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Analysis: The recent
Tennessee Court of Appeals decision of Reginald M. Mudd
v. Rexford Goostree, Jr. and Liberty Cabinets and Millwork, Inc., 2013 WL 1402157
(Tenn. Ct. App. 2013)
provided a good example of the great danger in signing a lease agreement in an
individual’s own name when it is intended to be signed on behalf of a
company. In this case, the lease
agreement listed the landlord as “Mudd Properties”. Mudd at 1. The tenant was listed as “Liberty Cabinets
& Millworks, Inc.” Mudd at 1. However, in the
signature box at the end of the lease Rexford Goostree Jr., the owner of
Liberty Cabinet & Millworks, Inc., signed the lease as follows:
TENANT:
REX GOOSTREE, JR.
By Rex Goostree, Jr.
(bold portions were handwritten) Mudd at 1. He did not state that he was signing on behalf
of the company as a representative. The
lease terms were breached by the Tenant and therefore the plaintiff sued Rex
Goostree Jr. personally for breach of contract. Mudd at 1. Rex Goostree Jr. asserted in response that he
should not be held personally liable under the commercial lease because “Liberty
Cabinets & Millworks, Inc.” was named as the tenant in the body of the
lease agreement. Further, there was no
language in the agreement that identified Rex Goostree Jr. as a guarantor of
the lease.
The Tennessee Court of Appeals also found
that because Rex Goostree Jr. was handwritten as the “Tenant” and then the
lease was signed by “Rex Goostree, Jr.”, this was a clear designation that Rex
Goostree Jr. was a tenant. As a result,
the court noted that “only if a contract is ambiguous does a court look beyond
the four corners of the document and consider evidence of the parties'
intentions.” Mudd at 2. Therefore, Rex Goostree Jr. was personally obligated
under the terms of the lease. Mudd at 3.
I am actually somewhat surprised by this
decision. It is certainly arguable that
there is an actual obvious ambiguity in the contract because it lists “Liberty
Cabinets & Millworks, Inc.” as the Tenant at the beginning and then later
lists an individual as the Tenant.
Nobody signed the document on behalf of the company. This is a pretty significant ambiguity which
I think should allow the Court to look beyond the “four corners” of the
lease.
Regardless, this case shows how important
it is to properly sign lease agreements and other contracts. Even if a “Tenant” or “Party” to a contract is
specifically listed in the body of the contract as a corporation or other
business, if an individual signs on the dotted line personally, that individual
can be held personally responsible for the contract. This is a significant mistake that can result
in tremendous personal liability when none is intended.
Follow me on Twitter at @jasonalee for updates from the Tennessee Defense Litigation
blog.
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