Court Opinion

ID: 1059669
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:38:52.388293+00
Date Added: 2024-06-11T12:37:21.353928
License: Public Domain

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.

                                3
        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

                                5
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.

                                  6
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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