Appellate court rules on when contract is enforceable

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When Re/Max Select LLC wrapped up negotiations to sell a $6.3 million vacant lot to Alexander & Bishop in 2007, the real estate firm probably figured its hard work was done.

But six years later, the buyer and seller still were fighting in court, with no commission payment in sight. Re/Max had to intervene, claiming the seller’s obligation to pay the $378,000 commission became absolute when an “enforceable contract” to purchase was made back in 2007.

Recently the 3rd District Court of Appeals, in Ash Park LLC v. Alexander & Bishop Ltd. and Re/Max Select LLC, 2013 AP 1532, ruled that even though a final sale or transfer had not been completed, Re/Max was indeed entitled to its commission because there had been an “enforceable contract,” even if it was later impossible to enforce.

Case history

The quagmire started in 2007. Ash Park LLC hired Re/Max to find a buyer for a vacant property in Ashwaubenon, a suburb of Green Bay. It ultimately found buyer Alexander & Bishop and worked out a fully executed contract between the parties.

The standard Wisconsin Department of Licensing and Real Estate form WB-2 was used, with a 6 percent realtor commission payable to Re/Max.

The seller would pay Re/Max a commission if during the listing term: 1) the seller sells the property or accepts an offer which creates an enforceable contract; 2) the seller and buyer exchange property, or enter into exchange agreement; 3) the seller gives buyer an option to purchase, which is later exercised; 4) transfer occurs which causes change in ownership or control of property, or 5) the realtor brings a buyer, but seller does not accept offer.

Although a purchase contract was fully executed, Alexander & Bishop failed to complete the deal, allegedly due to a failing economy and the possibility of bankruptcy, according to counsel for Alexander & Bishop.

Ash Park filed suit for specific performance, and the Wisconsin Supreme Court, in Ash Park LLP v. Alexander & Bishop, 2010 WI 44, ruled that specific performance was appropriate and could be enforced against the reluctant buyer.

But even after such a clear pronouncement by the Wisconsin Supreme Court, Ash Park could not effectively force Alexander & Bishop to purchase the property. So the two parties settled for $1.5 million, with Ash Park keeping the vacant lot property.

Sensing that its window of opportunity was closing, Re/Max filed a motion to intervene, claiming that Ash Park’s obligation to pay its realtor commission was certain because the parties had an “enforceable contract.”

The lower court sided with Ash Park, ruling that the contract between Re/Max and Ash Park was “enforceable in law” but not in fact. This was further evident by the fact that even a final order by the Wisconsin Supreme Court could not effectively force Alexander to get its financing in line and come to the table ready to purchase.

The appellate court disagreed, however, deciding that both Ash Park and the circuit court were looking at the facts and the definition of “enforceable in law” from the wrong angle. The entire case hinged on the basic definition of “enforceable contract,” according to the appellate court, which concluded that the definition was clear and unambiguous.

According to the court, an enforceable contract is one where “a party may compel another party to observe the terms of an agreement.” The definition of an enforceable contract is not whether the plaintiff can collect or satisfy a judgment after trial or a settlement has been reached, contrary to the assertions of Ash Park and Alexander & Bishop.

Instead of looking to whether Ash Park could compel Alexander & Bishop to successfully purchase the land even after a judgment for specific performance was entered, the original contract between the parties was the crux of the decision, according to the court.

The finer points

Re/Max claimed that in 2007, Ash Park agreed to an offer of $6.3 million from Alexander & Bishop to purchase the property. At that time, said the court, an enforceable contract was entered. That original enforceable contract was the reason why Ash Park was able to file for specific performance to enforce the contract.

It is black letter law in Wisconsin that there is an enforceable contract when “the law recognizes the parties’ rights and protects their rights by providing a remedy for breach,” said the court, quoting Contract Law in Wisconsin, Section 1.22 (4th Ed. 2013).

Wisconsin case law confirms that courts first look to see if there was an enforceable contract before confirming whether specific performance was properly allowed or denied.

Among other cases, the court cited Anderson v. Onsager, 155 Wis. 2d 504 (1990) and Padgett v. Szczesny, 138 Wis. 2d 150 (Ct. App. 1987) to show that the law looks to the viability of the original contract between the parties to determine an enforceable contract, and not whether terms of a contract could be successfully enforced at some point in the future.

In Padgett, the Wisconsin appellate court first reviewed whether the letters exchanged did in fact create an enforceable contract. Only after such an enforceable contract was confirmed by the content of these letters did the court then decide that the remedy of specific performance was appropriate.

Also, the “Law of the Case” doctrine prevented Ash Park from now saying its agreement was unenforceable, according to the appellate court. Once the appellate court and even the Wisconsin Supreme Court confirmed in 2010 that Ash Park could compel Alexander & Bishop to purchase the property through specific performance, such a remedy only would be available if there was an underlying enforceable contract.

Lastly, Ash Park stressed the public policy implication of paying a commission without a sale. It is the general policy of the state of Wisconsin as stated in the Wisc. Admin. Code, according to Ash Park’s counsel, that realtor commissions only be paid upon sale.

Here, said counsel for Ash Park, not only did Re/Max fail to bring a buyer that was financially capable of completing the deal, but also failed to bring a buyer that actually wanted to complete the transaction.

“Alexander & Bishop lacked both the will and the means,“ as stated in Ash Park’s brief. That “should earn the realtor nothing.”

But if Ash Park wanted a commission paid only if a sale occurred, the appellate court responded, it should have written that limitation into the contract. This underscores the strong legal undercurrent that Wisconsin courts have supported, as noted in Sonday v. Dave Kohel Agency, 2006 WI 92, that parties are free to contract in a way that gives them leeway to achieve their own final agreements.

Nothing in the final agreement said the sale must occur first, according to the appellate court, which reversed the lower court’s finding of summary judgment and remanded with directions.