| LIVE WITH YOUR DEAL |
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| Wednesday, 04 October 2006 | |
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Real estate professionals know that a contract for the sale of real estate must be in writing. So it should come as no surprise that the terms of the written contract will govern subsequent disputes. A recent unpublished decision by the Wisconsin Court of Appeals, although dealing with residential property, has value for CARW members as well because the contract language at issue is commonly used in commercial transactions. In MacLeish v. Kleinschmidt, Appeal No 2005AP641, dated March 22, 2006, the dispute concerned a provision in a contract for the sale of a residence dealing with defects that would permit the buyer to void the deal. In the relevant portion, the contract defined “defect” as follows: [A] structural, mechanical or other condition that would have a significant adverse effect on the value of the Property; that would significantly impair the health or safety of future occupants of the Property; or that if not repaired, removed or replaced would significantly shorten or have a significant adverse effect on the expected normal life of the Property. [This is the same definition contained in the standard form Commercial Offer to Purchase.] The buyers hired an inspector, who found the roof to be in satisfactory condition, with some curling shingles. The sellers made some repairs highlighted by the inspection report but refused to replace or repair the curling shingles because they felt this was normal for a six-year old roof and the curling shingles were not a “defect” as defined in the contract. The buyers refused to close. The sellers sold the property to another buyer and sued the first buyers for the expenses they incurred repairing the other defects identified by the inspector and the difference between the sale price under the first contract and what they received from the subsequent buyer. The trial court jury found for the sellers and the buyers appealed. The appeal centered on various evidentiary rulings by the trial judge, all of which dealt with whether the curling shingles could be held to be a “defect” under the contract language. The Court of Appeals affirmed the trial court’s rulings. The trial court had refused to allow into evidence the Roofing Systems Guarantee the State of Wisconsin requires of its contractors, which provides that curling shingles are a defect. The defendant-buyers contended that the guarantee was relevant to the issue of whether the condition of the shingles had a “significant adverse effect on the expected normal life of the Property.” The Court of Appeals held that how the State of Wisconsin defines a roof defect is not relevant to this dispute because the parties had agreed in their contract on the definition of a “defect.” The trial judge permitted two brokers to testify that the curling shingles were not a “defect” within the meaning of the contract. A trial judge’s evidentiary rulings will not be overturned if they are “harmless error.” An error is “harmless” unless it affects a party’s substantial rights. Here, the home inspector testified that, while curling of shingles on a six-year old roof with a life expectancy of 20-25 years was unusual, and he would recommend replacing the shingles, 98-99% of the roof was in very good condition and the portion of the roof with curling shingles did not affect the value of the home or its immediate condition. Given this testimony, the trial judge’s allowance of the brokers’ opinions was “harmless” if it was error at all. Not every “defect” identified by an inspection will permit a buyer to void a deal under the common definition of “defect.” If the buyer wants more of an opportunity to weigh the effect of matters disclosed by an inspection, he must take particular care to modify the common definition of “defect.” At the end of the day, the contract language will control the dispute. |