from a judgment of the circuit court for Sheboygan County No.
2015CV656: L. EDWARD STENGEL, Judge.
Neubauer, C.J., Gundrum and Hagedorn, JJ.
This case concerns whether frustration of purpose relieved a
party of duties under a contract (as the circuit court held),
and whether stipulated damages in that contract were an
unreasonable and unenforceable penalty. We reverse.
Annapurna Marketing (AP Marketing) is a real estate holding
company created by friends and business partners Buddi Sebedi
and Basudev Adhikari to operate gas stations. Bulk Petroleum
Corporation is a real estate and petroleum marketing company.
In 2003, Bulk purchased a gas station in Sheboygan that is at
the center of this dispute. The station ceased operating
sometime in 2008 or 2009.
In June 2012, AP Marketing and Bulk executed two agreements-
the first, a land contract to purchase the subject gas
station,  and the second, a fuel supply agreement
(FSA) designed (unsurprisingly) to supply fuel for the
station. The FSA, which was personally guaranteed by Sebedi
and Adhikari, is the disputed contract on appeal.
Under the FSA, AP Marketing was required to purchase
"all fuel at the Premises" from Bulk. The minimum
purchase amount was 15, 000 gallons per month, or 180, 000
gallons per year. The price per gallon would be 1.5 cents
above "the Branded Supplier rack
price"-essentially, the per-gallon cost to Bulk plus 1.5
cents. The FSA required Bulk to select a "Branded
Supplier"-defined as "a major brand fuel marketer,
or any unbranded fuel supplier with credit card processing
and related marketing capabilities"-to supply fuel to
the station. AP Marketing in turn agreed, without any other
evident contractual limitation, that "any
Branded Supplier selected … by [Bulk] is
acceptable." (Emphasis added.) AP Marketing also agreed
through the FSA to submit to certain branding requirements
that might be imposed by a branded supplier, including
compliance "with the image standards set by Branded
Supplier." If AP Marketing failed to meet the minimum
gallon purchase requirement, the FSA included a stipulated
damages provision, which obligated AP Marketing (and again,
guaranteed by Sebedi and Adhikari) to pay ten cents per
gallon on the shortfall. However, this provision did not
apply if the failure to purchase the minimum quantity was due
to Bulk's failure to deliver fuel.
The FSA was supposed to go into effect just ten days after it
was signed. But complications arose almost immediately. AP
Marketing incurred a number of expenses related to preparing
the previously closed station for operation-including
obtaining permits for the fuel tanks and tank insurance,
replacing the ceiling tiles, fixing problems with the
plumbing system, and replacing underground pipes. Replacing
the pipes alone cost approximately $35, 000-$36, 000. Bulk
also had difficulty securing a branded supplier.
Five and one-half months after the FSA was signed, Bulk
entered into an agreement with U.S. Oil to supply fuel under
the ExxonMobil brand. Like every other supplier contacted by
Bulk, U.S. Oil required that AP Marketing update the
façade of the station and move the bathroom doors from
the exterior to the interior before selling its fuel. The
agreement with U.S. Oil required Bulk to purchase a minimum
of 480, 000 gallons per year, far more than the 180, 000
gallon minimum AP Marketing was required to purchase under
the FSA. But Bulk's brand manager explained that he
thought the quantity was "a very easy number to hit on a
station at this location branded properly."
The Defendants ultimately decided that the cost to meet U.S.
Oil's branding requirements-specifically, the cost of
relocating the bathroom entrances-was too steep. By their own
admission, they walked away from the land contract and the
FSA, without making any payments under the land contract and
never having purchased any fuel under the FSA.
Bulk responded by filing this action, asserting breach of the
land contract against AP Marketing and breach of the FSA
against AP Marketing, as well as Sebedi and Adhikari based on
their personal guarantees. The claims went to a bench trial.
The circuit court ultimately concluded that AP Marketing
breached the land contract and ordered judgment for $200,
000, a determination not before us on appeal.
On the FSA claim, the circuit court entertained posttrial
briefing. AP Marketing, Sebedi, and Adhikari made three
arguments. First, they could not be liable for damages under
the FSA because Bulk failed to secure a branded supplier who
would brand the station without modification-a condition
precedent, they insisted, to AP Marketing's obligation to
purchase fuel. Second, AP Marketing's performance under
the FSA was excused by frustration of purpose. And third,
Bulk failed to prove the lost profits it sought as damages.
The circuit court agreed with the second argument, concluding
that the structural modifications required by U.S. Oil
frustrated the principal purpose of the FSA, which "was
to open the station and to sell fuel at a profit." The
court explained that the requirements placed on AP Marketing
by U.S. Oil to make significant alterations to the premises
was the frustrating event. It was a basic assumption, the
court reasoned, that the Defendants could "open the
station without significant alterations and significant
Although it was unnecessary to decide (as the court itself
recognized), the court additionally opined that if damages
were to be due for breach of the FSA, the stipulated damages
provision was an unenforceable penalty. It reasoned that
Bulk's actual damages were easily calculable-namely, the
1.5 cent per gallon profit margin under the FSA. The much
higher ten cents per gallon figure prescribed by the
stipulated damages provision was therefore an unenforceable
Bulk appeals, and we reverse.
The main question before us is whether the circuit court
correctly concluded AP Marketing's performance under the
FSA was excused under the doctrine of frustration of purpose.
We also address the circuit court's conclusion that the
stipulated damages provision was an unenforceable penalty.
Frustration of Purpose
The parties profess to disagree over the standard of review,
but at the end of the day, they appear to be in heated
agreement. Whether a contract's purpose has been
frustrated is best characterized as involving both factual
and legal determinations. We review facts found with
deference and legal questions independently. See
Wassenaar v. Panos, 111 Wis.2d 518, 525, 331 N.W.2d 357
(1983). The ultimate question of whether a contract's
purpose has been frustrated is generally a question of law.
See Chicago, Milwaukee, St. Paul & Pac. R.R. Co. v.
Chicago & N.W. Transp. Co., 82 Wis.2d 514, 516,
526-28, 263 N.W.2d 189');">263 N.W.2d 189 (1978) (describing the issue as
"whether, under the facts described below," the
contract's purpose "was frustrated" and
reviewing that question without deference to the circuit
court's decision); Wm. Beaudoin & Sons, Inc. v.
Milwaukee Cty., 63 Wis.2d 441, 446-49, 217 N.W.2d 373
(1974) (rejecting the circuit court's "conclusion of
law" that the purpose of a contractual term has been
substantially frustrated while deferring to the circuit
court's findings of fact). We see no relevant and disputed
issues of fact in this case; the issues presented here are
ripe for our independent review.
Frustration of purpose is a defense to enforcement of a
contract; if the elements are met, then a party's
obligations under the contract are excused. See Chicago,
Milwaukee, 82 Wis.2d at 522-24; Ryan v.
Sheppard, 2010 WI.App. 105, ¶13, 328 Wis.2d 533,
789 N.W.2d 616. The doctrine of frustration is "given a
narrow construction" and "applied sparingly."
17A Am. Jur. 2d Contracts § 641 (2016). This is
so because it renders null the explicit terms of the contract
and is counter to the strong impulse in the law to enforce