Appeal by defendant from orders entered 16 August 2002 and 3
September 2002 by Judge Catherine C. Eagles in Guilford County
Superior Court. Heard in the Court of Appeals 25 February 2004.
Adams & Osteen, by J. Patrick Adams and William L. Osteen,
Jr., for plaintiff-appellee.
William M. Black, Jr., for defendants-appellants.
LEVINSON, Judge.
Defendant (Frank Scozzafave) appeals from judgments finding
him liable, as the personal guarantor of a lease, for breach of the
lease contract. We affirm.
This appeal arises from the interpretation of a lease signed
12 November 1997. The first sentence of the lease states:
This lease agreement, made and entered into
this the 12th of November, 1997, by and
between Tripps Restaurants of North Carolina,. . . hereinafter called the “Lessor,” and
Showtime Enterprises, . . . hereinafter called
the “Lessee” and Frank Scozzafave . . . and
Michael A. Scozzafave . . . hereinafter called
the “Guarantors.”
The text of the lease follows this introductory sentence, setting
out the obligations of the lessor and lessee. At the conclusion of
the lease are the signatures of the parties. Defendant signed on
the line labeled “guarantor.”
On 22 May 2001 plaintiff filed suit against defendants
Showtime Enterprises, Inc., Dueling Pianos of North Carolina,
Inc.,
(See footnote 1)
Frank Scozzafave, and Michael Scozzafave. The complaint
alleged that the defendants had defaulted on the terms of the lease
by failing to pay rent, property taxes, or insurance, and that they
were liable for payment of back rent, taxes, insurance, and
attorney's fees. Plaintiff also alleged that defendant Frank
Scozzafave “guaranteed the payment of the rent and all other
contractual obligations of Showtime due under the lease.”
Following a bench trial, the trial court entered judgment for
plaintiff. The court's order noted that default judgment “had
previously been entered against the corporate defendants”; that
“Michael Scozzafave has been discharged of any debt in this matter
in bankruptcy”; and, thus, that “this order and judgment concern
only the plaintiff's claims against defendant Frank Scozzafave.”
The court entered judgments against defendant for $256,753.00 indamages and $35,630.44 in interest. From these judgments,
defendant appeals.
[1] Defendant argues first that the trial court erred by
concluding that he was a guarantor on the lease. “In reviewing a
judgment resulting from a bench trial, the question before this
Court is whether competent evidence exists to support the trial
court's findings of fact and whether those findings support the
trial court's conclusions of law.”
Beneficial Mortgage Co. v.
Peterson, 163 N.C. App. 73, 75, 592 S.E.2d 724, 726 (2004)
. In the
instant case, the trial court's judgment was based in pertinent
part upon its finding “that defendant Frank Scozzafave guaranteed
Showtime's obligations under the lease as shown by the terms of and
his signature on the lease as Guarantor[.]” We conclude that this
finding was supported by competent evidence, and that it supports
the conclusion that defendant was a personal guarantor of the
lessee's obligations under the lease.
A personal guaranty is “a contract, obligation or liability .
. . whereby the promisor, or guarantor, undertakes to answer for
the payment of some debt, or the performance of some duty, in case
of the failure of another person who is himself . . . liable to
such payment or performance.”
Trust Co. v. Clifton, 203 N.C. 483,
485, 166 S.E. 334, 335 (1932). The guarantor “makes his own
separate contract, . . . and is not bound to do what his principal
has contracted to do, except in so far as he has bound himself by
his separate contract[.]”
Hutchins v. Planters National Bank ofRichmond, 130 N.C. 285, 286, 41 S.E. 487, 487 (1902). However,
both contracts (between creditor and primary obligor and between
creditor and guaranty) may be contained in the same instrument. 38
Am. Jur. 2d
Guaranty § 4 (1999).
Thus, “to hold a guarantor liable under a guaranty agreement,
plaintiff must first establish the existence of the agreement.”
Carolina Mills Lumber Co. v. Huffman, 96 N.C. App. 616, 618, 386
S.E.2d 437, 438 (1989). In this regard, “contracts of guaranty are
subject to the more general law of contract[.]”
O'Grady v. Bank,
296 N.C. 212, 220, 250 S.E.2d 587, 593 (1978). In construing a
contract, the court must look to the intent of the parties.
