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PC Riverview, LLC v. Cao

Supreme Court of Utah

August 23, 2017

PC Riverview, LLC, Respondent,
v.
Xiao-Yan Cao, Petitioner.

         On Certiorari to the Utah Court of Appeals Third District, Salt Lake The Honorable Katie Bernards-Goodman No. 149902947

          Carl E. Kingston, Salt Lake City, for respondent.

          Russell T. Monahan, Salt Lake City, for petitioner.

          JUSTICE PEARCE authored the opinion of the Court, in which CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE, JUSTICE DURHAM, and JUSTICE HIMONAS joined.

          OPINION

          PEARCE, JUSTICE

         INTRODUCTION

         ¶1 In 2003, L C Unlimited Corporation (L C) was assigned the lease that permitted the Golden Isle Restaurant to operate in a strip mall in Murray, Utah. Xiao-Yan Cao, L C's president, personally guaranteed L C's performance. In 2006, the lease was again assigned, this time to Hong G. Lin. As part of that assignment, the lease term was extended until September 30, 2013, and both Cao and Lin inked personal guaranties. In 2010, Lin fell behind making rent payments. Lin and PC Riverview, the property's landlord, agreed to a repayment schedule to permit Lin to catch up, which he did. In 2013, Lin defaulted on rent payments shortly before vacating the premises. PC Riverview sued both Lin and Cao for $5, 003.50, a sum that represented the last month's rent and a small balance from the penultimate month.[1] Cao resisted paying that amount, arguing that the 2010 repayment schedule materially modified the contract and discharged her guaranty. The district court agreed and ruled in Cao's favor.

         ¶2 The Utah Court of Appeals reversed the district court's order. Relying on the Restatement (Third) of Suretyship and Guaranty, the court of appeals reasoned that merely extending the period within which a tenant could pay its rent did not materially modify the contract. It concluded that Cao was therefore still on the hook for Lin's past-due rent.

         ¶3 Cao seeks our review of the court of appeals' decision. We conclude that the court of appeals correctly determined that the 2010 repayment agreement did not materially modify the contract and that Cao is not relieved of her responsibilities as guarantor. We affirm the court of appeals' decision.

         BACKGROUND

         ¶4 In 1993, the restaurant at the heart of this matter operated as Royal China Restaurant. Over the next decade, Royal China changed its name, its landlord, and its owner-the latter a number of times.

         ¶5 The first change took place in 1997, when the lease was assigned to new tenants. The assignment included a provision imposing late fees and interest if rent was not paid on time. The restaurant's name also changed to Golden Isle Restaurant.

         ¶6 In 2003, the lease was again assigned to a new tenant, L C. Appellant, L C's president, Xiao-Yan Cao, personally guaranteed to then-landlord Riverview Properties the "performance of all covenants, conditions and obligations and duties required of Tenant under said Lease." That assignment also provided that, "[e]xcept as specifically modified, altered, or changed by this Agreement, the Lease and any amendments and/or extensions shall remain unchanged and in full force and effect throughout the Extension Term of the Lease." (Emphasis added.) Those amendments and extensions included the 1997 provision detailing late fees and interest on past-due amounts owed.

         ¶7 Then in 2006, Cao assigned the lease to another tenant, Hong G. Lin. Lin took over the remaining two years of L C's lease and extended the lease an additional five years-to September 30, 2013. Both Cao and Lin signed the 2006 Lease Extension as guarantors. The 2006 Lease Extension also adopted all terms of the original lease and "any amendments and/or extensions"-again including the 1997 provision detailing late fees and interest on past-due amounts owed and Cao's 2003 personal guaranty.

         ¶8 A month later, in June 2006, Riverview Properties assigned its "interest as landlord" in the strip mall that housed Golden Isle to a new landlord, PC Riverview.

         ¶9 In 2008, Lin fell behind paying rent. This lapse continued over the course of almost two years. In 2010, PC Riverview filed suit against Lin and Cao. PC Riverview sought collection of Lin's missed rent plus late fees-a total of $23, 951.28 from Lin and the enforcement of the guaranty against Cao. Cao responded by asking the district court to stanch her potential losses by evicting Lin. PC Riverview opposed Cao's efforts. As part of that opposition, PC Riverview introduced evidence that, given the economic conditions, it would be unable to find another tenant to lease the space Lin's business occupied. Cao also filed a motion for summary judgment. The district court stayed Cao's motion and ordered the parties to mediate the matter.

         ¶10 Unbeknownst to Cao, PC Riverview and Lin crafted a plan that would allow Lin to operate the restaurant while paying PC Riverview what it owed in missed payments, interest, and late fees (the 2010 repayment agreement). Cao learned of that agreement when she was faxed a copy of an executed agreement. The 2010 repayment agreement provided that in addition to the regular monthly payments that the lease required, Lin would make five additional payments to repay past-due amounts. If Lin made each payment when due, PC Riverview agreed to forgive seven-eighths of the late charges that had accrued.

         ¶11 In light of the repayment plan, PC Riverview proposed to Cao that she stipulate to the dismissal of the action without prejudice. Cao refused. She wrote to PC Riverview explaining that she believed this "side agreement" entered into "without [her] input or knowledge" had "terminated" "her responsibilities as surety on this contract." Cao and PC Riverview never reached an accord, and after a year of inaction on the case, the district court dismissed the complaint for failure to prosecute.

         ¶12 Meanwhile, Lin stuck to the terms of his new agreement with PC Riverview and eventually paid back all past-due rent and late fees. One might have thought that this would have signaled a happy ending to this story-and, indeed, 2012 came and passed without incident. But in 2013, as Lin's lease was poised to expire, Lin vacated the premises without paying the last month's rent and a small balance he owed for the previous month. PC Riverview sued both Lin and Cao to recover the $5, 003.50 that Lin owed (as well as interest and attorney fees). The district court granted summary judgment against Lin, but not Cao. The case against Cao proceeded to trial.

         ¶13 At trial, PC Riverview called the president of its managing member, Grace Mitchell, to testify about the assignment from Riverview Properties to PC Riverview. She identified a document that detailed an "assignment and assumption of leases that [were] entered into when [PC Riverview] purchased the property" in 2006. Cao objected to the document being entered into evidence because the signatories on behalf of the seller were not present to testify that they signed the document. Mitchell then testified that ...


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