Court of Appeals Addresses Wisconsin Contract Doctrines in Sales Rep Commission Dispute

December 7, 2018

A recent Wisconsin court of appeals decision highlights a number of important contract law issues involving commissioned sales representatives and general commercial contracting issues.  This case also highlights the fact that a binding contract can be made through a series of letters and email messages, which is something that business people should keep in mind.

This case involved whether or not a commission was owed (and if so how much) to a sales representative for services provided to manufacturers in procuring a buyer for their products.  In this case, the circuit court determined on summary judgment that a contract was formed through a series of letters and emails messages. The court also determined that the contract was ambiguous on the issue of what circumstances would trigger a right to a commission. Therefore, the commission issue went to the jury.  The jury found that the sales representative was not entitled to a commission and did not reach any conclusion about the amount of commission or any other damages.    The case was appealed by the sales representative to the Wisconsin court of appeals.

Notably, the parties did not enter into a single commission agreement or any single master agreement to govern their relationship. Instead, they exchanged letters and emails between 2009 and 2012, addressing various aspects of their work and obligations.  The sales representative was able to connect the manufacturers of building cladding with a contractor in Saudi Arabia.  However, the contractor did not follow through on the purchase under the supply arrangement and instead produced a counterfeit cladding product without compensating the manufacturers.  The manufacturers sued the contractor, and the manufacturers were able to settle for compensation of approximately $3,000,000.  The manufacturers then offered $65,000 as a commission to the sales representative based on that settlement.  The sales representative objected to that offer, claiming he was owed what he determined to be a full contract commission, based on the email/letter agreement.  The dispute over the commission was litigated in a Wisconsin circuit court where the circumstances regarding when a commission would be owed was found to be ambiguous, resulting in a jury question.  Essentially, the jury had to answer whether: (1) a commission was owed at the time the supply agreement was entered into with the Saudi contractor, or (2) a commission was owed when the manufacturers received settlement proceeds from the Saudi contractor?  As to both parts of the question, the Jury found that no commission was owed.

At trial, the court determined that because the contract was ambiguous in defining when a right to a commission payment arose, the jury needed to hear evidence and make findings regarding the parties’ understandings at the time the contract was formed.  The basic legal principle here is that if a contract provision is fairly susceptible to more than one interpretation, then that provision is ambiguous, and the use of evidence outside the contract to determine its meaning is permitted.   The interpretation of that evidence then becomes a question for a jury.

The sales representative in this case argued that there is a blanket principle in Wisconsin law in favor of commissioned sales brokers, holding that a broker is entitled to a commission if the buyer breaches its contractual obligation to buy goods and the seller later accepts payment in settlement from the buyer for any violation of the seller’s rights.  The court of appeals disagreed with this view and held that the case the sales representative relied on, the Foster case, was based on the construction of the specific contract at issue in the Foster case.  It did not establish a blanket rule.  In Foster, the commission was to be paid regardless of whether the goods were delivered by the seller, or whether the buyer paid in full for the goods.

The court of appeals also addressed the procuring cause doctrine, which is a default rule that provides generally for a commission to a selling agent when he procures an order from a ready, willing and able purchaser.  The court of appeals cited authority holding that the procuring cause doctrine could be modified by contract.  In other words, a sales commission agreement can deviate from the procuring cause doctrine.  The court of appeals also upheld the circuit court decision to dismiss the sales agent’s claim for unjust enrichment, holding that the doctrine of unjust enrichment does not apply where the parties have entered into a contract that covers the subject of an unjust enrichment claim.

Another point from this case that business people should be aware of, is where a contract is ambiguous and there is a question of fact as to the meaning of an ambiguous provision, a uniform trade custom is readily accepted by courts to define what is otherwise ambiguous or indeterminate.  Trade customs known by both parties may even add terms to the contract.  Where a trade custom is general in nature, it is presumed to have entered into the contract, and a party may be bound by that custom even though it is ignorant of that custom, unless the other party knew of that ignorance.  This is an important contract planning concept for business people to consider, especially if a particular transaction is intended to deviate significantly from custom in that industry.  It is very important to document by clear agreement what the understanding is, so that the intent is not restructured based on trade customs.  Also, what is and isn’t a trade custom in a particular industry is a question of interpretation and opinion.

This case highlights the importance of having a master contract containing an integration clause that supersedes all prior writings and discussions and, as clearly and as reasonably possible, sets forth the terms of the business relationship.