author: VERGERONT, PJ.

text:
    Columbia Propane, L.P., a Limited Partnership, Plaintiff-Appellant, v. Wisconsin Gas Company, a Wisconsin Corporation, Defendant-Respondent, ABC Insurance Co., a corporation or other entity, and DEF Insurance Co., a corporation or other entity, Defendants.
    Court of Appeals

      No. 01-0090.

      Submitted on briefs August 7, 2001.

    Decided December 28, 2001.

    2002 WI App 9
    (Also reported in 640 N.W.2d 819.)

      On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Michael Ash, Michael B. Apfeld, and John L. Clancy of Godfrey & Kahn, S.C., Milwaukee.
    On behalf of the defendant-respondent, the cause was submitted on the brief of Charles P. Graupner, Pamela L. Gergens, and Jon G. Furlow, oí Michael Best & Friedrich LLP, Milwaukee; William A. Metcalf, of counsel, of Metcalf & Quinn, Wisconsin Rapids.
    Before Vergeront, PJ., Roggensack and Lundsten, JJ.

       Petition to review granted 4-22-02.

   VERGERONT, PJ.

¶ 1. In this action, Columbia Propane, L.P seeks to hold Wisconsin Gas Company liable for environmental contamination on real estate now owned by Columbia Propane; the contamination was allegedly caused by People's Gas Company, a prior owner of the real estate. The trial court entered summary judgment in favor of Wisconsin Gas, dismissing Columbia Propane's tort claims and claims for indemnification and subrogation on the ground that Wisconsin Gas did not assume these liabilities of People's Gas by agreement. The court also ruled that Columbia Propane was not a third-party beneficiary of the agreement between People's Gas and Wisconsin Gas and that the contract statute of limitations applied to Columbia Propane's claims.

¶ 2. We conclude that under the plain language of the asset purchase agreement between People's Gas and Wisconsin Gas, Wisconsin Gas did not assume liability for the indemnification and subrogation claims Columbia Propane asserts in its complaint, but that the contract language is ambiguous regarding whether Wisconsin Gas agreed to assume liability for the tort claims. We further conclude that resolution of the ambiguity involves the resolution of disputed issues of fact, making summary judgment inappropriate. Finally, we conclude that since Columbia Propane has alleged that Wisconsin Gas is liable for People's Gas's torts as a successor corporation having agreed to assume that liability, Columbia Propane need not plead and prove that it is a third-party beneficiary and the statute of limitations for actions on a contract does not apply. We therefore affirm summary judgment in part, reverse in part, and remand.

¶ 3. Columbia Propane also contends the trial court erroneously exercised its discretion in denying its motion to amend the complaint after the court granted summary judgment. We reverse that decision insofar as the court did not permit Columbia Propane to add allegations of constructive fraud and we direct the court on remand to reconsider the motion to add those allegations in light of this opinion.

BACKGROUND

¶ 4. Columbia Propane's complaint alleged as follows. People's Gas, now defunct, had operated a coal gas plant from 1920 to 1959 on the southern portion of People's Gas's real estate, and that operation had contaminated the soil and groundwater on the southern portion prior to 1960. In 1958, Columbia Propane purchased the northern portion of the real estate from People's Gas. The contaminants from the southern portion entered the soil and groundwater of the northern portion, and some or all of this contamination occurred before 1960. In 1960, Wisconsin Gas acquired the southern portion of the real estate from People's Gas under an asset purchase agreement. In 1962, Columbia Propane purchased the southern portion of the real estate from Wisconsin Gas, with the result that since 1962 Columbia Propane has been the owner of the entire parcel of real estate.

¶ 5. The State of Wisconsin brought an action against Columbia Propane for the contamination caused by People's Gas. Columbia Propane seeks reimbursement from Wisconsin Gas for the sums it has expended for remediation, as well as other damages allegedly caused by the contamination, because, it alleges, Wisconsin Gas assumed all liabilities of People's Gas under the 1960 asset purchase agreement. Columbia Propane asserts claims of nuisance, trespass, negligence, strict liability, subrogation, indemnification, and contribution. Columbia Propane also requests a declaration of rights and obligations under the 1960 asset purchase agreement.

¶ 6. Wisconsin Gas moved for summary judgment. It contended that it was not liable to Columbia Propane under the asset purchase agreement for several independent reasons: (1) the language of the agreement plainly provided that Wisconsin Gas assumed liability only for "then outstanding" liabilities and that did not include liability for contamination which was then unknown; (2) Columbia Propane was not a third-party beneficiary of the asset purchase agreement; and (3) all claims that were based on Wisconsin Gas's liability under the agreement were subject to the statute of limitations for contract actions, not for tort actions, and so were time-barred. Columbia Propane opposed the motion, disputing each of Wisconsin Gas's legal contentions and also arguing that if Wisconsin Gas did not assume liability for the contamination under the agreement, then it had engaged in fraud. Columbia Propane asked that a partial summary judgment be granted in its favor, determining that Wisconsin Gas was liable to Columbia Propane for the contamination caused by People's Gas.

¶ 7. The trial court agreed with each of Wisconsin Gas's contentions and granted summary judgment in its favor. In discussing the third-party beneficiary issue, the court observed that the complaint did not plead that Columbia Propane was a third-party beneficiary of the asset purchase agreement, but it decided nonetheless that Columbia Propane was not a third-party beneficiary. The court refused to consider Columbia Propane's argument regarding fraud, because the complaint contained no allegations of fraud.

¶ 8. After the court issued its decision, Columbia Propane moved to amend its complaint to allege breach of contract, third-party beneficiary status, and constructive fraud. The court denied the motion and entered judgment dismissing the complaint. In denying the motion, the court observed that Columbia Propane had pleaded only tort claims and, after losing the summary judgment motion based on that complaint, now wanted to change its entire theory. The court also stated that, even though Columbia Propane had not pleaded a breach of contract or third-party beneficiary status, the court had ruled on these issues because, in the court's view, the agreement was "what everything was all about." Therefore, the court concluded, there was no point in an amendment to the complaint in those respects. As for the constructive fraud allegations, the court rejected Columbia Propane's argument that it had not learned of the basis for these allegations until after Wisconsin Gas had filed its motion for summary judgment, when it discovered Public Service Commission (PSC) records indicating that Wisconsin Gas had represented to the PSC that it would be assuming all the obligations and liabilities of People's Gas. The court pointed out: (1) that information could have been discovered in the PSC files sooner, and (2) Columbia Propane did not bring a motion to amend as soon as it discovered the files but waited to see how the court decided the summary judgment. The court concluded that it would be unfair to Wisconsin Gas to allow the amendment at that time.

DISCUSSION

¶ 9. On appeal, Columbia Propane contends that in granting Wisconsin Gas's motion for summary judgment, the court erred in its interpretation of the asset purchase agreement and in its rulings that Columbia Propane had to be a third-party beneficiary of that contract and that the contract statute of limitations applied to its claims. Columbia Propane also asserts that the trial court erroneously exercised its discretion in denying its motion to amend the complaint.

¶ 10. We address first Columbia Propane's challenge to the court's decision granting summary judgment. Our review of that decision is de novo, and we apply the same methodology as that applicable in the trial court. Brownelli v. McCaughtry, 182 Wis. 2d 367, 372, 514 N.W.2d 48 (Ct. App. 1994). Summary judgment is appropriate if there are no material disputes of fact and one party is entitled to judgment as a matter of law. Id. at 372-73.

Interpretation of Asset Purchase Agreement

¶ 11. The complaint alleges various torts committed by People's Gas against Columbia Propane for which, the complaint alleges, Wisconsin Gas is liable because of the asset purchase agreement. The subrogation, indemnification, and contribution claims are also premised on People's Gas's obligations — to third parties — which Columbia Propane has allegedly paid. For these claims, too, the source of Wisconsin Gas's liability is alleged to be the asset purchase agreement. Although a corporation that purchases the assets of another does not necessarily assume liability for the seller's obligations, there are four recognized exceptions to that rule: (1) purchaser corporation expressly or implicitly agrees to assume liability; (2) transaction amounts to a consolidation or merger of purchaser and seller corporations; (3) purchaser corporation is merely a continuation of seller corporation; or (4) transaction is entered into fraudulently to escape liability for such obligations. Fish v. Amsted Indus. Inc., 126 Wis. 2d 293, 298, 376 N.W.2d 820 (1985). Therefore, under the first exception, Wisconsin Gas would be liable to Columbia Propane for claims the latter has against People's Gas if Wisconsin Gas agreed to assume liability for those claims in the asset purchase agreement.

¶ 12. In that agreement, People's Gas agreed to sell to Wisconsin Gas all of its assets

free and clear of any liability, obligation, imperfection of title, lien or encumbrance except only those referred to in paragraph 4(d) hereof and those liabilities and obligations which are to be assumed by [Wisconsin Gas] at the closing hereinafter provided, and People's Gas agrees to indemnify and save [Wisconsin Gas] harmless with respect to any liability of People's Gas which is not assumed by [Wisconsin Gas] hereunder.

(Footnote added.)

¶ 13. Paragraph (l)(b) provided:

[Wisconsin Gas] hereby agrees, subject to the terms and conditions of this Agreement and in reliance on the representations and warranties herein contained of People's Gas, to purchase the Assets from People's Gas at the date of closing as aforesaid and to assume all of the then outstanding debts, obligations, contracts and liabilities of People's Gas, provided that [Wisconsin Gas] shall have no liability with respect to the following: ((1) items-as to which provision for cancellation or payment is otherwise made herein; (ii) any obligations or liabilities incurred by People's Gas after the closing; (iii) Federal or state income taxes of People's Gas; (iv) any indebtedness or liability to the officers or stockholders of People's Gas; and (v) legal accounting and other fees and expenses incurred by People's Gas in connection with its liquidation and dissolution or in connection with the making or performing of this Agreement or the transactions contemplated hereby.

(Emphasis added.)

¶ 14. Paragraph 4 contained the warranties made by People's Gas and provided in part:

As an inducement to [Wisconsin Gas] to purchase the Assets, People's Gas makes the following representations and warranties, and covenants that they shall be true at the time of closing:
(c) The balance sheet as of September 30, 1959, Exhibit A hereto, has been prepared in accordance with generally accepted accounting practices, it correctly reflects the Assets, liabilities and financial status of People's Gas as of said date; People's Gas has no liabilities of any nature, whether accrued, absolute, contingent or otherwise, and whether for taxes, contract or tort claims or otherwise, for which adequate provision has not been made in Exhibit A [the balance sheet] or by insurance, except unpaid installments of paving assessments in the amount of $1,309.07. There are no actions, suits or proceedings pending or threatened against or affecting People's Gas which are not fully covered by insurance or which would materially adversely affect the financial position or Assets or operations of People's Gas.