See
Holshouser v. Shaner Hotel Grp. Props. One, 134 N.C. App. 391, 518
S.E.2d 17 (1999). “It is a well-settled principle of legal
construction that '[i]t must be presumed the parties intended what
the language used clearly expresses, and the contract must be
construed to mean what on its face it purports to mean.'”
Hagler
v. Hagler, 319 N.C. 287, 294, 354 S.E.2d 228, 234 (1987) (quoting
Indemnity Co. v. Hood, 226 N.C. 706, 710, 40 S.E.2d 198, 201
(1946)).
In addition, a contract should “be understood and
interpreted in the light of the relationship of the parties, and
the purpose they sought to accomplish.”
Bank v. Corbett, 271 N.C.
444, 447, 156 S.E.2d 835, 837 (1967).
It is true, as defendant states, that in our determination of
whether a guaranty contract exists the labels given to contract
terms are not necessarily
determinative of the issue. However,
this only means that “[i]t is appropriate to regard the substance,not the form, of a transaction as controlling, and we are not bound
by the labels which have been appended to the episode by the
parties.”
Trust Co. v. Creasy, 301 N.C. 44, 53, 269 S.E.2d 117,
123 (1980). But, this principle in no way
suggests that the labels
chosen by the parties to a contract are without weight in
determining their intent. Moreover, in construing the terms
employed in the lease, we are also guided by the Restatement
(Third) of Suretyship and Guaranty § 15 (1996), which states in
relevant part:
§ 15. Interpretation of the Secondary
Obligation - Use of Particular Terms: Unless
indicated to the contrary by applicable law,
the language employed by the parties,
agreement of the parties, or the context:
(a) if the parties to a contract identify one
party as a “guarantor” or the contract as a
“guaranty,” the party so identified is a
secondary obligor and the secondary obligation
is, upon default of the principal obligor on
the underlying obligation, to satisfy the
obligee's claim with respect to the underlying
obligation[.]
In the instant case, the first sentence of the lease
identifies defendant as a “guarantor,” and defendant's signature
appears at the end, above the word guarantor. The lease was
executed by defendant Showtime Enterprises, Inc. as lessee, and by
defendant individually as a guarantor. The lease would have been
binding on Showtime even without the signatures of the individual
defendants as guarantors. Thus, defendant's signature serves no
other function except to acknowledge his agreement to guarantee the
lease. The preamble of the lease further demonstrates that
Showtime was the lessee, and that defendant was a guarantor. Theonly reasonable interpretation of defendant's signature is that he
was a guarantor on the lease. We conclude that the contract
establishes the parties' intention to create a separate guaranty
contract contingent upon the default of the primary obligor
(Showtime), and that the trial court did not err by concluding that
defendant was a guarantor on the lease. This assignment of error
is overruled.
________________
[2] Defendant Frank Scozzafave's second assignment of error
asserts that the trial court erred in not finding that plaintiff
failed to mitigate its damages.
“Typically, in a leasing context,
the duty to mitigate means that a landlord must use reasonable
efforts to relet the premises to a new tenant.”
Strader v.
Sunstates Corp., 129 N.C. App. 562, 575, 500 S.E.2d 752, 759 (1998)
(citing
Isbey v. Crews, 55 N.C. App. 47, 51, 284 S.E.2d 534, 537
(1981)). Further, “the burden is on the breaching party to prove
that the nonbreaching party failed to exercise reasonable diligence
to minimize the loss.”
Isbey, 55 N.C. App. at 51, 284 S.E.2d at
538. In the instant case, plaintiff presented e
vidence that
defendants left the property in such poor condition that it would
have cost several hundred thousand dollars just to restore it to a
condition in which it could be rented. Plaintiffs also testified
that it was not feasible for them to attempt these extensive
repairs in the short time remaining on the lease. This evidence
supports the trial court's finding that plaintiff was unable to
mitigate its damages and its conclusion that defendant was notentitled to a reduction in the amount of damages awarded to
plaintiff. Defendant's second assignment of error is overruled.
We hold that the trial court did not err. Accordingly, the
trial court's judgment in favor of plaintiff is
Affirmed.
Judges HUNTER and STEELMAN concur.
Footnote: 1