Appeal by defendant from order entered 5 March 2003 by Judge
Marvin K. Gray in Mecklenburg County Superior Court. Heard in the
Court of Appeals 1 March 2004.
Robert D. Potter, Jr., for plaintiff-appellee.
PARKER, HANZEL, & NEWKIRK, L.L.P., by M. Clark Parker, for
defendant-appellant.
TIMMONS-GOODSON, Judge.
Nathan Alberty (“defendant”) appeals the trial court's order
granting summary judgment in favor of The Sherwin-Williams Company
(“plaintiff”). For the reasons stated herein, we affirm the trial
court's order.
The evidence presented at the summary judgment hearing is as
follows: On 24 September 1987, plaintiff leased commercialproperty in Charlotte, North Carolina, to James H. Simmons
(“Simmons”). Simmons later assigned his interest in the lease to
ASBN, Inc. (“ASBN”). The lease provided that unless ASBN exercised
an option to renew included in the lease, the lease was to expire
on 30 December 1994. However, the lease also contained a hold-over
provision that automatically authorized a year-to-year tenancy if
the tenant remained in possession of the premises after the
expiration date of the lease and without the consent of plaintiff.
On 26 September 1988, Betty Alberty, Maria Jandera, Joseph
Zahradnicek, and defendant all signed a personal guaranty assuring
full performance by ASBN of the lease terms. After expiration of
the lease, ASBN continued to occupy the premises as a hold-over
tenant. On 28 February 1997, plaintiff and ASBN entered into a
“lease amendment and extension,” which bound ASBN to the lease
retroactively from 1 January 1995 until 30 December 1999. While no
personal guaranty was executed in connection with the “lease
amendment and extension,” defendant, the sole signor of the “lease
amendment and extension,” signed it in his capacity as vice-
president of ASBN. ASBN defaulted on its lease after September
1998.
Plaintiff initiated this action on 1 June 1999, seeking
damages in connection with ASBN's default on the lease. On 4
November 1999, defendant and Betty Alberty moved for summary
judgment against plaintiff. On 10 January 2000, plaintiff
responded by filing a cross-motion for summary judgment against all
defendants. On 30 March 2000, the trial court granted summaryjudgment in favor of defendant and Betty Alberty and against
plaintiff. The trial court also denied plaintiff's motion for
summary judgment against defendant and Betty Alberty, and granted
plaintiff's motion for summary judgment against ASBN and defendants
Jandera and Zahradnicek.
Plaintiff appealed the denial of its motion for summary
judgment against defendant and Betty Alberty. In Sherwin-Williams
Co. v. ASBN, Inc., 145 N.C. App. 176, 180, 550 S.E.2d 527, 530
(2001) (“ASBN, Inc. I”), this Court affirmed the trial court's
judgment as to Betty Alberty and reversed and remanded the judgment
as to defendant. On remand, plaintiff again moved for summary
judgment against defendant on 20 February 2003. On 5 March 2003,
the trial court granted plaintiff's motion. From this order,
defendant appeals.
The only issue in the present appeal is whether the trial
court properly granted summary judgment in favor of plaintiff.
Defendant argues that the trial court erred in its determination
that defendant is estopped from denying his personal guaranty
continued on the lease after 28 February 1997. For the reasons
discussed herein, we conclude that defendant's previous personal
guaranty continued on the lease, and we affirm the trial court's
order granting summary judgment in favor of plaintiff.
In
ASBN, Inc. I, we determined that the 28 February 1997
“lease amendment and extension” was a new lease, not an extension
or amendment of the 1987 lease. 145 N.C. App. at 179, 550 S.E.2dat 530. Therefore, we affirmed the trial court's order granting
summary judgment in favor of Betty Alberty, who had not signed as
a guarantor of the new lease.
Id. at 180, 550 S.E.2d at 530.
Although we noted that defendant had not signed as a guarantor of
the new lease, we also noted that his signature as vice-president
of ASBN authorized the new lease.
