Summary
The North Dakota Supreme Court affirmed the dismissal of Sterling Development Group Three, LLC and Sterling Development Group Eight, LLC’s action against James D. Carlson to enforce personal guarantees for unpaid commercial lease rent. The court held that alterations to the leases’ janitorial-service obligations, made without Carlson’s knowledge or consent, exonerated him under N.D.C.C. § 22-01-15. The court also upheld the district court’s discretionary award of $7,069.30 in costs and disbursements to Carlson.
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Practice areas
Questions Presented
- Whether changes to the lease arrangement concerning janitorial services altered the principal's original contractual obligations without Carlson's knowledge or consent and therefore exonerated him from liability under the personal guarantees.
- Whether the district court abused its discretion in awarding Carlson costs and disbursements, including deposition-transcript costs, document-conversion expenses, a trial transcript used to prepare a closing brief, and an expert witness fee for an expert who did not testify.
Holdings
- A guarantor is exonerated when, without the guarantor's consent, the creditor alters the principal's original obligation in any respect. The district court's finding that the Sterling companies and Cetero altered the contractual arrangement for janitorial services without Carlson's knowledge or consent was not clearly erroneous, so Carlson was exonerated from his guarantee obligations.
- The district court did not abuse its discretion in awarding Carlson $7,069.30 in costs and disbursements, including the challenged deposition-transcript costs, document-conversion expenses, trial-transcript expense, and expert-witness fee.
Key quotations
“To be exonerated, a guarantor need not be injured by an alteration in the principal’s obligation.” (¶ 7)
“The purpose of contract interpretation is to find the “mutual intention of the parties as it existed at the time of contracting.”” (¶ 13)
Factual background
Sterling Development Group Three leased a building in East Grand Forks, Minnesota, to PRACS Institute, Ltd., and Sterling Development Group Eight later leased PRACS an expansion. James D. Carlson, PRACS's president, executed personal guarantees for both leases. After Carlson sold PRACS to Contract Research Solutions, Inc., also known as Cetero, the Sterling companies and Cetero changed the parties' arrangement for janitorial services, and Cetero eventually stopped paying rent after entering bankruptcy. The Sterling companies sought more than $600,000 from Carlson under the guarantees.
Procedural history
After Cetero, the successor to PRACS, filed bankruptcy and the bankruptcy trustee rejected the leases and stopped paying rent, the Sterling companies sued Carlson on two personal guarantees. Following a bench trial, the Cass County District Court dismissed the action after finding that the lease obligations had been altered without Carlson's knowledge or consent and awarded Carlson $7,069.30 in costs and disbursements. The North Dakota Supreme Court affirmed the judgment and order.