1 

### IN THE SUPREME COURT STATE OF NORTH DAKOT A

2021 ND 1 2

R & F Financial Services, LLC, Plaintiff and Appellant

v. Cudd Pressure Control, Inc., and RPC, Inc., Defendants and Appellees

and

North Ame rican Building Solutions, LLC, Defendant

No. 20190287

Appeal from the District Court of Williams County, Northwest Judicial District, the Honorable Benjamen J

. Johnson , Judge.

AFFIRMED

. Opinion of the Court by Tufte , Justice.

Joseph A. Turman (argued) and Katrina A. Turman Lang (argued ) , Fargo, N

. D

., for plaintiff and appellant.

Trevor A. Hunter (argued) and Kent A. Reierson (on brief) , Williston, N

. D

., for defendants and appellees.1

R & F Financial Services v. North American Building Solutions No. 20190287

Tufte , Justice.

[¶1] R & F Financial Services , LLC, appeals from a district court order dismissing its claims against Cudd Pressure Control , Inc., and RPC , Inc., and granting Cudd’s and RPC’s counterclaims and cross claims. On appeal, R & F argues that the court erred in finding the Lease was not a finance lease and,
in the alternat iv e, that the court erred in finding the doctrines of impossibility of performance and frustration of purpose to be inapplicable. We affirm.

I

[¶2] North American Building Solutions, LLC (“NABS”) and Cudd Pressure Control, Inc. (“Cudd”) became associated with each other when NABS managing member James Morken “stopped in at Cudd[ ’ s]” business location. On August, 30, 2011, Cudd and NABS entered into a lease agreement (the “Lease”) whereby Cudd agree d to lease from NABS 60 temporary housing modules. Pursuant to the agreement, NABS agreed to deliver and construct
the modules on certain real property located in Williams County. The terms of the Lease required Cudd, at its sole expense, to obtain any con ditional use permits, variances or zoning approvals “required by any local

, city, township, county or state authorities

, which are necessary for the installation and
construction of the modules upon the Real Property.” The Lease was set to
commence followi ng substantial completion of the installation of all the
modules and was to expire 60 months following the c ommencement d ate. Originally, NABS wanted to sell the modules to Cudd, but Cudd did not want to fund the project and wanted to lease the modules

.
[¶3] On April 18, 2012, Cudd accepted 28 modules from NABS pursuant to the Acceptance and Lease Schedule #1 (“Schedule #1”) ; NABS assigned its
interest in the Lease to R & F ; and NABS sold the modules to R & F by a bill
of s ale. Cudd was no t a party to the assi gnment or bill of s ale

, and Schedule #1
did not mention either document

. R & F had purchased NABS’s interest in the
L ease to provide funding so that NABS would have the capital to complete the2

project. On June 28, 2012, Cudd accepted the final 32 modules f rom NABS pursuant to the Acceptance and Lease Schedule #2 (“Schedule #2”), to which
R & F was not a party. NABS and Cudd ag reed that the new commencement d ate under the Lease was June 23, 2012.

[¶4] RPC, as the parent company of Cudd, guaranteed Cudd’s perform ance of payment obligations to R & F under section 4 of the Lease . NABS was not a party to the g uaranty. There is nothing in the record showing that Cudd or
RPC consented to NABS ’ s assignment of its interest in the Lease and sale of
the modules to R & F . T he Lease was for a set term and did not contain an option for Cudd to purchase the modules at the expiration of that set term. Paragraph 23 of the Lease provides that “in connection with such interpretation and enforcement, this Lease shall be deemed to be a commercial
lease.”

[¶5] At the time R & F purchased NABS ’s interest in the Lease, it understood the purpose of the Lease was to fulfill Cudd’s need for employee housing. Given the layout of the modules , they were designed for and had limited uses other than housing. Cudd used the modules strictly for housing as required by the Lease. The County required a c onditional u se p ermit for workforce housing

, and Cudd had been issued a permit allowing for the us e of the modules as workforce housing. On May 24, 2012, the City of Williston annexed, among other properties, the Property into the City’s corporate limits.

