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LESLIE FAY, INC. v. RICH

October 18, 1979

LESLIE FAY, INC., CARLYE DRESS CORPORATION, CARLYE JUNIOR SPORTSWEAR, INC. and CARLYE MANUFACTURING CORPORATION, Plaintiffs, against MELVIN RICH and ARTHUR FEINBERG, Defendants.


The opinion of the court was delivered by: SOFAER

Plaintiffs in this diversity action sued defendants as guarantors of an assignment and fixture lease. The amended complaint alleges two claims. The first seeks $ 14,954.46 as the unpaid rent on a real property lease. The second seeks $ 19,768.41 as the unpaid rent on a fixture lease. Defendants do not dispute plaintiffs' allegations of non-payment, but contest their liability on various grounds. Plaintiffs have moved for summary judgment. The motion is granted to the extent specified in this opinion, and the case is hereby referred to a magistrate to prepare a report and recommendation as to damages.

The facts are largely undisputed, although defendants ritualistically disclaim knowledge of many of them. In April 1968, plaintiff Carlye Dress Corp. ("Carlye"), a subsidiary of plaintiff Leslie Fay, Inc., entered into a five-year lease with Durymo Corp. as lessor for certain commercial property located at 1520 Washington Avenue, St. Louis, Missouri. The lease was extended for an additional five years, to run from December 1, 1973 to November 30, 1978, at a monthly rental of $ 2,775.00. Carlye and other subsidiaries of plaintiff Leslie Fay operated an apparel manufacturing business on the premises. By 1975 that business was losing money. Defendant Melvin Rich was at the time president of Leslie Fay's subsidiaries.

 Some time prior to May 1975, Leslie Fay and Melvin Rich began negotiating for the purchase by Rich and the defendant Arthur Feinberg of Carlye and the other Leslie Fay subsidiaries. Rich and Feinberg formed A & M Manufacturers, Inc. ("A & M"), a Missouri corporation, to act as their purchasing entity. On May 19, 1975, Carlye Dress, acting as "Seller", entered into a "Purchase, Assignment and Assumption Agreement" with A & M as "Buyer." In general, the agreement was designed to enable Rich and Feinberg, through A & M, to take over ownership and control of Carlye and the other subsidiaries for a minimal, up-front cash payment, while enabling Leslie Fay to avoid further losses from its Carlye operations. Its provisions included:

 
1. the sale by Carlye and its subsidiaries to A & M of most of Carlye's existing assets, including the Carlye trademark (Pltfs' Exh. E, PP 1 & 4);
 
2. a promise by Carlye that it would lease to A & M all its furniture and fixtures at 1520 Washington Ave., St. Louis, and at 530 Seventh Avenue, New York City, for three years at an aggregate amount of $ 77,000, on certain terms described below (Pltfs' Exh. E, P 2); and
 
3. an assignment by Carlye to A & M of its interest in certain leaseholds, including the premises at 1520 Washington Ave., St. Louis, and an assumption by A & M of all Carlye's obligations under the leases (Pltfs' Exh. E, P 3). *fn1"
 
The Buyer, A & M, and the Guarantors, Rich and Feinberg, warranted that the "Agreement and any other instruments delivered to Seller under this Agreement constitute legal, valid and binding obligations of Buyer and Guarantor enforceable in accordance with their respective terms." (Pltfs' Exh. E, P 5(c)). Furthermore, the parties provided that the agreement represented their "entire" understanding, *fn2" and that any modification of its terms could be effected "only by written instrument. . . ." *fn3" Finally, in a "Guaranty" appended to the agreement, Leslie Fay agreed, as "an inducement to Buyer and Guarantors to enter into" the arrangement, "to indemnify and hold Buyer and Guarantors harmless from any and all liabilities and claims that they may incur from creditors of Seller and the Subsidiaries for obligations incurred by Seller and the Subsidiaries, other than those being assumed pursuant to the terms of the foregoing Agreement" (Pltfs' Exh. E, p. 10).
 
Simultaneously with the May 19, 1975 agreement, Carlye fulfilled its promise to lease its furniture and fixtures to A & M. In general, the terms of the three-year fixture lease, summarized in the overall agreement, were that A & M would pay $ 77,000 in six semi-annual installments of $ 12,833.33 each; that lessor (Carlye) made no warranties other than full ownership; that lessee (A & M) agreed to pay all taxes, fees and expenses relating to the leased property, including repairs, and would assume all risk of loss; and that lessee had the option to take title to the leased property, after all six installments were paid, for an additional payment of $ 1 (Pltfs' Exh. F). The lease could be terminated unilaterally by lessee "as of the due date of any rental installment by giving to Lessors written notice of its intention to so terminate not later than 30 days prior to such due date." (Pltfs' Exh. F, P 15). Finally, defendants personally guaranteed the payments due, *fn4" and the parties agreed that any modification of the lease would be ineffective unless in writing and signed. *fn5"
 
