Baierl v. McTaggart, 98-3329.

• Decision Date: 08 August 2000
• Docket Number: No. 98-3329.,98-3329.
• Citation: 238 Wis.2d 555,618 N.W.2d 754,2000 WI App 193
• Parties: Robert J. BAIERL, d/b/a Supreme Builders, Plaintiff-Appellant, v. John MCTAGGART and Susan McTaggart, Defendants-Respondents.
• Court: Wisconsin Court of Appeals

238 Wis.2d 555

2000 WI App 193

618 N.W.2d 754

Robert J. BAIERL, d/b/a Supreme Builders, Plaintiff-Appellant, v. John MCTAGGART and Susan McTaggart, Defendants-Respondents.¹

No. 98-3329.

Court of Appeals of Wisconsin.

Submitted on briefs February 1, 2000.

Decided August 8, 2000.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Thomas L. Frenn and Roy H. Nelson of Petrie & Stocking, S.C., of Milwaukee.

On behalf of the defendants-respondents, the cause was submitted on the brief of Barry R. White of Weiss, Berzowski, Brady & Donahue, LLP, of Milwaukee.

Before Wedemeyer, P.J., Schudson and Curley, JJ.

¶ 1. CURLEY, J.

Robert J. Baierl, d/b/a Supreme Builders (Baierl), appeals from a judgment requiring Baierl to pay $4,484.94 to John and Susan McTaggart (McTaggarts). In this landlord-tenant dispute, the trial court granted summary judgment to the McTaggarts, the tenants, and after finding that the lease was void, ordered Baierl, the landlord, to pay twice the security deposit less some expenses to the McTaggarts. Baierl argues that the trial court erred in ruling that: (1) an addendum to Baierl's lease, which contained a prohibited clause under the Wisconsin Administrative Code, voided the entire lease; and (2) without a lease provision, Baierl unlawfully withheld the McTaggarts' security deposit. Baierl submits that, per the holding in Simenstad v. Hagen, 22 Wis. 2d 653, 126 N.W.2d 529 (1964), the trial court should have severed the prohibited clause from the lease as it was a non-essential clause which could be severed without defeating the primary purpose of the parties' agreement. Baierl argues that, after the trial court severed the offending lease provisions, it should have applied the security deposit to those items authorized by the remaining lease provisions. We agree and reverse.

I. BACKGROUND.

¶ 2. On July 12, 1996, the McTaggarts signed a lease for an apartment owned by Baierl located in Oconomowoc, Wisconsin. The lease was to run from August 1, 1996, to July 31, 1997. The lease was lengthy, consisting of a two-page single-spaced standard residential lease plus several addenda. One of the terms of the lease required the McTaggarts to pay a security deposit of $1,790. In the longer addendum, the following language appeared at paragraph seventeen:

In the event that Supreme Builders shall be obliged to commence legal action in order to enforce the terms and conditions of any portion of this lease and amendment, the tenant shall be liable to Supreme Builders for all Supreme Builders' costs, disbursements and expenses incurred including, without limitation, reasonable attorney fees incurred.

Pursuant to the lease, the McTaggarts moved into the apartment. However, in a letter dated November 29, 1996, the McTaggarts wrote to Baierl advising that "we will be terminating our rental agreement as of February 1, 1997."² After receiving the letter, Baierl made an attempt to re-rent the apartment. When this task proved unsuccessful, Baierl then withheld the security deposit for unpaid rent and sued the McTaggarts to enforce the terms of the lease. Despite the wording found in paragraph seventeen, Baierl never sought reimbursement for all his "reasonably incurred" attorney fees. Instead, the complaint only sought the limited attorney fees authorized in WIS. STAT. § 799.25(10)³ and WIS. STAT. § 814.04(1).⁴

¶ 3. The McTaggarts answered the complaint and counterclaimed seeking to rescind the lease. Later, they filed an amended answer in which they alleged that the entire lease was void because paragraph seventeen, found in the addendum, allowing Baierl to be reimbursed for all his reasonable attorney fees, was prohibited by an Agriculture, Trade and Consumer Protection provision of the Administrative Code, WIS. ADMIN. CODE § ATCP 134.08(3). The McTaggarts brought a summary judgment motion claiming that the lease was void and, as a result, Baierl could not lawfully retain their security deposit and they sought double damages pursuant to WIS. STAT. § 100.20.

¶ 4. The trial court, while noting that the remedy suggested by the McTaggarts was drastic, adopted the McTaggarts' reasoning and granted the summary judgment motion. In doing so, the trial court found that because the clause in Baierl's addendum was prohibited, the entire lease was void. The trial court then concluded that, without a lease, Baierl unlawfully withheld the McTaggarts' security deposit and the trial court ordered Baierl to pay double damages to the McTaggarts, plus the McTaggarts' almost $3,000 in legal fees.

II. ANALYSIS.

¶ 5. When the trial court granted the McTaggarts' summary judgment motion, it stated that "there is no clear statute on the subject, and there is no case law that is precisely on point." Baierl argues that the trial court erred because Simenstad v. Hagen clearly permits the severing of a prohibited clause from a contract and the enforcement of the remaining contract provisions.⁵ Baierl states that Simenstad's only restriction is that the removal of the offending clause must not defeat the primary purpose of the contract. Baierl contends that paragraph seventeen could easily have been severed from the lease provisions without destroying the primary purpose of the lease. Further, he asserts that equity clearly favors the enforcement of the other lease provisions as it was the McTaggarts who intentionally breached their duty by moving before the end of the lease period. Baierl also submits that it was unfair and harsh to require him to pay the McTaggarts' double damages on the security deposit and to pay their almost $3,000 in attorney fees generated by this litigation, when their breach of the lease resulted in a significant monetary loss for Baierl consisting of several months' rent plus additional expenses. We agree with all three of Baierl's arguments.

[1]

¶ 6. When reviewing a trial court's grant or denial of summary judgment de novo, we use the methodology set out in WIS. STAT. § 802.08(2). See Strassman v. Muranyi, 225 Wis. 2d 784, 787, 594 N.W.2d 398 (Ct. App. 1999). We need not repeat that methodology here, except to note that summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See id. at 787-88.

[2]

¶ 7. Although decided on different facts, Simenstad dealt with a shareholder agreement, the holding of the case authorized the severance of illegal provisions in the contract. See id. at 661. The case noted that the general rule on severability is that,

"A bargain that is illegal only because of a promise or a provision for a condition, disregard of which will not defeat the primary purpose of the bargain, can be enforced with the omission of the illegal portion by a party to the bargain who is not guilty of serious moral turpitude unless this result is prohibited by statute."

Id. at 661 (citation omitted). Further, the Simenstad court observed that: "[I]f the paragraph [in the shareholder agreement] were held to be invalid, the entire contract would not fail if that paragraph could be severed from the remainder of the agreement." Id.

¶ 8. In affirming the vitality of the rule severing offending clauses and enforcing the remaining contract, the Simenstad court relied on the holding found in Marshall v. Wittig, 213 Wis. 374, 251 N.W. 439 (1933):

The defendant contended on appeal that because of words in the portion of the note which provided for confession of judgment agreeing "to release the right of appeal," the agreement was contrary to public policy and therefore not enforceable. It was held on appeal that even if serious fault exists because of the use of such words, "they are so circumstanced that they are severable and may be ignored."

Simenstad, 22 Wis. 2d at 662 (quoting Marshall). In Marshall, the court directed that:

In no event can the words complained of have the effect insisted upon of rendering the note void in the absence of fraud or some undue advantage taken of the appellant, for there would still remain a lawful contract with valid and legal covenants to be enforced. In 3 Williston on Contracts, § 1779, it is said: "When some covenants of an indenture are legal and others illegal, the legal covenants may be enforced." In a contract containing a questionable provision which may be destroyed without defeating the primary purpose of the bargain, and where there is an absence of moral turpitude, a recovery would still be allowed.

Marshall, 213 Wis. at 379 (citation omitted) (quoted in Simenstad, 22 Wis. 2d at 662).

¶ 9. Although no Wisconsin case has applied the doctrine of severability to a landlord-tenant case, another jurisdiction has. In Campi v. Seven Haven Realty, 682 A.2d 281 (N.J. Super. L. 1996), the court construed a lease provision as being unenforceable that required the tenant to pay rent even though the tenant never took possession of the property and withdrew her application to rent the apartment. The court did, however, enforce another provision that required the tenant to pay the application fee.

¶ 10. Under the circumstances present here, applying the severability doctrine to the McTaggarts' lease is a reasonable extension of Simenstad. First, Baierl never attempted to enforce the illegal provision, despite its existence in the addendum; he only requested the limited attorney fees authorized in Chapters 799 and 814. Thus, it does not appear from the record that Baierl engaged in any "serious moral turpitude" which would prevent severance. As noted, while paragraph seventeen is prohibited, the lease is voluminous, consisting of a standard residential lease and three addenda, and the prohibited clause found in paragraph seventeen was tucked into an addendum, not the standard residential lease. Second, no statute forbids the severance of the clause from the lease. Third, severing paragraph seventeen from the remainder of the lease documents does not...