(Emphasis added.)

¶ 15. The aim of all contract interpretation is to ascertain the intent of the parties. Eden Stone Co., Inc. v. Oakfield Stone Co. Inc., 166 Wis. 2d 105, 116, 479 N.W.2d 557 (Ct. App. 1991). While construction of a contract to ascertain the intent of the parties is normally a matter of law for this court, id. at 115, where a contract is ambiguous, the question of intent is for the trier of fact. Armstrong v. Colletti, 88 Wis. 2d 148, 153, 276 N.W.2d 364 (Ct. App. 1979). Whether a contract is ambiguous in the first instance is a question of law which we decide independently of the trial court. Wau-sau Underwriters Ins. Co. v. Dane County, 142 Wis. 2d 315, 322, 417 N.W.2d 914 (Ct. App. 1987). A contract is ambiguous when it is reasonably susceptible to more than one meaning. Id. In interpreting contract language, we consider the entire agreement and attempt to give a reasonable meaning to all parts so that no part is useless or inexplicable. Lauterbach v. Brown, 7 Wis. 2d 240, 242, 96 N.W.2d 605 (1959).

¶ 16. The trial court concluded, and Wisconsin Gas argues on appeal, that the phrase "then outstanding ... liabilities" in paragraph 1(b) plainly means only those liabilities that were unpaid and uncollected at the time of the closing and does not encompass contingent liabilities for unknown contamination. According to Wisconsin Gas, the reference in subparagraph 1(b) (ii) to "any obligations or liabilities incurred ... after closing" reiterates that point. Wisconsin Gas also refers to the warranty in paragraph 4(c) and argues that the only liabilities Wisconsin Gas assumed were those listed on the balance sheet, attached as Exhibit A to the agreement.

¶ 17. Columbia Propane argues that the phrase "then outstanding... liabilities" in paragraph 1(b) plainly refers to all liability for consequences of People's Gas's operations that had occurred prior to closing even though the measure of that liability was not fixed or known at the time of closing. Subparagraph 1(b)(ii), according to Columbia Propane, shows that the assumption of liabilities was that broad because there would otherwise be no need for this exclusion. Alternatively, Columbia Propane argues, if there is an ambiguity, then extrinsic evidence, which it submitted in opposition to the motion, resolves the ambiguity in its favor.

¶ 18. In this case, in considering what liabilities the parties intended that Wisconsin Gas assume, we focus on the specific claims asserted in Columbia Propane's complaint — potential tort claims based on contamination that had already occurred, with neither party knowing of the contamination at the time of the agreement or the closing, and claims for reimbursement for payments made as a result of the action filed by the State of Wisconsin. We address the tort claims first.

¶ 19. The term "liabilities" as used in the assumption provision of paragraph 1(b) is plainly broad enough to include liability for tort claims. See Lenz v. Chicago & N.W. Ry. Co., Ill Wis. 198, 203, 86 N.W. 607 (1901) (the terms "obligation" and "liability" are each "broader than 'money debt' in significance"); see also Black's Law Dictionary 925 (7th ed. 1999) (giving as the first meaning of liability: "The quality or state of being legally obligated or accountable; legal responsibility to another or to society, enforceable by civil remedy or criminal punishment cliability for injuries caused by negligence;».").

¶ 20. If we were interpreting "outstanding" in relation to "debt," we would agree with the trial court and Wisconsin Gas that the parties meant "unpaid" or "uncollected," and the inference would be very strong, if not the only reasonable inference, that the parties were referring to debts that were known at the time of closing. However, the meaning of "outstanding" with respect to liability for a tort is not clear. Whether a tort has been committed and, if so, the amount of damages, is established in a court action, whereas liability for a debt and the amount owed may be known without any court action. "Unpaid" and "uncollected" make sense with respect to tort liability if there has been a judgment, but the wording of the agreement does not suggest that limitation. An alternative dictionary definition of "outstanding" seems to make more sense as a modifier for "liability": "continuing in being, unresolved."

¶ 21. Even if we assume that the phrase "outstanding liabilities" when considered in isolation plainly does not include potential tort claims for contamination that has already occurred but is unknown, two other provisions suggest that it may reasonably be read to include such claims: subparagraph 1(b)(ii) and paragraph 4(c). In subparagraph 1(b)(ii), Wisconsin Gas is expressly not assuming liability for "any obligations or liabilities incurred by People's Gas after the closing." "Incurred," as the trial court pointed out, means "become liable or subject to." With respect to tort liability, it is reasonable to interpret subparagraph 1(b) (ii) to exclude from the liabilities that Wisconsin Gas is assuming liability for any torts that People's Gas committed after closing, but not for those that People's Gas committed before closing. If "outstanding . .. liabilities" were intended to include only those liabilities that were known and for which payment was due prior to closing, as Wisconsin Gas suggests, it would not be necessary to exclude liabilities incurred after closing: obviously, they would have been neither known nor payable before closing.

¶ 22. The warranty in paragraph 4(c) is a further indication that the parties may have intended that Wisconsin Gas assume liability for potential tort claims for conduct that had already occurred. People's Gas warrants that it has "no liabilities of any nature, whether accrued, absolute, contingent or otherwise, and whether for taxes, contract or tort claims or otherwise, for which adequate provision has not been made in Exhibit A [the balance sheet] or by insurance... Since the assumption of liabilities in paragraph 1(b) was made "in reliance on the representations and warranties herein," it is appropriate to consider this warranty in interpreting paragraph 1(b). The warranty in paragraph 4(c) is very broad. The "or by insurance" plainly means that People's Gas is not warranting that all liabilities are on the balance sheet; rather, it is warranting that there is insurance coverage for any liabilities that are not on the balance sheet. It is reasonable to infer from this warranty that Wisconsin Gas is assuming liabilities that are not on the balance sheet, and which are not known, while at the same time People's Gas is promising that insurance would cover those liabilities. If insurance does not cover such unknown liabilities, then Wisconsin Gas may have a claim for breach of warranty.

¶ 23. We therefore conclude that the asset purchase agreement may be reasonably interpreted to bind Wisconsin Gas to assume liability for torts that People's Gas had committed before closing, but which were unknown at closing, and this includes tort liability for contamination that People's Gas did not know about at the time of closing. The three cases that Wisconsin Gas cites in support of its position that this is not a reasonable interpretation are concerned with liability under CERCLA (Comprehensive Environmental Response, Compensation, and, Liability Act, 42 U.S.C. §§ 9601-9675), not tort liability. See John S. Boyd Co., Inc. v. Boston Gas Co., 992 F.2d 401 (1st Cir. 1993); North Shore Gas Co. v. Salomon Inc., 152 F.3d 642 (7th Cir. 1998); Hunt's Generator Comm. v. Babcock & Wilcox Co., 863 F. Supp. 879 (E.D. Wis. 1994). This is a significant distinction, as we discuss in more detail below, because CERCLA was enacted in 1980, after the contracts in these cases were formed, whereas long before 1960 Wisconsin courts recognized tort liability for types of soil and water contamination under theories such as nuisance, Price v. Oakfield Highland Creamery Co., 87 Wis. 536, 541-43, 58 N.W 1039 (1894), and negligence, Enders v. Sinclair Refining Co., 220 Wis. 254, 257-60, 263 N.W. 568 (1935). Moreover, the contract language in each of the three cases differed from that in this case, either using more limiting language in the assumption provision or not containing other provisions that suggested a broader assumption.

¶ 24. Although we conclude that the agreement could reasonably be interpreted to include unknown and contingent tort liability, we do not agree with Columbia Propane that this is the only reasonable interpretation. The use of the word "outstanding" can reasonably be interpreted to narrow the liabilities assumed to those situations where at least the potential for liability is known; subparagraph 1(b) (ii) can reasonably be interpreted as simply restating that concept in different language; and paragraph 4(c) can reasonably be interpreted as the dissent suggests.

¶ 25. We also do not agree with Columbia Propane that we can resolve the ambiguity on this appeal by referring to its exhibits. Since the asset purchase agreement does not clearly express whether the parties intended that Wisconsin Gas assume liability for torts arising out of contamination that had occurred before closing, the issue of the parties' intent is for a trier of fact. See Armstrong, 88 Wis. 2d at 153. While the exhibits Columbia Propane points to may support its interpretation of the agreement — such as the contemporaneous communications between the PSC and People's Gas — they are not conclusive. And at least one exhibit submitted by Wisconsin Gas arguably supports its position that the parties did not contemplate liability arising out of contamination: the affidavit of Robert Karnauskas opines that prior to the early to mid-1970s, parties to property transactions would not have considered the potential subsurface environmental conditions at issue in this case.

¶ 26. With respect to liability for the subrogation, indemnification, and contribution claims, however, we conclude the asset purchase agreement is not ambiguous. These claims are based on the sums Columbia Propane has had to pay or will have to pay under Wisconsin's Remedial Action statutes, chapter 292. The relevant provisions of these statutes were first enacted in 1977. The precise issue of contract interpretation presented by these claims is whether — even if the parties intended that Wisconsin Gas would assume the liabilities of People's Gas for unknown and contingent tort claims arising out of contamination that had already occurred — did they intend that Wisconsin Gas would assume liabilities that would arise under a statute enacted years after the closing? We conclude the contract language plainly expresses the parties' intent that Wisconsin Gas would not assume these liabilities. The language in subparagraph 1(b) (ii) plainly excludes "any obligations or liabilities incurred by People's Gas after the closing," and we can see no reasonable interpretation of that clause that would not exclude liability under a statute that had not been enacted at the time of closing. Similarly, the warranty that there are no liabilities of any nature in paragraph 4(c) cannot reasonably be interpreted to refer to liability under a statute that did not then exist.

¶ 27. Our conclusion that the parties did not intend that Wisconsin Gas would assume liability for claims based on subsequently enacted environmental statutes is consistent with the court's reasoning in John S. Boyd Co. One of the principles the court there applied in arriving at its conclusion that the 1973 contract language did not cover CERCLA liability was that statutes enacted after the execution of an agreement are not commonly considered to become part of the agreement unless its provisions clearly establish that the parties intended to incorporate subsequent statutory enactments into their agreement. John S. Boyd Co., Inc., 992 F.2d at 406, 407.

