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Sher v. Greer

A-1565-98T1 (N.J. Super. App. Div. 2000) (Unpublished)

LEASES; GUARANTORS; EQUITABLE ESTOPPEL—Where a guarantor can not show that it changed its position because of a landlord’s failure to notify it of the tenant’s default, the landlord is not equitably estopped from pursuing the guarantor for the tenant’s default.

Two individuals leased commercial premises under a trade name. They signed the agreement individually as tenants and “personally guaranteed” the lease as well. Subsequently, the landlord agreed to release one of the individuals and to add another individual as both a tenant and personal guarantor. A time came when the two tenants agreed to sell their business to another individual. Approximately eleven months following the sale, that individual agreed to “personally guarantee the lease.” The individual later defaulted on the lease and abandoned the premises between the time that an eviction proceeding was commenced and the time the eviction would have taken place. By the time the premises were re-rented, substantial damages had accrued. The lease provided, among other things, that the tenants could not assign the lease without permission from the landlord and that, if assignment was permitted, the tenants/assignors would remain liable under the lease. Further, the lease provided that “no subsequent alteration, amendment, change or addition to this [lease] shall be binding upon Landlord and Tenant, unless reduced to writing and signed by them.” In a summary action for collection under the guarantees, the two (selling) tenants argued that the landlord had agreed to accept their buyer “as the sole guarantor of its obligations.” It was undisputed that the landlord failed to inform the original tenants of the lease default until after the suit was commenced. In an attempt to avoid liability, the original tenants pointed to a provision of the lease that required the landlord to give written notice of default to the tenants so that the tenant/assignors would be able to cure the default before the lease was forfeited. Reviewing the testimony, the lower court bypassed the issue of whether the original tenants had been released from their obligations under the lease and found that because the landlord had been dealing exclusively with their buyer, it had, for all intents and purposes, totally disassociated itself with the two tenant/guarantors. “This course of conduct, dealing exclusively and affirmatively with one entity, and absolutely doing nothing with predecessor entity, is the very classic positions that give rise to the doctrine of equitable estoppel.” Consequently, the lower court sua sponte entered summary judgment in favor of the tenant/guarantors based on equitable estoppel. The Appellate Division, although agreeing that the lease required any modifications to be in writing, pointed out that the parties to an agreement may waive that requirement orally. Thus, the landlord’s argument that the parties could not have effectuated a release without a signed writing to that effect was without merit. On the other hand, the Appellate Division disagreed with the lower court’s use of equitable estoppel on the record before it. The doctrine of “equitable estoppel operates to prevent a party from disavowing its previous conduct if such repudiation would violate the demands of justice and good conscience.” Therefore, the tenant/guarantors were required to shoulder the burden of proving that principles of equitable estoppel applied. Significantly, in the context of this case, “the conduct must be relied on, and the relying party must act so as to change his or her position to his or her detriment.” Looking at the facts of the case, the Court found it clear that the landlord’s conduct could not have induced the tenant/guarantors to change their positions to their detriment. First, if the tenant/guarantors considered themselves no longer obligated by virtue of having been released from their obligations under the lease, it “is doubtful that [they] would have volunteered to cure the subsequent tenant’s default even if they had known of it.” Further, because they claimed they were not aware that the tenant was in default and that the landlord was dealing directly with the tenant to resolve the rent arrearages, they could not have changed their position based upon the landlord’s alleged conduct. While the landlord’s failure to notify them of the tenant’s breach might be relevant on the issue of whether the landlord knew that the tenant/guarantors had been released from their obligation by a predecessor landlord, it was not relevant to the issue of equitable estoppel.


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