River Road Shopping Center, Inc. v. Scott

Present: All the Justices
RIVER ROAD SHOPPING CENTER, INC.
v. Record No. 990225 OPINION BY JUSTICE ELIZABETH B. LACY
January 14, 2000
GEORGE ROSS SCOTT, INDIVIDUALLY
AND TRADING AS OUTDOOR TRADERS
OF VIRGINIA, INC., ET AL.
FROM THE CIRCUIT COURT OF HENRICO COUNTY
Joseph F. Spinella, Judge Designate
River Road Shopping Center, Inc. (RRSC) appeals a
judgment holding that it was not entitled to recover damages
from sureties on a lease because it did not mitigate its
damages. Finding that the lease terms bound the sureties and
allowed the damages sought by RRSC, we will reverse the
judgment of the trial court.
RRSC owns and operates a retail shopping center in
Richmond. On January 21, 1988, RRSC executed a ten-year lease
with Outdoor Traders of Virginia, Inc. (Outdoor Traders) for
retail space in the center. George and Nancy Scott were the
sole officers, directors, and shareholders of Outdoor Traders.
The Scotts individually joined in the lease as sureties. 1
In June 1990, the Scotts decided to terminate their
retail business in the leased premises and contacted RRSC for
assistance in finding a sub-tenant for the space. In December
1
The lease refers to "Guaranty" and the motion for
judgment stated that the Scotts "guaranteed" the obligation of
1990, Outdoor Traders assigned the lease to Lavelle-Martin,
Inc. In the assignment of the lease, the Scotts reaffirmed
their responsibility as "Guarantors of Assignor." RRSC
consented to the assignment on the condition that the Scotts
as "Guarantors" under the lease "remain fully liable as if
this Assignment of Lease had never been executed, throughout
the initial term thereof."
Lauralee Lavelle-Martin and Kissel Martin, husband and
wife, owned Lavelle-Martin, Inc. and began operating a
children's clothing store in the leased space. Lavelle-
Martin, Inc. was delinquent in rent payments in 1994 and early
1995. Delinquency notices were sent to Lavelle-Martin, Inc.
The Scotts were also notified of the delinquencies. In June
1995, Mr. Martin caused a sheriff's levy to be conducted on
the leased premises to recover a money judgment he had
obtained against the corporation. Lavelle-Martin, Inc. ceased
business operations and stopped making rent payments. RRSC
did not notify the Scotts of Lavelle-Martin, Inc.'s default.
Mr. Martin offered to re-lease the premises from RRSC
under the same terms as those contained in Lavelle-Martin,
Inc.'s defaulted lease, but RRSC rejected this offer. RRSC
executed a new lease with Jack Kreuter Jewelers, Inc.
Outdoor Traders. However, at trial the Scotts asserted and
RRSC agreed that the Scotts were sureties, not guarantors.
2
Although based on the prevailing commercial real estate rental
rates, the lease payments under the new lease were lower than
the payments under the defaulted lease.
Based on Article XII of the defaulted lease, RRSC filed a
motion for judgment against the Scotts to recover
approximately $64,000, which represented the difference
between the rent due under the defaulted lease and the rent
received under the Kreuter lease. RRSC also sought reasonable
attorneys' fees and interest. In their grounds of defense,
the Scotts admitted that they were sureties on the defaulted
lease, but denied any liability to RRSC. The Scotts
affirmatively alleged that RRSC's actions in failing to inform
them of the default by Lavelle-Martin, Inc. and in refusing
Mr. Martin's offer to re-lease the premises were so injurious
to the Scotts that such actions released the Scotts from their
surety obligations on the lease.
Following an ore tenus hearing, the trial court granted
the Scotts' motion to strike RRSC's evidence and entered
judgment in favor of the Scotts. The trial court found that
by refusing Mr. Martin's offer to re-lease the premises at the
same rental rate as that contained in the defaulted lease,
RRSC failed to mitigate its damages. We awarded RRSC this
appeal.
