2010 WI 74
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Supreme Court of |
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Case No.: |
2008AP912 |
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Complete Title: |
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Bank Mutual f/k/a First Northern Savings Bank, Plaintiff-Respondent-Petitioner, v. S.J. Boyer Construction, Inc., Steven J. Boyer and Marcy A. Boyer, Defendants-Appellants, Pioneer Credit Union, Defendant. |
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REVIEW OF A DECISION OF THE COURT OF APPEALS 2009 WI App 14 Reported at: 316 (Ct. App. 2009-Published) |
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Opinion Filed: |
July 9, 2010 |
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Submitted on Briefs: |
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Oral Argument: |
October 20, 2009
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Source of Appeal: |
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Court: |
Circuit |
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County: |
Brown |
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Judge: |
Timothy A. Hinkfuss
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Justices: |
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Concurred: |
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Dissented: |
ABRAHAMSON, C.J., dissents (opinion filed). BRADLEY, J., joins dissent. |
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Not Participating: |
ZIEGLER, J., did not participate. |
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Attorneys: |
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For the plaintiff-respondent-petitioner there were briefs
by Roy L. Prange, Jr. and Quarles & Brady LLP,
For the defendants-appellants there was a brief by Philip J. Danen and Roels, Keidatz, Fronsee & Danen, LLP, DePere, and oral argument by Philip J. Danen.
An amicus curiae brief was filed by John E. Knight, James E. Bartzen, Kirsten E. Spira, and Boardman, Suhr, Curry & Field LLP, Madison, on behalf of the Wisconsin Bankers Association.
2010
WI 74
notice
This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports.
REVIEW of a decision of the Court of Appeals. Reversed.
¶1 DAVID T. PROSSER, J. This is a review of a published decision of the court of appeals, Bank Mutual v. S.J. Boyer Construction, Inc., 2009 WI App 14, 316 Wis. 2d 266, 762 N.W.2d 826, which reversed an order of the Brown County Circuit Court, Timothy A. Hinkfuss, Judge. The order denied Steven and Marcy Boyer (the Boyers) relief from judgments for the amount due on several notes. The Boyers had guaranteed payment on the notes.
¶2 The case presents two issues.
The first is whether a mortgagee, by electing to foreclose on a mortgage
under the shortened redemption period provided by Wis. Stat. § 846.103(2) (2007-08),[1]
forfeits the right to obtain a judgment against a guarantor of payment of the
underlying debt. The second is whether, if
Wis. Stat. § 846.103(2)
requires a mortgagee foreclosing under the shortened redemption period to waive
or forfeit its right to obtain a judgment against a guarantor of payment, the
guarantor may nonetheless waive by contract the right to be free from such a
judgment.
¶3 We
conclude that a mortgagee who forecloses under the shortened redemption period
of Wis. Stat. § 846.103(2) does not forfeit the right to obtain a judgment
against a guarantor of payment even though it must waive its right to collect
any deficiency from the debtor. We
conclude that guarantors of payment are not members of the class of persons
against whom a mortgagee must waive judgment when invoking Wis. Stat. § 846.103(2)
because guarantors are not "personally liable for the debt secured by the
mortgage." This statutory phrase is
used to distinguish the liability of a borrower on a debt, which is a personal
obligation, from the liability of a mortgagor, which is an obligation limited
to the property the mortgagor has put up as security for the debt. The statutory phrase does not contemplate
guarantors whose liability arises not from the debt but from a separate
contract. We also conclude that the
textually and contextually manifest purpose of the statute is not furthered by
requiring a mortgagee to waive the right to judgment against a guarantor when
proceeding under Wis. Stat. § 846.103(2).
Because we reach this conclusion, we decline to address whether a
guarantor may waive the right to be free from deficiency judgment under Wis.
Stat. § 846.103(2).
¶4 Because a mortgagee proceeding under Wis. Stat. § 846.103(2) need not waive and does not forfeit judgment against a guarantor of payment, the circuit court properly denied the Boyers' motions for relief from judgment. Consequently, we reverse the decision of the court of appeals.
I. FACTS AND PROCEDURAL HISTORY
¶5 The facts are undisputed. On February 1, 2000, the Boyers entered into a Continuing Guaranty (Unlimited) with First Northern Savings Bank, now doing business as Bank Mutual. This Guaranty read, in relevant part:
GUARANTY. For value received, and to induce First
Northern Savings Bank, S.A. of
The Guaranty also contained a waiver provision:
WAIVER. To the extent not prohibited by law the undersigned expressly waive notice of the acceptance of this Guaranty, the creation of any present or future Obligation, default under any Obligation, proceedings to collect from any Debtor or anyone else, all diligence of collection and presentment, demand, notice and protest and any right to disclosures from Lender regarding the financial condition of any Debtor or guarantor of the Obligations or the enforceability of the Obligations. No claim, including a claim for reimbursement, subrogation, contribution or indemnification which any of the undersigned may, as a guarantor of the Obligations, have against a co-guarantor or any of the Obligations or against any Debtor shall be enforced nor any payment accepted until the Obligations are paid in full and no payments to or collections by Lender are subject to any right of recovery.
¶6 Between February 2003 and October 2005, Boyer Construction executed five business notes to Bank Mutual, totaling nearly $1,400,000.[2] The notes were made in conjunction with loans made by Bank Mutual to Boyer Construction. The loans were secured by seven mortgages on five properties owned by Boyer Construction.
¶7 In time, Boyer Construction defaulted on the notes, and Bank Mutual initiated this action against Boyer Construction and the Boyers individually on February 1, 2007. Bank Mutual's complaint included five counts of foreclosure——one count for each of the properties covered by the seven mortgages——and a separate claim directly against the Boyers for the amounts due under the defaulted notes. For each foreclosure claim, Bank Mutual stated that it waived any deficiency against Boyer Construction.
¶8 Boyer Construction and Steven Boyer answered on March 13, 2007, admitting most of the allegations but denying that Steven was liable on the guaranty. Marcy Boyer did not answer.[3]
¶9 Bank Mutual moved for summary judgment against Steven and Boyer Construction and default judgment against Marcy. Neither Boyer Construction nor Steven opposed the motion for summary judgment. The court granted both motions. On May 31, 2007, the court entered judgments against Steven and Marcy in the amount of $1,436,457.85. The court also entered a foreclosure judgment on the five mortgaged properties owned by Boyer Construction, ordering that all five be sold. The court also filed Findings of Fact and Conclusions of Law in which it noted "[t]hat the Plaintiff [Bank Mutual] waived a deficiency claim against the principal defendant Boyer Construction."
¶10 Following entry of the foreclosure judgment, the mortgaged properties were sold at a sheriff's sale. The circuit court authorized the sale three months after entry of the foreclosure judgment because Bank Mutual had waived its right to a deficiency judgment against Boyer Construction pursuant to § 846.103(2), which provides for a shortened redemption period if the mortgagee waives a deficiency judgment against "every party who is personally liable for the debt secured by the mortgage." Bank Mutual was the only bidder and purchased the properties for $1,180,000.