Id. at 179-80, 550 S.E.2d at
530. We recognized that as vice-president of ASBN, defendant
“could have benefitted from the new lease[,] which allowed his
business to continue in its present location.”
Id. at 180, 550
S.E.2d at 530. We also recognized that if defendant did benefit
from the new lease, the law set forth in
Devereux Properties, Inc.
v. BBM&W, Inc., 114 N.C. App. 621, 442 S.E.2d 555,
disc. review
denied, 337 N.C. 690, 448 S.E.2d 519 (1994) would preclude
defendant from denying that his personal liability as guarantor
continued under the new lease.
Id. Therefore, we reversed the
summary judgment order as to defendant and remanded to the trial
court with instructions to determine whether defendant in fact
benefitted under the new lease.
Id.
On remand
, the trial court granted summary judgment in favor
of plaintiff. Defendant now argues that the trial court erred in
finding that defendant received an individual benefit from the new
lease. In support of this argument, defendant submits that he
presented the trial court with an affidavit stating that he
“invested over $150,000 to keep the restaurant afloat, but to no
avail.” Defendant further submits that he received no salary or
dividend from ASBN, that he and his wife have twice mortgaged theirhome, and that he is currently operating an unprofitable tax and
accounting business. Defendant's argument that he received no
benefit from the new lease is unconvincing.
In
Devereux, this Court noted an exception to the rule that “a
material alteration of a contract between a principal debtor and
creditor without the consent of the guarantor discharges the
guarantor of [his] obligation.” 114 N.C. App. at 623, 442 S.E.2d
at 556. The
Devereux exception “holds the guarantor responsible
for any changes to which he has either expressly or impliedly
consented.”
Id. at 624, 442 S.E.2d at 556. “Consent to an
increase in liability may be implied from a guarantor's actions as
corporate officer,” particularly where the officer received
benefits from the actions.
Id.
at 624, 442 S.E.2d at 557. In
formulating the
Devereux exception, this Court explained that the
guarantors in
Devereux “were not innocent parties; they were
experienced businessmen who stood to benefit from the [lease]
modifications.” 114 N.C. App. at 625, 442 S.E.2d at 557. Thus,
“'having authorized the modifications and received their benefits,
they cannot . . . be regarded as innocent third parties such as the
law of guaranty is designed to protect.'”
Id. (quoting
Bank of
Commerce v. Riverside Trails, 52 Ill. App. 3d 616, 623, 367 N.E.2d
993, 999 (Ill. App. Ct. 1977)).
Defendant argues that the new lease only gave him more debt.
In
Devereux, the defendants cited
First Union Nat'l Bank v. King,
63 N.C. App. 757, 306 S.E.2d 508 (1983) in support of a similar
argument. 114 N.C. App. at 624, 442 S.E.2d at 557. In
FirstUnion, this Court held an uncompensated surety liable on a modified
note because the new note decreased the amount the surety
guaranteed and therefore benefitted him. 63 N.C. App. at 759-60,
306 S.E.2d at 510. As defendant argues in the case
sub judice, the
defendants in
Devereux argued that pecuniary gain is necessary to
establish continued liability as a guarantor. 114 N.C. App. at
624, 442 S.E.2d at 557. However, we disagreed, holding, as in
Caldwell County v. George, 176 N.C. 602, 97 S.E. 507 (1918), that
a pecuniary gain is not necessary for a guarantor to “benefit”
under the
Devereux exception.
Id. at 625, 442 S.E.2d at 557.
In
Caldwell, the defendant was found to be personally liable
on checks he guaranteed although there was a delay in cashing the
checks. 176 N.C. at 610, 97 S.E. at 510. The Court concluded that
the delay was at the “special instance and request of defendant.”
Id. Thus, the Court held, the defendant would not be relieved from
liability due to a modification of the original contract because
the modification “was with [the defendant's] knowledge and approval
and at his instance.”
