July 10, 2015 – A real estate company will get a broker’s commission of $378,000 even though the procured buyer could not consummate the sale, the Wisconsin Supreme Court has ruled, because the seller had an “enforceable contract” against the buyer.
The supreme court, in Ash Park LLC v. Re/Max Select LLC, 2015 65 (July 7, 2015), also upheld an award for prejudgment interest, costs, and reasonable attorney fees.
The Listing Contract
Ash Park LLC (Ash Park) entered a one-party listing contract with real estate company Re/Max Select LLC (Re/Max) to help sell a parcel of vacant land in Brown County.
The standard form listing contract stated that Re/Max would receive a six percent commission on the purchase price if Ash Park “sells or accepts an offer which creates an enforceable contract for the sale of all or any part of the Property.”
Alexander & Bishop Ltd. offered to purchase the land for $6.3 million, and Ash Park accepted the offer. However, the offer was contingent on Alexander & Bishop negotiating leases for the subject property within 120 days of acceptance.
Specifically, the buyer wanted to find tenants for a proposed retail shopping center development. Alexander & Bishop terminated the offer when it was unable to negotiate tenancy leases, but later signed an agreement to reinstate the offer, which turned into a binding purchase contract. The closing never happened, though, and Ash Park sued.
Re/Max Seeks Commission
Ash Park obtained a court judgment for specific performance of the purchase contract, but Alexander & Bishop never paid for or acquired the land.
The parties eventually settled the dispute for $1.5 million. Prior to final adjudication, Re/Max intervened, seeking a commission of $378,000. It said Ash Park had accepted an offer that created an “enforceable contract” for a purchase price of $6.3 million.
The circuit court ruled that the purchase contract did not did not constitute an “enforceable contract,” concluding Re/Max was not entitled to a commission. The judge noted the contract was not enforceable-in-fact; the buyer could not obtain the funds.
The appeals court reversed. It said Ash Park had an enforceable purchase contract with Alexander & Bishop, noting that Ash Park obtained a judgment for specific performance (the supreme court upheld the specific performance judgment in a 2010 decision). That is, the circuit judge had ruled that the contract was enforceable in ordering the remedy.
“[T]he law of the case doctrine applies to prevent Ash Park from arguing the contract it had with Alexander & Bishop was unenforceable,” the appeals court noted. “Based on the specific performance judgment Ash Park sought and received in this case, Ash Park cannot now argue its contract with Alexander & Bishop was unenforceable.”
Supreme Court Affirms
The Wisconsin Supreme Court unanimously affirmed (6-0), with one concurring opinion. It noted that the listing contract required a commission regardless of an actual sale, so long as Ash Park entered into an enforceable purchase contract with a buyer.
“We conclude that the purchase contract between Ash Park and Alexander & Bishop constitutes an ‘enforceable contract’ within the meaning of the listing contract between Ash Park and Re/Max,” wrote Justice Shirley Abrahamson.
The majority opinion notes that Ash Park obtained a specific performance judgment that was upheld in a previous appeal to the supreme court. “[T]his court made clear that the purchase contract between Ash Park and Alexander & Bishop is enforceable.”
It rejected Ash Park’s argument that the purchase contract is unenforceable because Ash Park never obtained what was ordered, specific performance, and a contract is enforceable only if a breaching party can be compelled to perform the contract.
“The enforceability of a contract turns on whether there is a remedy available for a breach, not whether a judgment issued in response to a breach is satisfied,” Justice Abrahamson explained in the majority opinion.
The majority also rejected Ash Park’s public policy argument that it should not be forced to pay a commission on a sale that was never consummated. Ash Park argued that Re/Max procured a buyer that could not perform, and will now be rewarded anyway.
“The result in the instant case does seem harsh to Ash Park. But the result would be harsh to Re/Max were we to hold in Ash Park’s favor,” Abrahamson noted. “Declining to order Ash Park to pay Re/Max its commission is not only contrary to the contract language; it is also unfair to Re/Max, which expended efforts to locate a buyer.”
The majority noted that this contract was “freely negotiated,” and courts cannot disregard contract language to achieve what one party views as a fairer result.
In addition, the majority noted that the contract between Ash Park and Re/Max was not “set in stone.” Ash Park could have conditioned any commission upon actual sale, and prior courts have upheld commissions without a sale in the absence of such language.
Chief Justice Patience Roggensack agreed that the appeals court decision should be affirmed, because Ash Park was a sophisticated party who agreed that an actual sale was not required to trigger the commission. But she noted “grave concerns.”
The chief justice noted prior decisions that required an agent, in order to receive a commission, to procure a buyer that was financially able to purchase the property. Without a financially “able” buyer, the seller had a “defense” to paying the commission.
But one decision significantly departed from that line of cases, she noted, allowing a commission regardless of a buyer’s financial ability to comply with the contract.
This case, Kruger v. Wesner, 79 N.W.2d 354 (1956), shifted the burden of finding a financially able buyer from the real estate agent to the seller, Roggensack explained.
In this case, Ash Park was a sophisticated business represented by attorneys and could have investigated Alexander & Bishop’s financial ability to purchase the land, she noted. Those facts weighed in favor of affirming the court of appeals, Roggensack explained.
But she noted “concerns for the residential homeowner who lists his or her property using a standard form listing contract, without the aid of an attorney, and is unaware that he or she may be incurring an obligation to pay a commission when no sale occurs.” She said the court’s decision creates a potential hardship if “erroneously applied in a different context to an unsophisticated seller of real estate.”