May 24, 2018 – A commercial real estate agent argued that he was entitled to a $72,000 commission under a seller’s listing contract because he found a buyer, even though the sale fell through. Recently, the Wisconsin Supreme Court disagreed.

In McNally v. Capital Cartage Inc., 2018 WI 46 (May 10, 2018), the state Supreme Court ruled (6-1) that the offer to purchase that agent Mark McNally procured included conditions that varied substantially from the listing contract, negating the commission.

“[W]e determine that McNally did not procure an offer to purchase ‘at the price and on substantially the terms set forth’ in the listing contract and therefore is not entitled to a commission,” wrote Justice Ann Walsh Bradley for the six-justice majority.

Justice Annette Ziegler dissented, concluding the case should go back for trial because the record does not include enough facts to reach a conclusion as a matter of law.

“I conclude that it is error for the court, under these facts, to determine as a matter of law that no commission could be due because, in so doing, the court is acting as fact finder and is usurping the role of the jury,” Justice Ziegler wrote in a lone dissent.

The Offer and the Contracts

Mary and Rolyn Hermanson was selling its moving and storage business, Capital Cartage, and hired McNally to assist with the sale of the business property.

The parties entered into a standard state form listing contract, which said McNally would earn a commission if he procured an offer to purchase “at the price and on substantially the terms set forth in the listing contract.” The listing price was $1.2 million.

About three weeks later, Steven Erickson offered to purchase the property for $1.2 million. But a letter of intent included several conditions.

They would have to share in some closing costs, agree not to compete with the new business, and Mary would have to continue working without pay during the transition.

The Hermansons emailed McNally objecting to the letter of intent and said they wanted $1.4 million. But Erickson’s offer to purchase, which followed, was for $1.2 million. And an addendum listed Erickson’s conditions. But Capital Carthage rejected the offer.

The shareholders of Capital Carthage, including the Hermansons, voted to decline the offer and told McNally that Capital Carthage was no longer selling the business.

McNally’s lawsuit filed. He claimed Capital Cartage owed him a $72,000 commission, which was six percent of the $1.2 million offer to purchase that he procured.

Capital Cartage moved for judgment on the pleadings, arguing that McNally was not entitled to a commission as a matter of law since the offer to purchase he procured was substantially different from the terms outlined in the listing contract.

The circuit court denied the motion, concluding that the “substantial variance” issue was one for the jury. Ultimately, however, the circuit court ruled that Erickson’s three conditions in the offer to purchase were not substantial variances, as a matter of law.

The jury then ruled in McNally’s favor. The Court of Appeals affirmed, concluding that a substantial variance – which would preclude the commission – “is limited to variances in offers that directly conflict with express terms in the corresponding listing contract.”

Majority Reverses

A Supreme Court majority reversed the Appeals Court, concluding that the three conditions, in this context (business sale with real estate), were substantial variances as a matter of law. The Court also clarified the proper standard in reviewing that question.

Specifically, the majority said a 1964 ruling – Kleven v. Cities Serv. Oil Co., 22 Wis. 2d 437, 126 N.W.2d 64 – “remains the law of this state with regard to determining whether a substantial variance exists between a listing contract and the offer to purchase.”

In Kleven, a seller rejected an offer with no reason. The Kleven Court said a seller must still pay the commission after rejecting an offer, with no reason for rejecting it, unless there were substantial variances between the listing contract and the offer to purchase.

If the variance is substantial, “such as one that is directly in conflict with a material provision of the listing contract,” the Kleven Court noted, no commission is due.

In the instant case, the Court of Appeals concluded that the “such as” language did not limit substantial variances to direct conflicts – there could be other circumstances in which a court concludes that a substantial variance exists.

But the Appeals Court also concluded that a subsequent Supreme Court decision, in 1967, cleared the air: only direct conflicts can bar commissions in these cases.

The Supreme Court disagreed. “Although a term of the offer to purchase that is directly in conflict with the listing contract is a substantial variance, it is not the sole manner in which substantial variance may be shown,” Justice A.W. Bradley wrote.

The majority then applied Kleven to rule that the conditions in the offer to purchase, in this case, varied substantially from the listing contract and no commission was due.

“Our analysis begins and ends with the condition that Hermanson work without pay for an undetermined period of time following the sale of Capital Cartage,” Bradley wrote.

“Because we conclude that this condition constitutes a substantial variance, it is dispositive, and we need not address the other two variances.”

There was no facts for the jury to decide, the majority said. Labor has monetary value that changed the sale price and “the condition at issue here is so extraordinary that no reasonable jury could determine that it is not a substantial variance.”

Dissent

Justice Ziegler said the case should be reversed and remanded because the jury was not allowed to make any factual determinations on whether the transition services condition, requiring Hermanson to work for free, was a substantial variance.

She said there was competing inferences and conflicting evidence but the “jury never had an opportunity to weigh and consider” them because the trial judge ultimately ruled that the provision did not constitute a substantial variance, as matter of law.