MANGOLD v. KEIP

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Supreme Court, Appellate Term, New York,

Elva MANGOLD, Appellant, v. Dee A. KEIP et al., Respondents.

Decided: August 05, 1998

Before PARNESS, P.J., and FREEDMAN and DAVIS, JJ. Goldberg, Scudieri & Block, P.C., New York City (Jason Lawrence Rothman, of counsel), for appellant. Reid & Priest L.L.P., New York City (Lawrence S. Hirsh, of counsel), for Dee A. Keip, respondent. Cutler, Minikes & Fish L.L.P., New York City (Jonathan Z. Minikes, of counsel), for Fina Shubert and another, respondents.

Order dated April 3, 1997 (Marilyn Shafer, J.) affirmed, with $10 costs.

 In this plenary action by a landlord against the three individual guarantors of a closely held corporate tenant's lease, we affirm Civil Court's grant of summary judgment dismissing the complaint against the guarantors.   The lease renewal executed by landlord and tenant contained a condition not present in the original lease, permitting landlord to terminate the lease without qualification in the event a use violation is placed on the premises.   This material change which was made without the consent of he guarantors releases the guarantors from liability under the lease renewal (see, Matter of Union Indem. Ins. Co., 199 A.D.2d 209, 605 N.Y.S.2d 756;  801 South Fulton Avenue Corp. v. Radin, 138 A.D.2d 561, 526 N.Y.S.2d 143).  A creditor and a principal debtor may not materially alter the term of a contract for whose performance a surety is bound without obtaining the surety's consent (Central Federal Savings Loan v. Pergolis, 173 A.D.2d 587, 570 N.Y.S.2d 170).   Furthermore, landlord's acceptance of the tenant's option to renew the lease on less than the 90 days' notice required by paragraph 58 of the original lease constituted a release of the guarantors (Jones & Brindisi v. Breslaw, 250 N.Y. 147, 164 N.E. 887).

 The dissent argues that the guarantors must be deemed to have consented to the lease renewal because the individual guarantors were also principals of the closely held corporate tenant, citing Shire Realty Corp. v. Schorr, 55 A.D.2d 356, 390 N.Y.S.2d 622.   However, the Shire Realty case is clearly distinguishable because in that case the individuals used the corporation “as their alter ego” and therefore, “the corporation was not an entity distinct from its individual shareholders” (55 A.D.2d at 365, 390 N.Y.S.2d 622).   In the instant case, no alter ego liability was alleged or proved.   The dissent also misplaces reliance on the assumption that the additional lease term did not increase the risk to the guarantors.   In this State, “ ‘[a surety's] obligation is strictissimi juris, and he is discharged by any alteration of the contract, to which his guaranty applied, whether material or not, and the courts will not inquire whether it is or is not to his injury’ ” (Becker v. Faber, 280 N.Y. 146, 149, 19 N.E.2d 997).

I would reverse the order appealed from and grant plaintiff lessor's motion for summary judgment against the defendant guarantors.   The general rule is that where a tenant exercises an option to renew a lease, a guaranty of payment of rent continues into the extended term (Jones & Brindisi, Inc. v. Breslaw, 250 N.Y. 147, 164 N.E. 887).   Moreover, the terms of the guaranty in the corporate tenant's lease (paragraph 59) expressly refer to and contemplate defendants' obligation “during the second year”.   It is manifest that tenant, by its writing of March 7, 1995, exercised the option “for the extension of our lease for one year”, continued in possession, and paid the additional rent required under the lease extension for a period of five months before defaulting.   The tenant's late exercise of the option, which was accepted by plaintiff, does not serve to release defendants from liability as guarantors.   Tenant acknowledged that the lease had been renewed in its surrender letter oF october 16, 1995, in which its principals stated that “․ we are unable to fulfill our lease agreement with you” (emphasis added).

Nor does the “new term” added in the renewal, which permitted plaintiff to terminate the tenancy in the event a use violation was placed against the premises, exonerate the defendants.   Tenant's alleged unauthorized commercial use of the premises is a sham issue vis-a-vis the guarantors.   To the extent the renewal was at “variance” with paragraph 57 of the lease, it did not increase the risk to the defendants.   A guarantor is not discharged by an extension of the contract to which it consents (63 N.Y.Jur.2d, Guaranty and Suretyship, § 206).   Here, the individual guarantors were also the principals of the closely held corporate tenant, and the renewal must be deemed to have been entered into with their knowledge and consent (see Shire Realty Corp. v. Schorr, 55 A.D.2d 356, 364, 390 N.Y.S.2d 622).

Finally, summary judgment should be granted against each of the guarantors, including defendant Keip, who apparently relinquished her interest in the tenant prior to renewal of the lease.   Her liability as guarantor was not contingent upon her continuing as an officer of the tenant and her remedy, if any, lies in her cross-claims against the other guarantors.

PER CURIAM.