¶11 Bank Mutual moved for an order confirming the sheriff's sale. Boyer Construction and Steven objected to confirmation on grounds that the sale violated Wis. Stat. § 846.103 because Bank Mutual elected the shortened redemption period but did not expressly waive a deficiency judgment against the Boyers. On January 11, 2008, the circuit court heard oral argument on this objection. At this hearing, Steven also raised a motion for relief from the judgment under Wis. Stat. § 806.07.[4]
¶12 The court overruled the objection and denied Steven's motion for relief. The court based its conclusion on two grounds. First, it concluded that Steven should have challenged the Findings of Fact and Conclusions of Law, rather than waiting until after the sale to raise his objection. Second, it concluded that the Guaranty, as a contract separate from the business notes, provided an independent basis for the Boyers to be liable to Bank Mutual, in spite of the language of § 846.103(2) requiring the waiver of deficiency against parties "personally liable" for the debts.[5]
¶13 On February 8, 2008, Marcy filed a motion to re-open the default judgment pursuant to Wis. Stat. § 806.07. The court also denied Marcy's motion for relief.[6] The court entered an order denying Boyer Construction and the Boyers' motions, on February 26, 2008. Boyer Construction and the Boyers appealed.
¶14 The court of appeals reversed the circuit court in a unanimous,
published opinion. Bank Mutual,
316
¶15 In determining whether a guaranty makes a party personally liable
for a debt, the court distinguished between an absolute guaranty and a
conditional guaranty.
¶16 The court held that the guaranty executed by the Boyers was
"an unconditional guaranty of payment, not a conditional guaranty of
collection."
¶17 The court rejected Bank Mutual's arguments that the Boyers were
personally liable only on the guaranty, not the underlying debt.
¶18 Finally, the court analogized nineteenth century Wisconsin Supreme
Court precedent in support of its holding.
¶19 Bank Mutual petitioned this court for review, which we granted on April 14, 2009.
II. STANDARD OF REVIEW
¶20 The Boyers moved for relief from judgment pursuant to Wis. Stat. § 806.07(1). The circuit court denied relief. A circuit court's order denying a motion for
relief under § 806.07
is a discretionary decision, and it will not be reversed on appeal absent an
erroneous exercise of discretion. Sukala
v. Heritage Mut. Ins. Co., 2005 WI 83, ¶8, 282
¶21 The court of appeals reversed the circuit court on the grounds that
Bank Mutual, by proceeding under the shortened redemption period in Wis. Stat. § 846.103(2), gave up
(waived) its right to judgment against the Boyers on the guaranty of
payment. This ruling presents a question
of statutory interpretation.
Interpreting a statute and applying a statute to undisputed facts are
questions of law that we review de novo.
See Hamilton v. Hamilton, 2003 WI 50, ¶14, 261
III. DISCUSSION
¶22 This case requires us to interpret Wis. Stat. § 846.103(2). In doing so, we begin by examining our relevant rules of statutory construction. We then place § 846.103(2) in its proper context by looking at the entirety of Wis. Stat. ch. 846, which sets out the rules in foreclosure proceedings. We then examine the phrase "personally liable for the debt secured by the mortgage" to give it its proper meaning. Finally, we examine the textually and contextually manifest purpose of Wis. Stat. § 846.103(2).
A. Rules of Statutory Interpretation
¶23 When
interpreting a statute, we begin with the language of the statute. State ex rel. Kalal v. Circuit Court for
Dane County, 2004 WI 58, ¶45, 271 Wis. 2d 633,
681 N.W.2d 110. We give words their common and ordinary
meaning unless those words are technical or specifically defined.
¶24 We do not read the text of a statute in isolation, but look at the
overall context in which it is used. Kalal,
271
¶25 The inquiry does not stop if a statute is ambiguous, meaning that
"it is capable of being understood by reasonably well-informed persons in
two or more senses."
B. Context and Scope of
¶26 Wisconsin Stat. ch. 846 sets up a comprehensive scheme of
foreclosure, including the procedural and substantive requirements for
obtaining a deficiency judgment for the unpaid balance on the debt remaining
after a foreclosure sale. Therefore, to
interpret Wis. Stat. § 846.103(2),
we read it in the context of ch. 846 as a whole. Kalal, 271
1. Statutory Language
¶27 Chapter 846
sets out a two-step procedure for foreclosure of a mortgage. Shuput v. Lauer, 109
¶28 Wisconsin Stat. § 846.01(1) requires the court to render judgment of foreclosure and sale in successful foreclosure actions. Wisconsin Stat. § 846.04(1) permits a plaintiff seeking foreclosure to obtain a deficiency judgment and sets out the procedure for doing so:
The plaintiff may, in the complaint, demand judgment for any deficiency that may remain due the plaintiff after sale of the mortgaged premises against every party who is personally liable for the debt secured by the mortgage. Judgment may be rendered for any deficiency remaining after applying the proceeds of sale to the amount due. The judgment for deficiency shall be ordered in the original judgment and separately rendered against the party liable on or after the confirmation of sale. The judgment for deficiency shall be entered in the judgment and lien docket and, except as provided in subs. (2) and (3), enforced as in other cases.
¶29 Chapter 846
also sets out two redemption periods, depending on the type of property being
foreclosed. For a one-to
four-family owner-occupied residence, a farm, a church, or a tax-exempt
nonprofit charitable organization, a foreclosure sale may not be held until 12
months after the foreclosure judgment.
¶30 There are two exceptions in the law that permit a mortgagee to
shorten a redemption period. One
exception, enacted in 1960, provides for a six-month, rather than twelve-month,
period of redemption for one- to four-family owner-occupied residences, farms,
churches, and tax-exempt charitable organizations, if the mortgagee
waives a deficiency judgment against "every party who is personally liable
for the debt secured by the mortgage."
If the mortgagor of real property other than a one− to 4−family residence that is owner−occupied at the commencement of the foreclosure action, a farm, a church or a tax−exempt nonprofit charitable organization has agreed in writing at the time of the execution of the mortgage to the provisions of this section, the plaintiff in a foreclosure action of a mortgage, which mortgage is recorded subsequent to May 12, 1978, may elect by express allegation in the complaint to waive judgment for any deficiency which may remain due to the plaintiff after sale of the mortgaged premises against every party who is personally liable for the debt secured by the mortgage, and to consent that the mortgagor, unless he or she abandons the property, may remain in possession of the mortgaged property and be entitled to all rents, issues and profits therefrom to the date of confirmation of the sale by the court. When the plaintiff so elects, judgment shall be entered as provided in this chapter, except that no judgment for deficiency may be ordered nor separately rendered against any party who is personally liable for the debt secured by the mortgage and the sale of the mortgaged premises shall be made upon the expiration of 3 months from the date when such judgment is entered.
Wis. Stat. § 846.103(2) (emphasis added).
¶31 Three statutes——Wis.
Stat. §§ 846.04,
846.101, and 846.103(2)——use
the exact same phrase: "every party who is personally liable for the debt
secured by the mortgage." Both Wis.
Stat. § 846.101 and
§ 846.103(2), which permit shortened redemption periods in exchange
for waivers of certain deficiency judgments, were created decades after the
legislature included the phrase "personally liable for the debt secured by
the mortgage" in what is now Wis. Stat. § 846.04. We
infer that the legislature intended the class of persons against whom
deficiency judgments must be waived under Wis. Stat. §§ 846.101 and 846.103(2) to be the same class of
persons against whom a deficiency judgment may be obtained under Wis. Stat. § 846.04. See Heritage Farms, Inc. v. Markel
Ins. Co., 2009 WI 27, ¶40, 316 Wis. 2d 47, 762 N.W.2d 652 ("We generally
presume that when the legislature enacts a statute, it is fully aware of the existing
laws."). When the same term is used
throughout a chapter of the statutes, it is a reasonable deduction that the
legislature intended that the term possess an identical meaning each time it
appears. See Coutts v.
