REVIEW of a decision of the Court of Appeals. Affirmed.
¶1 DAVID T. PROSSER, J. This is a review of a
decision of the court of appeals, Walters v. National Properties, LLC,
No. 2003AP862, unpublished slip op. (Wis. Ct. App. Jan. 21, 2004). In this small claims landlord-tenant
dispute, we are asked to decide whether the landlord, Raul J. Walters
(Walters), lawfully evicted his tenant, National Properties, LLC (National). National points to differences between the
terms in its lease and the allegedly ambiguous and arguably more lenient terms
in the default notice it received.
National contends that because of these ambiguities and inconsistencies,
it is entitled to rely on the default notice.
We agree. However, even though
we adopt National's ambiguity argument and permit it to rely on the default
notice, National still did not timely cure its default. We therefore conclude that the eviction was
lawful, and we affirm the court of appeals.
I.
FACTS AND PROCEDURAL POSTURE
¶2 The facts are not in dispute.
Walters, d/b/a Lake Geneva Shopping Centre, operates a shopping mall in
Lake Geneva. On December 23, 1993,
Walters entered a ten-year renewable lease agreement with Horizon Convenience
Stores, Inc. (Horizon). The leased
space consisted of a gasoline station and convenience store. On August 15, 1997, Horizon assigned its
interest in the lease to National. The
lease requires National to pay a fixed rent in equal monthly installments, due
on the first day of each month.
Additionally, National must pay a variable amount based on its monthly
and yearly sales. National must also
pay property taxes. To allow Walters to
verify the amount of variable rent due, the lease requires National to report
its total monthly sales as part of each month's rent payment; National also
must annually report its yearly sales.
Two other paragraphs——¶18 and ¶22——in the lease are of particular
importance to this case:
18. DEFAULT AND BANKRUPTCY. If
LESSEE should default in the payment of any rental or monies due hereunder,
when due, or be in default of any covenant, agreement or condition
herein . . . then upon the occurrence of any one or more of
such contingencies and after the LESSEE has been given notice by certified mail
of such default, LESSEE has thirty (30) days after the date of such notice
to correct such default or defaults. If
no such corrections are made, this lease is canceled and all rights of the
LESSEE are terminated.
. . . .
22. NOTICE. All notices to be
given to either party by the other shall be by Certified or Registered Mail,
return receipt requested, whether or not it is specifically designated as such
in this lease agreement.
. . . The time of any such notice shall begin
to run with the date of the mailing of such notice. (Emphasis added.)
¶3 National did not submit the rent payment due September 1,
2002. Consequently, Walters mailed a
default notice on September 13, 2002.
He sent the notice by certified mail, pursuant to the lease. The date "September 13, 2002" was
typewritten on the notice. National
received the notice on September 16, 2002.
The notice alleged that National was in default in four ways: (1) Past
due rent in the amount of $3421.42; (2) Failure to provide copies of all
monthly sales receipts on a monthly basis; (3) Failure to provide annual sales
information; and (4) Failure to pay real estate taxes for 2001. The notice also stated:
[U]nless such defaults are resolved on or before
the expiration of thirty (30) days after service of this Notice,
Landlord will exercise its remedies under the Lease,
including . . . the right to terminate your right to
possession of the premises.
Only FULL PAYMENT of the rent
demanded in this Notice will waive the Landlord's right to terminate possession
under this Notice, unless Landlord agrees in writing to continue possession in
exchange for receiving partial payment.
(Emphasis added.)
¶4 On October 15, 2002, National mailed a check for the overdue rent
to Walters. This payment covered only
the non-variable portion of the rent.
Walters received the payment on October 17, 2002.
¶5 Believing that National's response was untimely and incomplete,
Walters attempted to evict National. On
November 1, 2002, Walters filed suit in Walworth County Circuit Court seeking
National's eviction for failure to timely cure the "fixed monthly
rent" part of the default and failure to cure the other parts of the
default, including the payment of the variable part of the rent and the
submission of monthly and annual receipts.
