381 P.3d 1185
Utah Ct. App.2016Background
- Cao personally guaranteed Tenant’s lease obligations in 2006 to secure landlord approval of an assignment; the guaranty stated Cao "shall remain obligated to Landlord for the full performance" of Tenant’s duties.
- Riverview later purchased the strip mall subject to existing leases, including Tenant’s lease and Cao’s guaranty.
- In 2010 Riverview sued Tenant and Cao for over $22,000 in past-due rent; Riverview and Tenant executed a Workout that extended the time to pay the delinquent amount (Cao did not participate and refused to stipulate to dismissal).
- The 2010 suit was dismissed without prejudice for failure to prosecute; Tenant then largely complied with the Workout and lease until the lease ended September 30, 2013, but left unpaid the last month and part of the previous month.
- Riverview obtained a money judgment against Tenant for unpaid rent, interest, costs, and fees; the district court concluded the 2010 Workout materially modified the lease and discharged Cao as guarantor, so Cao was not liable.
- On appeal, the Utah Court of Appeals held the Workout was merely an extension of time (not a material modification) and therefore did not discharge Cao; the court reversed and remanded for judgment against Cao and for appellate costs/fees per the guaranty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Workout discharged the guarantor | Workout was a minor time-extension and did not release guarantor | Workout materially modified the lease and released guarantor | Workout was only a time extension; guarantor not discharged |
| Whether common-law or contract terms govern guarantor rights | Apply common-law rules absent express contractual protections | Same; no express protections in guaranty | Common-law rules applied because guaranty lacked special terms |
| Whether an extension of time is a discharge event under surety law | Extensions of time do not discharge guarantors per Restatement and precedent | Extension was a material alteration releasing guarantor | Extension-of-time exception applies; no discharge |
| Entitlement to appellate costs and fees | Riverview entitled to costs/fees under guaranty’s fee-shifting clause | Cao opposed | Remanded to determine amount; Riverview entitled to such award |
Key Cases Cited
- Seftel v. Capital City Bank, 767 P.2d 941 (Utah Ct. App. 1989) (guaranty terms can waive common-law defenses and are construed by parties’ intent)
- DiMeo v. Nupetco Associates, 309 P.3d 251 (Utah Ct. App. 2013) (extension of time is a minor alteration that does not discharge guarantor)
- Associated Gen. Contractors v. Board of Oil, Gas & Mining, 38 P.3d 291 (Utah 2001) (interpretation of instruments and application of common law presents questions of law reviewed for correctness)
- Utah Chapter of the Sierra Club v. Utah Air Quality Board, 148 P.3d 960 (Utah 2006) (standard stating review of questions of law for correctness)