2. History and Prior Interpretations of
¶32 Because we conclude that the phrase "personally liable for the debt secured by the mortgage" has the same meaning in both Wis. Stat. § 846.103(2) and § 846.04, we now examine the lengthy history of Wis. Stat. § 846.04 and our prior cases interpreting that statute.
¶33 Deficiency judgments were not available at common law and are
available only as provided by statute. Stellmacher
v. Union Mortgage Loan Company, 195
¶34 An important early Wisconsin case addressing whether a guarantor
could be held liable for a deficiency judgment is Palmeter v. Carey, 63
Wis. 426, 21 N.W. 793 (1885). In Palmeter, the mortgagor conveyed
mortgaged property to another party, who then agreed to assume the debt through
a clause in the conveyance.
The statute does not require that the person held liable in the foreclosure action for a deficiency must be an original contractor of the mortgage debt. Doubtless one may become a party to it after the indebtedness has been incurred by the mortgagor;——as if he indorse or guaranty a note secured by mortgage after the execution of the mortgage. We think in such case it cannot be successfully maintained that such indorser or guarantor is not within the statute.
¶35 In Cottrell, this court clarified the rule set out in Palmeter. The guarantor in Cottrell indorsed the
back of two notes, agreeing to "guaranty the collection of the within
note, with all costs thereof." Cottrell,
94
The statute makes no new rule of liability. It does not on its face purport to make any such change. In order that a statute shall change a common-law liability or create a new one, the intention to work such an effect must appear on the face of the statute itself with some reasonable degree of clearness.
¶36 This court again addressed the issue of whether a guarantor could
be held liable for a deficiency judgment in Halbach. In Halbach, the mortgagees transferred
their interest in a mortgage to Christine Webster, and signed their names on
the back of the note under the words "Pay to the order of Christine
Webster," by which they agreed that they would pay the debt in full to
Webster or Webster's transferee. Halbach,
102
¶37 In Stellmacher, the Union Mortgage Company assigned a note
and mortgage to a new mortgagee and entered into a written agreement
guaranteeing the collection of the debt.
Stellmacher, 195
¶38 Although these early
C. "Personally liable for the debt secured by the mortgage"
¶39 We now define the phrase "personally liable for the debt
secured by the mortgage" used in Wis.
Stat. § 846.103(2). We
acknowledge that, read according to its common and ordinary meaning, the phrase
does not clearly exclude guarantors.
Thus, reasonable people could read the language to cover the
Boyers. Nonetheless, it is clear to us
that the phrase "personally liable for the debt" is a term of art
that must be given its legal meaning. See
Estate of Matteson, 309
¶40 We reach this conclusion for three reasons. First, the phrase "personally liable" has traditionally been used to distinguish the borrower's liability, which is a personal obligation based upon the note, from the mortgagor's liability, which is an obligation limited to the property named in the mortgage that is provided as security for the note. Second, a guarantor's liability has traditionally been treated as separate and distinct from the liability of the borrower, contingent on the terms of the guaranty. Third, other states with statutes insulating borrowers from deficiency judgments have generally refused to extend those protections to guarantors.
1. Legal meaning of "personally liable for the debt"
¶41 In the context of foreclosure law, the term "personally liable for the debt" has traditionally been used to distinguish liability on the note, which is a personal obligation, from liability on the mortgage, which is an obligation limited to the property given to secure the debt. Thus, the phrase explains that a deficiency judgment can be obtained against a mortgagor only if that mortgagor is also liable on the underlying debt.
¶42 The use of the phrase "personally liable for the debt" to
distinguish the borrower's liability on the note from the mortgagor's liability
on the mortgage is illustrated by Farmers & Merchants Bank v. Matsen,
219
Does the fact that an action is pending for the foreclosure of a mortgage and for a judgment for a deficiency constitute a defense to a subsequent action commenced by the same plaintiff, demanding judgment on the obligation secured by the mortgage against those personally liable thereon?
¶43 The court began by noting that deficiency judgments were not
available at common law.
When a deficiency judgment is entered in a foreclosure action, it is a final adjudication of the defendant's common-law liability for the debt. There is in reality but one judgment, the judgment of foreclosure. The so-called deficiency judgment is merely a completion of the judgment upon the coming in and confirmation of the report of sale.
¶44 Matsen clearly demonstrates the purpose of the phrase
"personally liable for the debt secured by the mortgage" in Wis. Stat. § 846.04. The statute unites an action in equity on the
foreclosure with an action in law on the debt.
Thus, it erases the common-law distinction that separated a legal action
on the mortgagor's personal liability from an equitable action on the foreclosure
itself.[10] With the passage of
¶45 In Glover v. Marine Bank of Beaver Dam, 117
¶46 The distinction explained in Glover is further explained by
the approach to personal liability taken by the Restatement (Third) of
Property: "A mortgage is a
conveyance or retention of an interest in real property as security for
performance of an obligation. A mortgage
is enforceable whether or not any person is personally liable for that
performance." Restatement (Third) of Property:
Mortgages § 1.1. Thus, the Restatement
explains, parties may agree to "nonrecourse" or "limited
recourse" mortgages, which preclude or limit personal liability.
If personal liability is entirely excluded by the parties' agreement, the effect is to restrict the mortgagee's remedy for nonperformance to foreclosure of the mortgage. Such a restriction or exclusion of personal liability does not impair the enforceability of the mortgage by means of foreclosure, but it does limit or bar the mortgagee's access to both a personal judgment prior to foreclosure and a deficiency judgment following foreclosure.
¶47 This language suggests that the phrase "personally liable for the debt" pertains to those situations in which the borrower may be held personally liable for a debt beyond the foreclosure on any property that has been mortgaged as security for the debt. It supports our conclusion that "personally liable" is a term of art used to distinguish the borrower's liability, which is a personal obligation, from the mortgagor's liability, which is an obligation limited to the property used to secure the note (debt).
¶48 Our Wisconsin analysis is supported by the approach
¶49 In reaching this conclusion, the court relied on the traditional
rule regarding deficiency judgments: "There is a clear and marked
distinction between the power of a court of equity to decree mortgage
foreclosures and its power to enter personal deficiency judgments."
¶50 The approach taken in
¶51 A similar distinction is encompassed by Wis. Stat. § 846.04, which permits
a deficiency judgment within the foreclosure action only against parties
"personally liable for the debt secured by the mortgage."
¶52 In sum, the phrase "personally liable for the debt" has
traditionally been used in foreclosure law to distinguish the borrower's
liability on the debt, which is a personal obligation, from the mortgagor's
liability, which is an obligation limited to the property used to secure the
debt. Because
2. Nature of the guarantor's liability
¶53 Our conclusion that the phrase "personally liable for the debt secured by the mortgage" does not include guarantors of payment is further supported by the principle that a guarantor's liability arises not from the debt itself, but from a separate guaranty contract. Therefore, although guarantors of payment are personally liable for some amount according to the terms of their guaranty contract, they are not personally liable for the debt secured by the mortgage.
¶54
[The plaintiff] is not proceeding on the Akwa-Downey notes but upon a breach of the contract of guaranty. . . . [A]n action to enforce the liability of the guarantor must be in the form of an action for damages for a breach of the contract of guaranty, and not an action upon the underlying indebtedness. While the affirmative defenses . . . may be fatal to plaintiff's cause of action, if he were proceeding upon the instruments, they are not necessarily fatal to plaintiff's cause of action upon its separate and independent contract of guaranty with the defendants.