Defendants operated the Carlye apparel business for about two years, during which they changed the name A & M Manufacturing to Camco Manufacturers, Inc. ("Camco"). They failed to turn the business around. On June 16, 1977, Camco assigned its assets by deed of trust for the benefit of its creditors. The trustee, Lawrence Sanders, Esq., remained in possession of Camco's properties until September 6, 1977, when an involuntary petition in bankruptcy was filed against Camco. On December 2, 1977, Camco was adjudicated a bankrupt in the United States District Court for the Eastern District of Missouri. *fn6" Payments made by the trustee and by substitute tenants after bankruptcy failed to cover the rent due Durymo on the lease assigned to A & M and later assumed by Camco. Leslie Fay was therefore required to pay a total of $ 20,104.02 to Durymo on the lease, of which it recovered only $ 5,149.56 from the bankruptcy court, leaving its claim against the guarantors of $ 14,954.46. Furthermore, only three of the six projected payments under the fixture lease were made by Camco, leaving a debt to Carlye (and Leslie Fay) of $ 36,522.81. Had plaintiffs recorded their security interest in the leased fixtures, much, if not all, of this debt would have been recovered from the bankruptcy court. As unsecured creditors, however, Leslie Fay was awarded only $ 16,750.40, resulting in its claim against the guarantors of $ 19,768.41, plus its related costs and expenses, including a reasonable attorney's fee.
 
I. The Claim for Rental Payments
 
Defendants claim they owe nothing as guarantors of the rent due to Durymo because the agreement included a "Guaranty" by Leslie Fay that defendants would be held harmless. They assert that plaintiffs' claim for relief "is in direct conflict on its face with the language of the indemnity by Leslie Fay. . . ." The defendant Rich asserts in his affidavit that the purpose of the indemnity was to limit the risk of A & M and the guarantors to the cash payments A & M made to Leslie Fay, and to provide a "safety valve" whereby they could limit their losses at their option if the business could not be resuscitated. Defendants argue that these allegations of Rich raise a genuine issue of material fact requiring discovery on the meaning and intent of the "cross-guarantees."
 
Defendants' arguments concerning Leslie Fay's guaranty are frivolous. The guaranty by its terms applies only to "liabilities or claims that they (defendants) may incur from creditors of Seller and the Subsidiaries for obligations incurred by Seller and the Subsidiaries. . . ." (Pltfs' Exh. E, p. 10). This language, even taken alone, strongly suggests that Leslie Fay was assuring defendants that they would not be held accountable for obligations of Carlye and the subsidiaries that were unknown to defendants, or that might thereafter somehow be incurred. Any doubt about the meaning of this language is authoritatively resolved by the guaranty's express exclusion from its coverage of any claim or obligation of Seller "being assumed pursuant to the terms of the foregoing Agreement." (Pltfs' Exh. E, p. 10). The Seller's obligation to pay rent to Durymo was uncontestably assumed by A & M in paragraph 3(a) of "the foregoing Agreement," and defendants are therefore liable as guarantors of that obligation. Defendants' argument that Leslie Fay's guaranty saves them from liability on the fixture lease fails for the same reasons. Although defendants correctly argue that the guaranty should be deemed applicable to the fixture lease, *fn7" the "foregoing" Agreement clearly imposes upon A & M, and therefore upon guarantors, the obligation to pay $ 77,000 for the fixtures, in six semi-annual installments.
 
Defendants properly point out that disputes over the interpretation of contractual language may sometimes make a claim inappropriate for summary judgment disposition. But the cases they cite proscribe summary judgment only where the "contractual language is susceptible of at least two fairly reasonable interpretations," and therefore "presents a triable issue of fact." Heyman v. Commerce and Industry Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975). Unlike the present case, Heyman involved ambiguous contractual language. *fn8" This case, by contrast, requires application of the basic contract rule that, where the language of a guaranty is unambiguous, no need exists to resort to other means of interpretation, and effect must be given to the parties' intent as indicated by the language itself. E. g., Western Union Tel. Co. v. American Communications Assoc., 299 N.Y. 177, 86 N.E.2d 162 (1949). The meaning to be given such an instrument is an issue of law, for the court's determination. Salzman v. Bowyer Productions, Inc., 42 A.D.2d 531, 344 N.Y.S.2d 755 (1st Dept. 1973).
 
Defendants seek to avoid these basic rules by claiming that the parties' true intent in the Leslie Fay guaranty was to assure defendants they could cut their losses at any time by simply shifting the obligation to pay rent back to the Seller. Arguments based on intent are understandably fashionable in opposition to summary judgment motions, given the principle that genuine issues of intent must usually be resolved after trial. Friedman v. Meyers, 482 F.2d 435, 439 (2d Cir. 1973). But this principle is inapposite where, as here, "the intention of the parties may be gathered from the four corners of the instrument"; in such situations, "interpretation of the contract is a question of law, and parol evidence is not ...

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