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Note: To secure its obligations under a commercial lease, Marco Polo Network, Inc. (Tenant) obtained a USD 469,920 letter of credit in favor 75 Broad, LLC (Landlord). After falling behind on rent payments, Tenant and Landlord executed a “First Lease Modification” whereby Landlord would draw down the remaining value under the letter of credit and “pre-pay rent due in upcoming months”. Additionally, Vinode Ramgopal (Guarantor) executed a personal guaranty in favor of Landlord to secure Tenant’s modified obligations. The guaranty was “unconditional” and “not subject to any set-off or defense based on any claim [guarantor] may have against Landlord”. Guarantor promised Landlord “payment and performance of Tenant’s obligations under and in accordance with the Lease, including, without limitation, the payment of fixed and additional rent” and Tenant and Guarantor also agreed to “deliver to Landlord, on or prior to May 1, 2012…a replacement Guarantee (‘Replacement Guarantee’) in the amount of [USD]391,600 less the amount of the Additional Security Deposit, if any…which shall serve as the Guarantee under the Lease.”

Facing continued difficulties, Tenant agreed to two further modifications of the lease. Ultimately, Tenant defaulted on the lease and no Replacement Guarantee was given to Landlord by Tenant or Guarantor. After receiving a notice of default from Landlord, Tenant vacated the property. Subsequently, Landlord sued Guarantor for breach of the guaranty when Guarantor failed to pay. Guarantor counterclaimed arguing that Landlord had overcharged Tenant on the lease. Both parties moved for partial summary judgment regarding the extent of Guarantor’s liability on the guaranty. The Supreme Court of New York, Hagler, J., granted partial summary judgment in favor of Landlord.

The Judge noted that New York courts have “consistently upheld” absolute or unconditional guarantees. Guarantor argued that its liability under the guaranty should be limited because Hurricane Sandy had “rendered the [leased] Premises unusable.” Alternatively, Guarantor argued that it should not be liable for any unpaid rent accruing after Landlord accepted Tenant’s surrender of the premises. The Judge disagreed, however, noting that essentially all of Guarantor’s defenses were “premised on rights belonging to [T]enant”. Given the unambiguous terms of the guaranty, Guarantor could not escape liability for rent payments by raising such defenses. Furthermore, the text of the guaranty clearly provided that the “obligation to pay the security deposit terminates only when the monies are paid by either the Tenant or the Guarantor.” Because neither party had tendered to Landlord a Replacement Guarantee, the Judge also found Guarantor in breach of that obligation.

The Judge noted that a damages trial would be held to determine the amount of unpaid rent owed by Guarantor; the amount, if any, of damages owed to Guarantor regarding its counterclaim; and reasonable attorneys’ fees and costs owed to Landlord as provided for in the guaranty.

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.