Nature of Claims Against Wisconsin Gas

¶ 28. The second and third issues raised in Columbia Propane's challenge to the trial court's grant of summary judgment are related: whether Columbia Propane must plead and prove third-party beneficiary status in order to be entitled to any relief against Wisconsin Gas and whether the six-year statute of limitations applies to its claims. Columbia Propane contends that although the asset purchase agreement is the basis for any liability Wisconsin Gas has for People's Gas's torts, it is not asserting a claim for breach of contract against Wisconsin Gas; rather, it is asserting the tort claims for which, under its view of the asset purchase agreement, Wisconsin Gas has assumed liability. Therefore, continues Columbia Propane, it need not separately allege and prove that it is a third-party beneficiary and the statute of limitations for contracts does not apply.

¶ 29. The general rule is that a person not a party to a contract may not recover on the contract unless that person is a third-party beneficiary, which means that the agreement was intentionally entered into directly and primarily for the benefit of that person. Ampex Corp. v. Sound Inst., Inc., 44 Wis. 2d 674, 683, 172 N.W.2d 170 (1969). As Columbia Propane points out, when a successor corporation has agreed to assume the "existing debts, liabilities and obligations" of its predecessor, creditors are considered third-party beneficiaries of that contract and may sue the predecessor for direct payment of the debt assumed. Lenz, 111 Wis. at 203-05. However, it appears there is no Wisconsin case that has decided whether a plaintiff suing a successor corporation for the torts of its predecessor, on the ground that the successor explicitly or implicitly agreed to assume liability for those torts, must sue on the contract as a third-party beneficiary or may sue in tort. In the cases that have discussed the four methods for establishing successor liability for torts, the actions were brought as tort actions. See, e.g., Fish, 126 Wis. 2d at 297; Tift v. Forage King Indus., Inc., 108 Wis. 2d 72, 75, 322 N.W.2d 14 (1982); Cody v. Sheboygan Mach. Co., 108 Wis. 2d 105, 109, 321 N.W.2d 142 (1982). However, because an agreement to assume tort liability was not the alleged basis for the purchasing corporation's liability in any of these cases, there was no need for the court in these cases to address the issue confronting us.

¶ 30. Wisconsin Gas argues that two cases support its position that Columbia Propane may seek relief from it for the torts of People's Gas only as a third-party beneficiary on a contract claim, with the six-year contract statute of limitations applying: Kuhl v. Chicago & Northwestern Railway Co., 101 Wis. 42, 77 N.W.155 (1898), and City of Franklin v. Crystal Ridge, Inc., 180 Wis. 2d 561, 509 N.W.2d 730 (1994). However, because neither case addressed the purchasing corporation's liability for torts, they do not provide either authority or guidance for resolving the issue before us.

¶ 31. In Kuhl, the owner of property on one side of the street sought compensation for the injury to his property resulting from the construction and maintenance of railroad tracks on the opposite side of the street. The corporation that constructed the tracks sold its assets to another corporation, and the plaintiff sued the purchasing corporation. The court concluded that the plaintiffs cause of action was on an implied contract to compensate him under a particular statute, Kuhl, 101 Wis. 2d at 50-51. One issue was the effect on the statute of limitations of the purchasing corporation's agreement to assume the liabilities of the selling corporation. The court held that the agreement created a new obligation to which the plaintiff was a third-party beneficiary and the statute of limitations on the plaintiffs implied contract claim began to run from that date, with the result that the suit was timely. Id. at 56-58. Neither the reasoning nor the holding in Kuhl suggests that when a plaintiff brings a claim against a successor corporation for the torts of the predecessor, rather than a claim for an amount due under a contract with the predecessor, the same analysis applies.

¶ 32. Crystal Ridge, 180 Wis. 2d at 561, has even less relevance than Kuhl since it did not involve an agreement to assume a selling corporation's liability. Crystal Ridge involved a lease of land in which the lessee allegedly agreed to pay the property taxes. We held that the City of Franklin could enforce that contractual provision as a third-party beneficiary and require the lessee to pay the taxes it had levied, id. at 567. The supreme court reversed, concluding that the buildings were exempt from taxation and the lessee had not agreed to pay invalidly assessed taxes. Id. at 572.

¶ 33. In the absence of controlling Wisconsin authority, we look to cases from other jurisdictions. We have located only two that are relevant, both supporting the conclusion that Columbia Propane may bring tort claims against Wisconsin Gas. In Gwinnett Hospital System Inc. v. Massey, 469 S.E.2d 729, 730 (Ga. Ct. App. 1996), the plaintiff sued the corporation that owned and operated a hospital for malpractice committed when another entity owned and operated the hospital, alleging that the current owner was liable because it had agreed to assume all the liabilities and obligations of the prior owner. The current owner argued that the plaintiff was not a third-party beneficiary of that agreement. Id. at 730. The court rejected this argument, stating: "The claim here is for breach of a medical duty, not for damages resulting from a breach of contract between two other parties, and the action was not brought to enforce a contract." Id. The court also rejected the argument that the current owner had agreed only to indemnify the prior owner if the prior owner was first found liable. Id. at 731. The court concluded that because of the agreement, the plaintiff could directly sue the current owner for malpractice. Id.

¶ 34. In Niven v. E.J. Bartells Co., 983 P.2d 1193, 1195 (Wash. Ct. App. 1999), the plaintiff filed a personal injury suit for damages arising from asbestos exposure against a corporation that allegedly had agreed to assume the liabilities of the corporation that manufactured the asbestos. The successor corporation argued that, because the basis for its liability was a contract, the plaintiffs suit sounded in contract rather than tort and the plaintiff needed to be a third-party beneficiary, which he was not. The court stated, without citation, that the plaintiffs suit was a personal injury action, not a contract action, id. at 1196; the court proceeded to apply the statute of limitations for personal injury actions, including the discovery rule. Id. at 1197-98.

¶ 35. Although neither of these cases articulates a reasoning for the results they reach, our own analysis leads us to the same conclusion. First, characterizing Columbia Propane's claim against Wisconsin Gas as a claim to enforce a contract overlooks the underlying torts asserted, which are the primary claims that need to be tried. The asset purchase agreement is the source of Columbia Propane's right, if any, to recover against Wisconsin Gas, but if that agreement is interpreted to impose liability on Wisconsin Gas for the torts alleged in the complaint, Columbia Propane will need to prove those torts just as it would in an action against People's Gas. Second, if we characterize Columbia Propane's claim against Wisconsin Gas as a contract claim, the application of a contract statute of limitations is problematic. The statute of limitations on a contract claim begins to run on the date of the breach. Assuming for purposes of illustration that Wisconsin Gas agreed to assume liability for the torts alleged in Columbia Propane's complaint, when did the breach of that agreement occur? Wisconsin Gas suggests it has not breached its agreement with People's Gas until there is a judgment against People's Gas for tort damages that Wisconsin Gas is obligated to pay, is asked to pay, and refuses to pay. But who does Columbia Propane sue to obtain that judgment? As we pointed out in Tift v. Forage King Industries, Inc., 102 Wis. 2d 327, 331, 306 N.W.2d 289 (Ct. App. 1981), reversed on other grounds, 108 Wis. 2d 72, 77, 322 N.W.2d 14 (1982), generally when a corporation is purchased by a second corporation, the first disappears as a legal entity and, consequently, cannot be sued. If we adopt Wisconsin Gas's approach, it is difficult to see when a plaintiff could ever recover for the selling corporation's tort from the purchasing corporation, even though the latter agreed to assume liability for the tort. Finally, allowing direct suit in tort against a purchasing corporation that has agreed to assume the selling corporation's liability for that tort is consistent with the manner of asserting claims where other grounds for successor liability are asserted.

¶ 36. For these reasons, we conclude that, if Wisconsin Gas agreed to assume liability for the torts of People's Gas alleged in Columbia Propane's complaint, Columbia Propane may sue Wisconsin Gas in tort for damages, as it has done. The complaint need not plead a claim for breach of contract, Columbia Propane need not plead and prove third-party beneficiary status, and the statute of limitations for a contract action does not apply. Therefore, none of these was a proper basis for granting summary judgment against Columbia Propane.

Amendment to Complaint

¶ 37. Columbia Propane contends that the trial court erroneously exercised its discretion in denying its motion to amend its complaint by adding a claim for breach of contract, allegations on its third-party beneficiary status, and allegations on constructive fraud. Since we have already concluded that Columbia Propane may sue Wisconsin Gas for the tort claims it has alleged without alleging breach of contract or third-party beneficiary status, there is no need for Columbia Propane to add a contract claim or third-party beneficiary allegations: its desire to do so was prompted by the court's rulings that we have concluded were erroneous. We therefore address only the proposed amendment to allege constructive fraud. The constructive fraud allegations would, if permitted, allow Columbia Propane to attempt to establish that Wisconsin Gas is liable for its claims against People's Gas under the fourth exception to the rule against successor liability— that the transaction was entered into fraudulently to escape liability for such obligations. Fish, 126 Wis. 2d at 298.

¶ 38. Since the decision whether to permit an amendment to a complaint later than six months from its filing is within the discretion of the trial court, we affirm if the trial court has properly exercised its discretion. American Fed'n State, County & Mun. Employees Local 1901 v. Brown County, 146 Wis. 2d 728, 737, 432 N.W.2d 571 (1988). A trial court properly exercises its discretion when it considers the relevant facts, applies the correct law, and articulates a reasonable basis for its decision. Krebs v. Krebs, 148 Wis. 2d 51, 55, 435 N.W.2d 240 (1989).

¶ 39. When the trial court made its decision to deny an amendment to allege constructive fraud, among the other facts it considered relevant was that it had already granted summary judgment in Wisconsin Gas's favor; the court decided it would be unfair to Wisconsin Gas to permit an amendment that would, in effect, resurrect the action but on another theory. Since we have concluded that the trial court's grant of summary judgment was in error with respect to the tort claims, and we are remanding for a trial to resolve the ambiguity in the asset purchase agreement, a significant part of the reasoning that led the trial court to deny the amendment is no longer valid. In addition, there are new facts bearing on the appropriateness of an amendment that the trial court has not had the opportunity to consider. For example, it appears some of the evidence that Columbia Propane offers to support its interpretation of the asset purchase agreement is the same evidence that supports its assertion that Wisconsin Gas is liable for People's Gas's torts because of constructive fraud.