Id. In
Devereux, this Court held the
defendants personally liable because the modification of the lease
the defendants guaranteed resulted in an extension of the terms of
the lease, an expansion of the square footage of the property
leased, and a decrease in the amount of rent owed to the lessor by
the defendants' corporation. 114 N.C. App. at 622, 442 S.E.2d at
556. We concluded that such contract modifications create benefits
for guarantors outside of pecuniary gains, and we held that when
guarantors authorize and receive such benefits, the guarantors losetheir status as innocent third parties and the protection the law
of guaranty provides.
Id. at 625, 442 S.E.2d at 557.
In the case
sub judice, defendant received a
Caldwell and
Devereux-like benefit when he authorized the new lease. Although
the record clearly reflects that defendant ultimately suffered
pecuniary losses as a result of the new lease, it also reflects
that at the time the new lease was executed, the new lease operated
to benefit defendant by extending his company's tenancy on the
plaintiff's property for several years. Not only did the new lease
therefore give defendant's company an opportunity to continue
operating and profiting as a business, it gave defendant -- a
forty-percent shareholder in the company -- an opportunity to
benefit from the extended operation and the resulting profits.
Furthermore, in his answers to plaintiff's interrogatories,
defendant admitted he consented to the execution of the new lease
in order to benefit ASBN. We conclude that the foregoing evidence
was sufficient to allow the trial court to find that defendant
received the type of benefit required by the
Devereux exception.
Defendant also argues that because he did not negotiate the
new lease for ASBN or individually, he should not be held liable as
a guarantor of it. In support of this argument, defendant asserts
that the affidavit of Ben L. Amoson, Jr. (“Amoson”), plaintiff's
director of real estate, does not state that defendant or anyone at
ASBN negotiated the new lease. Defendant further asserts that the
new lease was prepared and submitted to ASBN for execution by any
officer of the corporation, and that “it just happened thatdefendant executed it as vice-president.” We find this argument
unconvincing as well.
While Amoson's affidavit does not reference any specific
negotiations with defendant, it does reflect that defendant
consented to and authorized the terms included in the new lease.
Amoson's affidavit states that prior to the execution of the new
lease, defendant signed a proposed lease extension. Although the
landowner, Cameron M. Harris (“Harris”), would not consent to the
proposal, Amoson's affidavit states that after the dispute with
Harris was settled, plaintiff twice sent detailed letters to
defendant, explaining how long the lease could be extended and
reminding defendant that “the lease amendment and extension” needed
to be executed. After defendant did not respond to its letters,
plaintiff sent defendant a copy of the new lease, which defendant
subsequently signed. Furthermore, defendant admitted in his
answers to plaintiff's interrogatories that when he signed the new
lease he was acting under authorization by ASBN to sign the lease,
and that he personally consented to it. We conclude that the
foregoing evidence is sufficient to meet the requirements of the
Devereux exception, which allows “[c]onsent to an increase in
liability” to be implied from “a guarantor's actions as a corporate
officer.”
Devereux, 114 N.C. App. at 624, 442 S.E.2d at 557.
In
ASBN, Inc. I, we recognized that in signing the new lease,
defendant might have personally benefitted and thereby become
estopped from denying that his personal guaranty continued under
the new lease. Therefore, we remanded the case to the trial courtto determine whether defendant benefitted under the new lease
pursuant to the mandate of
Devereux. Considering the law of the
case and viewing the evidence contained in the pleadings,
admissions, affidavits, and answers to interrogatories in the light
most favorable to defendant, we conclude that the trial court did
not err in determining that defendant consented to the new lease
and received the benefit required to hold him liable under
Devereux. Therefore, the trial court properly concluded that
defendant is estopped from denying that his liability as personal
guarantor continued under the new lease. Thus, we hold that the
trial court did not err in granting summary judgment for the
plaintiff.
Affirmed.
Judges HUNTER and LEVINSON
concur.
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