On March 14, 2003, the circuit court entered judgment for Walters,
evicting National. Circuit Judge John
R. Race held that the language in the lease controlled: "My decision is
that the landlord by mailing had accomplished the notice requirements and he
used the word service, a verb. And I
believe that he complied with the lease by putting it in the mail." The court of appeals affirmed on the same
grounds and we subsequently granted review.
II.
ANALYSIS
¶6 When we apply undisputed facts to the terms of a commercial lease,
and determine the parties' rights under that lease, we exercise de novo
review. Westhaven Assoc., Ltd. v.
C.C. of Madison, Inc., 2002 WI App 230, ¶16, 257 Wis. 2d 789, 652
N.W.2d 819; Bence v. Spinato, 196 Wis. 2d 398, 408, 538
N.W.2d 614 (Ct. App. 1995).
¶7 State statutes govern procedures for evicting a tenant who fails
to pay rent or otherwise breaches the lease.
Wisconsin Stat. § 704.17(3)(a) (2001-02)
describes the default notice that a landlord must provide to a tenant holding a
lease of duration longer than one year.
However, the statute allows a lease for more than one year to contain
contrary termination provisions that will override subsection (3). Wis. Stat. § 704.17(5). The lease at issue covered more than one
year and included specific provisions on termination. Therefore, in this case, we review the lease provisions, not the
statute.
¶8 This case is unusual because the language in the default notice is
not precisely the same as the language in the lease. As a result, we must resolve the threshold question of whether
the "date of service" provision in the notice supersedes the
"date of mailing" provision in the lease, in determining when the
thirty-day cure period begins, if we deem the two provisions inconsistent.
¶9 This question is further complicated by paragraph 18 of the
lease. Paragraph 18 states that the
tenant shall have thirty days "after the date of such notice," while
paragraph 22 provides that the thirty-day period begins to run with the
"date of the mailing of such notice." Both of these dates may be different from the "date of
service" referenced in the default notice, depending upon the definition
of "service."
¶10 National admits that under the lease, Walters could have demanded
payment within thirty days from the date of mailing of the default notice. Clearly, the lease directs that the date of
mailing of the notice, September 13, is effectively the beginning of the
thirty-day cure period. National's
strategy is different. It does not
attack the lease provisions in any way; it argues that we should ignore the
lease provisions because Walters worded his notice differently. The default notice stated on its face that
National had to make payment before "the expiration of thirty (30) days
after service of this Notice."
(Emphasis added.)
¶11 For his part, Walters claims that the language in the notice,
"thirty (30) days after service of this Notice," simply mirrors the
language in the lease, "thirty (30) days after the date of such
notice." As we see it,
"notice" could be interpreted to mean the same thing as
"service," an interpretation favorable to the tenant. It is more difficult to interpret
"mailing" to mean the same thing as "service," an
interpretation desired by the landlord.
With perfect hindsight, we observe that if the landlord wanted his
notice to accurately mirror his lease, he should have used identical language
in the two documents. That would have
produced clarity and ensured the unquestioned primacy of the lease. Here, Walters did not copy the lease
language in the notice; instead, he chose alternative wording.
¶12 We conclude that Walters' choice of alternative wording rendered
the notice ambiguous. A reasonable
tenant evaluating his options might have perceived the following: (1) Paragraph
18 of the lease states that the lessee has thirty days after "the date of
such notice;" (2) Paragraph 22 of the lease states that the lessee has
thirty days from "the date of the mailing of such notice;" (3) the
notice states that the lessee must resolve the defaults within "thirty
days after service of this Notice;" (4) both the lease and the notice are
silent on the definition of "service." There is no way for the lessee to determine what
"service" means without reference to extraneous sources.
¶13 In situations like these, this court has traditionally adhered to
the deeply rooted doctrine of contra proferentem, a universally accepted
legal maxim that any ambiguities in a document are to be construed unfavorably
to the drafter. Black's Law
Dictionary 328 (7th ed. 1999). Since this court's earliest days, we have
recognized its validity. See, e.g.,
Lawe v. Hyde, 39 Wis. 345, 359 (1876).
