Kansas City Live Block 125 Retail LLC v. Hamendra Bhakta and Daniel Bhakta

IN THE MISS
SOURII COUR
RT OF
F APPEALS
WEESTER
RN DISTRICT
T

KANSAS S CITY LIV
VE BLOCK )
125 RET
TAIL, LLC, )
)
Respo
ondent, )
)
vs. ) WD
D78184
)
HAMENNDRA BHAK
KTA AND ) Opinnion filed: D
December 8,, 2015
DANIEL
L BHAKTA,, )
)
Appelllants. )

APP
PEAL FRO
OM THE CIRCUIT CO
OURT OF JAACKSON C
COUNTY, MMISSOURII
TH
HE HONORRABLE CHAARLES H. M
MCKENZIIE, JUDGE

Beefore Divisio
on One: Antthony R. Gabbbert, Presidding Judge,
Victor C. Howard,
H Judg
ge and Cynthhia L. Martinn, Judge

Hamendra
H Bh
hakta and Daniel
D Bhaktta appeal thee judgment of the trial court in favvor of

Kansas City
C Live Block 125 Rettail, LLC (K
KC Live), in its action aggainst the Bhhaktas for brreach

of a guarranty agreem
ment. The Bhaktas
B conteend that the trial court eerred in enteering judgmeent in

favor of KC Live beecause KC Live
L failed to
t present suufficient eviidence that (1) considerration

supported
d the guaran
nty and (2) the ons precedennt to enforceeability of thhe guaranty were
t conditio

satisfied. The judgm
ment of the trrial court is affirmed.
a
 Factual and Procedural History

On September 29, 2008, KC Live, as landlord, and Albert Group, LLC, as tenant, entered

into a commercial lease agreement. The lease granted Albert Group the authority to operate a

Genghis Grill restaurant in a space in the Kansas City downtown Power & Light District. The

lease provided for rent of $8,019 monthly (or $96,228 annually) and other charges. The lease

also defined the parameters of an assignment or transfer of ownership, in pertinent part:

2301. Without prior written consent of Landlord…Tenant shall not assign…or
permit the Premises or any part thereof to be used by others, or otherwise
transfer…this Lease or the Premises or any interest herein or therein. Neither the
Premises, nor any part thereof, will be used, occupied or managed, or permitted to
be used, occupied or managed, by anyone other than Tenant…. A sale, transfer,
assignment, conveyance, endorsement or other disposition of…a managing
member’s interest, if Tenant is a limited liability company or…fifty percent
(50%) or more (in the aggregate on accumulative basis)…of the interest in capital,
profits, or losses of Tenant (if Tenant is a…limited liability company…) shall be
deemed to be an assignment of this Lease within the meanings of Section 2301….
Any other transaction that results in a change of operational control of
Tenant…shall also be deemed to be an assignment of this Lease within the
meaning of this Section 2301….

The lease further provided that if KC Live consented to transfer of ownership, all parties must

execute an agreement:

2307. Should Landlord consent to a Transfer, Tenant, its proposed Transferee
and Landlord shall execute an agreement, prepared by or acceptable to Landlord
in its sole reasonable discretion, under which the proposed Transferee shall be
bound by the terms and conditions of this Lease…

At the time the lease was executed, the president of Albert Group, Dan Albert, along with his

wife, Katrina Albert, and JoAnne Sanchez signed a personal guaranty agreeing to guarantee and

be responsible for all payments due from Albert Group under the lease.

Thereafter, as Albert Group got into the construction process and closer to opening the

restaurant, it began having issues with financing and its contractors. KC Live became concerned

about Albert Group’s financial stability and wanted Albert Group to obtain $120,000 in

2
additional funding to ensure sufficient funds to pay contractors and avoid the potential of liens

being filed against the property. In late December 2008 or early January 2009, Albert Group

began discussions with Hamendra Bhakta and Daniel Bhakta, who are brothers, regarding a

Ghenghis Grill investment opportunity. Albert Group and the Bhaktas discussed the Bhaktas

investment of $120,000 for a 30% interest in Albert Group. After learning that the Bhaktas

would be providing funding and getting an ownership interest in Albert Group, KC Live

requested the Bhaktas to guarantee the lease. The Bhaktas made an initial $60,000 payment to

Albert Group in January 2009 and a second $60,000 payment at the time they signed the

guaranty on March 11, 2009. The Guaranty provided, in pertinent part:

