Guaranty Not Rendered Unenforceable by Non-delivery

Facts: A clothing store tenant signed a modification and extension agreement to extend its five-year lease. There had been no guarantor for the original lease, but the owner required the tenant’s principal to guaranty the lease in order to extend it. The modification and extension agreement required that “tenant shall cause its principal to enter into the Guaranty attached hereto and made a part hereof.” The principal signed the modification and extension agreement. The tenant subsequently stopped paying rent and additional rent due under the lease extension. The owner sued the guarantor to recover the money. A trial court ruled in favor of the owner. The guarantor appealed.

Decision: A New York appeals court upheld the lower court’s decision.

Reasoning: On appeal, the guarantor contended that because he never received a copy of the modification and extension agreement containing the executed guaranty, it was unenforceable. The appeals court determined that the guarantor’s argument that the guaranty was unenforceable because there was no proof of the modification and extension agreement’s delivery to him was “without merit.” The appeals court stated that “nothing in the extension, which modified the lease to extend its term, explicitly required that it be delivered to be effective.” In fact, the lease, which remained in full force and effect, expressly provided that modifications are binding provided that they are “in writing and signed by the party against whom enforcement is sought,” the appeals court added. Here, it was undisputed that the extension had been signed by the guarantor.

The appeals court concluded that the guarantor couldn’t argue that the non-delivery of the extension makes it unenforceable. It noted that the guaranty was an inducement for the owner to enter the extension agreement, which the trial court had found to be enforceable, regardless of delivery.

• Daval 37 Associates, LLC v. Namda, April 2015