¶ 40. Because the trial court based its decision to deny the motion to amend the complaint to add allegations of constructive fraud on an erroneous view of Wisconsin Gas's entitlement to summary judgment, and because the facts relevant to the court's decision have changed, we are persuaded that we should reverse the trial court's order denying the motion to add those allegations. On remand, the court will have the opportunity to reconsider the motion in light of this opinion.

CONCLUSION

¶ 41. We affirm the trial court's decision granting summary judgment for Wisconsin Gas with respect to the claims for subrogation, indemnification, and contribution. We reverse that decision with respect to the tort claims and remand for a trial on the issue of whether the parties to the asset purchase agreement intended Wisconsin Gas to assume liabilities for those torts. If the determination is that the parties to that agreement did intend that Wisconsin Gas assume liability for any tort of People's Gas alleged in the complaint, further proceedings will, of course, be necessary on the particular tort claim or claims.

¶ 42. On remand, the court will reconsider Columbia Propane's motion to amend the complaint to add allegations of constructive fraud.

By the Court. — Judgment and order affirmed in part; reversed in part and cause remanded with directions.

¶ 43. ROGGENSACK, J. (dissenting). The majority concludes that the asset purchase agreement between People's Gas and Wisconsin Gas is ambiguous in regard to the liabilities of People's Gas that Wisconsin Gas agreed to assume. In so doing, it creates uncertainty in commercial transactions throughout Wisconsin where asset purchase agreements have been common occurrences. Because I conclude that the agreement is an unambiguous statement of the parties' intent that Wisconsin Gas assume only those liabilities of People's Gas that were disclosed at closing and because I would not grant leave to amend the pleadings, I must respectfully dissent.

¶ 44. When one company purchases the assets of another company, the general rule is that it does not succeed to the selling company's liabilities. Fish v. Amsted Indus., Inc., 126 Wis. 2d 293, 298, 376 N.W.2d 820, 823 (1985). There are four exceptions to the general rule:

"(1) when the purchasing corporation expressly or impliedly agreed to assume the selling corporation's liability; (2) when the transaction amounts to a consolidation or merger of the purchaser and the seller corporations; (3) when the purchaser corporation is merely a continuation of the seller corporation; or (4) when the transaction is entered into fraudulently to escape liability for such obligations."

Id. (quoting Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir. 1977)).

¶ 45. The majority opinion focuses on the first exception and concludes that the asset purchase agreement may be read to show that Wisconsin Gas impliedly agreed to assume all of People's Gas's unknown liabilities. I conclude the majority's conclusion that the asset purchase agreement is ambiguous is erroneous in three major respects: (1) it does not parse the agreement with an acknowledgement of the reason parties enter into such agreements — to allocate the risks of the transaction between themselves; (2) it does not apply Fish to this agreement; and (3) it misconstrues the promise of People's Gas's warranties.

¶ 46. The provisions used in the asset purchase agreement are not unique to this business contract. Disclosure of liabilities for which the purchaser is agreeing to assume responsibility and a warranty that there are no undisclosed liabilities for which the purchaser will be responsible are standard provisions when one business is buying the assets of another. Arthur L. Corbin, CoRBiN on Contracts § 14 (ed. 1952). Such agreements should be construed as reasonably understood by business people involved in a business asset purchase. See 17A Am. JuR.2d § 405 (1991).

¶ 47. In order to determine whether the asset purchase agreement could reasonably be interpreted to show that Wisconsin Gas impliedly agreed with People's Gas to assume an unlimited amount of undisclosed liabilities, we interpret the agreement as a matter of law. Wausau Underwriters Ins. Co. v. Dane County, 142 Wis. 2d 315, 322, 417 N.W.2d 914, 916 (Ct. App. 1987). A written agreement is not ambiguous simply because two parties to a lawsuit give it different meanings. Waukesha Concrete Prods. Co. v. Capitol Indent. Corp., 127 Wis. 2d 332, 339, 379 N.W.2d 333, 336 (Ct. App. 1985). Rather, it is to be interpreted as it would be understood by persons in the business to which the contract relates. McNantee v. APS Ins. Agency, Inc., 112 Wis. 2d 329, 333, 332 N.W.2d 828, 830 (Ct. App. 1983).

¶ 48. Here, we review a contract relating to the purchase of the assets of one company by another company. Fish states the controlling rule of law for interpreting the agreement. Fish instructs that unless the buyer agrees to assume liabilities of the seller, the buyer receives no such liabilities as a result of the transaction. While the majority opinion cites Fish, it does not apply it. Instead it reverses its holding and concludes that because Wisconsin Gas did not exclude the assumption of liability for People's Gas's then unknown contamination, it is reasonable to conclude Wisconsin Gas did assume it. That reasoning effectively reverses Fish because the rule of law from Fish is that a buyer of a business gets no liabilities of the seller's business unless he chooses to assume them. Fish, 126 Wis. 2d at 298, 376 N.W.2d at 873.

¶ 49. The asset purchase agreement must be read as a whole, giving a reasonable meaning to all its provisions. See Berg v. Schultz, 190 Wis. 2d 170, 175, 526 N.W.2d 781, 783 (Ct. App. 1994). The parties expressed their intent about liabilities in several paragraphs of the agreement. Paragraph 1(a) first references liabilities that Wisconsin Gas is accepting with the purchase of People's Gas's assets. It states:

Such sale, conveyance, transfer and delivery shall be made free and clear of any liability, obligation, imperfection of title, ben or encumbrance except only those referred to in paragraph 4(d) hereof and those liabilities and obligations which are to be assumed by Milwaukee at the closing as hereinafter provided, and People's Gas agrees to indemnify and save Milwaukee harmless with respect to any liability of People's Gas which is not assumed by Milwaukee hereunder.

People's Gas was obligated to transfer its assets "free and clear of any liability" except as stated. Therefore, if Wisconsin Gas has any liability for the environmental contamination at issue here, the assumption of that liability must be specified in paragraph 4(d) or it must have been assumed at the closing as set forth later in the asset purchase agreement. The environmental contamination is not listed or described in paragraph 4(d) nor was it disclosed at closing.

¶ 50. Paragraph 1(b) also addresses the issue of liability. It states:

Milwaukee hereby agrees ... in reliance on the representations and warranties herein contained of People's Gas, to purchase the Assets from People's Gas .. . and to assume all of the then outstanding debts, obligations, contracts and liabilities of People's Gas, provided, that Milwaukee shall have no liability with respect to the following:... (ii) any obligations or liabilities incurred by People's Gas after the closing; (iii) Federal or state income taxes of People's Gas;... (v) legal, accounting and other fees and expenses incurred by People's Gas in connection with its liquidation and dissolution or in connection with the making or performing of this Agreement or the transactions contemplated hereby.

By this paragraph, Wisconsin Gas limited the liabilities of People's Gas that it was agreeing to assume to those that were "then outstanding." In the same sentence, it also agreed to assume "debts, obligations [and] contracts," so long as they were "then outstanding" and not otherwise listed as an exception to those liabilities that were then outstanding but for which Wisconsin Gas was assuming no responsibility. The paragraph also made clear that Wisconsin Gas was entering into the transaction in reliance on People's Gas's representations and warranties.

¶ 51. The majority construes "then outstanding" differently for liabilities than it does for debts, concluding that "[i]f we were interpreting 'outstanding' in relation to 'debt,' we would agree with the trial court and Wisconsin Gas that the parties meant 'unpaid' or 'uncollected' [debt] . . . [and] that the parties were referring to debts that were known at the time of closing." Maj. Op. ¶ 20. As the modifying phrase "then outstanding" directly precedes the words, "debts, obligations, contracts and liabilities of People's Gas" in the same sentence, I conclude that reasonable businesses in the positions of People's Gas and Wisconsin Gas would understand the modifying phrase in the same way for each of the nouns it precedes. Additionally, because "then outstanding" implies a time certain, I further conclude that "then outstanding" unambiguously refers to the status of People's Gas's debts, obligations, contracts and liabilities at closing.

¶ 52. Paragraph 2 provides additional support for this conclusion. It is important in determining the liabilities Wisconsin Gas agreed to assume because it sets the purchase price at $105,000 plus a floating amount determined by a re-balance of the assets and liabilities at closing. The paragraph defines the floating amount as follows:

an amount equal to the amount by which the net book value of the Assets at the time of closing shall be more than the net book value of the Assets at September 30, 1959.... Any differences of opinion between the parties as to the determination of the net book value of the Assets as aforesaid or as to the value of any asset or amount of any liability shall be determined by such appraiser as shall be agreed upon by Milwaukee and People's Gas.

I conclude that no reasonable business purchaser who contracted to fine-tune the purchase price at closing by balancing the value of the assets and liabilities of People's Gas on that date would agree to assume liability for tort claims that had unlimited damages exposure simply because those claims had not been disclosed at closing. Instead, there are many contract provisions, most specifically, the warranty provisions, which are unambiguous statements of an agreement to limit Wisconsin Gas's exposure for charges which would lessen the value of the assets it was purchasing.

¶ 53. People's Gas's warranties are set out in paragraph 4. Warranties are the representations of a seller to a buyer of the existence, or the non-existence, of a fact upon which the buyer may rely. 17A Am. Jur.2d § 410. Here, People's Gas warrants specifically "[a]s an inducement to Milwaukee" to enter into the transaction that:

People's Gas has no liabilities of any nature, whether accrued, absolute, contingent or otherwise, and whether for taxes, contract or tort claims or otherwise, for which adequate provision has not been made in Exhibit A or by insurance. . .. There are no actions, suits or proceedings pending or threatened against or affecting People's Gas which are not fully covered by insurance or which would materially adversely affect the financial position or Assets or operations of People's Gas.

(Emphasis added.) I agree with the majority opinion that the warranty People's Gas made to induce Wisconsin Gas to buy its assets is very broad. It unambiguously establishes that Wisconsin Gas will not be responsible for any liabilities that are not on the balance sheet or listed in paragraph 4(d), which are not at issue here, whether those liabilities exist at closing or not. The risk for such liabilities remains with People's Gas. I fail to understand the majority's reasoning that the breadth of the warranty shows there must have been liabilities that Wisconsin Gas was assuming that were not on the balance sheet. To the contrary, the warranty was the promise of People's Gas that there were "no liabilities of any nature, whether accrued, absolute, contingent or otherwise, and whether for taxes, contract or tort claims or otherwise," for which Wisconsin Gas would be liable.