In order to induce Kansas City Live Block 125 Retail, LLC (“Landlord”) to
consent to a transfer to the undersigned of an interest in Tenant under that certain
Lease (the “Lease”) dated September 29, 2008, between Landlord and Albert
Group, LLC (“Tenant”) for the Premises…and in consideration thereof and other
good and valuable consideration, the receipt of adequacy of which is hereby
acknowledged, the undersigned (“Guarantor”) hereby unconditionally, absolutely
and irrevocably guarantees to Landlord…the prompt and full payment (and not
merely the collectability) and performance and observance by Tenant of each and
every item, covenant, condition, provision and obligation to be paid, kept,
observed or performed by Tenant under the Lease, together with any and all costs
and expenses, including reasonable attorneys’ fees, which may be incurred by
Landlord in connection with any default by Tenant under the Lease or enforcing
the Lease and/or this Guaranty (collectively the “Obligations”).

When the Guaranty was signed, the Bhaktas understood that the funds they were providing to

Albert Group were needed to pay a down payment to a contractor to allow construction to begin.

Moreover, KC Live did not have any information regarding what percentage of ownership

interest Albert Group planned to transfer to the Bhaktas. No transfer of ownership had been

initiated at the time the Bhaktas made payments to Albert Group, but the Bhaktas intended to get

their ownership interest at some time in the future.

3
 The Bhaktas never acquired an ownership interest in Albert Group. In April 2009, they

learned of restrictions regarding a change of ownership in Albert Group’s Small Business

Administration (SBA) loan. The Genghis Grill opened in late June 2009. It went out of business

in October 2011.

KC Live filed the underlying action for breach of guaranty against the Bhaktas in June

2010. It contended that the Bhaktas executed a personal guaranty for the lease between it and

Albert Group, that Albert Group defaulted on the lease, and that the Bhaktas were liable for

unpaid rent and other charges, which totaled over $1 million at the time of trial in August 2014.

Following a bench trial, the trial court entered judgment in favor of KC Live and against

the Bhaktas in the amount of $1,166,367.30 plus attorney’s fees and costs finding that as

guarantors, the Bhaktas were liable for the amount due under the lease. This appeal by the

Bhaktas followed.

Standard of Review

In their two points on appeal, the Bhaktas contend that the trial court erred in entering

judgment in favor of KC Live because KC Live failed to present sufficient evidence that (1)

consideration supported the guaranty and (2) the conditions precedent to enforceability of the

guaranty were satisfied. In reviewing a court-tried case, the appellate court will affirm the trial

court’s judgment unless it is not supported by substantial evidence, it is against the weight of the

evidence, or it erroneously declares or applies the law. Ivie v. Smith, 439 S.W.3d 189, 198-99

(Mo. banc 2014)(citing Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976)). To be

successful on their claim of insufficient evidence, the Bhaktas are required to demonstrate that

the judgment was not supported by substantial evidence. J.A.R. v. D.G.R., 426 S.W.3d 624, 629

(Mo. banc 2014). Substantial evidence is evidence that, if believed, has some probative force on

4
each fact necessary to sustain the trial court’s judgment. Ivie, 439 S.W.3d at 199. “Evidence has

probative force if it has any tendency to make a material fact more or less likely.” Id.

In reviewing whether the trial court’s judgment is supported by substantial evidence, the

appellate court views the evidence in the light most favorable to the judgment and defers to the

trial court’s credibility determinations. Id. at 200. It accepts as true the evidence and inferences

favorable to the judgment and disregards all contrary evidence. Id. The trial court is free to

believe any, all, or none of the evidence presented at trial. Id. “All fact issues upon which no

specific findings are made shall be considered as having been found in accordance with the result

reached.” Rule 73.01(c).

Discussion

A guaranty is a contract that must be supported by consideration. Boatmen’s First Nat’l

Bank of Kansas City v. Roofco Sys., Inc., 852 S.W.2d 402, 403 (Mo. App. W.D. 1993); Henty

Constr. Co. v. Hall, 783 S.W.2d 412, 418 (Mo. App. E.D. 1989). A guaranty executed

contemporaneously with the original contract may be considered part of the original contract and

supported by the same consideration. Henty Constr., 783 S.W.2d at 419. If, however, a guaranty

is executed subsequently to the principal contract, it requires a new and independent

consideration. Kurtz v. Fischer, 600 S.W.2d 642, 646 (Mo. App. W.D. 1980).

