Creekside Partners v. Albert Nathan Scott ( 2013 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
October 24, 2012 Session
CREEKSIDE PARTNERS v. ALBERT NATHAN SCOTT ET AL.
Appeal from the Chancery Court for Davidson County
No. 11737-I Claudia Bonnyman, Chancellor
No. M2012-00623-COA-R3-CV - Filed January 10, 2013
This is an action to recover damages for breach of a commercial lease from an individual
whom the lessor claims guaranteed the obligations of the corporate tenant. The only issue on
appeal is whether the individual defendant signed the lease solely in his capacity as the
president of and on behalf of the corporate tenant, or whether the parties also intended to
bind the individual defendant as a guarantor of the tenant’s obligations. The trial court
distinguished the facts of this case from those in the recent Tennessee Supreme Court
decision in 84 Lumber Co. v. Smith, 356 S.W.3d 380 (2011), and summarily dismissed the
claims against the individual defendant. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
F RANK G. C LEMENT, J R., J., delivered the opinion of the Court, in which P ATRICIA J.
C OTTRELL, P.J., M.S., and R ICHARD H. D INKINS, J., joined.
Stephen A. Lund, Nashville, Tennessee, for the appellant, Creekside Partners.
Dan E. Huffstutter, Nashville, Tennessee, for the appellee, Albert Nathan Scott.
OPINION
On September 28, 2007, Creekside Partners (“Creekside”) entered into a commercial
real estate agreement (“the Lease”) with NTS Enterprises, Inc. (“NTS”) for space in
Creekside Plaza in Mount Juliet, Tennessee, where NTS planned to operate an Ace Hardware
Store. The Lease was for a term of 124 months beginning April 1, 2008. The Lease, which
was drafted by Creekside, identifies “Creekside Partners” as the “Landlord,” and “NTS
Enterprises, Inc., an entity owned by Albert Nathan Scott” as the “Tenant”. The Lease bears
only two signatures. Albert Nathan Scott, the president of NTS, signed on behalf of NTS as
its president; three days later, Nathaniel Greene, the chief manager of Creekside, signed the
Lease on behalf of Creekside. Their signatures appear on page fourteen of the Lease as
follows:
IN WITNESS WHEREOF, the undersigned Tenant, Landlord, and
Guarantors have executed this Lease the day and year first above written.
ADDRESS: LANDLORD:
C/O NAI Nashville Creekside Partners, LLC
300 Broadway By: /s/
Nashville, TN 37201 Name: Nathaniel Greene
Its: Chief Manager
Date: October 1, 2007
ADDRESS: TENANT:
NTS Enterprises, Inc.
1213 Kathy’s Trail By: /s/
Chatt., TN 37919 Name: A. Nathan Scott
Its: President
Date: Sept. 28, 2007
(Italics where information is handwritten) (Bold in original). No other signature lines appear
in the Lease and there is no signature line separately or specifically designated for a
guarantor to execute the lease. The remainder of page fourteen is blank. Page fifteen begins
with Exhibit A to the Lease, which depicts a layout of the rental space.
Pursuant to the Lease, NTS was required to pay a base rent plus additional rent for
common area maintenance, insurance, and real estate taxes. NTS was compliant with its lease
obligations until 2010, when it failed to make full, timely rent payments in February, March,
May, June, July and August. Consequently, Creekside terminated the Lease on August 23,
2010; however, NTS remained in the space until May 31, 2011, and continued to pay only
partial rent.
Creekside filed this action against NTS and Mr. Scott on June 6, 2011, alleging, inter
alia, that Mr. Scott was liable in his individual capacity as the guarantor of NTS’s obligations
pursuant to Article 32 of the Lease. That provision, which appears on page twelve of the
Lease, provides as follows:
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Article 32. Guarantors.
In consideration of the letting of the Premises, the sum of TEN
DOLLARS ($10.00) and other good and valuable consideration, receipt of
which is hereby acknowledged, the undersigned Albert Nathan Scott, does
hereby guarantee and become primarily liable as a co-Tenant(s) do(es) hereby
promise and agree to pay unto the Landlord, its successors and assigns, such
sum or sums of money as will be sufficient to make up such deficiency and
fully satisfy the conditions of this Lease; however, said co-Tenant(s) called
upon to perform under this Article shall, upon satisfaction of such default, at
this option, be entitled to assume the position of the defaulting Tenant
hereunder and shall thereafter enjoy all of the rights and privileges of the
original Tenant hereunder.
In his Answer, Mr. Scott admitted that NTS breached the Lease by failing to make the rent
payments, but denied personal liability. NTS did not file an answer or otherwise respond to
the complaint and Creekside was subsequently awarded summary judgment on its claims
against NTS.
Creekside filed for summary judgment as to Mr. Scott on August 12, 2011; Mr. Scott
then filed a Rule 12.02(6) Motion to Dismiss on the grounds that he did not execute the
Lease as a guarantor of NTS’s obligations and thus was not personally liable. At a hearing
on October 14, 2011, the trial court stated it would withhold judgment on the issue of Mr.
Scott’s individual liability until after the anticipated ruling by the Tennessee Supreme Court
in the case of 84 Lumber Company v. Smith, 356 S.W.3d 380 (Tenn. 2011), which was
expected to address a similar issue.1
The 84 Lumber decision was issued two months later, on December 12, 2011.
Thereafter, NTS and Mr. Scott filed renewed motions addressing Mr. Scott’s individual
liability. After hearing arguments on the renewed motions on February 17, 2012, the trial
court ruled in favor of Mr. Scott. The court found that Mr. Scott’s signature – which was
preceded by the corporation’s name and followed by a designation of Mr. Scott’s corporate
capacity as its president – created a presumption that he acted solely as a corporate
representative. The court also found that there was “no indication anywhere in the form of
his signature . . . indicating that Mr. Scott intends to be signing as a guarantor or intends to
be signing as an individual” to negate the presumption. Therefore, the trial court denied
Creekside’s motion for summary judgment and summarily dismissed all of Creekside’s
1
Creekside’s Motion for Summary Judgment as to NTS was granted at this hearing; the amount of
damages to be awarded was reserved for a later hearing by agreement of the parties.
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claims as to Mr. Scott individually.2 The parties subsequently agreed that Creekside’s
damages totaled $101,541.62 for the unpaid rent, and that Creekside was also entitled to
$8,389.21 in attorney’s fees pursuant to the Lease. Thus, the trial court entered an agreed
order awarding Creekside a judgment against NTS only in the amount of $109,920.83.3 This
appeal by Creekside followed.
A NALYSIS
Creekside asserts the trial court erred in failing to hold Mr. Scott individually liable
as a guarantor for NTS’s obligation as Tenant; it contends the error is the result of the trial
court misconstruing the decision in 84 Lumber.
As our Supreme Court recently stated in 84 Lumber:
The Statute of Frauds requires that a contract to pay the debts of another must
be signed by the guarantor. See Tenn.Code Ann. § 29-2-101(a)(2) (2000). In
most cases, a representative who signs a contract is not personally bound to the
contract. See Dominion Bank of Middle Tenn. v. Crane, 843 S.W.2d 14, 19
(Tenn. Ct. App. 1992); Anderson v. Davis, 34 Tenn.App. 116, 234 S.W.2d
368, 369-70 (1950). A representative who signs a contract may be personally
bound, however, when the clear intent of the contract is to bind the
representative. See Lazarov v. Klyce, 195 Tenn. 27, 255 S.W.2d 11, 14 (1953)
(citing Pope v. Landy, 1 A.2d 589 (Del. Super. Ct.1938)) (“Whether or not a
particular contract shows a clear intent that one of the parties was contracting
as an individual or in a representative capacity, must be determined from the
contract itself.”).
When we interpret a contract, our role is to ascertain the intention of the
parties. Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999). The intention
of the parties is based on the ordinary meaning of the language contained
within the four corners of the contract. Kiser v. Wolfe, 353 S.W.3d 741, 747
2
Although Mr. Scott’s motion was filed pursuant to Tennessee Rule of Civil Procedure 12, the trial
court granted summary judgment pursuant to Rule 56 because matters outside the pleadings were considered
by the trial court. See Tenn. R. Civ. P. 12.02(6) (“If, . . . matters outside the pleading are presented to and
not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as
provided in Rule 56 . . . .”).
3
The trial court further found Creekside was entitled to a judgment for the difference between the
rent paid by a new tenant and the amount NTS agreed to pay for the remainder of the Lease term, but that
the claim was not yet ripe because Creekside had not yet found a new tenant.
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(Tenn. 2011); see Planters Gin Co. v. Fed. Compress & Warehouse Co., 78
S.W.3d 885, 889-90 (Tenn. 2002). The interpretation of a contract is a matter
of law, which we review de novo with no presumption of correctness. Barnes
v. Barnes, 193 S.W.3d 495, 498 (Tenn. 2006).
84 Lumber, 356 S.W.3d at 382-83.
We begin our journey of ascertaining whether the clear intent of the Lease was to bind
both NTS and Mr. Scott by focusing on Mr. Scott’s only signature on the Lease, which
appears on page fourteen of the Lease:
ADDRESS: TENANT:
NTS Enterprises, Inc.
