Opinion ID: 1238082
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Heading: landes' liability

Text: Landes contends that the lease terminated when, in the bankruptcy proceeding of Bagel Nosh, the lease was not assumed. He points out that under section 365(d)(4) of the United States Bankruptcy Code, a lease is deemed rejected if it is not assumed by the debtor-lessee or its trustee and the assumption is formally approved by the bankruptcy court. Landes concedes that the Bagel Nosh bankruptcy did not automatically discharge him from liability. See 11 U.S.C. § 524(e) ([D]ischarge of a debt of the debtor does not affect the liability of any other entity on ... such debt.); Underhill v. Royal, 769 F.2d 1426, 1432 (9th Cir.1985) ([D]ischarge of the principal debtor in bankruptcy will not discharge the liabilities of ... guarantors.); Union Carbide v. Newboles, 686 F.2d 593, 595 (7th Cir.1982) (a bankruptcy court has no power to discharge the liabilities of a bankruptcy guarantor). However, he argues that, while the bankruptcy did not automatically relieve him of all liability under the lease, Olympus Hills, as lessor, was relegated under section 24.02 of the lease to recovering only its costs of retaking possession and attorney fees incurred thereby. He asserts that in fact no such costs and fees were incurred. Olympus Hills counters that section 24.02 applies only to a termination of the lease by the lessor and that Landes' liability as a guarantor for the rental was unaffected by the lessee's bankruptcy. Section 24.02, entitled Right to Relet, provides that the owner-lessor may reenter the property and terminate the lease in the case of tenant default. The section also provides that the lessor may enter and relet the premises without termination and apply the rent received to offset the amount owed by the tenant: Should Owner elect to re-enter ... it may either terminate this lease or ... without terminating this lease ... relet said premises. If the owner does decide to terminate, it would be entitled only to costs of recovering possession and attorney fees: Should Owner at any time terminate this lease for any breach ... it may recover from Tenant ... the cost of recovering the leased premises (and) reasonable attorneys' fees. Section 24.02 clearly does not apply when the lessee files bankruptcy and the lease is not assumed because there is no termination by the Owner. Therefore, Landes' liability remained unaffected by the bankruptcy.
Landes contends that the service of the statutory three-day notice on Bagel Nosh on July 10, 1984, constituted a written notification of Olympus Hill's termination of the amended lease and the cessation of the lessee's obligation to make future rental payments. We disagree. Service of the statutory notice and the tenant's noncompliance are prerequisites to the tenant's being in unlawful detainer. Utah Code Ann. § 78-36-3 (1987) provides in part: A tenant of real property, for a term less than life, is guilty of an unlawful detainer: ... (3) when he continues in possession, ... after default in the payment of any rent and after a notice in writing requiring in the alternative the payment of the rent or the surrender of the detained premises, has remained uncomplied with for a period of three days after service... . Thus, service of the notice forces the tenant to either bring the rent current or surrender possession of the premises. Noncompliance by the tenant terminates its right to continued possession; it does not, however, automatically terminate all contractual rights between the lessor and the lessee which arise out of the underlying lease. We held in Dang v. Cox Corp., 655 P.2d 658 (Utah 1982), that a notice served on the tenant giving him the option to pay the rent current or surrender possession of the premises within three days did not constitute an election on the part of the lessor to forfeit or terminate the lease. There we stated, It would be anomalous to find that a notice which gives the option of performance also serves as a notice of forfeiture, which by definition does not give that option. Id. at 662. See also Lincoln Financial Corp. v. Ferrier, 567 P.2d 1102 (Utah 1977) (example of a proper notice of termination giving no options to the tenant). In the instant case, Olympus Hills did not at any time elect to terminate the lease. Instead, it continued to recognize the lease and to hold Landes liable as a guarantor of the rents until such time as it could obtain a replacement tenant for the premises. The judgments which it obtained in early 1985 for past due amounts of rent expressly recited that the on-going liability of the lessee was not affected by entry of the judgments. Indeed, Bagel Nosh and/or the guarantors paid rent until May 1985, ten months after service of the July 1984 notice on them. Additionally, Utah Code Ann. § 78-36-10 recognizes that the contractual obligations of a lease survive the service of a statutory notice by providing that in an action brought for unlawful detainer: A judgment entered in favor of the plaintiff shall include an order for the restitution of the premises. If the proceeding is for unlawful detainer after neglect or failure to perform any condition or covenant of the lease or agreement under which the property is held, or after default in the payment of rent, the judgment shall also declare the forfeiture of the lease or agreement. It is the judgment which decrees the forfeiture of the lease and not the service of the statutory notice, as Landes contends.
Landes next contends that his failure to execute the Guarantee of Lease Agreement (Guarantee), a document separate from the Amended Lease, prevented any obligation as guarantor from arising, because signing the Guarantee was a condition precedent to his liability. The trial court held, Defendants Landes and Seftel guaranteed the Tenant's performance of the terms and conditions of the lease, thus, implicitly concluding that execution of the Guarantee was not a condition precedent to Landes' liability. The Amended Lease which Landes signed provides: To cure its default under the Lease Agreement, Tenant must, (1) pay to Owner the sum of $7500 cash, (2) execute this First Amended Lease Agreement, (3) cause to be signed by SEFTEL and LANDES the Guarantee of Lease Agreement attached hereto as Exhibit C, (4) sign and deliver to Owner a promissory note in form acceptable to Owner in the principal sum of $11,000, which $11,000 sum shall be payable according to the terms of this First Amended Lease Agreement set forth in Article I hereof, which note shall be secured by such collateral and personally guaranteed by the persons as Owner requires. (Emphasis added.) Signing of the Guarantee was required by Seftel and Landes to cure the default of Bagel Nosh. However, the benefit of such performance was for Olympus Hills, and it had the right to demand performance of the condition or waive that performance if it so desired. Ahrent v. Bobbitt, 119 Utah 465, 229 P.2d 296 (1951). In Bobbitt, we also observed that generally, where a duty rests upon a promissor with respect to an obligation, he cannot escape liability by failing or refusing to perform part of what he has promised to do. 119 Utah at 468, 229 P.2d at 297. In the instant case, if Landes did not sign the Guarantee, both parties waived noncompliance. Because the default of Bagel Nosh was cured, it continued in possession and rent was paid by it or the guarantors for nearly four more years. In the Amended Lease, paragraph 8 states: 8. Guarantee of Lease: Section 29.19 is hereby added to the Lease Agreement, which section shall provide: SECTION 29.19  Guarantee of Lease SEFTEL and LANDES hereby personally guarantee the terms of this Amended Lease Agreement, the terms of which guarantee are set forth in Exhibit C, which exhibit is attached hereto and made a part hereof by this reference. Section 29.19 clearly imposes the guarantee and refers to Exhibit `C,' the Guarantee Agreement only for the terms of the guarantee. Landes does not contend that the terms contained in the Guarantee diminish or affect the liability he assumed when he executed the Amended Lease.
Landes assails a partial summary judgment granted in favor of Olympus Hills which barred him from asserting two defenses to his alleged liability. The bar was premised on res judicata and collateral estoppel, arising from the judgments entered against Landes in early 1985, which judgments he did not oppose, did not appeal, and later satisfied. The two defenses were (1) that the lease had been terminated by the service of the statutory three-day notice in July 1984, and (2) that Landes had no liability because he did not sign the separate Guarantee. We have already addressed the merits of those two defenses in this opinion and ruled against Landes. Therefore, no error in the partial summary judgment which barred the defense could possibly have prejudiced Landes.