“Consideration consists either of a promise (to do or refrain from doing something) or the

transfer or giving up of something of value to the other party.” Baker v. Bristol Care, Inc., 450

S.W.3d 770, 774 (Mo. banc 2014)(internal quotes and citation omitted). Consideration for a

guaranty need not move only between the creditor and guarantor. Boatmen’s First Nat’l Bank,

852 S.W.2d at 403. Benefit to the debtor or detriment to the creditor constitutes sufficient

consideration to support a guaranty. Id. at 403-4; Henty Constr., 783 S.W.2d at 418. The

5
guarantor need not receive any benefit from either the principal contract or the guaranty.

Boatmen’s First Nat’l Bank, 852 S.W.2d at 404; Henty Constr., 783 S.W.2d at 418. Moreover, a

guarantor need not have an interest in the debtor for a guaranty to be enforceable. Mercantile

Trust Co. v. Carp, 648 S.W.2d 920, 924 (Mo. App. E.D. 1983)(“A guarantor’s liability for a

corporation’s debt is not dependent upon the guarantor’s interest in the corporation.”).

The Guaranty in this case provided two sources of consideration for the Bhaktas’ promise

to guarantee the lease. First, it provided, in pertinent part,

In order to induce [KC Live] (“Landlord”) to consent to a transfer to the
undersigned of an interest in [Albert Group] under that certain Lease…dated
September 29, 2008, between Landlord and Albert Group…for the
Premises…and in consideration thereof…the [Bhaktas] hereby unconditionally,
absolutely and irrevocably guarantees to Landlord…the prompt and full
payment…and performance and observance by [Albert Group] of each and every
item, covenant, condition, provision and obligation to be paid, kept, observed or
performed by Tenant under the Lease.

The lease required KC Live’s consent for certain assignments or transfers of ownership,

specifically, if Albert Group wanted to transfer a managing member’s interest, fifty percent

(50%) or more of its interest in capital, profits, or losses of Tenant, or operational control. The

evidence showed that Albert Group and the Bhaktas initially discussed a transfer of a 30%

interest, which may not have necessarily required KC Live’s consent under the lease. The record

was unclear, however, whether such transfer was of a managing member’s interest or of

operational control. Furthermore, the record showed that KC Live had no information regarding

the terms of a possible ownership transfer between Albert Group and the Bhaktas when the

Guaranty was signed. Nevertheless, KC Live promised to consent to a transfer of ownership

interest without regard to the size of the transfer. The consent provision of the Guaranty

provided a benefit to the Bhaktas, KC Live’s consent to a transfer of an ownership interest in

Albert Group to them. It also arguably provided a detriment to KC Live in that it no longer had

6
discretion to consent to a transfer of ownership of its tenant but was required to consent. The

consent provision provided consideration for the Bhaktas’ promise to guarantee the lease.

Second, the Guaranty contained the language that it is made “in consideration [of] other

good and valuable consideration, the receipt and adequacy of which is hereby acknowledged.”

The recitation in a guaranty “for value received” is prima facie evidence of sufficient

consideration to support the guaranty. Stewart Title Guar. Co. v. WKC Rests. Venture Co., 961

S.W.2d 874, 882 (Mo. App. W.D. 1998); Gover v. Empire Bank, 574 S.W.2d 464, 468 (Mo.

App. 1978). Such recital of consideration creates a presumption that, though not conclusive, is

sufficient to support the guaranty unless the presumption is overcome to the satisfaction of the

trial court by acceptable and persuasive evidence to the contrary. Gover, 574 S.W.2d at 468.

The recitation in the Guaranty in this case is equivalent to a recitation of “for value received.”

Thus, the Guaranty itself provided prima facie evidence of consideration.

The Bhaktas argue that the presumption of consideration was rebutted because KC Live

never presented specific evidence of Albert Group’s financial issues or that the contractors were

threatening mechanic’s liens and the lease did not contain any provisions imposing financing and

construction requirements on Albert Group or allowing KC Live to shut down construction if

certain requirements were not met. Rather, they assert, the evidence showed that Albert Group

had financing and contractors lined up before approaching them with an investment opportunity

and they and Albert Group did not receive anything in exchange for the guaranty that they

weren’t already entitled to, namely the right to continue with schedule restaurant renovations.