[¶6] In September of 2013, the City adopted Resolution 13

- 127
, which applied to all workforce housing f acilities subject to the City’s jurisdiction

, and declared that all workforce housing wa s temporary and extension of permits w as subject to review and requirements. Therefore, a workforce housing facility could legally operate in the City post

- annexation u ntil its County

- issued permit expired. Permits could be extended for a period of 24 months, assuming certain requirements were met. In December of 2013, the City modified the expiration date policy and extended all approvals for workforce housing facilitie s to December 31, 2015, such that all permits would expire the same day.3

[¶7] In September of 2015, the termination date for all workforce housing
facilit y permits was again extended to July 1, 2016, by motion. Ordinance No. 1026 codified the September motion, and under it, an existing workforce housing facility had to have been in full compliance with the City in order to be eligible for the extension. In December of 201 5 , Cudd complied with the se requirements

, and the City extended Cudd’s permit for the maximu m time permitted to July 1, 2016. Cudd sent a letter to NABS stating that i t viewed the Lease as being terminated by operation of law as of July 1, 2016.

II

[¶8] Whether the transaction was a commercial lease or a finance lease is a question of law. This Court ha s stated the standard of review in interpreting
contracts as follows:

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 invol ve 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.

Big Pines, LLC v. Baker

, 2020 ND 64, ¶ 7
, 940 N.W.2d 616

. At oral argument, the parties agreed that the Lease is unambiguous.

III

[¶9] “Finance l ease” is defined by statute as a lease in which:

(1) The lessor does n ot select, manufacture, or supply the goods;4

(2) The lessor acquires the goods or the right to possession and use of the goods in connection with the lease; and

(3) ( a ) The lessee receives a copy of the contract by which the lessor acquired the goods or the ri ght to possession and use of the goods before signing the lease contract;

( b ) The lessee’s approval of the contract by which the lessor acquired the goods or the right to possession and use of the goods is a condition to effectiveness of the lease contract ;
(c) The lessee, before signing the lease contract, receives an accurate and complete statement designating the promise s and warranties, and any disclaimers of warranties, limitations, or modifications of remedies, or liquidated damages, including those o f any third party such as the manufacturer of the goods, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; or . . .

. N.D.C.C. § 41

- 02.1

- 03 (1) (g). R & F argu es i t is the lessor of a finance lease to
which Cudd is the lessee. R & F argues “that the transaction between NABS and Cudd, both at the outset and following the injection of funding by R & F

, constituted a finance lease.” The first element of a finance lease as defined by
statute is that the “ lessor does not select, manufacture, or supply the goods.” N.D.C.C. § 41

- 02.1

- 03(1) (g) (1) . Here, NABS both manufactured and supplied the goods. Addition ally, the official comment to subsection (g) states, “ A finance lease is the product of a three party transaction.” N.D.C.C. § 41

- 02.1

- 03(1)(g)

cmt

. At the outset of the transa ction, the only parties to the L ease were Cudd and NABS. Therefore, the transact ion, at the outset, was not a finance lease.

[¶10] After R & F funded the transaction, it still d id not qualify a s a finance
lease. R & F met the first requirement under the statute because it did not select, manufacture, or supply the modules

. R & F , however, acquired the modules through the bill of sale not involving Cudd months after the Lease had been signed. The example contained in official comment (g) finds that a lessor acquires the goods in connection with the lease when the lessor purchases the goods s imultaneously with leasing them back to the seller. NABS had already5

built and delivered to Cudd 28 modules prior to receiving any funds from R & F under the assignment. The managing partner of NABS testified that it needed the financing in order to honor its commitment to Cudd and that a failure to acquire funding could ha ve resulted in a breach of the L ease. On this record,
we conclude

, R & F did not acquire the modules in connection with the Lease.

