Park 100 Investors, Inc. v. Kartes

Brief Fact Summary. Park 100 (P) sought to collect arrears of rent, derived from a provision in the lease which was fraudulently induced from the Karteses (D).

Synopsis of Rule of Law. The guarantee cannot enforce a contract of guaranty, where by fraudulent misrepresentation or concealment on the part of the guarantee, the guarantor has been induced to enter into the contract.

Facts. In order to cater for their expanding business, the Kartes (D) entered into a lease agreement with Park 100 (P) after concluding the negotiations for the lease space in 1984. The lease agreement signed was devoid of any provisions for a persona guaranty of the lease and a personal guaranty was not even mention during the deal. Later on, a lease agreement containing a provision for personal guaranty, which was unknown to the Kartes (D), was signed by the Kartes (D) after it was presented to them by one of Park (P) 100 representatives.
The Kartes (D) lawyer was also aware of this situation because he was consulted by the Kartes (D) before they appended their signature to the agreement. On discovery of the personal guaranty, the Kartes (D) refused to honor the obligations arising from the guarantee and because of their refusal, Park 100 (P) sued the Kartes (D) in order to obtain the rentals under the personal guaranty.  The trial court ruled in favor of the Kartes (D) because it discovered that they had acted with ordinary care and diligence in signing the agreement and that Park 100 (P) had obtained the Kartes (D) signatures on the personal guaranty fraudulently. Park 100 (P) however appealed this judgment.

Issue. Can a guarantee enforce a contract of guaranty where the guarantor has been induced to enter into the contract by fraudulent misrepresentations or concealment on the part of the guarantee?

Held. (Barteau, J) No. A guarantee cannot enforce a contract of guaranty, where by fraudulent misrepresentation or concealment on the part of the guarantee, the guarantor has been induced to enter into the contract. Once a signature which was fraudulently induced has been appended on a contract, it cannot be enforceable on the party whose signature was fraudulently derived. The trial court is obligated to determine whether a fraudulent act has been perpetuated in a case and it does this by looking at the facts and circumstances surrounding the case. In this particular case therefore, the evidence and findings before the court confirms that the trial court did not err in its judgment. Affirmed

Discussion. The court found Park 100 (P) culpable of procuring the signature of the Kartes (D) fraudulently.  A material misrepresentation of past or existing fact by the party to be charged, which was false, was made with knowledge or in reckless ignorance of the falsity, was relied upon by the complaining party, and proximately caused the complaining party injury are elements of fraud. This judgment was not satisfactory to Park 100 (P) who claimed that the third element of reliance was not proven but the court asserts that the defendant had exercised ordinary care and diligence because they acted with reasonable prudence in consulting their attorney before appending their signature to the contract.