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McNally v. Capital Cartage, Inc.

Supreme Court of Wisconsin

May 10, 2018

Mark McNally, Plaintiff-Respondent,
v.
Capital Cartage, Inc. d/b/a Capital Cartage Moving & Storage, Defendant-Appellant-Petitioner, Mary R. Hermanson, Defendant.

          ORAL ARGUMENT: January 17, 2018

          Circuit Court Dane County (L.C. No. 2014CV1624) Juan B. Colas Judge

         REVIEW OF DECISION OF THE COURT OF APPEALS Reported at 375 Wis.2d 798, 899 N.W.2d 738 (2017 - unpublished)

          For the defendant-appellant-petitioner, there were briefs filed by Nicole S. Schram, Cathleen A. Dettmann, Kevin J. Palmersheim, and Haley Palmersheim, S.C., Middleton. There was an oral argument by Cathleen A. Dettmann.

          For the plaintiff-respondent, there was a brief filed by Robert C. Procter, III, with whom on the brief were Justin H. Lessner, and Axley Brynelson, LLP, Madison. There was an oral argument by Robert C. Procter, III.

          An amicus curiae brief was filed on behalf of Wisconsin Realtors Association by Debra P. Conrad and Wisconsin Realtors Association, Madison.

          ANN WALSH BRADLEY, J.

         ¶1 The petitioner, Capital Cartage, Inc. (Capital Cartage), seeks review of an unpublished decision of the court of appeals affirming the circuit court's determination that real estate broker Mark McNally (McNally) is entitled to a commission pursuant to the listing contract between the parties.[1] Contrary to the court of appeals' determination, Capital Cartage asserts that McNally is not entitled to a commission because the offer to purchase McNally procured contains substantial variances from the seller's terms as set forth in the listing contract.

         ¶2 Specifically, Capital Cartage argues that three terms in the offer to purchase constitute substantial variances from the listing contract. Among these is a dispositive condition that Mary Hermanson, one of Capital Cartage's owners, continue to work for the business without pay for an undetermined period of time following the sale.

         ¶3 Capital Cartage further asserts that the court of appeals erroneously interpreted Libowitz v. Lake Nursing Home, Inc., 35 Wis.2d 74, 150 N.W.2d 439');">150 N.W.2d 439 (1967) . It alleges that Libowitz did not, as the court of appeals concluded, alter the standard for determining whether a substantial variance exists as set forth by Kleven v. Cities Serv. Oil Co., 22 Wis.2d 437, 126 N.W.2d 64');">126 N.W.2d 64 (1964) .[2] Therefore, it contends that McNally is not entitled to a commission because he did not procure an offer to purchase "at the price and on substantially the terms set forth" in the listing contract.

         ¶4 We conclude first that Kleven remains the law of this state with regard to determining whether a substantial variance exists between a listing contract and an offer to purchase. Although a term of the offer to purchase that is directly in conflict with the listing contract is a substantial variance, it is not the sole manner in which substantial variance may be shown. Kleven offered direct contradiction as an example, not as a limitation.

         ¶5 Applying this standard, we conclude that in the context of the sale of a business with real estate where the sale did not go through, the condition in the offer to purchase that Mary Hermanson continue to work for Capital Cartage without pay constitutes a substantial variance from the listing contract as a matter of law. Consequently, we determine that McNally did not procure an offer to purchase "at the price and on substantially the terms set forth" in the listing contract and therefore is not entitled to a commission.

         ¶6 Accordingly, we reverse the court of appeals.

         I

         ¶7 Mary and Rolyn Hermanson own Capital Cartage, a moving and storage business. Seeking to retire and sell the business with real estate, Mary Hermanson (Hermanson) met with McNally, a real estate broker. As a result of this meeting, McNally drafted a listing contract. He used the standard state form listing contract, labeled as a WB-6 Business Listing Contract.

         ¶8 The listing contract contained a provision setting forth the requirements that must be met for the broker to earn a commission. In relevant part, the contract provides:

Seller shall pay Broker's commission, which shall be earned if, during the term of this Listing . . . [a]n offer to purchase is procured for the Business or included property by the Broker, by Seller, or by any other person, at the price and on substantially the terms set forth in this Listing and the standard provisions of the current [state form offer to purchase. ]

         ¶9 The asking price for the business with real estate as reflected in the listing contract was $1.2 million.[3]Approximately three weeks after the listing contract was executed, McNally procured an offer to purchase Capital Cartage from Steven Erickson (Erickson).

         ¶10 Prior to submitting an offer to purchase, Erickson presented a letter of intent to Hermanson. The letter of intent included, among others, the following three conditions for the sale:

Lender required good faith deposit (approximately $7, 500 for appraisal and other costs) is split between seller and buyer once financing is fully approved, commitment letter issued and appraisal ordered. Seller to be reimbursed in full for good faith deposit at closing.
Covenant agreements not to compete signed by Mary and Rolyn Hermanson (prior to close) [.]
Mary and Rolyn Hermanson agree to operate business as normal until acquisition takes place and for Mary to stay on full time and without pay for period outlined in proposed structure.[4]

         ¶11 Hermanson, dissatisfied with the letter of intent, sent an email to McNally objecting to the $1.2 million sale price. Instead, Hermanson sought a $1.4 million sale price.

