Big Pines v. Baker , 2020 ND 64 ( 2020 )

Filed 03/19/20 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2020 ND 64
Big Pines, LLC, Plaintiff and Appellant
v.
Biron D. Baker, M.D., and
Biron D. Baker Family Medicine PC, Defendants and Appellees
No. 20190249
Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable William A. Herauf, Judge.
REVERSED AND REMANDED.
Opinion of the Court by VandeWalle, Justice.
Grant T. Bakke (argued) and Shawn A. Grinolds (on brief), Bismarck, ND, for
plaintiff and appellant.
Mark R. Western (argued), Fargo, ND, and James W. Martens (appeared),
Bismarck, ND, for defendants and appellees.
Big Pines v. Baker
No. 20190249
VandeWalle, Justice.
Big Pines, LLC, appealed from a district court order denying its “Motion
for Award of Attorneys’ Fees and Costs.” We reverse and remand.
Phoenix M.D., L.L.C., as landlord, entered into a lease agreement for real
property with Biron D. Baker Family Medicine PC, as tenant, on May 3, 2011.
The lease began on June 15, 2011, and ended on June 14, 2016. At the same
time the lease was entered, Biron Baker signed a personal guaranty agreement
making him personally liable for a breach of the terms of the lease. Both the
lease and guaranty were contained in the same document. Additionally, the
lease contained a provision stating the landlord’s entry into the lease was
induced by the personal guaranty agreement, and the guaranty contained
provisions contemplating the tenant’s obligations under the lease and
assignment of the lease and guaranty. Under the guaranty, the landlord was
also entitled to recover “all costs and attorneys’ fees incurred in attempting to
realize upon [the guaranty].”
In August 2016, Big Pines, LLC purchased the property formerly leased
by Baker Medicine from Phoenix. On October 13, 2016, Big Pines and Phoenix
entered into an agreement entitled “ASSIGNMENT OF LEASE
AGREEMENT.” The agreement assigned all of Phoenix’s “right, title and
interest in that certain Lease Agreement dated May 3, 2011 entered into
between [Phoenix and Baker Medicine]” to Big Pines. “Any and all other claims
. . . against [Baker Medicine] under [the lease], including, but not limited to,
for damage to real and/or personal property located at [the purchased
property]” were assigned to Big Pines. The guaranty agreement was not
specifically mentioned in the assignment agreement. However, the assignment
stated a copy of the “Lease Agreement” was attached to the assignment as
“Exhibit A.” There is nothing in the record, and no evidence was presented to
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the district court, indicating which agreement(s) were attached to the
assignment as “Exhibit A.”
In March 2017, Big Pines contacted Baker regarding damages to the
property in violation of the terms of the lease that resulted from Baker
Medicine’s tenancy. Baker denied any responsibility and refused to pay for the
alleged damages. Big Pines filed suit against Baker and Baker Medicine in
February 2018 claiming the property damages resulted from Baker Medicine’s
tenancy and were in violation of the terms of the lease. The case proceeded to
trial, and at trial a jury found Baker and Baker Medicine liable for breaching
the terms of the lease and awarded $18,750.00 in damages to Big Pines.
Big Pines filed a post-trial motion under N.D.R.Civ.P. 54(e)(3) requesting
the district court award Big Pines its attorney’s fees for having to bring suit
against Baker and Baker Medicine for breaching the terms of the lease. Baker
and Baker Medicine opposed the motion. The court denied Big Pines’ request
for attorney’s fees. The court reasoned that the lease and guaranty were
separate agreements, that Big Pines was not a party to either agreement, and
that Big Pines did not have a basis for claiming any benefit of an agreement it
was not a part of. The court further determined the guaranty was not assigned
to Big Pines because the assignment agreement only mentioned the lease and
made no specific mention of the guaranty.
On appeal, Big Pines argues the assignment agreement unambiguously
assigned the lease and guaranty. In the alternative, Big Pines argues the
meaning of the term “Lease Agreement” in the assignment is ambiguous, and
a jury should decide whether the guaranty was assigned. Baker and Baker
Medicine argue Big Pines failed to preserve the issue for appeal because it did
not submit the issue to the jury at trial or request jury instructions on the
issue, the district court did not err in determining the guaranty was not
assigned to Big Pines, and the provision providing for attorney’s fees in the
guaranty is void as a matter of public policy under N.D.C.C. § 28-26-04.
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Assignments are interpreted in the same manner as contracts. Hallin v.
Inland Oil & Gas Corp., 2017 ND 254, ¶ 8, 903 N.W.2d 61 (citing THR
Minerals, LLC v. Robinson, 2017 ND 78, ¶ 8, 892 N.W.2d 193). Contract
interpretation is governed by N.D.C.C. ch. 9–07. “The primary purpose in
interpreting contracts . . . is to ascertain and effectuate the parties’ or grantor’s
intent.” Hallin, at ¶ 8 (citing THR Minerals, at ¶ 8).