Although the rule is most often used to interpret the terms of a
contract, see, e.g., Seitzinger v. Community Health Network, 2004
WI 28, ¶22, 270 Wis. 2d 1, 676 N.W.2d 426, it has also been
applied to documents such as settlement offers, Pachowitz v. LeDoux,
2003 WI App 120, ¶39, 265 Wis. 2d 631, 666 N.W.2d 88; Stan's
Lumber, Inc. v. Fleming, 196 Wis. 2d 554, 576, 538
N.W.2d 849 (Ct. App. 1995), and exculpatory clauses, Merten v. Nathan,
108 Wis. 2d 205, 210-11, 321 N.W.2d 173 (1982). We see no reason why it should not also
apply to the ancillary notice of eviction that Walters drafted pursuant to the
termination procedure spelled out in the lease contract.
¶14 Under this canon of interpretation, courts construe ambiguous
language "most strongly" against the drafter. Moran v. Shern, 60
Wis. 2d 39, 49, 208 N.W.2d 348 (1973); accord Dieter
v. Chrysler Corp., 2000 WI 45, ¶15, 234 Wis. 2d 670, 610
N.W.2d 832. The rule is often
applied to "aid a party whose bargaining power was less than that of the
draftsperson." 5 Corbin, Corbin
on Contracts § 24.27, at 292 (Kniffen & Perillo ed. 1998). The Restatement of Contracts contains a
similar provision: "In choosing among the reasonable meanings of a promise
or agreement or a term thereof, that meaning is generally preferred which
operates against the party who supplies the words or from whom a writing otherwise
proceeds." Restatement (Second) of
Contracts § 206 (1979). The
comments to Section 206 explain that the drafting party is more likely to
perceive areas of ambiguity, or even to intentionally create ambiguity,
intending to put forth a particular interpretation at a later date. Id., cmt. a.
¶15 Using these principles, we note that Walters drafted both the lease
and the notice. He had every
opportunity to ensure clarity by employing consistency, both internally within
the lease and between the lease and the notice. He did not. Walters urges
that the notice's language, "service of this notice," is functionally
equivalent to the lease term, "the date of such notice," and
therefore the mailing date still marks the beginning of the thirty-day time
period. We reject this argument
because, applying the rule that ambiguity is construed against the drafter, we
cannot allow Walters to mechanically equate the lease language with the default
notice language. Rather, we must
analyze what the language in the notice required of National in order to cure
its default.
¶16 National relies on Hotel Hay Corp. v. Milner Hotels, Inc.,
255 Wis. 482, 39 N.W.2d 363 (1949), and Boeck v. State Highway
Commission, 36 Wis. 2d 440, 153 N.W.2d 610 (1967), to
support its argument that the notice is not effective until the date of
service. In Hotel Hay, this
court held that, absent anything to the contrary in the lease, a default notice
became effective at the time of delivery.
The court stated:
The nature of notice required by contract depends, of
course, upon the provisions of the contract. . . . In the absence of custom, statute,
estoppel, or express contract stipulation, when a notice, affecting a
right, is sought to be served by mail, the service is not effected until the
notice comes into the hands of the one to be served, and he acquires knowledge
of its contents.
Hotel Hay, 255 Wis. at
486 (emphasis added) (internal citations omitted).
¶17 In Boeck, the court reiterated the Hotel Hay rule
that in the absence of more specific provision in a statute or a contract, a
notice does not become effective until it is served on a party. Boeck, 36 Wis. 2d at
444. In Boeck, though, a
statutory provision clearly governed service of the notice at issue. Id.
Hence, far from making any sort of statement that the date of service of
the notice always governs, the court in that case relied upon a statute.
¶18 If the terms of the lease are to control, superseding
Wis. Stat. § 704.17(3)(a), the principles in the Hotel Hay
case, and any other document, they must be clear and consistent internally and
not be undermined by a subsequent Lessor-drafted document.
