (2000), quoting from Merchants Natl. Bank v.
Stone, 296 Mass. 243, 250 (1936). Accordingly, "[t]he liability
of a guarantor is to be ascertained from the terms of the
written instrument by which the obligation is expressed,
construed according to the usual rules of interpretation."
Agricultural Natl. Bank of Pittsfield v. Brennan, 295 Mass. 325,
327 (1936).
Turning from theory to practice, we are left with little
doubt about the intent of the parties here. The express terms
of the guaranty can best be described as "unforgiving" to
Sheridan. The guaranty is denominated as "absolute and
unconditional," and Sheridan's liability is made joint and
several with that of the tenant. Moreover, the guaranty states
that there are no procedural steps that the landlord must take
as preconditions to its seeking recovery from Sheridan (such as
first seeking recovery from the tenant). It also makes plain
9
that Sheridan's obligations survive even if the tenant is unable
to make payment by reason of bankruptcy or mere insolvency. In
addition, while the guaranty does not directly address the
specific contingency of a settlement between the landlord and
the tenant, it does include the following expansive language
that encompasses such a scenario:
"[T]he liability of [Sheridan] hereunder shall in no way be
affected, modified or diminished by reason of . . . any
consent, release[,] indulgence or other action, inaction or
omission under or in respect of the [l]ease, or . . . any
dealings or transactions or matter or thing occurring
between [the l]andlord and [the t]enant."
Finally, the guaranty recites that "[a]ll of [the l]andlord's
rights and remedies under the [l]ease and under this [g]uaranty,
now or hereafter existing at law or in equity or by statute or
otherwise, 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."
Through the express terms just quoted, it is plain that the
guaranty was intended to provide the landlord a lock-tight means
for collecting unpaid rent from Sheridan (up to the agreed-to
cap). It is similarly plain that the landlord's rights under
the guaranty were intended to exist independent of the
landlord's rights to collect unpaid rent from the tenant, and
that the parties intended that the guaranty would not be
10
affected by future contingencies regarding the lease (including,
for example, a decision by the landlord to compromise a
collection action against the tenant). Our conclusion is also
consistent "with the well-established rule that the 'liability
of the guarantor. . . can be terminated only in accordance with
the terms of the contract.'" Federal Financial Co. v. Savage,
supra, quoting from Merchants Natl. Bank v. Stone, supra at 252.
In sum, the terms of the guaranty are plain, thereby
rendering the landlord's guaranty claim amenable to resolution
on summary judgment. See Lumber Mut. Ins. Co. v. Zoltek Corp.,
419 Mass. 704, 707 (1995) (the interpretation of an unambiguous
contract presents a question of law appropriate for summary
judgment). Because it is undisputed that the unpaid rent
exceeded the amount of the guaranty, the second motion judge
correctly entered summary judgment in the landlord's favor
requiring Sheridan to pay the amount he had agreed to guarantee.
Judgment affirmed.