953 N.W.2d 665
N.D.2021Background
- NABS and Cudd entered an August 30, 2011 lease for 60 temporary housing modules to be delivered/constructed on specified Williams County property; Cudd was required to obtain all permits and lease term was 60 months.
- NABS later assigned its lease interest and sold the modules to R & F; R & F funded NABS so the project could be completed. Cudd accepted 28 modules under Schedule #1 and 32 modules under Schedule #2; R & F was not a signatory to the original lease and Cudd did not consent to the assignment/sale.
- RPC (Cudd’s parent) guaranteed Cudd’s payment obligations to R & F; NABS was not a party to that guaranty.
- The City annexed the property and enacted regulations terminating or limiting workforce-housing permits, culminating in denial/expiration of Cudd’s County-issued permit effective July 1, 2016; Cudd treated the lease as terminated by operation of law.
- District court dismissed R & F’s claims and granted Cudd’s and RPC’s counter-/cross-claims; R & F appealed arguing the Lease was a finance lease (or alternatively that impossibility/frustration doctrines did not apply). The Supreme Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Lease is a statutory "finance lease" | R & F: transaction (including its funding, assignment, bill of sale, schedules) converted the deal into a finance lease with R & F as lessor | Cudd/RPC: NABS manufactured/supplied modules; R & F did not acquire goods in connection with the lease and was not a party to the lease | Not a finance lease — NABS supplied/manufactured modules and R & F did not acquire them "in connection with" the lease |
| Whether assignment, schedules, guaranty transform the Lease into a finance lease | R & F: schedules, assignment, guaranty, and parties’ conduct show a three‑party finance lease | Cudd/RPC: R & F wasn’t party to the Lease, assignment, or bill of sale weren’t approved by Cudd; guaranty not a contract between NABS and guarantor | Court: schedules consistent with Lease and didn’t override the Lease’s commercial-lease characterization; assignment/guaranty not integrated into the Lease as contracts between the original lessee and R & F |
| Whether doctrines of frustration of purpose / impossibility excuse performance | R & F: annexation/permit changes were foreseeable; doctrine should not excuse performance | Cudd/RPC: City annexation and regulatory changes substantially frustrated the Lease’s principal purpose (employee housing) and were not Cudd’s fault | Court: frustration of purpose applies — annexation and permit termination substantially frustrated Cudd’s principal purpose; no clear error in finding non‑occurrence was a basic assumption; need not decide impossibility |
Key Cases Cited
- Big Pines, LLC v. Baker, 940 N.W.2d 616 (contract interpretation rules; ascertain intent from unambiguous writing)
- City of Harwood v. City of Reiles Acres, 859 N.W.2d 13 (frustration of purpose doctrine recognized and discussed)
- WFND, LLC v. Fargo Marc, LLC, 730 N.W.2d 841 (application of frustration/impossibility principles)
- Silbernagel v. Silbernagel, 800 N.W.2d 320 (use of frustration doctrine to avoid contractual claims)
- Metcalf v. Security Int’l Ins. Co., 261 N.W.2d 795 (construction of related contracts and when later instruments supersede)
- Tallackson Potato Co. v. MTK Potato Co., 278 N.W.2d 417 (Restatement-based discussion of frustration/non-occurrence as basic assumption)