5D07-1094 Sheth v. C.C. Altamonte

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State: Florida

Court: Florida Fifth District Court

Docket No: 5D07-1094

Case Date: 02/18/2008

Preview:IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA FIFTH DISTRICT JANUARY TERM 2008

PURNIMA SHETH, Appellant, v. C.C. ALTAMONTE JOINT VENTURE, et al., Appellees. ________________________________/ Opinion filed February 22, 2008 Appeal from the Circuit Court for Seminole County, Debra S. Nelson, Judge. Purnima Sheth, B.D.S., Longwood, pro se. Robert W. Thielhelm, Jr., and Brian C. Blair of Baker & Hostetler LLP, Orlando, for Appellee. Case No. 5D07-1094

PLEUS, J. Dr. Purnima Sheth appeals a final judgment finding that she was liable to C.C. Altamonte Joint Venture ("AJV") under a guaranty agreement signed in 1994 as part of a lease. Dr. Sheth argues that under the unique facts of this case, her liability as

guarantor should have terminated as a matter of law. We agree and reverse. Dr. Sheth and her husband, Dr. Jiten Sheth, practiced dentistry together at Oracare Dental, P.A. ("Oracare"). In 1994, Oracare signed a lease with AJV for office space. Along with the lease, the Sheths signed a guaranty agreement, which provided:

For value received, and in consideration of the execution of a certain Lease . . . and for the purpose of inducing Landlord to enter into such Lease, the undersigned, jointly and severally, do hereby absolutely and unconditionally guarantee to Landlord, its successors and assigns, the full and prompt payment when due, of all rents, charges and additional sums coming due under said Lease, together with the performance of all damages that may arise or be incurred by Landlord in consequence of Tenant's failure to perform such covenants and agreements . . . and the undersigned further agree to pay all expenses, including attorneys' fees and legal expenses, paid or incurred by Landlord in endeavoring to collect or enforce the Liabilities or any part thereof and in enforcing this guaranty. .... Landlord may, from time to time, without notice to the undersigned: . . . (c) extend or renew for any period (whether or not longer than the original period), alter or exchange said Lease or any of the Liabilities, . . . . No such action or failure to act by Landlord shall affect the undersigned's liability hereunder in any manner whatsoever. . . . The undersigned hereby expressly waive: (a) notice of the acceptance of this Guaranty; (b) notice of the existence, creation, amount, modification, amendment, alteration or extension of the Lease or all or any of the Liabilities, whether or not such notice is required to be given to Tenant under the terms of the Lease . . . . (Emphasis added). In 1996, the Sheths separated and filed for dissolution of marriage. During the dissolution proceedings, a restraining order was issued, Dr. Sheth was ordered to relinquish all interest in the business, and she began her own practice, leaving her former husband to operate Oracare. Seven years later, in 2003, Oracare and AJV extended the lease for an additional ten years:

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[S]aid Lease Term is hereby extended for ten (10) years commencing April 1, 2004 . . . . Further, all terms, covenants and conditions applicable to the Lease Term will be equally applicable to the Extended Lease Term. Because Dr. Sheth was no longer affiliated with Oracare, her former husband asked that her name be removed from the lease. Dr. Sheth's name was removed from the lease, but AJV refused to remove her name from the guaranty agreement. Reflecting this, the extension provided: 6. Name Removal. Notwithstanding anything in the Lease to the contrary, Landlord and Tenant agree that the name "Purnima J. Sheth" shall be removed from the 12th line of Section 2.3, however the name Purnima J. Sheth D.D.S. shall not be removed from the Guaranty. In October 2004, Oracare stopped paying rent due to purported problems with the roof. AJV sued Oracare for eviction and damages attributable to its failure to pay rent. Count IV of AJV's complaint was against Dr. Sheth for her liability under the

guaranty agreement. In the dissolution proceedings, the court ordered that because her former husband had failed to have Dr. Sheth's name removed from the guaranty, he should indemnify Dr. Sheth for any damages resulting from the lease extension and this suit. After trial on the guarantee agreement, the trial court determined Dr. Sheth was liable as guarantor because she waived notice of modification, amendment, alteration, or extension of the lease; at no time did she personally ask that her name be removed from the guaranty agreement; her former husband signed the portion of the lease extension stating that her name was not to be removed from the guaranty agreement; AJV was not responsible for making sure that Dr. Sheth's name was removed; and,

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although the dissolution court held that Dr. Sheth's former husband was required to indemnify her for any damages resulting from this suit, that order had no bearing on Dr. Sheth's liability to AJV under the guaranty agreement. This appeal followed. Because the intention of the parties as evidenced by a contract is a question of law, this Court's standard of review is de novo. Southern Baptist Hosp. of Fla., Inc. v. Welker, 908 So. 2d 317, 319 (Fla. 2005); Berry v. Berry, 550 So. 2d 1125, 1126 (Fla. 3d DCA 1989). Under Florida law, a guaranty for a lease can be continuing, but it must expressly state that it is intended to cover future transactions for the guarantor to be liable for extensions and renewals. See Zero Food Storage, Inc. v. Udell, 163 So. 2d 303 (Fla. 3d DCA 1964). The law of Florida has recognized that a contract of guaranty may be continuing in nature. It is said to be continuing in nature if it contemplates a future course of dealing during an indefinite period, or if it is intended to cover a series of transactions or succession of credits, or if its purpose is to give to the principal-debtor a standing credit to be used by it from time to time. Thus, a continuing guaranty covers all transactions, including those arising in the future, which are within the description of contemplation of the agreement. Fidelity Nat. Bank of South Miami v. Melo, 366 So. 2d 1218, 1221 (Fla. 3d DCA 1979). The guaranty agreement endorsed by Dr. Sheth was a continuing guaranty. It states that Dr. Sheth and her former husband unconditionally guarantee the payment of all liabilities under the lease, that the lease can be extended or renewed at any time by the AJV, and that Dr. Sheth and her former husband expressly waive any notice of such alterations to the terms of the lease.

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However, this case presents an exception to the general rule of continuing guarantees because the composition of the obligor, Oracare, was fundamentally changed when the Sheths divorced and Dr. Sheth was ordered to leave the practice. [A]fter a guarantee is given, a change in the obligor from a sole proprietorship to a partnership releases the guarantor unless it appears that the parties to the contract of guarantee intended the contract to be without reference to the composition of the firm . . . . [R]elease is based on the theory that a change in the obligation by the substitution of new persons has the effect of making a contract on which the guarantor never intended to become liable. Powell Mfg. Co., Inc., v. Allbritton, 513 So. 2d 1348, 1349 (Fla. 1st DCA 1987) (emphasis added). Nothing in the instant guaranty agreement suggests that the liability would continue without regard to the composition of Oracare. In this case, AJV knew that Dr. Sheth signed the guaranty agreement because she was part of Oracare and needed to secure a lease for her business. AJV released Dr. Sheth from the lease because it understood that she had no further interest in Oracare, but sought to bind her as guaranty to a lease extension in which she had absolutely no interest. In so doing, AJV did expressly what the theory adopted in Powell Manufacturing was supposed to prevent - - it "ma[de] a contract on which the guarantor never intended to become liable." 513 So. 2d at 1349. Applying the exception in Powell Manufacturing requires consideration of several factors. First, the obligee's lack of knowledge of a change in the obligor's business is a factor for whether or not the guarantor should be released. Change in Name, Location, Composition, or Structure of Obligor Commercial Enterprise Subsequent to Execution of Guaranty or Surety Agreement as Affecting Liability of Guarantor or Surety to the Obligee, 69 A.L.R. 3d 567,

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