¶ 54. The majority concludes that Wisconsin Gas agreed to accept liabilities that under the warranty it had a right to believe did not exist because if such liabilities did exist Wisconsin Gas could sue People's Gas for breach of warranty. Maj. Op. ¶ 22. A practical application of the majority's conclusion about the effect of the warranty would result in the following scenario: Buyer agrees to assume all undisclosed liabilities of Seller because Seller has warranted that only the disclosed liabilities, A and B, exist. If liability C arises, Buyer can sue Seller for breach of warranty. However, Seller will have nothing with which to pay any resulting judgment because Seller transferred all of its assets to Buyer under the asset purchase agreement, which Buyer well knows. From a business perspective, no reasonable Buyer would ever agree to such a transaction because Buyer would be assuming unending, unknown liabilities in exchange for the right to sue a company Buyer knows has no assets. As a matter of law, that cannot be a reasonable interpretation of the asset purchase agreement. Rather, the warranties were promises about the non-existence of undisclosed liabilities made to induce Wisconsin Gas to enter into the contract. People's Gas's warranties gave Wisconsin Gas the right to believe there were no undisclosed liabilities, yet the majority concludes Wisconsin Gas agreed to assume liabilities Wisconsin Gas believed did not exist. I conclude that is an unreasonable interpretation of the asset purchase agreement.

¶ 55. Additionally, the majority's reliance on the insurance provision of paragraph 4 for its conclusion that the agreement could be read to allocate undisclosed liabilities to Wisconsin Gas is confusing to me and appears to ignore paragraph 7(b) which describes the liabilities that are covered by insurance. Paragraph 7(b) provides further evidence that Wisconsin Gas assumed no contingent or undisclosed liabilities because in addition to People's Gas's warranties and representations, Wisconsin Gas also required the opinion of People's Gas's counsel as an additional assurance that there would be no surprises after closing. Paragraph 7(b) addresses the insurance issue as well as other assurances that all liabilities have been disclosed and states in relevant part:

People's Gas shall deliver to Milwaukee at the time of closing an opinion of its counsel... stating... that such counsel does not know or have reason to know of any legal or governmental action or proceeding pending or threatened against or relating to People's Gas, its property or business, except such as are covered by insurance for claims arising out of accidents occurring on May 27, 1958 and July 25, 1959. ...

Accordingly, I conclude the agreement is unambiguous in precluding liability for Columbia's claims, and therefore, I would affirm the circuit court's decision in that regard.

¶ 56. I would also affirm the circuit court's decision to deny leave to re-plead, contrary to the door which is left open in the majority opinion. There is no reasonable basis for the allegation that Wisconsin Gas entered into the asset purchase agreement fraudulently to escape liability for any obligation of People's Gas. As a foundational matter, Wisconsin Gas had no liability to attempt to escape because the general rule is that a company that purchases the assets of another company does not succeed to the selling company's liabilities. Fish, 126 Wis. 2d at 298, 376 N.W.2d at 823. The fourth Fish exception requires fraud perpetrated to escape liability. Id.

¶ 57. The parties agree that Wisconsin Gas had no knowledge of the contamination that occurred when People's Gas owned the property. Fraud requires an intent to deceive in order to induce another to act on the false statement. Ollerman v. O'Rourke Co., 94 Wis. 2d 17, 25, 288 N.W.2d 95, 99 (1980) (quoting Whipp v. Iverson, 43 Wis. 2d 166, 169-70, 168 N.W.2d 201, 203-04 (1969)). Wisconsin Gas could not have defrauded anyone if it did not know of the contamination or at the very least recklessly make some factual representation about it. Therefore, there is no basis on which to claim Wisconsin Gas fraudulently entered into the asset purchase agreement and thereby come within the fourth exception to the general rule set out in Fish. I also agree with the circuit court that, because Wisconsin Gas did not assume liability for the contamination caused by People's Gas, re-pleading to add third-party contract claims is unnecessary. Accordingly, I would affirm the circuit court on all issues; therefore, I must respectfully dissent from the majority opinion.

       At the time of the agreement with People's Gas, Wisconsin Gas was known as Milwaukee Gas Light Company, but we will use the name "Wisconsin Gas" throughout this opinion.

       Columbia Propane was formerly known as National Propane, L.E, and is the successor in interest to National Propane Corporation. National Propane has assigned its claims relevant to this action to Columbia Propane. In this opinion we will not distinguish between National Propane and Columbia Propane, but will refer to both as "Columbia Propane."

       Based on comments made by Columbia Propane's counsel in the trial court, it appears Columbia Propane concedes there is no evidence that People's Gas knew of the contamination at the time of the transaction with Wisconsin Gas.

       Columbia Propane purchased the real estate, certain fixtures, and personal property from Wisconsin Gas, but did not assume any liabilities of Wisconsin Gas.

       Columbia Propane also alleged that Wisconsin Gas was responsible for the liabilities of People's Gas because Wisconsin Gas continued substantially the same business operations and because the asset purchase amounted to a merger. The trial court ruled against Columbia Propane on these theories of liability and Columbia has not appealed that ruling.

       The liens, encumbrances, and imperfections of title specified in paragraph 4(d) are not relevant to this appeal.

       Under "Current Liabilities" on the balance sheet were the following:
      Notes Payable $ 4,190.00
      Accounts Payable 3,747.24
      Accounts Payable to People's Bottle Gas Co. 37,164.64
      Customers' Deposits . 2,015.90
      Accrued General Taxes 1,341.51
      Accrued Interest 1,481.59
      Other v 207.15
      $50,148.03

       Because Wisconsin Gas's motion for summary judgment asserted that it had no liability under the asset purchase agreement for any of the claims asserted against People's Gas, it did not address whether the complaint stated claims for relief against People's Gas, and, if so, what claims. Since neither of the parties has briefed that issue, we do not decide it, and, for purposes of this decision, we accept the claims against People's Gas as described in the complaint. However, nothing in this decision is intended to decide whether the complaint adequately states a claim for relief against People's Gas for any particular claim. In this regard, we observe that Columbia Propane as owner of the northern portion may have tort claims against People's Gas for contamination of that portion traveling from the southern portion that occurred between 1958 and 1960; but an entirely different analysis is required to decide what claims, if any, Columbia Propane as owner of the southern portion has against People's Gas.

       The second meaning is "[a] financial or pecuniary obligation; debt ." Black's Law Dictionaby 925 (7th ed. 1999). Although "debt" may be used as a synonym for "liability," because the contract uses both terms, we assume the parties did not intend them to have identical meanings. Cf. American Motorists Ins. Co. v. R & S Meats, Inc., 190 Wis. 2d 196, 214, 526 N.W.2d 791 (Ct. App. 1994) (discussing interpretation of a statute).

       "2 a: uncollected, unpaid ... b: continuing in being: unResolved ...." WebsteR's Third New International Dictionary 1604 (unabr. ed. 1993).

       Webster's ThiRD New InteRnational DictionaRy, supra, at 1146.

       In John S. Boyd Co., Inc. v. Boston Gas Co., 992 F.2d 401, 407 (1st Cir. 1993), the relevant language in the closing agreement was that the purchaser agreed to assume the liabilities of the seller "as then existing"; the assumption of liabilities document provided that the purchaser would assume all liabilities "outstanding at the date hereof'; and the court referred to no other provision that suggested the assumption of liabilities that were incurred but unknown at the time of closing. In North Shore Gas Co. v. Salomon, Inc., 152 F.3d 642, 652 (7th Cir. 1998), the contract provided the successor company would "assume liabilities and obligations of every kind and character.. . accrued to or existing on the date of transfer" and the court referred to no other provision that suggested the assumption of liabilities that were incurred but unknown at the time of closing. In Hunt's Generator Committee v. Babcock & Wilcox Co., 863 F. Supp. 879, 882 (E.D. Wis. 1994), the purchaser agreed to assume "[a]ll of the debts, obligations and liabilities of Northwestern shown on its balance sheet as of December 31, 1974, as such liabilities have increased or diminished in the ordinary course of business to the date [of the assumption]." The parties agreed the purchaser was not liable under this language. Id. at 883.
      In a case cited by neither party, Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303, 309 (3rd Cir. 1985), one issue was whether the successor corporation had assumed by contract liability for claims of negligence and nuisance for contamination that had occurred prior to the date of the agreement but was unknown at the time. The court decided it had. The agreement provided for the "assumption by [the purchaser] ... of all the debts, obligations and liabilities [of the seller]... as of the Closing Date .. .," excepting certain liabilities not applicable. Id. The court decided that under this language the purchaser had assumed all liabilities incurred by the seller as of the closing, with those few exceptions, including unknown and contingent liabilities. Id. at 309-10. This case is consistent with our conclusion that the contract language here can be reasonably interpreted to include the tort liability of People's Gas that was unknown and contingent; we do not hold this is the only reasonable interpretation, as did the court in Philadelphia Electric, because of the modifier "outstanding," which was not used in that contract.

       1995 Wis. Act 227 renumbered the provisions of chs. 144, 147, 159 and 162, (1993-94), to chs. 280-299 (1995-96). Because Columbia Propane has not provided details of the State's proceeding against it, we are uncertain of under which statutory provision the State has proceeded. However, we are aware of no applicable statute that would have been in existence at the time of the asset purchase agreement or anytime soon thereafter.

        See also Sedbrook v. Zimmerman Design Group, Ltd., 190 Wis. 2d 14, 17, 526 N.W.2d 758 (Ct. App. 1994); Schweiner v. Hartford Accident & Indem. Co., 120 Wis. 2d 344, 347, 354 N.W.2d 767 (Ct. App. 1984).

       Wisconsin Gas apparently reads Kuhl v. Chicago & Northwestern Railway Co., 101 Wis. 42, 77 N.W 155 (1898), to hold that the statute of limitations in general begins to run on the date of the agreement to assume the selling corporation's liabilities. However, the statute of limitations for an action for breach of contract begins to run from the date of the breach, not from the date of the contract. CLL Assocs. Ltd. P'ship v. Arrowhead Pacific Corp., 174 Wis. 2d 604, 609, 497 N.W.2d 115 (1993). As we read Kuhl, the reason the court stated that the six-year contract statute of limitations began to run from the date of that assumption agreement was that the amount was already due the plaintiff under the implied contract on the date of the assumption agreement. The treatise cited by Wisconsin Gas interprets Kuhl as we do. Michael B. Apfeld et al., ContRact Law in Wisconsin § 8.35 (2d ed. 2000) ("This statement [in Kuhl], in turn, appears to presume that immediate performance was due at the time the obligation was assumed."). The significance of Kuhl is that, unlike in some other states, in Wisconsin the agreement to assume a debt that another party owes a third party extends the statute of limitations for recovering the money owed. 13 RichaRd A. LORD, Williston on CONTRACTS § 37:60 (4th ed. 2000).