¶55 The reasoning in Akwa directly supports our conclusion that guarantors are not "personally liable for the debt secured by the mortgage" under Wis. Stat. § 846.103(2). It articulates a clear rule that guarantors are liable only according to the terms of their contracts, and are not liable for the debt itself.[12] This principle is codified in the phrase "personally liable for the debt secured by the mortgage." We see no reason to believe that this language encompasses parties whose liability arises from an independent contract of guaranty.
¶56 This conclusion is further supported by Kramer. In Kramer, as in this case, a
corporation executed a mortgage and two individuals guaranteed the amount of
the underlying debt. Kramer, 74
¶57 The Kramer case did not address whether the defendants, as guarantors, were parties "personally liable for the debt secured by the mortgage," and could have been included in the foreclosure action on the deficiency judgment. Nonetheless, the case stands for the proposition that guarantors' liability arises from the guaranty contract, not from the debt secured by the mortgage.
¶58 In this case, the court of appeals reasoned, applying Kramer,
that the Boyers were "personally liable for the debt secured by the
mortgage" because they were primarily liable for the debt. It concluded that "[b]ecause they were
principal obligors and primarily liable for the debts secured by the mortgages,
it follows that the Boyers were 'personally liable for the debts secured by the
mortgages,' under Wis. Stat. § 846.103(2)." Bank Mutual, 316
¶59 We disagree. The court of
appeals' reasoning confused terms. Boyer
Construction was "personally liable for the debt secured by the [five]
mortgage[s]." It was also primarily
liable for the debt as it was directly responsible for it. See Black's Law Dictionary 933
(8th ed. 2004) ("primary liability" is "[l]iability for which
one is directly responsible, as opposed to secondary liability."). By contrast, Steven and Marcy Boyer were
neither "personally liable" nor "primarily liable" on the
debt because they did not sign the notes secured by the mortgages. However, Steven and Marcy Boyer signed the
guaranty, a separate contract. They were
"personally liable" on this contract of guaranty and primarily liable
on it because they signed the guaranty.
The Boyers also were primarily liable on the guaranty in a temporal
sense because Bank Mutual did not have to wait for a foreclosure on the
mortgages to proceed personally against the Boyers. See Kramer, 74
¶60 The early
¶61 The Boyers also argue that the phrase "nor separately
rendered" in Wis. Stat. § 846.103
expands the scope of that statute to include guarantors who are liable on a
separate document. This phrase, however,
merely keeps the language of Wis. Stat. § 846.103(2)
consistent with that of Wis. Stat. § 846.04(1),
which permits a deficiency judgment to be "ordered in the original
judgment and separately rendered against the party liable." A court may order a deficiency judgment in
the original foreclosure judgment, but cannot actually render the deficiency
judgment until after the sale is confirmed.
Glover, 117
3. Interpretation of Anti-Deficiency Statutes in other States
¶62 Our conclusion that a guarantor's liability under a guaranty of payment arises independent of the debt secured by the mortgage is supported by courts in other states interpreting their anti-deficiency statutes. Anti-deficiency statutes are statutes "enacted to limit the rights of secured creditors to recover in excess of the security." Black's Law Dictionary 918 (8th ed. 2004). Anti-deficiency statutes may prohibit the mortgagee from obtaining a deficiency in certain situations, such as when the sale is by power of foreclosure, the sale purchaser is the mortgagee, or the property is a purchase money mortgage.[16]
¶63 Although states have a wide variety of anti-deficiency legislation
with a wide variety of statutory language, courts have generally refused to
extend to guarantors the protection of such statutes.[17] This general pattern is illustrated by Bank
of Kirkwood Plaza v. Mueller, 294 N.W.2d 640 (N.D. 1980), where the defendants
unconditionally guaranteed any obligation on a loan from a bank to a
corporation.
¶64 The court first distinguished an earlier case in which a party, who
was not on the mortgage, had signed the note and was therefore "personally
liable on the debt."
¶65 The Mueller court's inquiry into who was "personally
liable for that part of the debt" is similar to the underlying issue in
this case. Like the statute interpreted
in
¶66 Although Mueller is relevant because of the similarity in
language between the
D. Purposes of the Statute
¶67 We next turn to the textually and contextually manifest purposes of
Wis. Stat. § 846.103(2). See Kalal,
271
¶68 In Glover, the court explained the purposes of Wis. Stat. § 846.101.[19] Glover addressed the question of
whether a mortgagee who elected the shortened redemption period under Wis.
Stat. § 846.101
and waived the right to a deficiency judgment was then precluded from satisfying
the remainder of the debt by foreclosing on other mortgages securing the same
debt. Glover, 117
[The statute] obviously benefits the mortgagee, since the mortgagee may be able to reduce the losses normally attendant to the twelve-month redemption period. However, the mortgagor is also protected, because at the end of this shortened period, the mortgagor is secure in the knowledge that he or she will not be responsible for any deficiency resulting from the sale.
¶69 The court confirmed its explanation of the purpose behind Wis. Stat. § 846.101 by examining legislative history:
The language prefacing the enactment of [sec. 846.101], evinces an attempt by the legislature to shorten the period of redemption in a complicated and costly time-consuming process. Likewise, it evinces a concern for the protection of the mortgagor, who is not allowed the usual twelve-month period in which to redeem. This protection comes in the form of a waiver of personal deficiency by the mortgagee.
¶70 Including guarantors within the class of parties "personally liable for the debt secured by the mortgage" would not further either of the two statutory purposes articulated in Glover. First, it would both lengthen and complicate the redemption process. More banks would opt for the standard redemption period to ensure that they would be able to collect against their guarantors. Second, it would do little to protect mortgagors and could even harm them because banks might limit their lending to loans that could be provided without the extra assurance of a guarantor, or opt for the standard redemption period, leaving the mortgagor open to liability for a deficiency judgment. Neither of these results is consistent with the statute's goal of expediting the foreclosure process while protecting the rights of the mortgagor.
¶71 The approach taken by other jurisdictions also provides guidance on how best to further the intended purpose of Wis. Stat. § 846.103. A number of courts have reasoned that the protections of anti-deficiency statutes should not be extended to guarantors because the statutes are intended to protect borrowers.[20] Their reasoning has generally followed this basic pattern:
[The] denial of protection to guarantors often involves "purchase money" anti-deficiency legislation, "one-action" rules, and prohibitions of deficiency judgments after power of sale foreclosure. [These] statutes are aimed primarily at protecting debtors. . . . [By contrast,] [f]air value legislation is primarily aimed at preventing the unjust enrichment of the mortgagee and the extension of "fair value" protection to guarantors clearly serves that purpose.
Restatement (Third) of Property: Mortgages, § 8.4, cmt. b. at 605.
¶72 Like the anti-deficiency legislation in other states, the deficiency-waiver provision in Wis. Stat. § 846.103(2) is designed to protect borrowers. We see no indication that the provision of § 846.103(2) seeks to prevent unjust enrichment of the mortgagee, as this purpose is already served by the fair value requirement of Wis. Stat. § 846.165(2).[21] Thus, the decisions of other states not to extend the protections of anti-deficiency statutes support our decision not to extend the protections of § 846.103(2) to guarantors in a fashion that would not further the statute's purposes.