         ¶12 As the letter of intent foreshadowed, Erickson's offer to purchase was for a price of $1.2 million. The offer to purchase was presented on the standard state form "WB-16 Offer to Purchase - Business with Real Estate." Erickson, however, included an additional page, labeled as "Addendum A, " which consisted of the last page of the letter of intent. Addendum A listed conditions for the sale, which included the three above conditions at issue here.

         ¶13 After receiving the offer, Mary and Rolyn Hermanson rejected the offer in a letter from their counsel to McNally. The letter stated in part:

Capital Cartage, Inc., has just concluded its Special Meeting of Shareholders at my office this afternoon. The Wisconsin statutes require that a majority vote of the shareholders is necessary to sell the business. The vote was called and the motion to approve the offer to purchase failed to achieve a majority of the shareholders' votes. Capital Cartage has decided not to sell its business at this time.

         Hermanson did not provide any other reason for rejecting the offer.

         ¶14 Subsequently, McNally filed this lawsuit, alleging that Capital Cartage owed him a commission of $72, 000 pursuant to the listing contract. He asserted that he had procured an offer "at the price and on substantially the terms set forth in this Listing[.]"

         ¶15 Capital Cartage answered the complaint and subsequently moved for judgment on the pleadings. It argued that no commission was due as a matter of law because there were substantial variances between the listing contract and the offer Erickson submitted. Capital Cartage cited six alleged variances, including the three conditions at issue.[5]

         ¶16 The circuit court denied the motion for judgment on the pleadings, explaining:

Whether the offer varies substantially from the terms of a listing contract is a question of fact that is in dispute in the pleadings. Though the listing contract and the offer are undisputed and are part of the pleadings, whether the variances are substantial may depend upon other relevant facts concerning the transaction or the nature of the business being sold. The inclusion of some conditions in an offer may be a substantial variance in some circumstances and not in others [ . ]

         ¶17 The case proceeded to trial. As indicated in the circuit court's decision denying the motion for judgment on the pleadings, one of the issues at trial was whether the offer to purchase contained substantial variances from the listing contract.

         ¶18 At the jury instruction conference, following extensive discussion, the circuit court determined as a matter of law that the three conditions at issue were not substantial variances from the listing contract. The circuit court reasoned:

And I think 'substantial variance' has to mean inconsistent with or in direct conflict with. I don't think it can just be any variance, even any difference at all-any difference at all between the listing contract and the offer. Not every variance is a substantial one. And where there's nothing in the contract on a topic and the offer proposes something, that's not a substantial variance as I read the case law.

         ¶19 Accordingly, the circuit court instructed the jury that "[t]he court has determined that as a matter of law that the provisions in the offer to purchase that the sellers share in the costs of appraisal, that the Hermansons sign non-compete agreements and that Ms. Hermanson continue to work for Capital Cartage after the sale are not substantial variances." The jury found in McNally's favor, requiring Capital Cartage to pay his commission.

         ¶20 Capital Cartage appealed, arguing that the circuit court erred by denying its motion for judgment on the pleadings. It further contended that the circuit court erred at the jury instruction conference by concluding, as a matter of law, that the three conditions at issue were not substantial variances from the listing contract.

         ¶21 The court of appeals affirmed the circuit court's entry of judgment on the jury's verdict. McNally v. Capital Cartage, Inc., No. 2015AP2627, unpublished slip op. (Wis. Ct. App. Apr. 27, 2017) . In an unpublished decision, the court of appeals concluded "that a substantial variance in this context is limited to variances in offers that directly conflict with express terms in the corresponding listing contract." Id., ¶3.

         II

         ¶22 Capital Cartage argues that the circuit court erred by denying its motion for judgment on the pleadings and in the alternative, by instructing the jury that the three conditions at issue are not substantial variances as a matter of law.

         ¶23 A judgment on the pleadings is essentially a summary judgment decision without affidavits and other supporting documents. Jares v. Ullrich, 2003 WI.App. 156, ¶8, 266 Wis.2d 322, 667 N.W.2d 843. We determine first whether the complaint has stated a claim. Id. If so, we next examine the responsive pleading to ascertain whether an issue of material fact exists. Id. Judgment on the pleadings is proper only if there are no genuine issues of material fact. Town of Windsor v. Vill. of DeForest, 2003 WI.App. 114, ¶5, 265 Wis.2d 591, 666 N.W.2d 31.

         ¶24 A factual issue is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Physicians Plus Ins. Corp. v. Midwest Mut. Ins. Co., 2002 WI 80, ¶18, 254 Wis.2d 77, 646 N.W.2d 777 (citing Baxter v. DNR, 165 Wis.2d 298, 312, 477 N.W.2d 648 (Ct. App. 1991)). Whether judgment on the pleadings should be granted is a question of law we review independently of the determination made by the circuit court and court of appeals. Jares, 266 Wis.2d 322, ¶8.

