Park 100 Investors, Inc. v. Kartes

Brief Fact Summary. Plaintiff, Park 100 Investors, Inc., entered into an agreement to lease facilities to Defendant Kartes. Defendant signed a personal guaranty of the lease after being told by Plaintiff that it was the lease agreement. After Defendant failed to make rent payments under the agreement, Plaintiff initiated this cause of action to hold Defendant personally liable for the unpaid rent.

Synopsis of Rule of Law. Fraud is an exception to the general rule that a party is held to their signature. Where the party’s signature is procured through fraud, the defrauded party is not held to the agreement.

Facts. Defendant entered in to an agreement to lease facilities from Plaintiff. Defendant provided a lease form to Plaintiff. The lease form did not include a personal guaranty of the lease. Additionally a personal guaranty was never discussed during the lease agreement negotiations. On the evening before Defendant was to move into the facility, Plaintiff presented Defendant with “lease papers” that needed to be signed that evening. Defendant called his attorney to confirm that the lease agreement had been approved before signing the “lease papers.” Plaintiff overheard Defendant’s call to the attorney and remained silent. Defendant signed the “lease papers” entitled “Lease Agreement.” Plaintiff never informed Defendant that the “Lease Agreement” was actually a personal guaranty of the lease.
Defendant did not discover that the personal guaranty existed until years later. At the time of the discovery, Defendant disavowed the guaranty. Defendant’s interest in the company renting the facility was eventually transferred. The new owner’s of Defendant’s interest in the company failed to make rent payments and Plaintiff initiated this cause of action to hold Defendant personally liable for the unpaid rent.

Issue. Is the personal guaranty enforceable?

Held. No. The personal guaranty is not enforceable because Defendant’s signature on the guaranty was induced by fraud.
In the present case, the Court finds that Plaintiff induced Defendant to sign the guaranty through fraud. A personal guaranty was not discussed during the lease negotiations and the lease agreement did not make any reference to the guaranty. The guaranty document was entitled “Lease Agreement” and Plaintiff did not reveal to Defendant the true nature of the document.
In addition, the Court notes that Defendant did call an attorney to confirm that the lease agreement had been approved. Plaintiff overheard this conversation, but said nothing to allow Defendant to continue to believe that it was the lease agreement that was being signed.
The Court does not find the trial court’s conclusion that the guaranty is unenforceable because Plaintiff obtained Defendant’s signature through misrepresentation clearly erroneous. Therefore, the trial court’s judgment is affirmed.

Discussion. In the present case, Defendant’s signature on the guaranty was obtained by fraud and misrepresentation. While the general rule is that a person is bound by their signature, where the signature is procured by fraud, the defrauded party will not be bound.