The parties’ intent is ascertained from the writing alone if
possible. The language of a contract is to govern its interpretation
if the language is clear and explicit and does not involve an
absurdity. When the parties’ intent can be determined from the
contract language alone, interpretation of a contract presents a
question of law. When an agreement has been memorialized in a
clear and unambiguous writing, extrinsic evidence should not be
considered to ascertain intent. When a contract’s language is plain
and unambiguous and the parties’ intentions can be ascertained
from the writing alone, extrinsic evidence is not admissible to
alter, vary, explain, or change the contract. If a contract is
ambiguous, extrinsic evidence may be considered to determine the
parties’ intent, and the contract terms and parties’ intent become
questions of fact.
Id. at ¶ 9 (citations and quotations omitted).
“A contract is ambiguous when rational arguments can be made for
different interpretations.” Nichols v. Goughnour, 2012 ND 178, ¶ 12, 820
N.W.2d 740 (quoting Gawryluk v. Poynter, 2002 ND 205, ¶ 9, 654 N.W.2d 400).
“When a contract is ambiguous, circumstances at the time of contracting may
be used as evidence to construe it.” Riedlinger v. Steam Bros., Inc., 2013 ND
14, ¶ 17, 826 N.W.2d 340 (quoting Williston Educ. Ass’n v. Williston Pub. Sch.
Dist., 483 N.W.2d 567, 570 (N.D. 1992)). “Whether a contract is ambiguous is
a question of law for the court to decide.” Nichols, at ¶ 12 (quoting Gawryluk,
at ¶ 9). “On appeal, we independently review a contract to determine if it is
ambiguous.” Id.
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“Instruments that have been executed at the same time, by the same
parties, in the course of the same transaction, and concerning the same subject
matter, may be read and construed together.” Nichols v. Goughnour, 2012 ND
178, ¶ 13, 820 N.W.2d 740 (citing Trengen v. Mongeon, 206 N.W.2d 284, 286
(N.D. 1973)). Under N.D.C.C. § 9-07-07, “Several Contracts relating to the
same matters between the same parties and made as parts of substantially one
transaction are to be taken together.”
In First Nat’l Bank v. Flath, 10 N.D. 281, 287, 86 N.W. 867, 870
(1901), this Court interpreted that language and stated the
requirement that several contracts are to be “taken together” does
not mean they are to be joined into a single contract. This Court
said the language means that contracts “are to be taken together”
for the purpose of interpreting either the transaction to which they
relate, or the several contracts themselves. Id. This Court
explained the statute does not purport to destroy the separate
identity of the several contracts and does not unite two or more
contracts relating to a transaction into a single contract. Id.
Nichols, at ¶ 13.
Big Pines argues the guaranty is integrated in the lease and was
assigned along with the lease. We agree for the reasons stated below. The
document is titled “Lease Agreement,” which is centered at the beginning of
the document and is in substantially larger text than appears anywhere else
in the document. The guaranty is titled “Personal Guaranty Agreement,” which
is also centered but is in the same size text as all the other headings in the
document. Furthermore, the document is a total of twenty pages with the lease
beginning on page one and the guaranty beginning on page eighteen. The lease
and guaranty are consecutively paginated with the guaranty immediately
succeeding the signature blocks of the lease on page eighteen of the document.
There is no white space between the signature blocks of the lease and the
beginning of the guaranty, and the guaranty begins on the same page that the
lease ends. The lease also references three exhibits and states the exhibits are
attached to the document. The exhibits are attached at the end of the document
after the guaranty. These facts indicate the parties intended for the guaranty
to be part of the same document and integrated into the lease.
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The language and provisions in the lease is further evidence the
guaranty was assigned. The lease contains a provision explicitly stating the
landlord’s entry into the lease was induced by the personal guaranty of tenant’s
performance of the terms of the lease.
In addition, the guaranty contains provisions indicating the guaranty
was integrated in the lease. First, the guaranty states, “This Guaranty is given
by the Guarantor to induce the Landlord to enter into the attached lease
agreement . . . .” (Emphasis added). By saying the guaranty is attached to the
lease, the language in the guaranty implies the guaranty is part of the lease,
not a wholly separate document that is incorporated by reference. Second, the
guaranty states the guaranty is “a continuing Guaranty and shall not be
revoked by the Guarantor,” and the guaranty “will remain effective until all
obligations guaranteed by this Guaranty are completely discharged.” And
third, the guaranty states, “V. Assignment. This Guaranty . . . (b) shall insure
to the Landlord, its successors and assigns, and (c) may be enforced by any
party to whom all or any part of the liabilities may be sold, transferred, or
assigned by the Landlord.”
The guaranty provides:
I. Obligations. . . . [T]he Landlord intends to rely on this
Guaranty, the Guarantor absolutely and unconditionally
guarantees prompt and satisfactory performances of the
lease agreement, in accordance with all of its terms and
conditions, by the Tenant under the terms set forth below.