¶73 Bank Mutual argues that Wis. Stat. § 846.103(2) does not include guarantors because the purpose of the statute is to address redemption rights, an argument that was rejected by the court of appeals.[22] Although § 846.103 connects the deficiency waiver and the shortened redemption period, it does not limit the waivers to those with a right to redeem. The phrase "personally liable for the debt secured by the mortgage," by its very terms, contemplates the distinction between the borrower's personal obligation and the mortgagor's obligation to provide security for the debt. A person has the right to redeem property only if he has some kind of interest in the property.[23] The person may be personally liable for a debt secured by a mortgage, but may not have a right to redeem if the debt was secured by another person's property. On the other hand, a mortgagor, who has a right to redeem, may not necessarily be personally liable for the underlying debt.[24]
¶74 Although the deficiency-waiver provision of Wis. Stat. § 846.103(2) is not limited to those who have redemption rights, guarantors possess neither redemption rights nor personal liability on the underlying debt. That the statute does not limit its protections to those with a right to redeem does not support the conclusion that guarantors are parties personally liable for the debt. Guarantors are in a significantly different position from both borrowers and persons with a right to redeem, and are therefore outside the scope of the protections contained in Wis. Stat. § 846.103(2).
¶75 Finally, our interpretation of Wis. Stat. § 846.103(2) leads to a more reasonable and sensible result than an interpretation that would require a mortgagee to waive judgment of deficiency against a guarantor. In Glover, we relied on this principle when interpreting Wis. Stat. § 846.101:
Not allowing the Bank to foreclose upon the remaining mortgages would in essence deprive the Bank from realizing upon the security on which it initially based its decision to extend the loan. It would also provide a windfall to the mortgagors. However, in order to protect the mortgagor in situations where the mortgagee does not foreclose upon all mortgages securing the debt in one proceeding, we hold that the mortgagee waives personal deficiencies upon the completed sale of all of the remaining properties.
Glover, 117
¶76 The reasoning espoused in Glover is directly applicable here. If Wis. Stat. § 846.103(2) requires a waiver of deficiency against a guarantor, mortgagees would be deprived of some of the security they relied upon for their loan——not the security provided by the mortgage, but the security provided by the guaranty. Such an interpretation would also result in a windfall to the guarantor, who would be relieved of liability under the guaranty without paying the obligation set out in the guaranty. We conclude that the legislature did not intend such a result when it enacted Wis. Stat. § 846.103(2).
IV. CONCLUSION
¶77 We conclude that a mortgagee foreclosing under the shortened redemption period provided for by Wis. Stat. § 846.103(2) does not forfeit the right to obtain a judgment against a guarantor of payment even though it must waive its right to collect any deficiency from the debtor. We reach this conclusion on the grounds that guarantors are not parties "personally liable for the debt secured by the mortgage." This statutory phrase is used in Wis. Stat. § 846.103(2) to distinguish a borrower's liability on the debt, which is a personal obligation, from the mortgagor's liability, which is an obligation limited to the property given as security for the note. The statute does not contemplate guarantors whose liability arises not from the debt but from a separate contract. We also conclude that the manifest purpose of the statute is not furthered by requiring a mortgagee to forfeit judgment against a guarantor of payment when proceeding under the shortened redemption period of Wis. Stat. § 846.103(2).[25]
¶78 Here, the Boyers signed a guaranty to pay any and all debts of Boyer Construction. The guaranty was both broad and explicit. It was not tied to a specific debt. While it ultimately rendered the Boyers liable for the amount of the debt secured by the mortgage, it did not render them liable for the debt itself. Accordingly, the Boyers were not "personally liable for the debt secured by the mortgage" within the meaning of Wis. Stat. § 846.103(2), and we conclude that Bank Mutual did not forfeit its right to obtain a judgment against the Boyers by proceeding under the shortened redemption period provided by that statute.
¶79 For these reasons, we conclude that the court of appeals erred when it concluded that the circuit court applied an improper standard of law by denying the Boyers relief under Wis. Stat. § 806.07. The circuit court appropriately exercised its discretion by refusing to relieve them of the judgment.
¶80 Because we conclude that Wis. Stat. § 846.103(2) does not require a mortgagee to waive judgment against a guarantor of payment when it elects a shortened redemption period, we decline to address whether the Boyers waived any rights provided by the statute.
By the Court.—The decision of the court of appeals is reversed.
¶81 ANNETTE KINGSLAND ZIEGLER, J., did not participate.
¶82 SHIRLEY S. ABRAHAMSON, C.J. (dissenting). This case raises a question of statutory
interpretation in the context of commercial lending. It arises in the context of
¶83 The majority opinion resolves this case with a narrow focus, looking at a portion of the immediate statutory language at issue without an eye to the broader foreclosure scheme in which the case unfolds and without addressing the law governing the relationships and obligations among creditors, debtors, and guarantors.
¶84 As one commentary notes, "[D]espite its long history, suretyship is an area of the law that has received scant attention in recent years . . . . [E]xcept for those who work in commercial lending or the issuing of contract bonds, most attorneys remain unaware of even the basics . . . ."[28] This court has seldom been asked in recent years to unravel the complexities of the law involving guarantors. Although the Restatement (Third) of Surety and Guaranty was published in 1996 and offers a potentially invaluable tool to clarify and modernize the law, it appears that the Restatement (Third) has never been referenced by this court and the majority does not address it in the present case.[29]
¶85 In my view, this case can not be resolved properly without addressing the law governing guarantors. Because the majority does not address this area of the law, it leaves important issues unresolved or resolves them without a view to the implications for future cases. By failing to consider carefully the interrelationship between the law governing guarantors and the foreclosure statute it interprets, the majority has, in my view, reached the wrong result in this case.
¶86 Wisconsin Stat. § 846.103(2), protects those who are "personally liable for the debt secured by the mortgage" against a "judgment for any deficiency which may remain due to the plaintiff" following a foreclosure sale. The question in this case is whether this provision protects the guarantors sued by the creditor, in addition to protecting the debtor.
¶87 It is undisputed that guarantors are liable according to the terms of their guaranty contract, which in the present case is a guaranty of payment, not a guaranty of collection.[30] The majority opinion parlays this truth to mean that guarantors do not come within the statutory phrase "personally liable for the debt"[31] and therefore, according to the majority opinion, are "not members of the class of persons against whom a mortgagee must waive judgment" when the mortgagee elects to proceed under the shortened redemption period allowed under Wis. Stat. § 846.101. See majority op., ¶3. Here's where I part company with the majority.
¶88 To honor the common and ordinary meaning of the statutory language and to effectuate the purpose and intent of the statute, I conclude that the guarantors under the guaranty in the present case are within "the class of persons against whom a mortgagee must waive judgment when invoking Wis. Stat. § 846.103(2)." The guarantors are, in my view, "personally liable for the debt secured by the mortgage" within the operation of Wis. Stat. § 846.103(2).
I
¶89 I agree with the court of appeals that as a matter of law the guarantors are personally liable for the debt.[32]
¶90 As guarantors of payment, the guarantors in the present case are,
under
¶91 Nevertheless, the majority insists that the guarantors are not "personally liable" for this debt within the meaning of Wis. Stat. § 846.103(2).
¶92 The majority opinion reaches this counterintuitive result by elevating form over substance, repeatedly asserting that the guarantors are liable on the guaranty, not for the underlying debt itself. I agree with the majority opinion that the guarantors' liability for the debt of the debtor is based on the guaranty. But the substantive effect of the guaranty is to render the guarantors personally obligated to pay the debt secured by the mortgage.