¶19 In this case, we need not decide whether the notice is functionally
equivalent to the lease. There is
sufficient ambiguity in the two documents that National is entitled to rely on
the notice, interpreted to require receipt.
This is a hollow victory, however, because National did not comply with
the notice either.
¶20 Walters mailed the default notice on September 13. National received it on September 16. National mailed its response, including a
check to cure the monetary part of the default, on October 15. Walters received the response on October
17. Therefore, while 32 days elapsed
between the two mailing dates, 31 days elapsed between the two dates of
receipt.
¶21 The only way National can prevail is if we measure the time period
between National's receipt of the notice on September 16 and the mailing date
of its response on October 15 (29 days).
We decline to accept such a convoluted combination of the notice and the
lease. National cannot have it both
ways; either the dates of receipt control, or the dates of mailing
control. National wants to hold Walters
to one standard (the date of receipt, as expressed in the default notice) while
it obeys another (the date of mailing, as expressed in the lease). As we have noted, under the doctrine of contra
proferentem, the language in the notice must be interpreted favorably to
National. But the doctrine has its
limits. While the doctrine allows us to
construe the ambiguity in National's favor, so that it can rely on the notice,
the doctrine does not allow us to completely ignore language within the
notice. It would be fundamentally
unfair to allow National to rely on some provisions in the notice while effectively
deleting others.
¶22 The notice states that "such defaults" (presumably, the
four defaults mentioned in the notice) must be "resolved" within
thirty days. By mailing the past due rent, National
attempted to cure only one of the four parts of its default. It also did not cure timely its failure to
provide monthly or annual sales figures, or its failure to pay property
taxes. It was in default long past
thirty days, and we cannot say that it "resolved" all the defaults. Accordingly, Walters was entitled to
eviction of National.
III.
CONCLUSION
¶23 We conclude that because of the ambiguous nature of the default
notice and the lease, National had the right to rely on the terms in the
default notice. In general, landlords
should be held to the language in the notices they send. We have no doubt that ordinarily, landlords
will fully exercise their rights under the lease——indeed, the wisest course
would be to copy the lease language in the notice, and we have been presented
with no explanation why the landlord did not do that here. In any event, National did not comply with
the default notice's terms, and accordingly Walters lawfully evicted it. We therefore affirm the decision of the
court of appeals.
By the Court.—The decision of the court of
appeals is affirmed.
¶24 SHIRLEY S. ABRAHAMSON, C.J. (dissenting). I agree with the majority opinion on several
issues:
1. Both the default notice and
the lease in the instant case are ambiguous about curing a default, whether the
documents are read independently or together.
2. When provisions in a
default notice differ from those in a lease, the terms of the default notice
control if the terms of the default notice are more favorable to the
tenant. Accordingly, the default notice
provision controls as to the calculation of the 30-day period in the instant
case.
3. The general interpretive
rule applicable to ambiguous documents is to construe them against the
drafter. The Landlord drafted the lease
and default notice in the instant case; therefore, those documents are
construed against the Landlord.
¶25 I disagree with the majority opinion's ultimate conclusion because
it is inconsistent with this applicable interpretive rule.
¶26 The default notice——the governing instrument here——provides that
"unless [the specified] defaults are resolved on or before the expiration
of thirty (30) days after service of this Notice, Landlord will exercise its
remedies . . . including . . . the
right to terminate [the Tenant's] right to possession." The Landlord is exercising its right to
terminate the Tenant's possession under the default notice.
¶27 The Landlord mailed the default notice (dated September 13, 2002)
by certified mail on September 13, 2002.
The Tenant received the notice on September 16, 2002.
¶28 What is the date of "service" of the notice? September 13 or September 16? The calculation of the date of
"service" of the notice is not set forth in the default notice or the
lease. Apparently relying on the Hotel Hay
case
(which is factually distinguishable), but without fully explaining its
interpretation, the majority opinion interprets the date of "service"
of the notice as the date the Tenant received the notice.