[¶11] In defense of its argument that R & F ’s fund ing transformed the
transaction into a finance lease, R & F points to the extensive ex perience of its principals with finance leasing

. Official c omment (g) states: “Unless the lessor is comfortable that the transaction will qualify as a finance lease, the lea se agreement should include provisions giving the lessor the benefits created by the subset of rules applicable to the transaction that qualifies as a finance lease under this Article.” N.D.C.C. § 41

- 02.1

- 03 (1) (g) cmt

. R & F argues that it would
have included such a statement if it had not been comfortable that the transaction would qualify as a finance lease. The Lease stated that “in connection with such interpretation and enforcement, this Lease shall be
deemed to be a commercial lease.” The official comment counsels that n either
R & F n or its principals sh ould have been comfortable that an agreement
which stated it “ sh all be deemed to be a commercial lease ” would qualify as a
finance lease

.
[¶12] R & F argues that the schedules, assignment, and guarantee transform
the Lease into a finance lease. A s part of a single transaction, a ll contracts entered into by NABS and Cudd must be construed together, and only the provision s in the latter contracts which are inconsistent with the prior
contracts wi ll supersede. N.D.C.C. § 9

- 07

- 07; Metcalf v. Security Int’l Ins. Co.

, 261 N.W

. 2d 795, 800 (N.D. 1977) (citations omitted). Those provisions in all
the contracts which are not inconsistent remain effective and must be construed together. Id.

[¶13] Here, Schedule #1 entered into by NABS and Cudd acknowledge d Cudd ’s accept ance of the first 28 modules and establish ed t hat prorated rent would be
due “ per unit until the Commencement Date of the Lease

. ” This is consistent
with the terms of the Lease which state, “Lessor shall notify Lessee as each individual module is completed and ready for occupancy, at which time Lessee6

shall be entitled to take possession of such completed module. Upon taking possession of each individual module, Lessee shall begin paying Lessor pro rata rent as set forth in paragraph 4(a) of this Lease.” Schedule #1 acknowled ged that prorated rent for the 28 completed modules commenc ed on April 16, 2012. This schedule further provides that it “forms a part of a Lease between NABS
and Cudd dated : Augu st 30 th , 2011.” While Schedule #1 states that the prorated rent payments are to be made to R & F

, it was not a party to the
schedule. T his schedule update d the lease to reflect a new timeline, stat ing that “the Modules will be constructed and installed in a continuous construction phase of approximately three (3) months . . .

. ” Schedule #1 is
inconsistent with and supersedes the Lease only to the extent that it acknowledged the delay in installation a nd construction of the modules and provided that all rent payments due under Schedule #1 and the Lease were to be paid to R & F instead of NABS

.
[¶14] Schedule #2 is an acceptance of the final 32 modules and specifies a
commencement date of J une 23, 2012. This schedule states, “Prorated rent on the modules is due and owing from the date of occupancy of the individual modules by Cudd,” which is consistent with the Lease. C udd again acknowledge s that all rent payments shall be paid to R & F

. Sch edule #2 is not
inconsistent with the Lease or Schedule #1

. Fu rther, neither schedule
override s the provision in the Lease that states it is to be construed as a
commercial lease.

[¶15] R & F also argues the Lease must be interpreted together with the guaranty

. The guaranty states that “the undersigned RPC, Inc., (the ‘Guarantor’) hereby guaranties to R & F the performance of Cudd’s payment obligations to R & F under S ection 4 of the above

- referenced Lease Agreement.” NABS is not a party to the guarant y , and ther efore the Lease cannot be construed together with the guaranty

. N.D.C.C. § 9

- 07

- 07. Similarly

, Cudd was not a party to the assignment or the bill of sale and did not approve
either of them . Therefore, the assignment and bill of sale are not contract s betwe en the se parties and the Lease cannot be construed together with those
documents

.7

[¶16] R & F argues that, at the very least, the Lease should be deemed
severable or divisible and a finance lease was created as to the 32 modules accepted under Schedule #2

. This argument was not raised to the district court

, was not expressly considered by the court, and we do not address it here

.
[¶17] R & F argue s that if the transaction is not a finance lease, the court erred in finding that the doctrines of impossibility of performa nce and frustration of purpose were applicable. The district court’s order applied the same findings
of fact and conclusions of law to support its decision that both were applicable: that the annexation of the property by the City and the us e of the modules for housing becoming illegal was unforeseeable, and it was a basic assumption of the parties that these events would not occur.