        See footnote 15.

       Nothing in our opinion precludes the trial court from considering Wisconsin Gas's objections to the proposed amendment on the grounds that there is no factual or legal basis for the claim of constructive fraud.

       The majority reasons, "With respect to tort liability, it is reasonable to interpret subparagraph l(b)(ii) to exclude from the liabilities that Wisconsin Gas is assuming liability for any torts that People's Gas committed after closing, but not for those that People's Gas committed before closing." Maj. Op. ¶ 21 (emphasis added).

       Wisconsin Gas is referred to by its former name of Milwaukee Gas Light Company in the agreement, but I will refer to it as Wisconsin Gas outside of the quoted passages.

       Webster defines "then" as "at that time." WebsteR's New Collegiate Dictionaey 1209 (ed. 1974).

       Exhibit A is the People's Gas balance sheet dated September 30, 1959 which discloses nothing relevant to Columbia's claim against Wisconsin Gas.

       Failure to disclose can provide the basis for a claim of fraud only if there is a duty to disclose. Ollerman v. O'Rourke Co., 94 Wis. 2d 17, 27, 288 N.W.2d 95, 99 (1980). One cannot have a duty to disclose something one does not know.


source: Caselaw Access Project

author: ROGGENSACK, J.

license: Public Domain

text:
    Michael Borge, Petitioner-Appellant, Betty C. Borge, Petitioner-(In T.ct.), v. Wisconsin Tax Appeals Commission and Wisconsin Department of Revenue, Respondents-Respondents.
    Court of Appeals

      No. 01-0488.

      Submitted on briefs August 7, 2001.

    Decided December 28, 2001.

    2002 WI App 14
    (Also reported in 639 N.W.2d 757.)

      On behalf of the petitioner-appellant, the cause was submitted on the briefs of Michael Borge, pro se.
    On behalf of the respondents-respondents, the cause was submitted on the brief of James E. Doyle, attorney general, and Alan Lee, assistant attorney general.
    Before Roggensack, Deininger and Lundsten, JJ.
   ROGGENSACK, J.

¶ 1. The issue presented on this appeal is whether distributions received by the shareholders of a mutual fund that invests in state and local bonds are included as taxable income for purposes of the Wisconsin income tax. We conclude that Wis. Stat. § 71.05(6)(a) 1 (1999-2000) unambiguously requires taxpayers to include in their Wisconsin adjusted gross income "any interest.. . which is not included in federal adjusted gross income." And, under 26 U.S.C. §§ 103(a) and 852(b)(5), the distributions at issue here are treated as "an item of interest" that is excluded from federal gross income. Accordingly, the distributions are subject to state taxation, and we affirm the order of the circuit court.

BACKGROUND

¶ 2. Michael and Betty Borge, residents of Wisconsin, held shares in mutual funds that invest in certain state and local bonds. The mutual funds receive interest payments on the bonds from the obligors, subtract expenses and management fees and then distribute the remaining interest payments to the fund shareholders. The Borges received such distributions each year from 1993 to 1996.

¶ 3. It is undisputed that the distributions from the Borges' state and local bond funds are tax-exempt for purposes of federal income tax. The Borges, however, also excluded the distributions from their Wisconsin adjusted gross income on their state income tax returns for 1993, 1994, 1995 and 1996. The Wisconsin Department of Revenue (DOR) adjusted the returns, asserting that the distributions were taxable under Wis. Stat. § 71.05(6)(a)l. As a result of the adjustment, the Borges were assessed an additional $5,735 in state taxes, interest and penalties.

¶ 4. The Borges appealed the DOR's determination that the distributions are taxable income. They argued that although Wis. Stat. § 71.05(6) (a) 1 expressly imposes state income tax on interest from the state and local bonds, the statute does not tax the distributions from their mutual funds, which they characterize as "dividends." The Wisconsin Tax Appeals Commission (Commission) rejected the Borges' argument and ruled that the DOR's determination was correct. The circuit court affirmed the Commission's decision, and Michael Borge appeals.

DISCUSSION

Standard of Review.

¶ 5. We review the decision of the Commission, not the decision of the circuit court. Gilbert v. DOR, 2001 WI App 153, ¶ 7, 246 Wis. 2d 734, 633 N.W.2d 218. The Commission's decision turns on the construction of statutes. Statutory construction and the application of statutes to undisputed facts are questions of law. Truttschel v. Martin, 208 Wis. 2d 361, 364-65, 560 N.W.2d 315, 317 (Ct. App. 1997). Although we are not bound by the Commission's legal conclusions, circumstances may warrant according some level of deference to the Commission. However, an administrative interpretation may be given deference only where there is an ambiguity in the statute. Lincoln Sav. Bank, S.A. v. DOR, 215 Wis. 2d 430, 443, 573 N.W.2d 522, 528 (1998).

Statutory Interpretation.

¶ 6. In order to determine whether the distributions at issue are taxable income under Wisconsin law, we must (1) determine whether the item is included in or excluded from the federal definition of adjusted gross income, and (2) determine whether there is a state exception to the federal rule. This two-step inquiry is necessary because Wisconsin has "federalized" its basic definition of adjusted gross income for purposes of the state income tax. See DOR v. Caterpillar, Inc., 2001 WI App 35, ¶¶ 9-13, 241 Wis. 2d 282, 625 N.W.2d 338 (noting similar "federalization" of the corporate franchise tax structure), review denied, 2001 WI 43, 242 Wis. 2d 545, 629 N.W.2d 784. That is, the state legislature has provided that, with a few express exceptions, " 'Wisconsin adjusted gross income' means federal adjusted gross income." Wis. Stat. § 71.01(13).

¶ 7. Under federal law, interest earned on most state and local bonds is excluded from gross income. 26 U.S.C. § 103(a) (2000). Section 852 of the Internal Revenue Code (IRC) expressly sets forth the treatment of such tax-exempt interest when it is passed in the form of dividends to shareholders of regulated investment companies (i.e., mutual funds):

(5) Exempt-interest dividends. If, at the close of each quarter of its taxable year, at least 50 percent of the value (as defined in section 851(c)(4)) of the total assets of the regulated investment company consists of obligations described in section 103(a), such company shall be qualified to pay exempt-interest dividends, as defined herein, to its shareholders.
(A) Definition. An exempt-interest dividend means any dividend or part thereof (other than a capital gain dividend) paid by a regulated investment company and designated by it as an exempt-interest dividend in a written notice mailed to its shareholders....
(B) Treatment of exempt-interest dividends by shareholders. An exempt-interest dividend shall be treated by the shareholders for all purposes of this subtitle as an item of interest excludable from gross income under section 103(a). Such purposes include but are not limited to—
(i) the determination of gross income and taxable income. ...

26 U.S.C. § 852(b)(5) (emphasis added).

¶ 8. Therefore, under 26 U.S.C. § 852(b)(5), the distributions at issue are "exempt-interest dividends," and shareholders are to treat them as "an item of interest excludable from gross income" for purposes of federal taxation. And, because Wisconsin has federalized its definition of adjusted gross income, the relevant question becomes whether the state has enacted an exception that adds back this federally excluded "item of interest."

¶ 9. Wisconsin Stat. § 71.05(6)(a)l instructs state taxpayers in relevant part:

(a) Additions. To federal adjusted gross income add:
1. The amount of any interest, except interest under par. (b)l., less related expenses, which is not included in federal adjusted gross income. . ..

(Emphasis added.) The Commission concluded that because the IRC expressly denominates "exempt-interest dividends" as "an item of interest" excluded from federal adjusted gross income, the phrase "any interest. . . which is not included in federal adjusted gross income" in § 71.05(6)(a) 1 must be read to include the distributions at issue. Borge contends that the term "interest," as used in § 71.05(6)(a)l, does not encompass those distributions. In the alternative, he argues that § 71.05 (6) (a) 1 is ambiguous and that it should be construed narrowly in his favor. We agree with the Commission.

¶ 10. When we construe a statute, our aim is to ascertain the intent of the legislature. S.C. Johnson & Son, Inc. v. DOR, 202 Wis. 2d 714, 721, 552 N.W.2d 102, 105 (Ct. App. 1996). We begin with the language of the statute itself, looking not at isolated words or phrases, but at the meaning of the relevant language in the context of the entire statute. Id.; Alberte v. Anew Health Care Servs., Inc., 2000 WI 7, ¶ 10, 232 Wis. 2d 587, 605 N.W.2d 515. "If the language of the statute clearly and unambiguously sets forth the legislative intent, it is our duty to apply that intent to the case at hand and not look beyond the statutory language to ascertain its meaning." Landis v. Physicians Ins. Co. of Wisconsin, Inc., 2001 WI 86, ¶ 14, 245 Wis. 2d 1, 628 N.W.2d 893. However, if a statute is capable of being understood by reasonably well-informed persons in either of two senses, it is ambiguous and we will engage in judicial construction. Id. at ¶ 15.

¶ 11. In this case, the relevant language in Wis. Stat. § 71.05(6)(a)l provides that Wisconsin taxpayers are to add to their federal adjusted gross income "any interest.. . which is not included in federal adjusted gross income." The plain meaning of this language requires taxpayers to determine the types of interest that are expressly excluded from federal adjusted gross income and then to add those items back into Wisconsin adjusted gross income unless they fall in one of the express exceptions. As explained above, 26 U.S.C. § 852(b)(5) clearly states that exempt-interest dividends are to be treated as "an item of interest excludable from gross income under section 103(a)" for purposes of determining federal gross income. Wisconsin relies on the federal definition of adjusted gross income as its baseline definition of Wisconsin adjusted gross income, and, for that reason, the distributions at issue are a type of interest for purposes of § 71.05(6)(a) 1. Stated another way, the IRC excludes the distributions from taxable income as a type of interest, and § 71.05(6)(a)l unambiguously requires Wisconsin taxpayers to include in Wisconsin adjusted gross income (with a few exceptions not relevant here) all types of interest excluded for federal purposes.