1213 Kathy’s Trail By: /s/
Chatt., TN 37919 Name: A. Nathan Scott
Its: President
Date: Sept. 28, 2007
Importantly, the word “By” appears just before Mr. Scott’s only signature, and his
office with NTS - “Its: President” - is identified immediately after. As our Supreme Court
notes in Cone Oil Co., Inc. v. Green, 669 S.W.2d 662 (Tenn. 1983), this manner of executing
a contract gives rise to the presumption that the contract was signed only in a representative
capacity.
It is possible for an officer of a corporation to avoid personal liability by
signing his name and adding his title and the name of the corporation.
However, such a signature does not produce the presumptive effect of a
signature in which the name of the corporation appears first followed by the
word, “by” or “per” and the name of the corporation. In the former case,
additional evidence, such as test of the instrument or evidence of the joint
intent of the parties, would be required to establish that only the corporation
was to be bound. In the latter case, the intention of the parties is self evident
from the form of the signature.
Cone Oil Co., Inc., 669 S.W.2d at 664 (holding individual defendant liable where guaranty
was a completely separate document).4
4
Cone Oil Co. is one of the cases relied upon in Fleet One, LLC v. Cook, No. M2001-03048-R3-CV,
(continued...)
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Thus, because Mr. Scott’s only signature appears immediately after the word “BY”
and immediately before “Its: President,” the intention of the parties is self evident from the
form of the signature: Mr. Scott signed only in his representative capacity, not as a personal
guarantor, and as a result, only the corporation, NTS, is obligated under the Lease. See id.
The foregoing notwithstanding, Creekside insists the decision in 84 Lumber requires
a different result. We therefore turn our attention to the facts in that case. The dispute in 84
Lumber arose from an application for a credit account by Allstates Building Company, LLC;
the credit application was signed a single time by the president of Allstates, R. Bryan Smith.
84 Lumber Co., 356 S.W.3d at 381. The application was approved and 84 Lumber extended
a line of credit to Allstates. Id. After acquiring products on credit, Allstates failed to make
the required payments on its account. Id. Thereafter, 84 Lumber filed suit seeking to recover
its damages from Allstates as well as from Smith, whom it alleged had personally guaranteed
the obligations of Allstates. Id. at 382.
The trial court held that the express language of the application Smith signed bound
both Allstates as the credit applicant and Smith as an individual guarantor. Id. In a divided
decision, the Court of Appeals reversed the trial court. See 84 Lumber Co. v. Smith, No.
E2010-00292-COA-R3-CV, 2010 WL 4272739, at *5 (Tenn. Ct. App. Oct. 28, 2010) rev’d
356 S.W.3d 380 (Tenn. 2011). The Supreme Court reversed the decision by the Court of
Appeals and reinstated the judgment of the trial court. 84 Lumber Co., 356 S.W.3d at 384.
In its opinion, the Supreme Court framed the issue as “whether Mr. Smith’s signature
on the credit application can bind him in both a representative capacity and as a guarantor
to the contract or whether he can be bound as a guarantor only if he signed the application
a second time in his individual capacity.” Id. at 382. After identifying the controlling legal
principles, the Supreme Court focused primarily on the following language of the
application, which appeared immediately before Mr. Smith’s signature:
BY SIGNING BELOW I HEREBY CERTIFY THAT I AM THE OWNER,
GENERAL PARTNER OR PRESIDENT OF THE ABOVE BUSINESS,
AND I DO UNCONDITIONALLY AND IRREVOCABLY PERSONALLY
GUARANTEE THIS CREDIT ACCOUNT AND PAYMENTS OF ANY
AND ALL AMOUNTS DUE BY THE ABOVE BUSINESS, AND THAT I
HAVE READ ALL OF THE TERMS AND CONDITIONS ON THE
4
(...continued)
2002 WL 1189559 (Tenn. Ct. App. June 5, 2002). Despite the negative treatment of the Fleet One case in
the 84 Lumber opinion, see 356 S.W.3d at 382-83, we do not interpret the 84 Lumber opinion as overturning
the above statement of law expressed in Cone Oil.
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REVERSE SIDE OF THIS APPLICATION AND UNDERSTAND AND
AGREE TO THE SAME, AND THAT ALL OF THE INFORMATION
CONTAINED IN THIS APPLICATION IS TRUE AND CORRECT TO THE
BEST OF MY KNOWLEDGE.
Id. at 381-82. On the same page and immediately below the guarantee provision, in the space
provided for “Applicant,” Mr. Smith signed, “R. Bryan Smith, President.” Id. at 382.
The Supreme Court reasoned that the guarantee provision in the credit application
served two purposes. First, it certified “that the individual signing the contract has the
authority to sign the contract in a representative capacity for the company.” Id. at 383.
