978-1285770178 Case Printout Case CPC-29-09 Part 1

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252 Wis.2d 676, 643 N.W.2d 132, 2002 WI App 70

Perry J. ARMSTRONG, Defendant-Respondent,

First Weber Group, Inc. and Robert H. Carpenter, Defendants-Third-Party

Plaintiffs-Respondents,

No. 01-1152.

Stephen M. KAILIN, and Linda S. Kailin, Plaintiffs-Appellants,

1998. Armstrong submitted a counteroffer regarding price, which was rejected

by the Kailins, but, on December 9, 1998, Armstrong accepted the Kailins’

counteroffer regarding a price of $760,000.

Seller represents to Buyer that as of the date of acceptance Seller had no notice

or knowledge of conditions affecting the Property or transaction (as defined in

**138 lines 159 to 178) other than those identified in Seller’s disclosure report

dated 01/05/98 which was received by Buyer prior to Buyer signing this Offer….

We have been unable to locate the seller’s disclosure report in the record.

him with lease information on a document that listed the eight commercial

tenants of Monona Center, the lease expiration dates, and the monthly and

annual rent under each lease (“Lease Information”). Before the offer to

purchase, Carpenter also provided Dantinne with a document entitled “Estimated

Income and Expense” for the Monona Center, which stated “Income: Current

was accepted, but Stephen Kailin testified that he believed they did have it

at the time of the submission.

There appears to be some confusion in the parties’ briefs and in the record

over a document entitled “Monona Center 1998 Operations,” which the

Kailins identify in their Appendix as A-App. 41; they assert at page 5 of

locate the Real Estate Condition Report in the record.) Armstrong, in his

brief at page 6, refers to a “statement of estimated income and expenses

through July 1998,” but, based on the record cite, he is referring to the

document entitled “Estimated Income and Expense,” which we have

described in the accompanying text and which does not contain a date.

purchase, Ring Karate’s monthly rent was $4,410. In February 1997, Armstrong

and Ring Karate signed an amended rent schedule because of financial

difficulties Ring Karate was having; this permitted Ring Karate to pay a total of

$1,200 less in rent for the months February through October 1997. Armstrong

did not provide the amended rent schedule to the Kailins at any time prior to or at

¶ 9 In October 1998, Ring Karate again had problems in paying rent and fell

behind. At the time of the Kailins’ offer to purchase, Ring Karate owed $9,520

for October, November, and December. There is evidence that on December 11,

**139 1998, Armstrong sent via fax to Carpenter a rent roll updated to December

9, 1998, that showed Ring Karate’s rent arrears at that time, but the evidence

Armstrong testified to this conversation, but Carpenter denied it took

place.

¶ 10 The closing took place on February 1, 1999. On that date, Armstrong

assigned his title and interest in the eight leases to the Kailins and warranted that

there were no defaults under the leases on that date. Since Ring Karate did not

obtained a discharge of the amount owed them, but there is no record

citation.

¶ 12 The Kailins’ complaint asserted claims for breach of contract,

misrepresentation in violation of , and intentional, negligent, and strict liability

misrepresentation. Armstrong moved for summary judgment on all claims,

Ring Karate’s rent arrearages*689 and, with respect to the tort and statutory

claims, that the economic loss doctrine precluded recovery as a matter of law.

¶ 13 The trial court agreed with Armstrong that the contract did not require him

to disclose Ring Karate’s failure to pay rent as required by the lease during

October 1 through December 1, 1998, because the court decided that type of

contract; however, the court concluded that in this case such a claim was barred

by the doctrine. The court dismissed the claim for a violation of because it

concluded that statute merely added a remedy for the common law

misrepresentation claims and did not create an independent claim for relief. The

factual dispute concerning**140 the December 9, 1998 rent roll was not relevant

rescission of the contract, but a remedy premised on the contract.

¶ 14 First Weber and Carpenter also moved for summary judgment on the

ground that they did not breach any duty imposed on them by Wis. Stat. ch. *690

452. The trial court agreed, concluding that it was undisputed that they did not

discover the fact of Ring Karate’s rent delinquency until after December 9, 1998,

knows and that the party does not know or cannot discover through

reasonably vigilant observation, unless the disclosure of a material

adverse fact is prohibited by law.

provides:

DISCUSSION

¶ 15 We review a decision granting summary judgment de novo, applying the

same methodology as the trial court. . Summary judgment is appropriate if

there are no genuine issues of material fact and one party is entitled to judgment

as a matter of law. See .

the lease is a “condition[ ] or occurrence[ ] which would significantly reduce the

value of the [p]roperty to a reasonable person with knowledge of the nature and

scope of the condition or occurrence.” They point out that a reasonable person

acquiring a commercial property such as the Monona Center does so for the

purpose of receiving rental income from the businesses that occupy the

currently was delinquent to the degree Ring Karate was at the time the offer was

accepted and at the time of closing.