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RRSC asserts that upon the tenant's default, Article XII
of the defaulted lease authorizes the landlord to re-let the
premises "under such terms and conditions as Landlord shall
deem reasonable to any tenant or tenants which it may deem
appropriate." This provision authorized RRSC to execute a new
lease when Lavelle-Martin, Inc. defaulted on the prior lease
and the new lease could contain any terms deemed reasonable by
RRSC. Therefore, RRSC argues it had no duty to mitigate
damages and the trial court erred in imposing such a
requirement.
The Scotts do not disagree with RRSC's interpretation of
Article XII but contend that Article XII is not part of their
surety agreement. Rather, the Scotts assert that the sole
terms of their surety agreement with RRSC are contained in
Article XXIV and that in that article the Scotts only agreed
to guarantee the "affirmative obligations of the Tenant,"
which, according to the Scotts, limits their obligation to
promptly paying the agreed upon rent. Other than this express
obligation, the Scotts assert that no other conditions
contained in the lease applied to them. The terms of their
surety agreement with RRSC are governed by principles of
surety law, according to the Scotts, and under those
principles, a surety is discharged "by any change in the
obligation underlying the bond." Board of Supervisors of
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Fairfax County v. Southern Cross Coal Corp., 238 Va. 91, 94,
380 S.E.2d 636, 638 (1989). The Scotts conclude that because
RRSC took steps to change the obligation underlying the
agreement with the Scotts by refusing to accept Mr. Martin's
offer, they are released from their surety obligation.
The dispositive issue for our determination is whether
Article XXIV, the "Guaranty" provision, makes Article XII
applicable to the Scotts. Article XXIV provides:
The [Scotts] join in this lease, as an
inducement to Landlord to lease the demised
premises to Tenant, for the purpose of jointly
and severally guaranteeing to Landlord the
punctual payment of all rent due hereunder and
the due performance of all the other terms,
covenants and conditions contained in this
lease on the part of Tenant to be paid and/or
performed thereunder, including but not limited
to all damages, expenses and attorneys' fees
that may be suffered or incurred by Landlord as
a result of the nonpayment of rent or
nonperformance of any other terms, covenants
and conditions.
This article does more than obligate the Scotts to assure the
prompt payment of the rent. The article also provides that
the Scotts guarantee payment of "all damages . . . suffered or
incurred . . . as a result of the nonpayment of rent or
nonperformance of any other terms." Thus, if the landlord
incurs damages because of the tenant's nonperformance, the
Scotts are liable for those damages. The Scotts' liability is
limited, however, to damages that, under the terms of the
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lease, can be recovered from the tenant for non-payment of
rent.
Article XII prescribes a measure of damages recoverable
by RRSC for nonpayment of rent. The article allows the
landlord to re-let the premises upon the tenant's default at
"such rental and upon such terms and conditions as Landlord
shall deem reasonable," and authorizes the Landlord to recover
from the tenant in the event of default, "all rentals . . .
required to be paid by Tenant under this lease, less the rent,
if any, collected by Landlord on reletting the demised
premises." Therefore, the landlord can recover as damages any
unpaid rental amounts less amounts received for re-leasing the
premises on terms considered reasonable by RRSC. 2
We conclude that the surety agreement between the Scotts
and RRSC imposed liability on the Scotts for damages sustained
by RRSC upon the default of Lavelle-Martin, Inc. in accordance
with the terms of the lease. The damages sought by RRSC were
consistent with the damages allowed under the lease for non-
payment of the rent. Therefore, the trial court erred in
striking RRSC's evidence because RRSC failed to mitigate its
damages. We will enter judgment here in favor of RRSC in the
2
The Scotts do not argue that RRSC's action in re-letting
the premises was unreasonable under the terms of the lease;
rather they only argue that this provision does not apply to
them as sureties.
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amount of $56,738.36, and remand the case to the trial court
for further proceedings regarding attorneys' fees and costs.
Reversed and remanded.
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