PC Riverview LLC v. Xiao-Yan Cao

2016 UT App 178THE UTAH COURT OF APPEALS
PC RIVERVIEW LLC,
Appellant,
v.
XIAO-YAN CAO,
Appellee.
Memorandum Decision
No. 20150479-CA
Filed August 25, 2016
Third District Court, Salt Lake Department
The Honorable Katie Bernards-Goodman
No. 149902947
Carl E. Kingston, Attorney for Appellant
Russell T. Monahan, Attorney for Appellee
JUDGE GREGORY K. ORME authored this Memorandum Decision,
in which JUDGES MICHELE M. CHRISTIANSEN and KATE A. TOOMEY
concurred.
ORME, Judge:
¶1 Appellant PC Riverview LLC appeals the district court’s
judgment concluding that the guarantor of a lease, Appellee
Xiao-Yan Cao, was not liable for amounts owed to Riverview on
the lease. We reverse.
¶2 This case arises out of a dispute over unpaid rent for
premises in a strip mall (the Property). Cao’s business was a
tenant under a lease that it later assigned to another tenant
(Tenant) in 2006. To secure the owner’s approval of the lease
assignment, Cao personally guaranteed Tenant’s obligations
under the lease, in an agreement entered into among Tenant,
Cao, and the owner. The agreement provided, in part, as follows:
PC Riverview v. Cao
Assignor and Guarantor agree to and shall remain
obligated to Landlord for the full performance of
all covenants, conditions and obligations and
duties required of Tenant under said Lease and
shall not be relieved of any performance of
obligation thereunder as the result of this
assignment.
¶3 Some time later, Riverview purchased the strip mall of
which the Property was a part. The purchase was subject to
existing leases, including Tenant’s lease. In May 2010, Riverview
sued Tenant and Cao for payment of past due rent exceeding
$22,000.00. Riverview and Tenant negotiated an agreement (the
Workout) that would resolve the lawsuit by extending Tenant’s
time to pay the delinquent rent.1 Cao was not a party to those
negotiations, and when Riverview asked her to stipulate to
dismissal of the action, Cao refused, claiming that the Workout
rescinded her obligations as the guarantor of the lease. 2 The
district court eventually dismissed the action, without prejudice,
for failure to prosecute.
1. According to counsel at oral argument, Tenant actually owed
common area maintenance fees, not past due rent in the
colloquial sense. But because the parties refer to the then-
outstanding debt as “rent” in their briefs and because the exact
nature of the amount owed pursuant to the lease is not relevant
to our disposition, we refer to the 2010 lawsuit and the Workout
as regarding rent.
2. Cao characterizes the Workout as “[t]he restructuring of lease
payments.” But as she acknowledges, the only change it effected
was the extension of time to make payments, and the district
court characterized the Workout as an extension of time to pay
acknowledged debts.
20150479-CA 2 2016 UT App 178PC Riverview v. Cao
¶4 Thereafter, Tenant continued to make all payments due
under the lease and the Workout until shortly before the
expiration of the lease, and he occupied the Property until the
lease term ended on September 30, 2013. He failed, however, to
pay the last month’s rent and a portion of the previous month’s
rent. Riverview again sued Tenant and Cao for payment of the
past due rent. The district court determined that Tenant owed
Riverview $7,326.55 in unpaid rent, $1,208.88 in prejudgment
interest, $117.00 in costs, and $1,400 in attorney fees. The court
also determined that the Workout constituted a material
modification of the lease, thus relieving Cao of her obligations as
guarantor. Therefore, the court concluded, “Cao is not liable for
the judgment obtained by Plaintiff P.C. Riverview, LLC against
[Tenant].”
¶5 The rights and obligations of a guarantor are often
defined in the terms of the guaranty. 38 Am. Jur. 2d Guaranty
§ 53 (2016) (“[T]he terms and provisions of a guaranty should
generally be construed according to the intention of the parties
in view of the surrounding circumstances. . . . [T]he parties’
intent is defined by the written terms of the guaranty.”). See also
Seftel v. Capital City Bank, 767 P.2d 941, 947 (Utah Ct. App. 1989)
(concluding that guarantors waived their right to a common law
defense by the “express terms of the original guaranties”). But
absent express terms to the contrary, “[t]he basic rights and
duties of parties under a guaranty are governed by common
law.” 38 Am. Jur. 2d Guaranty § 53 (2016). Here, the guaranty
agreement contained no provisions spelling out particular rights
in favor of Cao, such as a right to notice or a bar on extensions or
modifications absent her consent. Thus, we apply the common
law. 3
3. “Where [the parties’] intention may be gathered from the four
corners of the instrument, interpretation of the guaranty is a
question of law.” 38 Am. Jur. 2d Guaranty § 53 (2016). Likewise,
(continued…)
20150479-CA 3 2016 UT App 178PC Riverview v. Cao
¶6 According to the Restatement, as a general rule a
guarantor is relieved of her obligations “[i]f the principal obligor
and the obligee agree to a modification.” Restatement (Third) of
Suretyship & Guaranty § 41 (Am. Law Inst. 1996). But the
Restatement specifically excludes “an extension of time” from
the modifications that would discharge a guarantor. Id. We
embraced that exception in DiMeo v. Nupetco Associates, 2013 UT
App 188, 309 P.3d 251, stating that time extensions are “minor
alterations [and] are not of the nature or degree that would
trigger a discharge of [guarantor’s] pledge of security under
suretyship law.” Id. ¶ 9 n.2.
¶7 Here, Cao was not relieved of her obligations as
guarantor because the Workout was the sole modification to the
original lease, and the Workout only modified the timing of
Tenant’s payments by extending the time in which past due rent
could be paid. See supra note 2. Furthermore, the Workout
caused Cao no harm. Indeed, it actually benefitted her. She was
“obligated to Landlord for the full performance of all . . . duties
required of Tenant under said Lease,” which included paying
the remaining unpaid rent. Without the Workout, she would
have been liable for at least $22,000 in past due rent as well as
the rents coming due for the balance of the lease term. Instead,
because of the Workout, Tenant satisfied the bulk of that
obligation, correspondingly reducing Cao’s liability.
¶8 Because the Workout only extended the time for Tenant
to pay past due rent, it was not a material modification of the
(…continued)
application of the common law presents a question of law.
Associated Gen. Contractors v. Board of Oil, Gas & Mining, 2001 UT
112, ¶ 18, 38 P.3d 291. “We review questions of law for
correctness[.]” Utah Chapter of the Sierra Club v. Utah Air Quality
Board, 2006 UT 74, ¶ 9, 148 P.3d 960.
20150479-CA 4 2016 UT App 178PC Riverview v. Cao
original agreement. As a result, Cao’s obligations as guarantor
were not discharged. Therefore, we reverse the judgment in
favor of Cao and remand the case to the district court for the
entry of an appropriate judgment against Cao. 4
4. The basic amount of that judgment will be the same as the
judgment entered against Tenant. Riverview has requested and
is also entitled to an award of costs and attorney fees reasonably
incurred in this appeal, in accordance with the terms of the
agreement entered into among Tenant, Cao, and the prior
owner: “In the event of default under any of the terms of this
Agreement or the Lease, defaulting party agrees to pay all costs
incurred in enforcing this Agreement or the Lease or any right
arising ou[t] of the breach of either, and including reasonable
attorney’s fees.” On remand, the amount of that award will be
determined by the trial court.
20150479-CA 5 2016 UT App 178