¶93 I agree with the court of appeals that as a matter of law the guarantors are personally liable for the debt.
II
¶94 The common and ordinary definition of the statutory phrase "personally liable for the debt secured by the mortgage" includes guarantors. The majority opinion, ¶39, effectively admits as much, conceding that the phrase "does not clearly exclude guarantors" and that "reasonable people could read the language to cover the Boyers." The court of appeals similarly concluded that "nothing in the plain language of the phrase categorically excludes guarantors of a debt from being personally liable."
¶95 Unless there is a good reason to interpret a statute other than by using the ordinary meaning of words, a statute should be interpreted in the way that lawyers and non-lawyers who read the statute will understand it without examining multiple other authorities.
¶96 Black's Law Dictionary (8th ed. 2004) defines "personal liability" to mean "[l]iability for which one is personally accountable and for which a wronged party can seek satisfaction out of the wrongdoer's personal assets." No one contests that the liability of the guarantors in the present case is "personal liability" in this sense. Indeed, the whole point of requiring the personal guaranty of the principals or owners of a corporation is that those individuals will be personally liable to repay the debts of the corporation.[35]
¶97 The majority departs from the dictionary approach (an approach favored by this court) and treats the phrase "personally liable for the debt secured by the mortgage" as "a legal term of art," susceptible of a special meaning "in the context of foreclosure law."[36]
¶98 The majority therefore sets out to determine the "specific
legal meaning" of the words "personally liable," an endeavor
that involves reading
¶99 Mortgages and guaranties are the everyday business of lenders and borrowers. Some persons are represented by lawyers when signing mortgages and guaranties, many are not. Lawyers and non-lawyers alike ought to be able to read and understand Wis. Stat. § 846.103(2) without going outside the statute books to determine whether words that have a common, ordinary meaning take on a "specific legal meaning" when interpreted by reference to other authorities. The common and ordinary understanding of the statutory language is that guarantors are personally liable for the debt secured by the mortgage. I would adopt that understanding.
III
¶100 The statutory phrase "personally liable for the debt secured by the mortgage" is used in three statutory provisions in chapter 846: Wis. Stat. §§ 846.04, 846.101, and 846.103(2). Section 846.04 governs a complaint seeking foreclosure and any deficiency that may remain due the plaintiff "against every party who is personally liable for the debt secured by the mortgage." Section 846.101 and § 846.103(2), the statute at issue here, are similar provisions applicable to different types of property; each provides for foreclosure with a shortened redemption period but without deficiency.
¶101 I agree with the majority opinion that the same statutory language in each of these statutes should be given a consistent meaning. But I depart from the majority's analysis and conclusion on this point.
¶102 The majority attempts to determine the meaning of the phrase
"personally liable for the debt secured by the mortgage" in § 846.103(2) by
examining the same phrase in Wis. Stat. § 846.04
but comes up empty-handed. Majority op.,
¶¶32-38. The
majority's analysis of
¶103 The majority therefore resolves the meaning of the phrase "personally liable for the debt secured by the mortgage" first by even further narrowing its focus to examine only the words "personally liable," eventually turning to Illinois law, relying on City of Chicago v. Chatham Bank of Chicago, 203 N.E.2d 788 (Ill. App. 1964) to inform its definition of "personally liable" in the Wisconsin statutes. Majority op., ¶¶48-50.
¶104 The majority's reliance on the
¶105 The Illinois foreclosure statutes allowed "a personal
deficiency decree against the persons indicated as being personally liable
therefor . . . ."
¶106 Wisconsin law governing foreclosure and deficiency is not the same
as
¶107 In Wisconsin, a plaintiff in a foreclosure action may "demand
judgment for any deficiency that may remain due the plaintiff after sale of the
mortgaged premises against every party who is personally liable for the debt
secured by the mortgage."
¶108 The majority conclusorily treats the operation of the deficiency
provisions as extending to the debtor but not to the guarantor. See majority op., ¶51.[41] But in
¶109 Under the
¶110 And in fact separate judgments were rendered in the present case: A foreclosure judgment was entered on the five mortgaged properties; a separate judgment for the total amount owing on the notes was entered against Steven Boyer as guarantor; and a similar default judgment was entered for the same amount against Marcy Boyer as guarantor. See majority op., ¶9. No judgment for the amount due on the notes was separately rendered against Boyer Construction, the debtor.
¶111 The present case, in contrast to the Illinois law relied upon by the majority, therefore illustrates that there is no procedural or jurisdictional bar in Wisconsin to seeking judgment for the amount owed by a guarantor in the same suit in which foreclosure is sought under Wis. Stat. § 864.04.
¶112 Taking a realistic view of the situation, what is at stake in the single foreclosure suit brought by the plaintiff in the instant case is a deficiency judgment, whether the judgment is entered under the foreclosure causes of action or "separately rendered" under the interdependent cause of action brought against the guarantors. To say that the judgment sought against the guarantors is not a deficiency judgment would only further elevate form over substance.
¶113 Thus I conclude that the guarantors in the present case are "part[ies] personally liable for the debt secured by the mortgage" under both Wis. Stat. § 846.04 and § 846.103(2).
¶114 The majority focuses its analysis narrowly on interpreting the phrase "personally liable." See majority op., ¶¶41-47. The circuit court in the instant case noted that "in a lot of ways that's what this case comes down to[,] . . . that the damages act as a deficiency. I guess that's the question. Do they act as a deficiency." The majority focuses on the question of whether the guarantor is "personally liable" for the debt in this case and does not take up the intertwined question of whether the judgment from which the defendants seek relief qualifies as a "judgment for any deficiency" under Wis. Stat. §§ 846.04(1) and 846.103(2).
¶115 The majority does not take a realistic view of the situation in the present case and relies on foreign law that presupposes both a narrower statutory remedy than applies here and a delineation of law and equity jurisdiction which no longer has any force.
¶116 By contrast, I conclude that the guarantors in the present case are "part[ies] personally liable for the debt secured by the mortgage" under both Wis. Stat. § 846.04 and § 846.103(2).
¶117 To proceed in this suit under the shortened redemption period allowed by Wis. Stat. § 846.103(2), the plaintiff must waive judgment for the amount of deficiency against "every party who is personally liable for the debt secured by the mortgage," and "no judgment for deficiency may be . . . separately rendered" against such parties. Reading Wis. Stat. § 846.103(2) together with Wis. Stat. § 846.04(1) and applying the statutes to the facts of the present case, I conclude that the Bank was required to waive the right to have a judgment for the amount of deficiency entered against the guarantors when it elected to proceed under Wis. Stat. § 846.04(1).
IV
¶118 The majority does not reckon with the body of law governing
guarantors in
A
¶119 The majority does not discuss whether a plaintiff's (mortgagee's) election of waiver under Wis. Stat. § 846.103(2) functions as a discharge of the debt or only as the creditor's promise not to sue the debtor for the deficiency. This question is part of a larger issue in guaranty law relating to actions that give rise to guarantors' defenses.[43] The question is significant here because it may affect whether the guarantors can or cannot ultimately recover from the debtor the amount they pay the creditor.[44]
¶120 This issue was explored in Continental Bank & Trust Co. v.
Akwa, 58
¶121 The Akwa court concluded that when the release of the debtor
is an agreement not to sue the debtor for the deficiency, the creditor may
still make a claim against the guarantor under a guaranty (or settlement
agreement) and the guarantor's remedies against the debtor remain
unaffected. The reasoning is that the
release is in effect merely a promise by the creditor not to sue the debtor and
does not discharge the underlying debt.
