Case Title: River Road Shopping Center v. Scott

Citation: 

Docket Number: 

State: virginia

Court: Virginia Supreme Court

Date: 2000-01-14T00:00:00Z

Document:
Present:  All the Justices 
 
RIVER ROAD SHOPPING CENTER, INC. 
 
v.  Record No. 990225     OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
January 14, 2000 
GEORGE ROSS SCOTT, INDIVIDUALLY 
AND TRADING AS OUTDOOR TRADERS 
OF VIRGINIA, INC., ET AL. 
 
FROM THE CIRCUIT COURT OF HENRICO COUNTY 
Joseph F. Spinella, Judge Designate 
 
 
River Road Shopping Center, Inc. (RRSC) appeals a 
judgment holding that it was not entitled to recover damages 
from sureties on a lease because it did not mitigate its 
damages.  Finding that the lease terms bound the sureties and 
allowed the damages sought by RRSC, we will reverse the 
judgment of the trial court. 
RRSC owns and operates a retail shopping center in 
Richmond.  On January 21, 1988, RRSC executed a ten-year lease 
with Outdoor Traders of Virginia, Inc. (Outdoor Traders) for 
retail space in the center.  George and Nancy Scott were the 
sole officers, directors, and shareholders of Outdoor Traders.  
The Scotts individually joined in the lease as sureties.1
 
In June 1990, the Scotts decided to terminate their 
retail business in the leased premises and contacted RRSC for 
assistance in finding a sub-tenant for the space.  In December 
                                                          
 
1 The lease refers to "Guaranty" and the motion for 
judgment stated that the Scotts "guaranteed" the obligation of 
1990, Outdoor Traders assigned the lease to Lavelle-Martin, 
Inc.  In the assignment of the lease, the Scotts reaffirmed 
their responsibility as "Guarantors of Assignor."  RRSC 
consented to the assignment on the condition that the Scotts 
as "Guarantors" under the lease "remain fully liable as if 
this Assignment of Lease had never been executed, throughout 
the initial term thereof."  
Lauralee Lavelle-Martin and Kissel Martin, husband and 
wife, owned Lavelle-Martin, Inc. and began operating a 
children's clothing store in the leased space.  Lavelle-
Martin, Inc. was delinquent in rent payments in 1994 and early 
1995.  Delinquency notices were sent to Lavelle-Martin, Inc.  
The Scotts were also notified of the delinquencies.  In June 
1995, Mr. Martin caused a sheriff's levy to be conducted on 
the leased premises to recover a money judgment he had 
obtained against the corporation.  Lavelle-Martin, Inc. ceased 
business operations and stopped making rent payments.  RRSC 
did not notify the Scotts of Lavelle-Martin, Inc.'s default. 
Mr. Martin offered to re-lease the premises from RRSC 
under the same terms as those contained in Lavelle-Martin, 
Inc.'s defaulted lease, but RRSC rejected this offer.  RRSC 
executed a new lease with Jack Kreuter Jewelers, Inc.  
                                                                                                                                                                                     
Outdoor Traders.  However, at trial the Scotts asserted and 
RRSC agreed that the Scotts were sureties, not guarantors. 
 
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Although based on the prevailing commercial real estate rental 
rates, the lease payments under the new lease were lower than 
the payments under the defaulted lease. 
Based on Article XII of the defaulted lease, RRSC filed a 
motion for judgment against the Scotts to recover 
approximately $64,000, which represented the difference 
between the rent due under the defaulted lease and the rent 
received under the Kreuter lease.  RRSC also sought reasonable 
attorneys' fees and interest.  In their grounds of defense, 
the Scotts admitted that they were sureties on the defaulted 
lease, but denied any liability to RRSC.  The Scotts 
affirmatively alleged that RRSC's actions in failing to inform 
them of the default by Lavelle-Martin, Inc. and in refusing 
Mr. Martin's offer to re-lease the premises were so injurious 
to the Scotts that such actions released the Scotts from their 
surety obligations on the lease. 
Following an ore tenus hearing, the trial court granted 
the Scotts' motion to strike RRSC's evidence and entered 
judgment in favor of the Scotts.  The trial court found that 
by refusing Mr. Martin's offer to re-lease the premises at the 
same rental rate as that contained in the defaulted lease, 
RRSC failed to mitigate its damages.  We awarded RRSC this 
appeal. 
 
