Wyndham Hotel Group International, Inc. v. Silver Entertainment LLC

Background

The court had previously awarded Wyndham Hotel Group International, Inc. damages for a breach of a franchise agreement by Silver Entertainment LLC and Veneto Hotel & Casino, S.A. A final judgment was entered against Silver and Veneto. The remaining claim was Wyndham’s breach-of-contract claim against Allen Silverman, whom Wyndham alleged had guaranteed a note connected to the franchise agreement.

The balance remaining on the note, excluding interest, was $255,000. The note’s recipient was Veneto. The action against Silverman had been stayed in 2016, and the court later lifted the stay and ordered him to answer the complaint. Silverman instead moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

The parties’ arguments

Silverman argued that the guaranty was void for lack of consideration. He contended that the note had already been secured by an earlier guaranty, that his guaranty was not executed at the same time as the franchise agreement, and that the loan was made more than a month before he signed the guaranty. He also argued that the guaranty was too ambiguous to impose personal liability because it did not use the phrase “personally guarantees” or a similar expression.

Wyndham argued that separate consideration was unnecessary because Silverman’s guaranty replaced an earlier guaranty related to the franchise agreement. Alternatively, Wyndham argued that the guaranty was supported by separate consideration, including the transfer of the note’s primary obligations from Silverman to Veneto and the forgiveness of 10 percent of the principal balance on each anniversary of the hotel’s opening date.

The parties agreed that New Jersey law governed the contract dispute.

Consideration

The court explained that a promise generally is enforceable when the other party provides consideration—meaning a bargained-for exchange of promises or performance. Under the New Jersey authorities discussed by the court, a guaranty made after the related primary contract must have separate consideration, although that consideration need only be slight. A promise to pay another person’s existing debt generally is not enough by itself.

The court nevertheless found that Wyndham had plausibly alleged two forms of separate consideration. First, the note provided that one-tenth of the original principal would be forgiven on each anniversary of the facility opening date. Although Veneto had received the loan before the note and guaranty were executed, the favorable loan-forgiveness terms were provided as part of the note that Silverman guaranteed. At the motion-to-dismiss stage, the court was required to accept the complaint’s factual allegations as true and draw reasonable inferences in Wyndham’s favor. It therefore found it reasonable to infer that Silverman guaranteed the note at least partly so Veneto could receive those favorable terms.

Second, the note stated that it replaced an older note under which Silverman had been the primary obligor. The older note was marked “signed and discharged” and returned to Silverman when the new note was delivered. The court found it reasonable to infer that Silverman’s release from primary liability under the older note was another form of consideration for the guaranty. The court therefore denied the motion to dismiss insofar as it challenged the guaranty for lack of consideration.

Ambiguity

The court also rejected Silverman’s argument that the guaranty was too ambiguous. The note stated that if the maker failed to pay amounts due after written demand, the guarantor would pay those amounts, and it separately stated that, by signing, the guarantor agreed to be bound by the note’s terms and provisions.

The court held that this language was sufficiently clear for judicial interpretation. It concluded that the objective expectation reflected in the note was that, if the principal was not completely forgiven and Veneto failed to repay Wyndham, Silverman would be required to pay the amounts Veneto owed. The court therefore denied the motion to dismiss on the ambiguity ground as well.

Ruling and effect

Because the complaint and attached documents showed that Wyndham might be entitled to relief, the court denied Allen Silverman’s Rule 12(b)(6) motion to dismiss. The order did not resolve the ultimate liability on the breach-of-contract claim. The court directed Silverman to file an answer within 14 days and directed the clerk to close the motion at Docket Number 185.