¶ 12. Because we conclude that Wis. Stat. § 71.05(6)(a)l is not ambiguous, we apply its plain meaning to the facts of this case, and we further conclude that Borge's distributions from mutual funds dealing in state and local bonds, although excludable as tax-exempt interest from federal gross income under 26 U.S.C. §§ 103(a) and 852(b)(5), are a type of interest that must be added to his Wisconsin income.

¶ 13. We reject Borge's argument that the distributions at issue and the underlying interest payments are so different in character that any attempt to tax the distributions as a form of interest would be nonsensical or, at the very least, lead to an ambiguity. First, Borge's argument ignores the plain meaning of the relevant language in Wis. Stat. § 71.05(6)(a)l and the federalization of the Wisconsin income tax. Second, we note that this court has previously rejected a similar attempt to distinguish investment distributions from the nature of the underlying investment income. See Capital Pres. Fund, Inc. v. DOR, 145 Wis. 2d 841, 847, 429 N.W.2d 551, 554 (Ct. App. 1988).

¶ 14. In Capital Preservation, the question was whether distributions from a fund or trust that invested in direct obligations of the federal government could be subjected to state income taxation. The majority concluded that the distributions were exempt because taxing the distributions would amount, in effect, to taxation of the income earned on the underlying investments. Id. at 844-47, 429 N.W.2d at 553-54. The dissent disagreed, concluding that "any identity between [the interest income earned on federal obligations] and the dividends [received by the shareholders] has been lost by the time the dividends are distributed" due to the fact that the fund first deducted expenses and management fees. Id. at 853, 429 N.W.2d at 557. Although Capital Preservation involved different state and federal statutes, the majority's reasoning in that case supports our conclusion here that passing interest income through a mutual fund, while perhaps accomplishing important investment objectives, does not fundamentally change the nature of the income or create a per se ambiguity in Wis. Stat. § 71.05(6)(a)l.

CONCLUSION

¶ 15. We conclude that Wis. Stat. § 71.05(6)(a)l unambiguously requires taxpayers to include in their Wisconsin adjusted gross income "any interest... which is not included in federal adjusted gross income." And, under 26 U.S.C. §§ 103(a) and 852(b)(5), the distributions at issue are treated as "an item of interest" that is excluded from federal gross income. Accordingly, the distributions are subject to state taxation, and we affirm the order of the circuit court.

By the Court. — Order affirmed.

       All further references to the Wisconsin Statutes are to the 1999-2000 version unless otherwise noted. We note that there have been no amendments to Wis. Stat. § 71.05(6)(a)l during the years relevant to this appeal. See, e.g., Wis. Stat. § 71.05(6)(a)l (1991-92).

       There have been no relevant amendments to the federal statutes at issue between 1993 and the current version of the Internal Revenue Code.

       The parties' briefs appear to agree that the interest payments on the bonds held by the mutual funds at issue are tax-exempt under 26 U.S.C. § 103(a) and that the mutual funds at issue are "regulated investment companies" under 26 U.S.C. § 851. As there is no dispute over these matters, we follow the parties' implicit agreement.


author: HOOVER, PJ.

text:
    Arbor Vitae-Woodruff Joint School District No.1, Plaintiff-Respondent, v. Gulf Insurance Company, a foreign corporation, Defendant-Appellant, Temperature Control Corporation, a Wisconsin corporation, Defendant.
    Court of Appeals

      No. 01-0993.

      Submitted on briefs December 3, 2001.

    Decided December 28, 2001.

    2002 WI App 24
    (Also reported in 639 N.W.2d 788.)

      On behalf of the defendant-appellant, the cause was submitted on the briefs of Bruce Gillman and Board-man, Suhr, Curry & Field LLP of Madison.
    On behalf of the plaintiff-respondent, the cause was submitted on the brief of Mary Sue Anderson and Ruder, Ware & Michler, a Limited Liability S.C. of Wausau.
    Before Cane, C.J., Hoover, PJ., and Peterson, J.
   HOOVER, PJ.

¶ 1. Gulf Insurance Company appeals a judgment declaring timely the action brought against it by Arbor Vitae-Woodruff Joint School District No. 1 and allowing it to proceed. Wisconsin Stat. § 779.14(2) allows an injured party to directly sue the surety on a public works bond within a year of the "completion of work under the contract." Gulf contends that § 779.14(2), a statute of limitations, precludes the claim because it was not brought within one year of the completion of work. At issue is when work was completed under the contract. We conclude that the statute of limitations began to run on the date Temperature Control Corporation (TCC), the contractor for which Gulf is a surety, completed its work. The parties stipulated that TCC did no work on the project after December 16,1998. Therefore, the district's February 7, 2000, suit was filed more than a year after TCC completed its work under the contract. We reverse the judgment and remand for the entry of judgment in favor of Gulf.

Background

¶ 2. In 1997, the school district began construction on a new elementary school. The district entered into a written contract with TCC on June 20, 1997. TCC agreed to install the heating, venting and air-conditioning system in the new elementary school, and Gulf issued a surety bond for TCC.

¶ 3. TCC performed the work on the elementary school. It submitted its final application for payment on December 22,1998. TCC did no work at the school after it submitted the application. On February 8, 1999, the district's architect certified that TCC completed its work and approved TCC's final payment request.

¶ 4. The district discovered problems with the heating, venting and air-conditioning system in June 1999. Gulf communicated with the district and requested documents to ascertain whether it was liable under TCC's performance bond. Gulf advised that its attorney would contact the district after it reviewed the documents, but, "In the meantime, the School District should feel free to do whatever is necessary to mitigate its damages in this matter."

¶ 5. On January 3, 2000, Gulfs attorney sent a letter to the district denying liability under the surety bond, claiming that the one-year statute of limitations under Wis. Stat. § 779.14(2) had expired. The district filed an action requesting declaratory relief on February 7, 2000. It asked the trial court to declare that the statute of limitations for claims under the surety bond began to run on February 8,1999, the date the district's architect accepted the work under the contract as complete and certified final payment to TCC.

¶ 6. The trial court granted declaratory judgment in the district's favor. It found ambiguous the phrase, "completion of work under the contract," in Wis. Stat. § 779.14(2). It then (1) looked to legislative history and (2) interpreted the contract between the parties. The court concluded that the statute of limitations began to run on February 8, 1999, when the district's architect accepted TCC's work as complete and authorized final payment. Gulf now appeals.

Standard op Review

¶ 7. The interpretation of a statute and its application to a set of facts are questions of law we review de novo. Reyes v. Greatway Ins. Co., 227 Wis. 2d 357, 364-65, 597 N.W.2d 687 (1999). "The purpose of statutory interpretation is to discern the intent of the legislature." Id. at 365. To determine intent, we look to the plain language of the statute. Id. A "statute is ambiguous if it is capable of being understood by a reasonably well-informed person in either of two senses." Id. If the language of the statute renders legislative intent ambiguous, we resort to judicial construction. Id.

Discussion

¶ 8. As indicated, Wis. Stat. § 779.14(2) allows an injured party to directly sue the surety on a public works bond within a year of the "completion of work under the contract." Gulf contends that § 779.14(2) is ambiguous and that legislative intent proves that "completion of work under the contract" occurs when a contractor has completed the work described in the contract. The district argues that the words, "under the contract," refer the parties to their contract to determine when the work was completed. The district argues that the work was complete under the contract when its architect accepted the work and approves final payment to TCC. We conclude that the statute is ambiguous.

¶ 9. Wisconsin Stat. § 779.14(2) provides no definition for its operative phrase, "completion of work under the contract." Precisely when work is completed under the contract cannot be discerned from the face of the statute. This phrase may be interpreted as the time when the contractor finishes the work it agreed to do in the contract. Or it may be interpreted as the time when the contractor's work has been accepted by the district's architect. A reasonably well-informed person could understand the statute in either sense. Thus, we deem the statute ambiguous and look beyond its words to determine its meaning.

¶ 10. We examine the "scope, history, context, subject matter, and object" of ambiguous statutory language to discern the legislature's intent. Reyes, 227 Wis. 2d at 366-67. Because the legislature's intent cannot be discerned from the statute itself, we turn to the legislative history of Wis. Stat. § 779.14(2) to see if it clarifies the meaning of the statute. See Milwaukee Cty. v. LIRC, 113 Wis. 2d 199, 204, 335 N.W.2d 412 (Ct. App. 1983).

¶ 11. Prior to 1935, an action on a public works bond had to be commenced "within one year after the completion and acceptance of said contract." Wis. Stat. § 289.16(2) (1925) (emphasis added). In Pittman v. Lieffring, 59 Wis. 2d 52, 64, 207 N.W.2d 610 (1973), our supreme court stated, "Generally, the studied omission of a word or words in the re-enactment or revision of a statute indicates an intent to alter its meaning." In 1935, Laws of 1935 ch. 483, the legislature deleted the words, "and acceptance," and signaled its intent to change the statute of limitátions trigger from acceptance and payment, which can arbitrarily be delayed by one party, to completion of work. Because the statute originally provided that the one year ran from the "completion and acceptance of [the] contract," we conclude that the legislature intended that completion no longer be dependent on acceptance.

¶ 12. The district acknowledges that the change in the predecessor statute to Wis. Stat. § 779.14(2) is significant. However, it contends that, by deleting "and acceptance," the legislature intended to defer to the contracting parties to decide when work is complete. We disagree. In In re Liquidation of Wis. Surety Corp., 111 Wis. 2d 194, 200, 330 N.W.2d 768 (1983), our supreme court interpreted Wis. Stat. § 779.14(1), the subsection preceding Wis. Stat. § 779.14(2), which also uses "under the contract." The court said, " 'Under the contract' means that the labor or material was used or consumed on the public improvement project and within the scope of the particular prime contract which the surety company bonded." Wisconsin Surety, 111 Wis. at 200. Accordingly, "under the contract" refers to a contractor's part in a construction project or what the contractor agreed to do pursuant to the contract. See id. Therefore, we do not look to the contract between the parties to identify the point at which a contractor completed its work. We interpret the statute of limitations to determine when work was completed, independent of the parties' contract.

¶ 13. We conclude that the Wis. Stat. § 779.14(2) statute of limitations begins to run when a contractor completes its work on a project. The work is completed when the contractor has performed all work it is responsible for under the terms of the contract. This is an issue of historical fact, and it has been stipulated to in this case. The contractor, by submitting a final application to the architect, is saying that the construction was complete at least as of the date the bill is submitted. The architect then investigates to determine whether the work was actually completed as contracted for and authorizes the final payment. This latter process follows, and is not part of, the completion of the work.

