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  • April 15, 2024

    One-year Survival Clause Bars Contract Breach Lawsuit

    A lawsuit alleging a breach of contract warranties was barred because it was filed beyond the survival date for the warranties specified in the contract, the Wisconsin Court of Appeals has ruled.

    Jeff M. Brown

    On The Left, A Young Man Bends Over To Life A Water Cooler From Among Ten Water Coolers On A Loading Dock Floor

    April 15, 204 – A lawsuit alleging a breach of contract warranties was barred because it was filed beyond the survival date for the warranties specified in the contract, the Wisconsin Court of Appeals (District IV) has ruled in Ripp Distributing Company, Inc. v. Ruby Distribution LLC, 2023AP778 (March 21, 2024).

    In May 2020, Ripp Distributing Company, Inc. (Ripp) signed a contract to buy the assets of Ruby Distribution LLC (Ruby), a water cooler distribution company.

    Under the contract, Ruby agreed to sell, and Ripp agreed to buy, the following:

    • equipment;

    • inventory;

    • accounts receivable;

    • intangible assets; and

    • customer contracts, records, and relationships.

    Ruby made a variety of representations and warranties in section 7 of the contract.

    The contract specified that the representations and warranties made in section 7 were the only ones made by Ruby.

    The contract also included a survival clause that read, “The warranties and representations of [Ruby] shall survive the Closing for a period of one year from the Closing Date.”

    The parties closed the sale of the business on June 12, 2020, and Ruby delivered a bill of sale to Ripp on that date.

    Water Woes

    At some point after taking over the business, Ripp discovered problems. In December 2021, Ripp sued Ruby for breach of contract, breach of warranty, and misrepresentation in La Crosse County Circuit Court.

    Ripp alleged the following in its complaint:

    • several of the delivery vehicles weren’t roadworthy;  

    • some of the water coolers were malfunctioning;

    • Ruby failed to disclose notices from a state agency that required improvements to real property;

    • Ruby misrepresented the number of the business’s customers;

    • Ruby failed to apply customer payments to accounts; and

    • Ruby failed to transfer customer information.

    Ruby moved for a judgment on the pleadings, arguing that Ripp’s claims for breach of contract and breach of warranty were barred by the one-year survival clause.

    The circuit court denied Ruby’s motion. The Court of Appeals granted Ruby’s petition for leave to appeal a non-final order.

    What Effect of the Survival Clause?

    On appeal, Ripp argued that the survival clause had no power to change the six-year Wisconsin statute of limitations for contract claims under section Wis. Stat. section 893.43(1).

    Jeff M. Brown Jeff M. Brown , Willamette Univ. School of Law 1997, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6126.

    Specifically, Ripp argued that the survival clause did no more than extend Ruby’s obligations under the contract for one year from the closing date, and that it was thus entitled to file a lawsuit for any violation of those obligations that occurred in the year after the closing date, so long as the lawsuit was filed within the six-year statute of limitations.

    After all, Ripp argued, nothing in the survival clause addressed when a lawsuit alleging breach must be filed.

    Ruby argued that the survival clause required Ripp to file a lawsuit by June 12, 2021 – one year after the contract’s closing date – because were it not for the survival clause, the representations and warranties it made in the contract would have expired on the closing date and could not be the basis for a contract claim.

    Warranties Linked to Closing Date

    In an opinion for a three-judge panel, Judge Rachel Graham wrote that Ripp’s argument was ill-founded because the warranties and representations made by Ruby “attest to facts and circumstances that Ruby represented and warranted to be true, at the latest, as of the closing date.”

    Graham reasoned that Ripp and Ruby knew how to create wording that would extend obligations under the contract beyond the closing date.

    She pointed to section 10, which imposed on Ruby a continuing obligation to execute and deliver to Ripp additional instruments where Ripp requested them to “more effectively convey, assign, transfer, and deliver the Purchased assets.”

    “If the parties had intended to impose continuing obligations with respect to Ruby’s representations and warranties, they could have provided so, as they did in these other sections of the [contract],” Judge Graham wrote.

    “We will not read language into the [contract] that the parties did not see fit to use.”

    Graham also reasoned that adopting Ripp’s argument would render the survival clause “inexplicable surplusage,” because section 7 imposed no continuing obligations on Ruby.

    Clause Must Have Meaning

    Judge Graham acknowledged that the survival clause was not as strongly worded as similar clauses analyzed by appellate courts in other jurisdictions. But she reasoned that the clause must mean something.

    “Ruby’s interpretation gives reasonable meaning to the survival period,” Graham wrote. “If the survival clause did not set forth a contractual limitations period, then we are at a loss for what it was intended to do, given that Ripp provides no reasonable alternative meaning.”

    Economic Loss Doctrine

    Judge Graham also concluded that Ripp’s tort claims for misrepresentation were barred by the economic loss doctrine.

    Graham explained that the economic loss doctrine: 1) was created to maintain the distinction between contract and tort law and to ensure that parties are free to allocate economic risk by contract; and 2) precludes a party to a contract from making a misrepresentation claim to recover for a loss allegedly resulting from breach of a contract warranty.

    Judge Graham concluded that the economic loss doctrine barred Ripp’s misrepresentation claims.

    “The ‘loss’ that Ripp claims to have suffered as a result of Ruby’s alleged misrepresentations is the benefit of its bargain – the assets were not as valuable as Ripp had expected, and the business had fewer customers and was not as profitable as Ripp expected it to be,” Graham wrote.

    “This is quintessentially economic loss.”

    Exception Doesn’t Apply

    Ripp argued that the economic loss doctrine shouldn’t apply because it pled the misrepresentation “in the alternative,” and thus there was no risk that it would obtain a double recovery.

    But that was immaterial, Judge Graham concluded.

    “Ripp is not entitled to pursue a tort claim for economic injuries – whether ‘in the alternative’ or otherwise – if Ripp is limited the by the economic loss doctrine to pursuing contract remedies,” Graham wrote.

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    WisBar Court Review, published by the State Bar of Wisconsin, includes summaries and analysis of decisions from the Wisconsin Supreme Court, the Wisconsin Court of Appeals, and the U.S. Court of Appeals for the Seventh Circuit, as well as other court developments. To contribute to this blog, contact Joe Forward.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

    © 2024 State Bar of Wisconsin, P.O. Box 7158, Madison, WI 53707-7158.

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