         ¶25 Likewise, whether jury instructions accurately state the applicable law presents a question of law which we review independently of the determinations rendered by the circuit court and court of appeals. State v. Beamon, 2013 WI 47, ¶18, 347 Wis.2d 559, 830 N.W.2d 681.

         ¶26 The court of appeals correctly observed that the resolution of these two issues hinges on the same legal question: whether the three conditions in the offer to purchase are substantial variances from the terms of the listing contract. McNally, No. 2015AP2627, ¶17. Thus, as did the court of appeals, we address this single question. We answer the question only in the context of a sale of a business with real estate where the sale did not go through.[6]

         III.

         ¶27 We begin our analysis by setting forth the evolution of the law regarding "substantial variance" between a listing contract and an offer to purchase. Next, we clarify the standard under which courts are to determine questions of substantial variance. Finally, we examine the conditions in the offer to purchase, applying the law as set forth.

         A

         ¶28 Our examination of the law begins in 1944, with this court's decision in Moss v. Warns, 245 Wis. 587, 15 N.W.2d 786 (1944). In Moss, a seller of residential property entered into a listing contract with a broker. Id. at 588-89. The broker procured an offer to purchase the property. Id. at 589. Stating only, "[w]e decided not to sell. [A co-owner] would not consent to it, " the seller rejected the offer. Id.

         ¶29 After the broker brought suit seeking a commission pursuant to the terms of the listing contract, the seller raised as a defense alleged "discrepancies between some of the terms of sale specified in the listing agreement and the terms stated in [the] offer to purchase[.]" Id. at 590-91. The court concluded that the seller had waived any objection to the alleged discrepancies because the seller did not bring the discrepancies to the broker's attention when initially rejecting the offer. Id. at 591-92.

         ¶30 Moss thus established a rule that " [r] egardless of whether the principal, at the time of his refusal to consummate the transaction, states some grounds or no grounds for such refusal, a particular ground not specified by him at the time is waived and cannot be urged by him when sued [by a broker] for a commission." Id. at 591 (citing 12 C.J.S., Brokers, p. 224, § 95) . In other words, the Moss court concluded that, in order for sellers to rely on discrepancies between the terms of an offer to purchase and the terms of a listing contract to relieve them from paying a broker's commission, sellers must bring their objections to the broker's attention.

         ¶31 The holding in Moss was subsequently limited by this court's decision in Kleven, 22 Wis.2d 437. In Kleven, as in Moss, a seller rejected an offer to purchase without giving a reason for doing so. Id. at 441.

         ¶32 The Kleven court concluded that sellers could reject an offer to purchase without giving a reason and without triggering a broker's entitlement to a commission if there were "substantial" variances between the terms of the listing contract and the terms of the offer. Id. at 444. The court reasoned that an insubstantial variance should be brought to a broker's attention to give the broker an opportunity to correct it. Id.

         ¶33 However, where the variance is substantial, "such as one that is directly in conflict with a material provision of the listing contract, there has been no substantial performance by the broker which would entitle him to his commission, absent acceptance of the offer by the owner." Id. In that situation, the broker is chargeable with knowledge that the substantial variance exists when the offer is submitted. Id. Therefore, "the owner should be under no duty to point this variance out to the broker in rejecting the offer." Id.

         ¶34 This court purported to apply Kleven in Libowitz, 35 Wis.2d 74. The Libowitz court summarized the circumstances in which a seller will be relieved of paying a broker's commission following Kleven as follows:

Summarizing these rules as they apply to the case at hand, the complaint would be demurrable on the ground of failing to state a cause of action if, in spite of liberal construction principles, it alleged variations between the terms of the listing contract and the offer that were: 1. Substantial variations, i.e., 'directly in conflict with a material provision of the listing contract;' 2. Insubstantial, but called to the attention of the broker; or, 3. Insubstantial, but of such a nature that they could not have been remedied by the broker anyway.

Id. at 82-83.

         ¶35 The court of appeals in this case observed a difference in language between Kleven and Libowitz, to which it ascribed great import. Namely, Kleven used the phrase "such as" when explaining the meaning of "substantial variation, " while Libowitz employed "i.e." McNally, No. 2 015AP2 627, ¶28; Kleven, 22 Wis.2d at 444; Libowitz, 35 Wis.2d at 82.

         ¶36 In the court of appeals' estimation, the case turns on this linguistic idiosyncrasy. It observed, "[t]he Kleven court's use of 'such as' . . . indicated that there are variances that are substantial that do not involve a direct conflict between an offer and the listing contract. If the Kleven court had intended substantial variances to be limited to offer terms in direct conflict with listing terms, the sentence would read: 'where the variance is a substantial one, that is, one that is directly in conflict ..." McNally, No. 2015AP2627, ¶25.

         ¶37 Accordingly, the court of appeals concluded "the supreme court in Libowitz modified the Kleven substantial variance language by replacing 'such as' with 'i.e., ' thus, in our view, doing what Kleven did not do. That is, Libowitz limited 'substantial variances' to those involving a direct ...


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