Accordingly, under these circumstances the guarantor is liable to the
creditor for the underlying debt and the debtor remains liable to the
guarantor. Akwa, 58
¶122 In contrast, according to Akwa, if the creditor's release of
the debtor amounts to a discharge of the debt, then the underlying obligation
is terminated and the guarantor is also released. Obviously, if the guarantor is released the
guarantor does not have a claim against the debtor. Akwa, 58
¶123 If the court applies the Akwa case, it should analyze whether
Wis. Stat. § 846.103(2)
functions as a promise by the creditor not to sue the debtor for the deficiency
or as a discharge of the debtor's debt.
This analysis not only affects the liability of the guarantor to the
creditor but also affects the rights of the guarantor against the debtor.
¶124 The majority opinion fails to address this issue.
B
¶125 This discussion leads us to another critical question not addressed in the majority opinion, namely whether the guarantors (Steven and Marcy Boyer, individually), after paying any sums they owe to the mortgagee, can in turn sue the debtor (Boyer Construction) to recover for the amount the they have paid to cover the debt.[45]
¶126 A guarantor who pays the debtor's obligation to the creditor ordinarily has recourse against the debtor to recover the amount the guarantor paid.[46] If the guarantors have recourse against the debtor in the present case to collect what the guarantor paid, then Wis. Stat. § 846.103(2), which is designed to protect the debtor against personal liability, will be defeated in this second stage of litigation.
¶127 Thus the majority first recognizes that the statute is meant to protect the mortgagor but then adopts an interpretation of the statute that risks defeating that very purpose of the statute. The majority opens the door to more litigation.
¶128 A central reason why the guarantor may proceed against the debtor is
that it is unfair for the creditor to use the statute totally to its advantage
and harm the guarantor by changing the nature of the guarantor's
obligations. The mortgagee (the Bank)
has elected under the statute to impose a different risk on the guarantor than
the guarantors understood at the time they agreed to the guaranty. A guarantor must expect to pay the debt but
also can expect that the debtor remains under a compulsion to pay. The Akwa court, 58
¶129 Neither the text of Wis. Stat. § 846.103(2) nor the majority opinion provides an answer to the question of who wins in a guarantor's suit against the debtor when the mortgagee forecloses under § 846.103(2) and recovers against the guarantor. The question of the rights of the guarantor against the debtor is for another day as a result of the majority opinion.
¶130 I would resolve the interpretation of Wis. Stat. § 846.103(2) in a manner that does not open the door to further litigation or leave unaddressed a legal determination that is necessary to effectuate the purpose of the statute. I conclude that if the mortgagee proceeds under § 846.103(2), the guarantor for payment is released from liability as a party personally liable for the debt secured by the mortgage.
¶131 I reason as follows: The statute provides the plaintiff (usually the creditor) in a foreclosure action with a choice: the creditor may choose a longer six-month redemption period and preserve its right to collect any deficiency after the property is sold, or the creditor may choose to complete the foreclosure more quickly, electing the three-month redemption period under Wis. Stat. § 846.101(2). To gain the advantage of the shorter redemption period, the creditor must give something up, specifically, its right to collect the amount of deficiency after sale.
¶132 The basic outline of this legislative scheme is embodied in Wis. Stat. 846.103(1) and (2), and the majority acknowledges the obvious tradeoff this statutory scheme puts in place: "Both Wis. Stat. § 846.101 and 846.103(2) permit shortened redemption periods in exchange for waivers of certain deficiency judgments." Majority op., ¶31.[47]
¶133 But under the majority's interpretation, the basic principle of this "exchange" is vitiated. The creditor may shorten the redemption period, limiting the mortgagor's opportunities to avoid foreclosure, but the creditor gives up little, if anything, in exchange, if there is a guarantor. So long as there is a guarantor, the creditor, under the majority opinion, may still collect the deficiency. Simply put, the majority displaces the choice the legislature created for mortgagees/lenders proceeding in foreclosure actions and now allows mortgagees to "have their cake and eat it too."
¶134 The practical effect of the majority's thin-slicing of the statutory
language is that property owners facing foreclosure around
¶135 The majority reaches this result on the basis of a counterintuitive and narrow reading of the statutory language that ignores numerous critical questions. I therefore do not join the majority's interpretation, which is contrary to the common meaning of the words themselves and substantially undermines the operation and purpose of the statute.
¶136 For the foregoing reasons, I write separately in dissent.
¶137 I am authorized to state that Justice ANN WALSH BRADLEY joins this opinion.
[1] All subsequent references to the Wisconsin Statutes are to the 2007-08 version unless otherwise indicated.
[2] The five notes were executed on February 28, 2003 ($235,000), March 14, 2003 ($336,909.03), April 30, 2003 ($380,000), April 19, 2004 ($155,400.59), and October 3, 2005 ($267,604.37). The original cumulative value of the notes was $1,374,913.99.
[3] Marcy was divorced from Steven by the time of the complaint, and she could not be reached at her last known address. Marcy was eventually served by publication, but there was an issue as to whether Bank Mutual exercised reasonable diligence in attempting to serve her personally. Consequently, the parties later stipulated that Marcy's failure to answer was due to excusable neglect under Wis. Stat. § 806.07(1)(a).
[4] Specifically, Steven sought relief under Wis. Stat. §§ 806.07(1)(d) and (e), which provide: "On motion and upon such terms as are just, the court . . . may relieve a party or legal representative from a judgment, order or stipulation for the following reasons: . . . (d) The judgment is void; (e) The judgment has been satisfied, released, or discharged."
[5] Recognizing that there was no case law directly on point, Judge Hinkfuss noted presciently that whether a guarantor is personally liable for the debt would likely be an issue on appeal.
[6] As noted above, the parties
stipulated that Marcy's default resulted from excusable neglect. Nevertheless, because her arguments for
relief were the same as Steven's, the court concluded that she had no
meritorious defense in the action, a requirement for relief from a default
judgment. See J.L. Phillips
& Assocs. v. E&H Plastic Corp. 217
[7] Although it is not clear why the
legislature removed the provision, "whether the mortgagor or other
persons, if upon the same contract which the mortgage is given to secure,"
the act removing this language was entitled:
AN ACT to revise portions of TITLE XXV PROCEEDINGS IN CIVIL ACTIONS IN COURTS OF RECORD and TITLE XXVI ACTIONS RELATING TO REAL ESTATE for clarity and conciseness of language and simplifying and improving said proceedings and for harmonizing the substantive provisions with the procedural rules which are being revised by the Supreme Court.
This language suggests that, by removing the explanation that the deficiency judgment could be brought against "the mortgagor or other persons, if upon the same contract which the mortgage is given to secure," the legislature merely removed what was superfluous language, because the phrase "personally liable for the debt secured by the mortgage" includes, by its own terms, those who may not be the mortgagor but who are liable upon the contract that the mortgage was given to secure.
[8] Commentators at the
time discussing Stellmacher v. Union Mortgage Loan Co., 195
[9] See Stellmacher, 195
[10] Wisconsin Stat. ch. 846 follows the basic rule that a judgment on the unpaid balance "ordinarily may be obtained by a deficiency decree given by the equity court in the foreclosure action itself." 1 Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law, § 8.1, at 933-34 (5th ed. 2007) [hereinafter Nelson & Whitman].