Second, by distinguishing between “‘I,’ the person signing the contract, and the ‘above
business’” the language “demonstrate[d] that the parties intended that the individual who
signed the contract agreed to be personally responsible for amounts owed on the contract.”
Id. Thus, the Court concluded, “the clear and unambiguous language reflects that Mr. Smith
both signed in a representative capacity and personally guaranteed the contract.” Id.
Having closely examined the relevant language and the placement of that language
in the credit application in 84 Lumber and the relevant language and the placement of that
language in the Lease in this case, we find significant differences. In 84 Lumber, the guaranty
provision is in all capital letters, set off from the rest of the text, and is immediately followed
by Mr. Smith’s signature on the same page of the credit application. Id. Here, the guaranty
provision is in the same size font as all the other provisions in the lease and is separated from
Mr. Scott’s signature by two pages.
Furthermore, where Mr. Smith’s personal obligation is exceedingly clear in the
guarantee language in the 84 Lumber credit application, Mr. Scott’s alleged personal
obligation under the Lease is in contradiction to other provisions in the Lease. Article 32,
titled “Guarantors,” purports to make Mr. Scott a “co-Tenant,” yet there are numerous,
unambiguous provisions of the Lease which specifically identify NTS as the tenant. Four
examples of such are as follows: 1) On page one of the Lease, the “Tenant” is identified as
“NTS Enterprises, Inc. dba Ace Hardware”; 2) Page two states that the Lease is “between
Creekside Partners . . . (herein called ‘Landlord’) and NTS Enterprises, Inc., an entity
owned by Albert Nathan Scott, whose address is 1213 Kathy’s Trail Chattanooga, Tennessee
37219 (herein called ‘Tenant’)” (bold in original); 3) On page eleven, the Tenant is
identified as “NTS Incorporated”; and 4) On page sixteen of the Lease (“EXHIBIT B”), the
tenant is identified twice: as “NTS Enterprises, Inc. dba Ace Hardware,” and as “NTS
Enterprises, Inc.” In addition to the express language of the Lease, Creekside identified NTS
as the tenant in its Lease termination notice. The termination letter mailed to the attention of
Mr. Scott on August 23, 2010, states:
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This letter is to inform you that your lease dated September 28, 2007 for space
at Creekside Plaza located at 4110 North Mt. Juliet Road, Mt. Juliet,
Tennessee is hereby terminated for failure to pay rent as required in the Lease
between Creekside Partners, LLC and NTS Enterprises, Inc dba Ace
Hardware.
Finally, page eleven of the Lease provides that, “[n]otices to any guarantor shall be
deemed sent when sent to the address shown on the signatory page hereof,” yet no addresses
for guarantors are listed. Indeed, of the nineteen pages and 1,267 lines of text that comprise
the Lease, only once does Mr. Scott’s name appear in relation to the words “guarantee” or
“co-tenant” and that is on line 826.5
Creekside asserts that Article 31 of the Lease remedies the above problems and
establishes that the parties expressed clear intent to bind Mr. Scott in his individual capacity.
Article 31 provides:
Article 31. Construction of Terms.
The words “Landlord” and “Tenant” as used herein shall include all
permitted individuals, corporations (and if a corporation, its officers,
employees or agents), and any and all other permitted guarantors, co-Tenants,
persons or entities, and their respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and all those
holding either of them and the pronouns used herein shall include, when
appropriate, either gender and both singular and plural.
We respectfully disagree with this argument. Again, throughout the Lease, the Tenant
is repeatedly identified as NTS and only NTS. Given this fact, along with the fact that there
is no place for Mr. Scott to sign the lease as a guarantor (although “Guarantors” are
mentioned in the sentence immediately preceding the signature blocks), the only express
reference to Mr. Scott as a “co-tenant” appears two pages before the signature page, and
finally the fact that Mr. Scott signed the Lease in an explicitly representative capacity, it is
illogical to conclude that the parties expressed “clear intent” to bind Mr. Scott personally. See
84 Lumber, 356 S.W.3d at 382 (citing Lazarov, 255 S.W.2d at 14).
For all of the reasons addressed in this opinion, we find the facts of this case
distinguishable from 84 Lumber and conclude that the Lease does not show a clear intent that
5
Every line of the form lease is numbered in the left column.
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Mr. Scott was contracting as an individual guarantor of NTS’s obligations. See id. Therefore,
we affirm the decision of the trial court.
Finally, because we have determined Mr. Scott is not personally liable as a guarantor,
Creekside’s request for attorney’s fees is respectfully denied.
I N C ONCLUSION
The judgment of the trial court is affirmed in all respects. Costs of appeal are assessed
against the appellant, Creekside Partners.
______________________________
FRANK G. CLEMENT, JR., JUDGE
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