Contract’s merger clause helps bank succeed in dispute over
Wisconsin Towers project
Town Bank gave City Real Estate LLC a commitment letter for $9 million
for a condominium project in Milwaukee. But a subsequent agreement only
provided for $2.5 million. In a recent opinion, the Wisconsin Supreme
Court ruled that a merger clause in the subsequent agreement nixed the
By org jforward wisbar Joe Forward, Legal
State Bar of Wisconsin
Dec. 15, 2010 –
A merger clause in a bank’s lending agreement barred a real estate
firm from obtaining breach of contract damages for the bank’s
failure to extend additional loan amounts for a condominium project in
Milwaukee, the Wisconsin Supreme Court recently held.
In March 2004, City Real Estate Development LLC (City Real Estate)
sought a loan from Town Bank to purchase and convert the 22-story
Wisconsin Tower into residential condominium units. Town Bank signed a
commitment letter for a total of $9 million advanced in two phases, $2.5
million to purchase the building and $6.5 million for construction of
the condo units.
The commitment letter required City Real Estate to meet certain
conditions prior to closing of the loan, which it failed to do.
Primarily, the commitment letter required City Real Estate to execute
and return a credit agreement by a certain date in June 2004 and
contribute equity capital of $900,000 prior to closing.
Subsequently, the parties entered into a “term credit
agreement” (TCA) in July of 2004. Under that agreement, Town Bank
promised to lend City Real Estate $2.5 million to purchase the building.
Town Bank informed City Real Estate that the prior commitment of $6.5
million was no longer effective, and additional financing would have to
Meanwhile, City Real Estate lost a potential commercial tenant and its
condo pre-sales were lower than expected. Town Bank informed City Real
Estate that it should seek alternative financing for the condo
construction phase, which it did. A month after Town Bank lent the $2.5
million pursuant to the TCA, City Real Estate repaid the debt in
In January of 2006, Town Bank sought a declaratory judgment that
the TCA, it was not obligated to provide City Real Estate with
additional financing beyond the $2.5 million. City Real Estate
counterclaimed, alleging a breach of contract for failing to extend an
additional $6.5 million under the initial commitment letter.
The Milwaukee County Circuit Court denied Town Bank’s summary
judgment motions and the case proceeded to jury trial. The jury awarded
City Real Estate $600,000 for breach of contract.
Town Bank appealed, and the appeals court reversed, concluding that
TCA was unambiguous, and in any event, City Real Estate did not meet the
conditions stated in the initial commitment letter. City Real Estate
appealed to the Wisconsin Supreme Court, which affirmed the appeals
Bank v. City Real Estate Development LLC, 2010 WI 134 (Dec. 14,
2010), the supreme court majority – in an opinion written by
Justice Annette K. Ziegler – affirmed 5-2 that the parties’
TCA foreclosed City Real Estate’s attempt to introduce evidence of
Town Bank’s prior agreement to extend an additional $6.5 million
to fund the project.
The TCA included a “merger clause,” which stated that the
agreement was intended “as a final expression” of the
agreement between Town Bank and City Real Estate “and as a
complete and exclusive statement of its terms.”
This merger clause foreclosed the possibility that the TCA was not a
final expression of the parties’ intent, and thus “precluded
City Real Estate from introducing evidence of any prior understandings
or agreements that may have existed between the parties, including the
commitment letter,” the majority explained.
In addition, unlike the circuit court, the supreme court majority
concluded that the TCA was unambiguous and, therefore, only the TCA
– not the commitment letter or any other agreements – could
be considered in construing the contract between the parties.
Further, the majority rejected City Real Estate’s argument that
the TCA did not unambiguously exclude the commitment letter because it
did not expressly negative the commitment letter or the two-phase nature
of the financing.
“City Real Estate’s interpretation of our case law
necessarily implies that hereinafter, lenders – or all contract
drafters, for that matter – would be obligated to expressly
identify and exclude in their contracts any prior oral or written
communication between the parties that may rise to the level of an
agreement, lest risk its inclusion within the contract,” Justice
Ziegler wrote. “We refuse to impose such an unnecessary and
cumbersome burden on contract drafters.”
Under the four corners of the TCA, Town Bank met its obligation to
$2.5 million, the majority concluded. Because Town Bank fully complied,
Town Bank should have been granted summary judgment, and even assuming
the commitment letter constituted a separate and enforceable contract,
City Real Estate did not meet all of its conditions, the majority
Chief Justice Shirley Abrahamson and Justice Ann Walsh Bradley
dissented. Bradley penned the dissent, arguing that the majority’s
analysis “introduces uncertainty in the lending process and
creates uncertainty in well-established law.”
The implication of the conclusion that the TCA’s terms precluded
consideration of the commitment letter is that “any written
contract with an unambiguous integration clause necessarily supersedes
all existing agreements between the parties, unless the integration
clause specifically references an existing agreement,” Bradley
Instead of a case in which one agreement supersedes another, the
dissent agreed with the Wisconsin Bankers Association – which
filed an amicus curie brief – that the TCA and the commitment
letter agreement were distinct agreements and should be interpreted
“The majority’s conclusion that the court is barred from
considering the Commitment due the TCA’s [merger] clause …
introduces uncertainty in contractual relationships … and may
yield undesirable and unforeseen consequences” Bradley wrote.
Bradley noted that a party that signs one contract “may put
question” other outstanding agreements between those same parties,
under the majority’s analysis.
Thad Jelinske and Michael Anderson of Mawicke & Goisman S.C.,
Milwaukee, represented City Real Estate Development LLC. Paul Erickson
and Kari Race of Gutglass, Erickson, Bonville & Larson S.C.,
Milwaukee, represented Town Bank.