The Bhaktas’ argument overlooks the standard of review. In this court-tried case, the

trial court was the arbiter of the facts and was free to believe or disbelieve any of the evidence.

Furthermore, this court must view the evidence in the light most favorable to the judgment. That

7
evidence showed that KC Live became concerned about Albert Group’s financial stability as it

got into the construction process and wanted Albert Group to obtain $120,000 in additional

funding to ensure sufficient funds to pay contractors and avoid the potential of liens being filed

against the property. As a result, Albert Group approached the Bhaktas about a Ghenghis Grill

investment opportunity. The evidence also showed that the Bhaktas understood that the funds

were needed to pay a down payment to a contractor to allow construction to begin. Substantial

evidence was presented that the consideration that was acknowledged but not expressly

described in the Guaranty was Albert Group receiving $120,000 in funding from the Bhaktas.

Such funding was a benefit to Albert Group and constituted sufficient consideration to support

the Guaranty. The first point is denied.

Next, the Bhaktas argue that insufficient evidence was presented that two conditions

precedent to the enforceability of their personal guaranty were satisfied. Specifically, they

contend that KC Live failed to present any evidence that it provided them and Albert Group

consent to an ownership transfer or that they obtained an ownership interest in Albert Group and

that, as a result, their guaranty of the lease was not enforceable.

“[A] condition precedent is an act or event that must be performed or occur, after the

contract has been formed, before the contract becomes effective.” Morgan v. City of Rolla, 947

S.W.2d 837, 840 (Mo. App. S.D. 1997)(internal quotes and citation omitted). See also Gillis v.

New Horizon Dev. Co., 664 S.W.2d 578, 580 (Mo. App. W.D. 1983)(“A party suing for breach

of a contract must allege and prove performance of all conditions precedent, or he must allege

and prove an excuse for their nonperformance.” (internal quotes and citation omitted)).

“Conditions precedent are usually created by such phrases as ‘on condition,’ ‘provided that,’ ‘so

that,’ and the like, although such expressions are not necessary if the contract is of such a nature

8
as to show that parties intended to provide for a condition precedent.” Vantage Credit Union v.

Chisholm, 447 S.W.3d 740, 746 (Mo. App. E.D. 2014)(quoting Globe Am. Corp. v. Miller

Hatcheries, Inc., 110 S.W.2d 393, 396 (Mo. App. 1937)). “Conditions precedent are disfavored

and contract provisions are construed as such only if unambiguous language so requires or they

arise by necessary implication.” Morgan, 947 S.W.2d at 840.

The Bhaktas contend that their personal guaranty did not become enforceable until KC

Live consented to a transfer of ownership between them and Albert Group and they obtained an

ownership interest in Albert Group. The plain language of the guaranty revealed that it was a

contract of bilateral terms involving mutual promises for mutual performances. KC Live

promised to consent to an ownership transfer between Albert Group and the Bhaktas. The

Bhaktas made the concurrent promise to unconditionally guarantee the lease between KC Live

and Albert Group. The language of the guaranty belies the Bhaktas’ assertion that KC Live’s

actual consent to an ownership transfer was a condition of their guaranteeing the lease. The

Guaranty lacked any language conditioning the Bhaktas’ guaranteeing the lease on KC Live’s

consent to ownership transfer. It did not provide that the Bhaktas will guarantee the lease “on

condition that” or “provided that” KC Live actually consents to an ownership transfer but instead

unequivocally provided that the Bhaktas “unconditionally, absolutely and irrevocably

guarantees” the lease. And nowhere in the guaranty is there any language that purported to

require an actual ownership transfer as a condition of guaranteeing the lease. If the parties

intended the Bhaktas’ guaranty be conditional on KC Live’s consent to a transfer of ownership

or the actual transfer of an ownership interest to the Bhaktas, they could have explicitly so

provided. Neither the unambiguous language nor nature of the Guaranty made consent to or

9
actual traansfer of ow
wnership a condition
c preecedent of th
the Bhaktas’’ guaranty oof the lease. The

Bhaktas’ guaranty off the lease was
w enforceab
ble. The poiint is denied..

The
T judgment of the trial court is affirmed.

______________________________________________
VICTOR CC. HOWARD D, JUDGE

All concu
ur.

10