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RRSC asserts that upon the tenant's default, Article XII 
of the defaulted lease authorizes the landlord to re-let the 
premises "under such terms and conditions as Landlord shall 
deem reasonable to any tenant or tenants which it may deem 
appropriate."  This provision authorized RRSC to execute a new 
lease when Lavelle-Martin, Inc. defaulted on the prior lease 
and the new lease could contain any terms deemed reasonable by 
RRSC.  Therefore, RRSC argues it had no duty to mitigate 
damages and the trial court erred in imposing such a 
requirement. 
The Scotts do not disagree with RRSC's interpretation of 
Article XII but contend that Article XII is not part of their 
surety agreement.  Rather, the Scotts assert that the sole 
terms of their surety agreement with RRSC are contained in 
Article XXIV and that in that article the Scotts only agreed 
to guarantee the "affirmative obligations of the Tenant," 
which, according to the Scotts, limits their obligation to 
promptly paying the agreed upon rent.  Other than this express 
obligation, the Scotts assert that no other conditions 
contained in the lease applied to them.  The terms of their 
surety agreement with RRSC are governed by principles of 
surety law, according to the Scotts, and under those 
principles, a surety is discharged "by any change in the 
obligation underlying the bond."  Board of Supervisors of 
 
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Fairfax County v. Southern Cross Coal Corp., 238 Va. 91, 94, 
380 S.E.2d 636, 638 (1989).  The Scotts conclude that because 
RRSC took steps to change the obligation underlying the 
agreement with the Scotts by refusing to accept Mr. Martin's 
offer, they are released from their surety obligation. 
The dispositive issue for our determination is whether 
Article XXIV, the "Guaranty" provision, makes Article XII 
applicable to the Scotts.  Article XXIV provides: 
The [Scotts] join in this lease, as an 
inducement to Landlord to lease the demised 
premises to Tenant, for the purpose of jointly 
and severally guaranteeing to Landlord the 
punctual payment of all rent due hereunder and 
the due performance of all the other terms, 
covenants and conditions contained in this 
lease on the part of Tenant to be paid and/or 
performed thereunder, including but not limited 
to all damages, expenses and attorneys' fees 
that may be suffered or incurred by Landlord as 
a result of the nonpayment of rent or 
nonperformance of any other terms, covenants 
and conditions. 
 
This article does more than obligate the Scotts to assure the 
prompt payment of the rent.  The article also provides that 
the Scotts guarantee payment of "all damages . . . suffered or 
incurred . . . as a result of the nonpayment of rent or 
nonperformance of any other terms."  Thus, if the landlord 
incurs damages because of the tenant's nonperformance, the 
Scotts are liable for those damages.  The Scotts' liability is 
limited, however, to damages that, under the terms of the 
 
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lease, can be recovered from the tenant for non-payment of 
rent. 
Article XII prescribes a measure of damages recoverable 
by RRSC for nonpayment of rent.  The article allows the 
landlord to re-let the premises upon the tenant's default at 
"such rental and upon such terms and conditions as Landlord 
shall deem reasonable," and authorizes the Landlord to recover 
from the tenant in the event of default, "all rentals . . . 
required to be paid by Tenant under this lease, less the rent, 
if any, collected by Landlord on reletting the demised 
premises."  Therefore, the landlord can recover as damages any 
unpaid rental amounts less amounts received for re-leasing the 
premises on terms considered reasonable by RRSC.2
We conclude that the surety agreement between the Scotts 
and RRSC imposed liability on the Scotts for damages sustained 
by RRSC upon the default of Lavelle-Martin, Inc. in accordance 
with the terms of the lease.  The damages sought by RRSC were 
consistent with the damages allowed under the lease for non-
payment of the rent.  Therefore, the trial court erred in 
striking RRSC's evidence because RRSC failed to mitigate its 
damages.  We will enter judgment here in favor of RRSC in the 
                                                          
 
2 The Scotts do not argue that RRSC's action in re-letting 
the premises was unreasonable under the terms of the lease; 
rather they only argue that this provision does not apply to 
them as sureties. 
 
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amount of $56,738.36, and remand the case to the trial court 
for further proceedings regarding attorneys' fees and costs.  
Reversed and remanded. 
 
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