Think Twice Before Listing Guarantors by Name

Listing the name of the person or entity that guarantees a tenant’s lease performance in the text of the guaranty seems like a perfectly normal and sensible thing to do. But it can have unforeseen and unfavorable legal consequences. The problem is that adding, subtracting, and changing guarantors at the last possible minute is a common scenario in deal making. In the pressure of the moment, the need to change the guaranty text to list the new names is easy to overlook. And where that slip-up takes the form of forgetting to add the name of a new guarantor, you could end up getting burned when you seek to enforce the lease—even if that unnamed guarantor actually signed the guaranty document!

Landlord Gets Burned by the Unnamed Guarantor

An Ohio landlord is one of many to learn this lesson the hard way. Two gentlemen signed the guaranty for a retail tenant; one was named Paul Mobley and the other Stephen Huse. But the guaranty agreement listed only Huse’s name.

Sure enough, the tenant defaulted, and the landlord sued the tenant, Mobley, and Huse for $108,500 in damages. But since he wasn’t actually named in the agreement text the way Huse was, Mobley claimed that he wasn’t a guarantor. The court agreed and let Mobley off the hook.

Key legal point: Since the text of the agreement was clear, the court saw no need to resort to so-called “parol evidence”—that is, evidence of what the parties intended from outside the four corners of the written agreement, to interpret it [N.R.I. Company v. N.R. Dayton Mall, Inc., No. 13997, 1994 Ohio App. LEXIS 1409].

The Moral

The mere fact that a guarantor signs an agreement may not be enough to hold him, her, or it to the guaranty. In other words, when you name one guarantor, you better name them all. The easiest way to avoid setting yourself up for the kind of costly administrative errors that burned the Ohio landlord in the Dayton Mall case is simply to refer to all of the guarantors as the “undersigned.”