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Kuwabara v Burd, 329 Wis 2d 271, 789 NW2d 755, 2009 AP 2328 (Wis Ct App, 2010).

Facts:On January 21, 2006, the Burds sold their home to the Kuwabaras. Because a local ordinance requires clear-water inspections upon sale of a home, the Burds agreed to provide the Kuwabaras a certificate of code compliance upon the sale. However, upon inspection only a few days prior to closing, the Burds were advised that the home was out of code compliance and required extensive modifications, including installation of a sump pump, payment of a code and inspection fee, and fixing illegal cross connections to create legal sewer connection.

At closing, the parties signed an escrow agreement whereby the title company held $2,000 while the Burds had until April 1, 2006, to make a final payment to a contractor to install a sump pump. However, as of April 1, 2006, the pump was not installed. Thus, the title company disbursed the $2,000 to the Kuwabaras, who put it toward a total expense of $7829.95 to bring the home into code compliance. The Kuwabaras then brought an action against the Burds for the balance of these costs based on the pre-closing agreement that the Burds would provide a certificate of code compliance. The Kuwabaras won in the trial court and the Burds initiated this appeal.

Holding:Affirmed. The Burds appealed the decision on three grounds: (1) the Kuwabaras waived their right to a certificate of code compliance by finalizing the closing without receiving one; (2) the escrow agreement supplanted the pre-closing agreement, so the $2,000 satisfied their part of the contract; and (3) the Kuwabara's cannot claim actual damages when they already received the agreed-upon $2,000 as liquidated damages.

First, the court rejected the argument that the Kuwabaras waived their right to a certificate of code compliance by finalizing the closing and entering into the escrow agreement. The plain language of the escrow agreement shows that it was narrowly tailored to installing a sump pump and made no mention of code compliance. The promise to bring the home into code compliance was in the amended offer to purchase, which expressly stated that its terms would &€œsurvive closing.&€ Therefore, despite the closing and escrow agreement, the Burds' obligation to bring the home into code compliance remained unsatisfied.

Furthermore, the Kuwabaras did not relinquish their right to actual damages by cashing the escrow check. At no time did the Kuwabaras manifest their willingness to forego their potential claim in exchange for this money, and the escrow agreement and closing documents do not show that the $2,000 was intended to be liquidated damages in lieu of the larger claim for code compliance. If anything, the $2,000 was meant to cover only the cost of the sump pump if the Burds failed to pay for its installation. Under the original agreement, the Burds still owed $5829.95 for the subsequent costs to bring the home into code compliance.

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[Last update: 4-22-11]