¶ 17 Armstrong argues in response that the trial court correctly decided that the

description in subparagraph (o) relates only to conditions of the real estate and

not to the status of rent payments under the tenants’ leases. In Armstrong’s

“condition affecting the Property or transaction” is defined as follows:

(a) Planned or commenced public improvements which may result in

special assessments or otherwise materially affect the Property or the

present use of the Property;

(b) Government agency or court order requiring repair, alteration or

local approvals were not obtained;

(f) Construction or remodeling on the Property for which required state or

local approvals were not obtained;

(g) Any portion of the Property being in a 100 year floodplain, a wetland or

shoreland zoning area under local, state or federal regulations;

(k) Underground storage tanks on the Property for storage of flammable or

combustible liquids including but not limited to gasoline and heating oil;

NOTE: The Wisconsin Administrative Code contains registration and

operation rules for such underground storage tanks.

(l ) Underground or aboveground storage tanks for storage of flammable,

previous storage of material amounts of hazardous substances on

Property;

(o) Other conditions or occurrences which would significantly reduce the

value of the Property to a reasonable person with knowledge of the nature

and scope of the condition or occurrence.

would significantly reduce the value of the Property to a reasonable person with

knowledge of the nature and scope of the condition or occurrence”-plainly

encompasses occurrences of rent delinquencies that otherwise come within the

contract definition, that is, rent delinquencies that would significantly reduce the

value of the property to a reasonable person. We agree with the Kailins that a

These provisions, as well as Armstrong’s warranty in the lease assignments at

closing-that no lessee is in default under the terms of the leases-**142 are all

indications that both parties understood that the terms of the leases and the

status of payments under the leases were significant to the transaction, and they

support interpreting subparagraph (o) as encompassing rent delinquencies that

itself, but not all do, e.g.: “public improvements which may result in special

assessments” (subparagraph (a)) and “[c]ompleted or pending reassessments of

the Property for property tax purposes” (subparagraph (c)). More importantly

“conditions or occurrences” in subparagraph (o) are not limited to conditions

affecting the physical real estate, but are expressly defined in terms of their effect

rental payments, they should have specified it in this section; alternatively, if the

Kailins expected that such information would be contained in “1996 & 1997

Schedule ‘E’ tax returns and 1998 profit/ loss statements to date” and it was not,

they failed to notify him that the contingency was not satisfied. However, the

“Property Condition Representations” are not defined with reference to or limited

record to be delivered or the deadline for delivery of the documents,” gave

Armstrong a written notice that the contingency had not been satisfied. It

is undisputed that the Kailins did not provide a notice that the document

contingency was not satisfied.

¶ 22 The fact that the Kailins did not include a specific provision requiring

there would be no need for subparagraph (o).

¶ 23 Having concluded that subparagraph (o) may include rent delinquencies

that otherwise meet the requirements of that description, the question becomes

whether Ring Karate’s rental delinquencies meet those requirements. We

observe first that all the “Property Condition Representations” are limited to those

significantly reduce the value of the property to a reasonable person who knew

that information. Because we are reviewing a summary judgment, we consider

first whether there are any genuine issues of material fact with respect to this

question, and we conclude there are none. The type of property, the number of

tenants, their obligations under their leases, and Ring Karate’s obligation,

obligation was projected*697 at $52,920 in 1999, more than one-third of the

rental income from all tenants. A reasonable person would view Ring Karate’s

failure to pay the rent required under its lease as significantly reducing the value

of the property because: that failure significantly reduces the income received

from the property while Ring Karate remains a tenant without meeting its

disclosure report dated 01/05/98.” Neither of the parties address this question,

although they appear to agree that whether Carpenter provided Dantinne with the

December 1998 rent roll before closing is a genuine issue of material fact. Our

independent research has disclosed no breach-of-contract case discussing the

effect of a breach of a representation in a contract for the sale of real estate that

The Kailins argue that this fact is disputed and is material to whether

Armstrong “cured the breach.” Armstrong does not contend that this fact

is not disputed, but simply asserts it is not relevant if we accept his

interpretation of the contract. He does not discuss whether it is relevant if

we reject his interpretation. However, based on his arguments in the trial