Big Pines, LLC v. Baker

• Decision Date: 20 April 2021
• Docket Number: No. 20200237,20200237
• Citation: 958 N.W.2d 480
• Parties: BIG PINES, LLC, Plaintiff, Appellee, and Cross-Appellant v. Biron D. BAKER, M.D., and Biron D. Baker Family Medicine PC, Defendants, Appellants, and Cross-Appellees
• Court: North Dakota Supreme Court

958 N.W.2d 480

BIG PINES, LLC, Plaintiff, Appellee, and Cross-Appellant

v.Biron D. BAKER, M.D., and Biron D. Baker Family Medicine PC, Defendants, Appellants, and Cross-Appellees

No. 20200237

Supreme Court of North Dakota.

FILED APRIL 20, 2021

Grant T. Bakke (argued) and Shawn A. Grinolds (on brief), Bismarck, ND, for plaintiff, appellee, and cross-appellant.

Mark R. Western (argued), Fargo, ND, and James W. Martens (appeared), Bismarck, ND, for defendants, appellants, and cross-appellees.

Crothers, Justice.

[¶1] Biron D. Baker Family Medicine, PC and Biron D. Baker, M.D., appeal from a district court judgment awarding Big Pines, LLC attorney's fees and costs. We affirm and remand for consideration of attorney's fees on appeal.

I

[¶2] In 2011, Baker Medicine signed an agreement to lease commercial property from Phoenix M.D., L.L.C. Baker executed the lease personally and for Baker Medicine as its president. The lease contained a personal guaranty, which in pertinent part stated:

"[T]he Guarantor absolutely and unconditionally guarantees prompt and satisfactory performance of the lease agreement, in accordance with all of its terms and conditions ... If the Tenant should default in performance of its obligations under the lease agreement according to it's [sic] terms and conditions, the Guarantor shall be liable to the Landlord for all expenses, costs, and damages that the Landlord is entitled to recover from the Tenant, including, to the extent not prohibited by law, all costs and attorneys’ fees incurred in attempting to realize upon this guaranty."

Baker Medicine allegedly vacated the premises several months prior to the end of the lease and in a damaged condition. Phoenix subsequently sold the building to Big Pines. Phoenix assigned its interest in the lease to Big Pines as part of the sale.

[¶3] Big Pines sued alleging breach of the lease by Baker Medicine and breach of the personal guaranty by Baker. On May 13-15, 2019, a jury trial was held. On May 15, 2019, the jury found Baker Medicine and Baker breached the lease and awarded Big Pines $18,750 in damages. Big Pines later moved for an award of attorney's fees under the personal guaranty. On July 1, 2019, the district court denied Big Pines’ request, concluding the personal guaranty was not assigned to Big Pines.

[¶4] Big Pines appealed the district court's interpretation of the lease and personal guaranty, and its denial of attorney's fees. Big Pines, LLC v. Baker , 2020 ND 64, 940 N.W.2d 616. This Court reversed and remanded the case for an award of attorney's fees in favor of Big Pines. Id. at ¶¶ 1, 20.

[¶5] On April 14, 2020, Big Pines moved for attorney's fees totaling $108,567.50, as well as any future fees and costs until the case is "fully and finally dismissed." On July 27, 2020, the court held an evidentiary hearing on Big Pines’ motion. On August 5, 2020, the court granted Big Pines’ motion and ordered that Baker and Baker Medicine pay Big Pines $103,138. Judgment was entered on August 19, 2020, after which Baker and Baker Medicine made a timely appeal.

II

[¶6] Baker and Baker Medicine argue the district court erred in calculating the recoverable amount of attorney's fees incurred by Big Pines. Baker and Baker Medicine claim awarding any attorney's fees to Big Pines was inappropriate because the litigation to enforce the lease was not an attempt to "realize upon the guaranty" as required by the agreement. To address this issue, we first must understand the nature of Baker's personal guaranty.

[¶7] The liability of a guarantor will not extend beyond the plain and certain import of the contract of guaranty. Gen. Elec. Credit Corp. of Tenn. v. Larson , 387 N.W.2d 734, 736 (N.D. 1986). The language of a contract is to govern if the language is clear and explicit and does not involve an absurdity. N.D.C.C. § 9-07-02. "The whole of the contract is to be taken together so as to give effect to every part if reasonably practicable. Each clause is to help interpret the others." N.D.C.C. § 9-07-06. "Technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless clearly used in a different sense." N.D.C.C. § 9-07-10. To determine the meaning of the phrase "to realize upon" the specifics of this guaranty, it is necessary to evaluate the guaranty as a whole. See N.D.C.C. § 9-07-06.