[¶18] “ This Court has recognized the doctrine of frustration of purpose may be

us ed to avoid all or part of a contractual clai m. ” City of Harwood v. City of
Reiles Acres , 2015 ND 33 , ¶ 18

, 859 N.W.2d 13 (citing Silbernagel v. Silbernagel , 2011 ND 140, ¶ 13, 800 N.W.2d 320; WFND, LLC v. Fargo Marc,
LLC , 2007 ND 67, ¶ 18, 730 N.W.2d 841). The doctrine of frustration of purpose
is applicable when “after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the

non

- occurrence of which was a basic assumption on which the con tract was made.” WFND, LLC, 2007 ND 67, ¶ 18 ( quoti ng Tallackson Potato Co., Inc. v.
MTK Potato Co. , 278 N.W.2d 417, 424 n.6 (N.D. 1979) ); see also Restatement (Second) of Contracts § 265 (1981) (adopted version).

[¶19] Our cases cite favorably to the three requirements for frustration of

purpose descri bed in the Restatement

. City of Harwood

, 2015 ND 33

, ¶ 18 (citing Restatement (Second) of Contracts § 265 comment (a) (1981) ) . First, the purpose that is frustrated must have been “ a party’s principal purpose ” in making the contract. Id. Here, the terms of the Lease limited Cudd, without prior written consent of NABS, to using the modules for employee housing. Further, Morken testified that the modules were designed with laundry facilities, living spaces, kitchen s, bedrooms, and bathrooms. Cudd int ended to
and did use the modules for employee housing. Therefore, the principal purpose of the Lease was to provide housing for Cudd’s employees. Second, the8

purpose must be “ substantial ly frustrated .” Id. The Lease terms provided that
Cudd could not move the modules from the Property. The City’s regulations prevented Cudd from applying for the necessary p ermit and terminated all workforce housing inside the City’s jurisdiction , substantially frustrating
Cu dd’s use of the modules as workforce housing.

[¶20] Third, the non

- occurrence of the frustrating event must have been “ a basic assumption on which the contract was made. ” Id. ; Tallackson , 278
N.W.2d at 424 n. 6 (citing Restatement of Contracts 2d § 285, at 77 (Tent. Draft No. 9, 1974)). R & F argues that it was foreseeable at the time of contracting that the County may terminate workforce housing. “The foreseeability of the event is . . . a factor in that determination, but the mere fact that the event was foreseeable does not compel the conclusion that its non

- occurrence was not such a basic assumption.” Restatement (Second) of Contracts § 265 comment (a) (1981). Here, it was the combination of the C ity annexing the Pro perty and enacting its resolutions and ordinances which substantially frustrated Cudd’s purpose in entering into the Lease. Morken testified that the parties did not discuss a potential annexation of the Property by the City or that Cudd would
not b e able to apply for a conditional use p ermit. The Lease put the burden on Cudd to acq uire a p ermit , which require d that Cudd be able to apply for a permit

. Further, the Lease forb ade Cudd from using the modules for any thing other than employee housing without written consent, the modules were designed to be used for housing, and the Lease forb ade Cudd from moving the
modules off the Property. While the City’s actions may have been foreseeable, the district court finding s that it was a basic a ssumption of the parties that
such actions would not occur was not clearly erroneous . Lastly, the frustrated party must not be at fault. WFND, LLC , 2007 ND 67, ¶ 18 (citing Restatement (Second) of Contracts § 265 (1981)) . Here, Cudd did not petition the City to annex the Property and cease gra n ting permits for workforce housing. Therefore, Cudd was not at fault. The court did not err in concluding the doctrine of frustration applied. We need not reach the district court’s alternative rationale relying on the doctrine of impossibility.9 IV

[¶21] We affirm

.
[¶22] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte