WOODWARD COMMUN. INC. v. SHOCKLEY COMMUN. CORP.

• Decision Date: 07 December 2000
• Docket Number: No. 99-3268.,99-3268.
• Citation: 2001 WI App 30,240 Wis.2d 492,622 N.W.2d 756
• Parties: WOODWARD COMMUNICATIONS, INC., and Great Northern Insurance Company, Plaintiffs-Respondents, v. SHOCKLEY COMMUNICATIONS CORPORATION, and Transportation Insurance Company, Defendants-Appellants.
• Court: Wisconsin Court of Appeals

240 Wis.2d 492

2001 WI App 30

622 N.W.2d 756

WOODWARD COMMUNICATIONS, INC., and Great Northern Insurance Company, Plaintiffs-Respondents, v. SHOCKLEY COMMUNICATIONS CORPORATION, and Transportation Insurance Company, Defendants-Appellants.

No. 99-3268.

Court of Appeals of Wisconsin.

Submitted on briefs June 23, 2000.

Decided December 7, 2000.

On behalf of the defendants-appellants, the cause was submitted on the briefs of Edward A. Hannan and David J. Hanus of Hannan, Siesennop & Sullivan of Milwaukee.

On behalf of the plaintiffs-respondents, the cause was submitted on the brief of Steven B. Fisher of Daar, Fisher, Kanaris & Vanek, P.C. of Chicago, Illinois, and David Pliner, Esq. of Corneille Law Group, L.L.C. of Madison.

Before Dykman, P.J., Vergeront and Deininger, JJ.

¶ 1. VERGERONT, J.

The contract language at the center of this dispute provides that Shockley Communications Corporation, the seller of the assets of a radio station, "represents and warrants ... [it shall] at its expense ... keep in good repair and operating efficiency, all tangible personal property to be transferred to the Buyer," Woodward Communications, Inc. Shockley appeals a summary judgment determining that it breached this contractual provision because the communications tower subsequently collapsed as the result of a latent defect, and awarding Woodward $267,500 in damages.¹ We agree with Shockley that the circuit court erred in interpreting this language as an express warranty that the tangible personal property had no latent defects. Because there are no disputed facts and because Shockley is entitled to judgment that it did not breach this contractual provision as a matter of law, we reverse and remand to the trial court with instructions to dismiss the complaint.

BACKGROUND

¶ 2. On May 3, 1996, Shockley entered into an agreement with Woodward whereby Shockley agreed to sell and Woodward agreed to purchase the assets of WOLX-FM, a radio station in Baraboo, Wisconsin, for the sum of $10,500,000. One of the assets was a 640-foot communications tower, which the agreement designated as "tangible personal property." Section 13 of the agreement provided:

Representations and Warranties by Seller. The Seller represents and warrants as follows:

....

(h) Seller, at its expense, shall keep in good repair and operating efficiency, all tangible personal property to be transferred to the Buyer.

The closing took place on July 29, 1996. At the time of closing, the radio station was operating and continued to do so until the tower collapsed during a wind and ice storm on December 31, 1996.

¶ 3. The following facts concerning the cause of the collapse were stipulated by the parties. During the storm, a metal U-bolt, which was a component of one of the eight U-bolt anchor assemblies used to secure the tower to its base, broke without warning, causing the tower to collapse. The one-and-one-eighth inch diameter U-bolt contained a hidden, internal defect in the nature of a microscopic, internal brittle crack, and this defect was a cause of the U-bolt breaking on December 31, 1996. The defect was created when the bolt was cast or forged, on or before 1948. The defective bolt was a component of one of the assembly anchors when the tower was erected in 1948, and the tower remained in place from the date it was erected until it collapsed. Between the time of the manufacture of the bolt and the tower's collapse, the defect "was a completely latent condition that was not detectable except by [certain] destructive, metallurgical tests...." Between the date Shockley acquired the radio station and tower in 1985 and the date of the closing of the sale to Woodward, Shockley had the tower inspected by an outside firm on May 8, 1985, August 30, 1987, August 31, 1988, May 30, 1990, May 15, 1995, and May 13, 1996; and reports were prepared as a result of each inspection.

¶ 4. Woodward filed this action on January 5, 1998. The complaint contained a number of claims, but the only ones that concern this appeal are the breach of contract claim and the breach of express warranty.² On Woodward's first motion for partial summary judgment the circuit court concluded subsection 13(h) of the agreement was unambiguous and was an express warranty. However, at that time the court did not address the issue of whether the obligation to "keep in good repair and operating efficiency" was an express warranty against latent defects, as Woodward argued. ¶ 5. On Woodward's subsequent motion for partial summary judgment, the trial court determined the only remaining issues were whether the latent structural defect was the cause of the tower's collapse and what, if any, damages should be awarded. After discovery, the parties submitted a stipulation of facts on causation, which we have already referenced, and stipulated that the damage resulting from the tower's collapse was $267,500. Although we are unable to find in the circuit court's decision on Woodward's second motion for partial summary judgment, or elsewhere in the record, that the court explicitly ruled subsection 13(h) was an express warranty against latent defects, it appears the parties and the court understood the court had so ruled. After the stipulation on cause and damages, Woodward moved for entry of judgment in its favor. Without objection from Shockley, the court entered a judgment for the stipulated damages, determining in the judgment that Shockley had breached its express warranty to keep the tower in good repair and operating efficiency.

DISCUSSION

[1, 2]

¶ 6. We treat the trial court's judgment as a summary judgment, since the court's decision was based on submissions of the parties rather than live testimony. See WIS. STAT. § 802.08(2) (1998-98).³ We review summary judgments de novo, employing the same methodology as the trial court. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). Generally, summary judgment is proper when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Id.

¶ 7. On appeal Shockley argues that the language of subsection 13(h) is not an express warranty that there is no latent defect in the tower. Shockley contends, since it was unaware of the defect because it was not discoverable by ordinary means, and since the defect did not affect the operating efficiency of the tower at the time of the closing, Shockley did not breach its obligation to keep the tower in good repair and operating efficiency solely because there was an existing latent defect. Woodward, on the other hand, contends the tower was not "in good repair and operating efficiency" solely because there was a latent defect at the time of the closing.

¶ 8. Although the clause in dispute appears to be a standard one in contracts for the sale of the assets of radio and television stations and other businesses,⁴ we have discovered no Wisconsin case that addresses the same or similar contract language. We therefore begin with the general principles of contract construction.

[3-5]

¶ 9. The interpretation of a contract is a question of law, which we review de novo. Edwards v. Petrone, 160 Wis. 2d 255, 258, 465 N.W.2d 847 (Ct. App. 1990). The objective in construing a contract is to ascertain the intent of the parties from the contractual language. Waukesha Concrete Prods. Co. v. Capitol Indem. Corp., 127 Wis. 2d 332, 339, 379 N.W.2d 333 (Ct. App. 1985). If the terms of the contract are plain and unambiguous, it is the court's duty to construe the contract according to its plain meaning even though a party may have construed it differently. Id. ¶ 10. To place the disputed clause in context, we summarize other relevant portions of the agreement. The sale was not to be consummated until the Federal Communications Commission (FCC) had consented to the transfer of the license to Woodward, and the closing date was not to take place until after final FCC approval. The parties contemplated the FCC approval might take some time, as indicated by the provision terminating the agreement if final FCC approval was not granted within 240 days, with certain exceptions. Accordingly, the agreement addressed the conduct of the business from the date of the execution of the agreement to the closing date, providing that Shockley would operate the station during this time period and specifying Shockley's obligations in doing so.

¶ 11. Subsection 13(h) imposes on Shockley the obligation to "keep in good repair and operating efficiency" all tangible personal property to be transferred at closing. The subsection also imposes the additional obligation that Shockley bear the expense for doing so. Because the tangible personal property was to be used in the operation of the business by Shockley from the date of the execution of the agreement to the date of closing, which could be several months or more, the parties provided for the care of the tangible personal property, including the tower, during that time period. The phrase "keep in good repair and operating efficiency" uses commonly understood terms. "Keep" in this context conveys that, on the date of execution of the agreement, the tower was in good repair and operating efficiently. The entire phrase plainly requires that Shockley make any repairs and perform any maintenance necessary to keep the tower in a condition that permits it to operate efficiently. ¶ 12. There is no suggestion in this phrase that Shockley is representing or warranting that there are no latent or hidden defects in the tangible personal property. It is true that, if a defect latent on the date of execution of the agreement were to cause the tower to need repairs or not to operate efficiently from that date to the date of closing, Shockley would have the obligation to make the needed repairs at its expense. However, if the latent defect does not affect the operating efficiency of the tangible personal property up until the date...