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P.A.Y. Commercial Holding, LLC v. Case

A-4046-08T1 (N.J. Super. App. Div. 2010) (Unpublished)

GUARANTIES — A guarantor, under a written guaranty, prima facie, may have a contractual relationship with the party to whom the guaranty is directed, and then be liable for damages arising out of the underlying, guaranteed contract even though the guaranty, on its face, does not cover the obligations in dispute.

A tavern owner sold his business to an individual. The tavern owner, who also owned the building and property where the building was located, then entered into a commercial lease with the business that the new tavern owner had just purchased. Contemporaneously, two guaranties were executed by the new owner in his individual capacity and he invested his own money to renovate the premises. The new tavern owner claimed that because the former owner was unable to obtain tax clearance documents to finalize the deal, he returned the keys to the premises and never opened his new tavern. The former tavern owner sued the purchaser on contract and quasi-contract theories for failure to pay a book account, failure to pay for goods sold and delivered, quantum meruit, and breach of an account stated.

The lower court ruled that the former tavern owner did not prove the existence of a direct contract between the parties, and therefore there was no basis to award damages. In response to the former owner’s quasi-contract claims, the new tavern owner said he was “conned” into the deal and signed all documents put in front of him without being represented by an attorney. Accordingly, he invested his own money into refurbishing the premises while waiting for the former tavern owner to obtain tax clearance to finalize the deal. The lower court dismissed the old owner’s quasi-contract claims believing that the new tavern owner had been taken advantage of. The former tavern owner appealed.

The Appellate Division reversed, finding a direct contractual relationship existed between the former and new tavern owners. In its view, because the new owner signed two guaranties, the former tavern owner established at least a prima facie contractual entitlement to “award it a judgment” against the new tavern owner individually. The Court found that the lower court erred when it determined that the guaranties were signed by other entities. It concluded that the new tavern owner clearly signed the guaranties in his individual capacity and remanded to the lower court to determine the amount of damages to be awarded.

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