Conclusion

¶ 14. The parties stipulated that TCC completed its work on the school no later than December 16,1998. At that point, the statue of limitations under Wis. Stat. § 779.14(2) began to run. The district's complaint was not filed until February 7, 2000, nearly two months after the statute of limitations expired. Section 779.14(2) precludes the district's complaint against Gulf because it was not filed within one year of TCC completing its work. We reverse the judgment and remand for entry of judgment in favor of Gulf dismissing the district's untimely claim.

By the Court. — Judgment reversed and cause remanded with directions.

       WISCONSIN Stat. § 779.14(2) provides in relevant part: "No later than one year after the completion of work under the contract any party in interest... may maintain an action ... against the prime contractor and the sureties upon the bond for the recoveiy of any damages." (Emphasis added.)
      All references to the Wisconsin Statutes are to the 1999-2000 version unless otherwise noted.

       In Holy Family Catholic Congreg. v. Stubenrauch Assocs., 136 Wis. 2d 515, 521-24, 402 N.W.2d 382 (Ct. App. 1987), this court interpreted the meaning of "substantial completion of construction" in the statute of limitations section of the builder's statute, Wis. Stat. § 893.89. Id. at 518. The statute offered no definition for "substantial completion of construction," and we concluded the statute was ambiguous and looked beyond its words to determine its meaning. Id. at 521.

       In Holy Family, 136 Wis. 2d at 522, we said, "Without explicit statutory direction, we cannot imply a legislative intent to empower one party to trigger the six-year limitation period by its unilateral action." We then turned to legislative intent to construe the statute and rejected a procedure by which either party could unilaterally start the statute of limitations. Id. at 522-24. "For the purposes of the statutory limit, it is the court, not the architect, who determines the date of substantial completion." Id. at 524-25.

       Even if we look to the contract between TCC and the district to define the completion of work, we would arrive at the same result. The definition of work unambiguously refers to the contractor's labor and services. The district argues that all the construction and services provided for in the contract must be complete. Nevertheless, the definition itself shows that when TCC completed the heating, ventilation and air-conditioning installation, it completed its work under the contract. The inspection and acceptance were part of the architect's duties under its own contract with the district. Here, the architect agreed with TCC that its work had been completed under the contract. The only reasonable conclusion one may come to is that the work was completed at the latest on December 16, 1998, the date the parties stipulated TCC did its last work on the project.


text:
    In re the Marriage of: Gary Delbert Richmond, Petitioner-Appellant, v. Carol Kay Richmond, Respondent-Respondent.
    Court of Appeals

      No. 01-1064.

      Submitted on briefs December 10, 2001.

    Decided December 28, 2001.

    2002 WI App 25
    (Also reported in 640 N.W.2d 220.)

      On behalf of the petitioner-appellant, the cause was submitted on the briefs of Timothy D. Anderson of Chippewa Falls.
    On behalf of the respondent-respondent, the cause was submitted on the brief of Stephanie L. Finn and Herrick, Hart, Duchemin, Spaeth, Sullivan & Schuma-cher, S.C. of Eau Claire.
    Before Cane, C.J., Hoover, PJ., and Peterson, J.
   HOOVER, PJ.

¶ 1. Gary Richmond appeals his judgment of divorce from Carol Richmond. He argues that the trial court erroneously exercised its discretion when it included in the property division the appreciation in value of the farm gifted to Gary by his parents. He contends the trial court applied the wrong legal standards and that the appreciation was not a product of the marital partnership, but resulted exclusively from changes in the market. Gary also argues that the trial court erred when it reserved the issue of child support, did not apply the percentage standards for a split custody situation and failed to make specific findings as required in order to deviate from the percentage standards.

¶ 2. We conclude that the trial court did not specifically (1) find whether the contributions of Carol or Gary were in fact a catalyst for the rapid increase in the value of the farm between 1995 and 1999, or (2) make the child support findings required by Wis. Stat. § 767.25(ln). Under § 767.25(ln), the trial court must state on the record or in writing why applying the percentage standards would be unfair to a child or parent, what the support would have been if the percentage standards had been applied, the amount by which the award deviates from the percentage standards, its reasons for finding that use of the percentage standards is unfair, the basis for its modification of the award and its reasons for the amount of modification. Therefore, we reverse the judgment and remand for findings consistent with this opinion.

Background

¶ 3. Gary and Carol Richmond were married in 1982 and have three children. After they were married, Gary and Carol moved to a dairy farm owned by Gary's parents. Gary's parents gifted the farm to him in 1995. Gary filed for divorce on September 10, 1998. The trial court granted Gary's petition for divorce on March 17, 2000.

¶ 4. On September 20, 2000, the court tried the issues of property division, maintenance and child support. The trial court found that the value of the farm was $165,600 at the time of the gift in 1995. It found the farm appreciated to a value of $329,000 in 1999. The court considered contributions made by Carol and Gary throughout the sixteen-year marriage and determined that the increase in value was due to the "efforts and abilities of this marital partnership and not solely to inflation and market forces" and included the $163,400 appreciation as a marital asset to be divided. The trial court ordered Gary to pay Carol an equalizing payment of $86,645.

¶ 5. The trial court granted custody of one child to Gary and custody of the other two children to Carol. It also decided, "Child support shall be reserved for now, as I find that each party is financially able to and shall support the children primarily placed in his or her care." Gary appealed.

Discussion

A. PROPERTY Division

¶ 6. Gary argues that the farm's appreciation was due solely to market forces and did not involve efforts of the marital partnership. The trial court considered the proper legal standards for determining whether to include the appreciation in value of gifted property in the marital estate. Nevertheless, it erroneously exercised its discretion when it considered only contributions to the marriage as a whole and failed to determine whether Carol or Gary's contributions to the marital partnership throughout the marriage were in fact a catalyst for the rapid increase in the farm's value after 1995. Wis. Stat. § 805.17(2). We therefore remand for the court to make that finding.

¶ 7. As indicated, the trial court identified and applied the correct legal standards. It stated:

Section 767.255 of the Wisconsin Statutes provides for the exclusion from the marital estate subject to division property that is either acquired by gift or inheritance or paid for with funds so acquired. However, where gifted or inherited property has appreciated in value during the marriage due to the efforts of both the owning and nonowning spouses, that appreciation will he included in the marital estate. Schwegler v. Schwegler, 142 Wis.2d 362, 366 (Ct.App.1987). "Thus, if during the marriage, both spouses contribute to the acquisition of property through their abilities and efforts, that property is part of the marital estate. The property acquired may be the appreciation in value of an asset separately owned by one of the spouses." Haldemann v. Halde-mann, 145 Wis.2d 296, 302 (Ct.App.1988).
Where the appreciated value of separate property is due solely to general economic conditions, such as inflation or normal appreciation of real estate values, the property remains separate. Plachta v. Plachta, 118 Wis.2d 329, 334 (Ct.App.1984). However, where the appreciation of separate property is due to the efforts and abilities of the marital partnership, that appreciation becomes part of the marital estate. Lendman v. Lendman, 157 Wis.2d 606, 612 (Ct.App.1990).

¶ 8. The trial court looked to what the parties did throughout the sixteen-year history of the marriage and found that their mutual contributions and efforts caused appreciation in the farm's value. However, "merely maintaining the marital relationship and performing the customary obligations of one spouse to the other does not constitute a contribution of the nonown-ing spouse which requires that the appreciation in value of separately owned property be treated as part of the marital estate." Haldemann v. Haldemann, 145 Wis. 2d 296, 302, 426 N.W.2d 107 (Ct. App. 1988). The contributions must be related to the increase in value in order for the appreciation to become part of the marital estate and divisible at divorce. See Plachta v. Plachta, 118 Wis. 2d 329, 334, 348 N.W.2d 193 (Ct. App. 1984). Here, the trial court did not specifically find that Carol's or Gary's contributions actually were a catalyst to the rapid appreciation of the farm after 1995.

¶ 9. Trial court findings that there was an appreciation in the value of the farm and that efforts of the spouses contributed to an increase in the property's value are insufficient to attribute the entire increase in value to the work of the marital partnership. Theoretically, years of efforts could lay the foundation for a later rapid appreciation of an asset. For example, a couple could plan and prepare to turn the farm into a subdivision. Later, the years of planning could come to fruition when a market for the subdivision materializes. .The property's value would then likely appreciate rapidly, as hoped and anticipated. However, it is at least as likely that the contributions of both spouses may have only contributed to the value of the farm as of the time it was gifted to the donee (1995, in this case). This does not necessarily demonstrate that the marital efforts contributed to a later significant appreciation in value over a short period of time.

¶ 10. Thus, we remand for the trial court to clarify whether efforts by Carol and Gary throughout the marriage were in fact a catalyst for the rapid appreciation of the farm's value from 1995 to 1999, or whether the rapid increase in value was due to market forces. If the trial court finds the contributions were not a catalyst, then it should consider the respondent's hardship argument, which it did not reach in light of its initial ruling.

B. Child Support

¶ 11. Gary also argues the trial court erred when it reserved the issue of child support and did not apply the percentage standards for a split custody situation. He contends that court did not make the findings required under Wis. Stat. § 767.25(lm) and (In). We agree.

¶ 12. The interpretation of a statute and its application to a set of facts are questions of law we review de novo. Reyes v. Greatway Ins. Co., 227 Wis. 2d 357, 364-65, 597 N.W.2d 687 (1999). A trial court may modify the amount of child support payments determined by application of the percentage standards if it deems them unfair after considering the factors set forth in § 767.25(lm). Then the court must state in writing or on the record why the use of the percentage standards would have been unfair to a parent or child, what the support would have been if the percentage standards had been applied, the amount by which the court's order deviates from the standards, its basis for adjusting the payments and its reasons for the amount of modification. Wis. Stat. § 767.25(ln).

¶ 13. The record demonstrates that the trial court did not make these required findings, thereby erroneously exercising its discretion. Wis. Stat. § 805.17(2). We reverse the court's child support determination and remand to the trial court to make the statutorily required findings.

By the Court. — Judgment reversed and cause remanded with directions.

       Wisconsin Stat. § 767.25(ln) provides:
      If the court finds under sub.(lm) that use of the percentage standards is unfair to the child or the requesting party, the court shall state in writing or on the record the amount of support that would be required by using the percentage standards, the amount by which the court's order deviates from that amount, its reasons for finding that use of the percentage standards is unfair to the child or the party, its reasons for the amount of modification and the basis for the modification.