Tennessee Supreme Court Once Again Addresses Personal Responsibility/Guaranty for Commercial Leases

The Tennessee Supreme Court has one again addressed a key issue that comes up often in commercial leases.  The question in this case, decided September 2, 2016, was whether an individual who signed the lease (in a peculiar way) was personally responsible for the terms of the commercial lease.  This case is MLG Enterprises, LLC v. Richard L. Johnson, 2016 WL 4582174 (Tenn. 2016).  In this case, the individual Defendant, Richard Johnson, signed a lease on behalf of the tenant as well as individually.  The key issue in this case was where Mr. Johnson signed the lease individually in such a way that made him personally obligated as a guarantor for the lease terms.  The Tennessee Supreme Court identified the key signature line as follows:

The third signature space, located on the right side of the Lease and below the second signature space, provides a signature line beneath which appears the typed text “Richard L. Johnson.” On this line is the handwritten signature “Richard L. Johnson” followed by the handwritten words “for Mobile Master Mfg. LLC.” To the left of this signature appears the typed text “EXECUTED BY Richard L. Johnson, THIS ___ DAY OF OCTOBER, 2007.”

As you can see, Mr. Johnson signed the lease individually but then added the words “for Mobile Master Mfg. LLC”.  The implication was that he was not signing on his own behalf but instead he was signing for the entity.  The Tennessee Supreme Court found that this modification of the signature was ineffective because it was contrary to the clear language in the lease.

The Court found that Mr. Johnson was liable under the lease because of the clear intent of the lease to hold him personally liable.  That is due to the fact that the preceding paragraph prior to the signatures contained the following personal guaranty language:

37. PERSONAL LIABILITY:

In consideration of Landlord entering into this Lease with Tenant, Richard L. Johnson hereby agrees that he shall be personally liable for all of Tenant's obligations under this Lease and executes this Lease for this purpose.

The Tennessee Supreme Court found that “it is clear that the Lease contemplated signatures by both Tenant and Johnson. Indeed, Johnson signed the Lease twice, as contemplated: first in his representative capacity on behalf of Tenant and then in his individual capacity as the guarantor of Tenant's obligations. As indicated above, Johnson's second signature was not preceded by Tenant's name, and Johnson's handwritten notation “for Mobile Master Mfg. LLC” was not effective to eradicate or contravene the plain and clear intent of numbered paragraph 37. We reiterate: ‘[A]n individual who signs a contract is presumed to have read the contract and is bound by its contents.’” MFG Enterprises, LLC at pg. 7.  The fact there was a clear statement in the contract of a personal guaranty obligation is probably the key determining factor in this case.  Also, simply adding words after your signature likely will not nullify your obligations under the contract.

As a result, the Tennessee Supreme Court made it clear that if you sign a contract, you are responsible for what is in that contract even if you do not read or understand the contract.  Further, the attempted modification by Mr. Johnson to limit his own personal liability was not sufficient to modify the clear terms in the contract which provided that he was personally liable for the lease.  As a result, when you sign a lease, make sure that all terms are clearly understood and reviewed in detail.  It is best to have an attorney to assist you in reviewing these types of contracts.  Further, if there is a signature line for an individual personally, be aware!  This may mean that you will be held personally liable for the lease when there is personal guaranty language in the contract.