¶29 Applying the governing interpretive rule, I would interpret the
default notice against the Landlord, the drafter, and would conclude that
service of the notice starting the 30-day period means the date the Tenant
received the notice. By using this date
the Tenant will have more time to cure the default than if service of the notice
were interpreted as the date of mailing.
¶30 I now turn to calculating the date by which the Tenant must
"resolve[]" the default under the default notice. Although it is clear that the Tenant may
resolve the default by paying the rent, the notice is silent about calculating
the date rent was paid for purposes of calculating the end of the 30-day
period. Must the Tenant personally hand
over the money to the Landlord within the 30-day period after receipt of the
default notice? Or may the Tenant
merely place the payment in the mail properly addressed to the Landlord within
the 30-day period? Or, if the Tenant
mails the payment, must the Landlord actually receive the mailing within the
30-day period?
¶31 The majority opinion concludes that because it defines service of
the notice as the date the Tenant receives the notice, it must define the date
of resolution of the default as the date the Landlord receives the rent
payment. "Why so?" I ask. Because, responds the majority, the date of
receipt of service is derived from the default notice, while the date of
mailing of payment is derived from the lease. The majority will not allow the Tenant to
"have it both ways,"
to have a "convoluted combination of the notice and the lease,"
that is, the Tenant cannot mix and match provisions from the notice and the
lease.
¶32 Assuming for the sake of argument that the majority opinion's
principle against mixing and matching is sound, the principle has no
application to the instant case. The
Tenant's practice has been to mail the rent payment to the Landlord. The lease provides that the rent is due on
the first of the month but that interest will not begin to accrue unless the
Landlord receives the payment after the seventh of the month. These provisions simply do not specify whether
mailing or receipt of payment was to occur by the first of the month. Therefore, the lease itself refutes the
majority opinion's conclusion that the Tenant's definition of
"payment" derives from the lease.
¶33 The majority opinion goes on to state that the Tenant's
interpretation would require the court to "completely ignore language
within the notice" and would allow the Tenant "to rely on some
provisions in the notice while effectively deleting others." Yet the majority fails to cite any such
provisions. Thus, the majority opinion
implies that the default notice provides that the Landlord must receive the
payment of rent by the end of the 30-day period.
¶34 The majority opinion adopts the arbitrary rule that "either
the dates of receipt control, or the dates of mailing control." The majority opinion ultimately justifies
this rule by claiming that any other interpretation of the time period would be
"fundamentally unfair,"
but it fails to identify any fundamental unfairness. Furthermore, the majority opinion does not clarify whether its
rule of construction applies in all cases or only in the instant case.
¶35 Faced with two ambiguous documents, I would in the instant case
interpret the 30-day period examining only the default notice, which sets forth
the 30-day period. Given that the
default notice is unclear as to both the date of service and the date of
payment, I would adhere to the rule that an ambiguous document should be
interpreted against the drafter.
Accordingly, I would give the Tenant the advantage in calculating both
the date of service and the date of payment.
I would say that the service of the notice is the date of receipt by the
Tenant and that the date of payment of the rent is the date the Tenant mails
the payment.
¶36 Unlike in many eviction actions, in the instant case the parties
were represented by counsel. A typical
tenant facing eviction and a typical landlord seeking eviction often appear in
a busy small claims court without representation. Because of the press of business, the court usually has a very
limited time in which to make a decision and does not have the benefit of
written or oral argument by counsel or the parties.
¶37 The majority opinion today passes up an opportunity to provide
guidance to circuit courts in eviction cases.
The majority opinion states the interpretive rule correctly but
inexplicably never applies it either in defining the date of service on the
Tenant or in defining the Tenant's date of payment to the Landlord. I would have had this court state that in an
eviction action in which both the lease and the default notice were drafted by
the landlord and are ambiguous, the tenant is entitled to rely on the
interpretation of the document most favorable to the tenant.
¶38 For the reasons set forth, I respectfully dissent.