If the Tenant should default in performance of its obligations
under the lease agreement according to its terms and
conditions, the Guarantor shall be liable to the Landlord for
. . . all costs and attorney’s fees incurred in attempting to
realize upon this Guaranty.
(Emphasis added). The guarantor’s “obligations” under the guaranty are all in
reference to the liabilities in the lease. Therefore, the “liabilities” referenced
in section V(c) of the guaranty relate to the liabilities provided for in the lease.
This is the only logical interpretation of the term “liabilities” in this instance
because without the lease, the guaranty does not itself create any liabilities.
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Stated differently, the guarantor cannot breach the terms of the guaranty
without first breaching the terms of the lease. We interpret section V(c) as
saying a party to whom the lease is assigned may enforce the “obligations”
provided for in the guaranty.
Moreover, Phoenix assigned all of its rights, title, and interest in the
lease to Big Pines. The assignment assigned all claims “including, but not
limited to, for damage to real and/or personal property” to Big Pines. The
assignment explicitly contemplates and assigns to Big Pines any claims
against Baker Medicine for property damage.
The district court erred in interpreting the lease and guaranty as
separate agreements.
Notwithstanding, Baker argues the attorney’s fees provided for in the
guaranty agreement are void under N.D.C.C. § 28-26-04. Parties are generally
free to enter into an agreement for payment of attorney’s fees in a civil action.
See N.D.C.C. § 28-26-01(1). However, provisions in debt instruments providing
for payment of attorney’s fees are void under § 28-26-04, which states:
Any provision contained in any note, bond, mortgage, security
agreement, or other evidence of debt for the payment of an
attorney’s fee in case of default in payment or in proceedings had
to collect such note, bond, or evidence of debt, or to foreclose such
mortgage or security agreement, is against public policy and void.
We have previously held that “‘evidence of debt,’ as contemplated by N.D.C.C.
§ 28-26-04, relates to a written instrument importing on its face the existence
of debt, an acknowledgment of that debt, and a promise of payment.” Candee
v. Candee, 2019 ND 94, ¶ 11, 925 N.W.2d 423 (quoting T.F. James Co. v.
Vakoch, 2001 ND 112, ¶ 16, 628 N.W.2d 298). “The general term, ‘evidence of
debt,’ ‘despite its seeming breadth,’ includes only instruments similar to those
specifically listed in N.D.C.C. § 28-26-04: a note, bond, mortgage, or security
agreement.” Id. (Emphasis in original). In at least one instance, this Court has
concluded that a personal guaranty agreement was other evidence of debt
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under § 28-26-04. See Farmers Union Oil Co. v. Maixner, 376 N.W.2d 43, 49
(N.D. 1985).
In Maixner, New England Agri-Services’ account with Farmers Union
Oil Co. was overdue and delinquent in the amount of $22,036.78. Id. at 45. In
exchange for Farmers Union’s forbearance from bringing suit against Agri-
Services for the outstanding debt, Maixner, as Agri-Services’ agent, executed
and delivered a “PERSONAL GUARANTEE” agreement to Farmers Union
guarantying payment of the debt. Id. The agreement read:
The undersigned does represent to Farmers Union Oil Company of
New England that he is one of the principals or owners in the
business organization known as Agri-Business, Inc. Further, in
consideration of the forbearance of Farmers Union Oil Company of
New England from bringing suit on the account of that business
organization at this time, the undersigned does personally and
individually guarantee payment of all payments due upon the
business credit account with Farmers Union Oil Company of New
England, together with payment of any and all expenses incurred
by creditors as a result of non-payment of said credit account when
due.
Id. Agri-Services failed to pay the outstanding debt, and Farmers Union filed
suit. Id. Farmers Union prevailed and, in addition to the outstanding debt,
Farmers Union was awarded $750.00 in attorney’s fees. Id. We held the
personal guarantee executed and delivered by Maixner was other evidence of
debt “because the guarantee relate[d] to the payment of debt,” and the $750.00
in attorney’s fees were awarded in violation of § 28-26-04. Id. at 49.
The personal guaranty in this case is different than the personal
“guarantee” in Maixner. The “guarantee” in Maixner was executed because of
an existing debt and was a promise to pay that existing debt in exchange for
forbearance from bringing suit by Farmers Union. The guaranty here was
executed at the same time as the lease. There was no existing debt when the
lease or guaranty was executed, and the guaranty was not a promise to pay an
existing debt. The provision for attorney’s fees in the personal guaranty
agreement is not void under N.D.C.C. § 28-26-04.
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Appellees’ remaining arguments are without merit and we decline to
address them.
We reverse and remand for an appropriate award of attorney’s fees.
Gerald W. VandeWalle
Jerod E. Tufte
Daniel J. Crothers
Lisa Fair McEvers
Jon J. Jensen, C.J.
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