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New York Federal Court Allows Franchisor to Pursue Breach of Contract Claim Against Guarantor of Loan Related to Franchise
Posted in Contracts

Wyndham Hotel Group International’s claim for monetary damages against a guarantor of an $850,000 note related to a franchise agreement has survived a motion to dismiss. Wyndham Hotel Grp. Int’l v. Silver Entm’t LLC, 2020 WL 5517519 (S.D.N.Y. Sept. 14, 2020). Wyndham sued its franchisees Silver Entertainment and Veneto Hotel & Casino and was awarded monetary damages for their breach of the franchise agreement. Wyndham then sought to recover against Silverman, the personal guarantor of a note related to the franchise agreement. Silverman moved to dismiss the claims on the basis that the personal guaranty agreement he signed lacked consideration and was ambiguous.

The court disagreed with both of Silverman’s arguments. The court held that a provision in the loan note, which forgave ten percent of the loan on each anniversary of the opening date of the franchisee’s hotel, constituted consideration for the guaranty. Although the provision was a part of Veneto’s loan terms and was not in the personal guaranty, the favorable terms were only received after the personal guaranty was executed by Silverman. Additionally, Silver Entertainment transferred the franchise to Veneto, and as part of the transfer Silverman’s obligations as the primary obligor of the franchise loan were discharged, which the court also found to be consideration for guaranteeing Veneto’s loan. The court then rejected Silverman’s vagueness argument, finding that language to the effect of “Guarantor agrees to be bound by the terms and provisions of this Note” was sufficiently clear to bind Silverman as guarantor.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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