A

[¶8] "The law recognizes two distinct types of guaranty: a guaranty of collection (or conditional guaranty) and a guaranty of payment (or unconditional guaranty)." Chahadeh v. Jacinto Medical Grp., P.A. , 519 S.W.3d 242, 246 (Tex. App. 2017) (citing Cox v. Lerman , 949 S.W.2d 527, 530 (Tex. App. 1997) ). This Court has recognized the distinction between a guaranty of payment and a guaranty of collection, stating:

"The fundamental distinction between a guaranty of payment and one of collection is that, in the first case, the guarantor undertakes unconditionally that the debtor will pay, and the creditor may, upon default, proceed directly against the guarantor without taking any step to collect of the principal debtor, ... while, in the second case, the undertaking is that, if the demand cannot be collected by legal proceedings, the guarantor will pay, and consequently legal proceedings against the principal debtor and a failure to collect of him by those means are conditions precedent to the liability of the guarantor, ..."

Bank of Kirkwood Plaza v. Mueller , 294 N.W.2d 640, 644 (N.D. 1980) ; State Bank of Burleigh Cty. v. Porter , 167 N.W.2d 527, 532-33 (N.D. 1969).

[¶9] A guaranty of the payment of debt is different than a guaranty of collection—the former being absolute and the latter being conditional. See Brown v. Hederman Bros., LLC , 207 So.3d 698, 702-03 (Miss. Ct. App. 2016) (explaining the contrasts between a guaranty of collection and one of payment, the former allowing the creditor to "seek performance from the guarantor only after the occurrence of some condition," while the latter "is one that requires no condition precedent to its enforcement against the guarantor other than mere default by the principal debtor ..."); CoastalStates Bank v. Hanover Homes of South Carolina, LLC , 408 S.C. 510, 759 S.E.2d 152, 157 (S.C. Ct. App. 2014) ("A guaranty of payment is an absolute or unconditional promise to pay a particular debt if it is not paid by the debtor at maturity."); R.B. Cronland Bldg. Supplies, Inc. v. Sneed , 162 N.C.App. 142, 589 S.E.2d 891, 893 (2004) ("A guaranty of payment is an absolute promise by the guarantor to pay the debt at maturity if it is not paid by the principal debtor."); AMA Mgmt. Corp. v. Strasburger , 309 S.C. 213, 420 S.E.2d 868, 872 (S.C. Ct. App. 1992) (A guaranty of payment "is a personal obligation running directly from the guarantor to the creditor which is immediately enforceable against the guarantor upon default of the debtor."). A guaranty of payment binds the guarantor to pay the debt at maturity. Kee v. Lofton , 12 Kan.App.2d 155, 737 P.2d 55, 59 (1987). A guaranty to secure "due and punctual performance and payment" is a guaranty of payment. Tenet Healthsystem TGH, Inc. v. Silver , 203 Ariz. 217, 52 P.3d 786, 789-90 (Ariz. Ct. App. 2002). On the debtor's default, the underlying obligation becomes fixed and the creditor need not make a demand on the principal debtor before pursuing the guarantor. See Sneed , 589 S.E.2d at 893 (In a guaranty of payment, "[t]he obligation of the guarantor is separate and independent from the obligation of the principal debtor, and the creditor's cause of action against the guarantor ripens immediately upon failure of the principal debtor to pay the debt at maturity."); Marine Midland Bank, N.A. v. Elshazly , 753 F.Supp. 20, 23 (D. Conn. 1991) ("Under a guaranty of payment contract, the [creditor] need not prove that it proceeded against [debtor], nor unsuccessfully sought payment from [debtor] prior to this suit against [guarantor].").

[¶10] In contrast to a guaranty of payment, a guaranty of collection is a promise that the guarantor will pay the creditor if the creditor cannot collect the claim from the principal debtor, generally following suit against that debtor. See Forsyth Cty. Hosp. Auth. Inc. v. Sales , 82 N.C.App. 265, 346 S.E.2d 212, 214 (1986) ("A guaranty of collection is distinguished from a guaranty of payment in that the former is a promise by the guarantor to pay the debt only on the condition that the creditor first diligently prosecute the principal debtor without success."). Such a guaranty conditions liability on the creditor exhausting remedies against the debtor. See Park Bank v. Westburg , 348 Wis.2d 409, 832 N.W.2d 539, 551 (2013) ("Unlike a guaranty of collection, a guaranty of payment does not condition liability upon the creditor exhausting remedies against the debtor.").

[¶11] This Court has concluded a guaranty was absolute based on the following language: "This Guaranty is an absolute and completed one and shall be a continuing one." Wallwork Lease and Rental Co., Inc. v. Decker , 336 N.W.2d 356, 358 (N.D. 1983). In Wallwork , we held "[t]he underscored language of the guaranty agreement affirms that this is an absolute guaranty, and, accordingly, liability becomes fixed upon default of the debtor." Id. To create a conditional guaranty, the drafter must include language creating a condition precedent to the guarantee's ability to proceed against the guarantor. See Citizens’ State Bank of Rugby v. Lockwood , 32 N.D. 381, 156 N.W. 47, 52 (1915) ("We look in vain for any expression in the contract itself ... to show that the parties to this agreement intended ... to constitute a guaranty of collection, or any form of indemnity against loss importing the performance by plaintiffs of any condition precedent to the liability of the defendants."); Hawaii Leasing v. Klein , 5 Haw.App. 450, 698 P.2d 309, 313 (1985) ("Here, the contract of guaranty was conditional since Defendants’ liability was contingent upon Plaintiff...