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G.B. Ltd., LLC v. Con Quest Data Corporation

A-4892-00T5 (N.J. Super. App. Div. 2002) (Unpublished)

LEASES; GUARANTIES— Unless a tenant directs that its payments be applied in a particular manner, a landlord is free to apply the payments as it sees fit even if doing so is to the detriment of a guarantor of the lease.

A corporation entered into a long term commercial lease. The principals of the corporation guaranteed the tenant’s obligations for the first year of the lease. After the tenant defaulted, the landlord evicted the tenant. The landlord granted the tenant access to the premises after the tenant assigned its accounts receivable to the landlord. The landlord received several payments from the tenant’s customers and applied those payments to the later rent arrears. Those arrears were not secured by the personal guaranty. The landlord sued the tenant and its guarantor for the balance of the unpaid rent. The lower court allocated the payments the landlord received from the tenant’s customers in the same ratio as between the tenant’s default in the first year and its total default. The guarantor argued that the lower court should have applied the accounts receivable payments to the earliest debt first, which would have resulted in the guarantor owing no money to the landlord. The Appellate Division disagreed with the tenant. It held that, unless the tenant directed that the payments were to be applied to the earliest debt first, the landlord was free to apply the payments in any manner. It also upheld the lower court’s formula for allocating the payments received.

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