[11] The distinction in Farmers
& Merchants Bank v. Matsen, 219
[12] The principle articulated in Continental
Bank & Trust v. Akwa, 58
[13] The court of appeals based its
distinction on 38 Am. Jur. 2d Guaranty § 70 (1999), which provides
that "if the guaranty is absolute or unconditional, such as a guaranty of
payment of a promissory note, the guarantor becomes a debtor to the party
guaranteed (creditor or obligee) and primarily liable when the principal
obligation has matured and is not performed." This principle, however, still relates only
to the timing that the mortgagee is required to follow in collecting on the
guaranty. A lender may pursue a
guarantor who is primarily liable before exhausting its remedies against the
debtor, but it must still bring that action on the contract of guaranty, not on
the debt itself. This principle must
also be considered along with the principle that "[b]ecause guaranties are
separate contracts, collateral to and independent of any underlying agreement,
a guarantor's rights and liability arises primarily from the guaranty agreement
itself."
[14] In Glover v. Marine
Bank of Beaver Dam, 117
[15] The dissent
characterizes the judgments in this case as the "separately rendered"
judgment required under Wis. Stat. § 846.04(1),
and therefore treats them as, in fact, deficiency judgments. Dissent, ¶¶111-13. This
argument merges two legally distinct conceptions of liability. The distinction arises not from whether a
guarantor is "personally liable," but what the guarantor is
personally liable for. A debtor is
personally liable for the debt secured by the mortgage, but a guarantor is
personally liable only according to the terms of the guaranty. See Akwa, 58
The dissent, while acknowledging that the guarantors
"are made liable to the creditor under the terms of their agreement,"
dissent, ¶82 n.2
(emphasis added), proceeds to treat the distinction between personal liability
on the note and personal liability on the guaranty as a matter of form over
substance. Dissent, ¶112. This distinction, however, goes directly to
the substance of the action a mortgagee must bring to collect from a
guarantor. The mortgagee may obtain a
judgment against the debtor upon proof that the debtor has defaulted on the
note. To obtain a judgment against a
guarantor, however, the mortgagor must prove the existence of a guaranty
contract and that the guarantor is liable under the terms of that
contract. See Akwa, 58
[16] James B. Hughes, Jr., Taking
Personal Responsibility: A Different View of Mortgage Anti-Deficiency and
Redemption Statutes, 39
[17] Nelson & Whitman, supra, § 8.3 at 951 ("There is some judicial predisposition to deny guarantors the protection of anti-deficiency legislation."); Restatement (Third) of Property: Mortgages, § 8.4 cmt. b at 605 ("There is a substantial body of case law that denies guarantors the protection of anti-deficiency legislation."); CJS Guaranty § 115 ("Generally, the protections afforded to debtors under antideficiency legislation do not directly protect guarantors from liability for deficiency judgments after mortgage foreclosure.").
[18] Accordingly, courts
"typically reason that the liability of a guarantor is based on a separate
and distinct contract of guaranty and not imposed by the note or the mortgage
securing it." Nelson & Whitman, supra, § 8.3 at 951. See Mariners Sav. & Loan Assn.
v. Neil, 22 Cal. App. 3d 232 (Cal. Ct. App. 1971) (Defendant's "obligation
on the contract of guarantee was separate and distinct from the primary
obligation of his wife."); Valley Bank v. Larson, 663 P.2d 653,
655 (Id. 1983) (approving trial court's conclusion that guarantor could not
receive protection of time limit for seeking deficiency judgments "because
his obligation is independent of the principal debtor's."); Riverside
Nat'l Bank v. Manolakis, 613 P.2d 438, 441 (Okl. 1980) ("A
guarantor's undertaking . . . creates a collateral
obligation independent and separately enforceable from that of the principal
debtor. . . . The obligation of a guaranty is contractual,
and the inquiry must, in each case, focus on the precise terms of the
guarantor's undertaking——the dimension or breadth of the promise."). In a similar context, the Supreme Judicial
Court of Massachusetts refused to apply a statute requiring a foreclosing
mortgagee to give notice to "the holder of a mortgage note or other
obligation secured by mortgage of real estate" to guarantors, on the
grounds that "the liability of a guarantor does not flow from an
'obligation secured by a mortgage of real estate' but is independent of that
obligation." SKW Real Estate
Ltd. P'ship v. Gold, 702 N.E.2d 1178, 1181 (
[19] Wisconsin Stat. § 846.101 is analogous to Wis. Stat. § 846.103, because it contains some of the same language but applies to different classes of property with different periods of redemption.
[20] See Long v. Corbet, 888 P.2d 1340, 1345 (Ct. App. Ariz. 1994) (describing the purpose of anti-deficiency statute as "protect[ing] certain homeowners from the financial disaster of losing their homes to foreclosure plus all their other nonexempt property on execution of a judgment for the balance of the purchase price"); Nat'l City Bank of Minneapolis v. Lundgren, 435 N.W.2d 588, 592 (Minn. App. 1989) (refusing to apply a statute that was not expressly limited to mortgages to guarantors based on the legislative purpose of protecting "the people foreclosed"); Machock v. Fink, 137 P.3d 779, 784 (Utah 2006) (refusing to apply a "one-action" rule to guarantors because it would not further the purpose of eliminating harassment of debtors or multiple litigation against debtors).
[21] Section 846.165(2)
provides:
In case the mortgaged premises sell for less than the amount due and to become due on the mortgage debt and costs of sale, there shall be no presumption that such premises sold for their fair value and no sale shall be confirmed and judgment for deficiency rendered, until the court is satisfied that the fair value of the premises sold has been credited on the mortgage debt, interest and costs.
[22] The court of appeals reasoned
that the difference in language between the class of persons against whom
deficiency is waived (parties "personally liable for the debt secured by
the mortgage") and the class of persons who can redeem ("the
mortgagor, the mortgagor's heirs, personal representatives or assigns")
indicated that the two classes were not coterminous. Bank Mutual, 316
[23]Under
Wis. Stat. § 846.13,
"[t]he mortgagor, the mortgagor's heirs, personal representatives or
assigns may redeem the mortgaged premises." The common thread among these parties is that
they all have an interest in the property, and therefore
[24] This may occur if a purchaser
takes title to property subject to a mortgage without assuming the underlying
debt. See, e.g. Cassidy
v. Bonitatibus, 473 A.2d 350, 351 (
[25] The dissent argues that if a guarantor has recourse against a debtor, our interpretation "risks defeating [the] very purpose of the statute" and "opens the door to more litigation." Dissent, ¶127. The guarantors in this case (the Boyers) did not seek recourse against the debtor (S.J. Boyer). Neither party briefed the issue of whether guarantors may seek recourse against a debtor because that issue simply has nothing to do with this case. We decline to base our interpretation of the statute upon on speculation that this issue may arise in a future case.
[26] Frank S.H. Bae & Marian E. McGrath, The Rights of a Surety (Or Secondary Obligor) Under the Restatement of the Law, Third, Suretyship and Guaranty, 122 Banking L. J. 783, 783 (2005) (quoting Donald J. Rapson, History and Background of the Restatement of Suretyship, 34 Wm. & Mary L. Rev. 989, app. B (1993).
[27] Various authorities use the
terms "guaranty" and "surety" to describe similar kinds of
relationships and obligations. Here the
agreement in question is termed a guaranty and I follow that terminology. The relevant rules of law do not depend on
the label which is applied.
"There
is still considerable dispute about the distinction between a surety and a
guaranty." Bae &
McGrath, supra note 1, at 786. The Restatement (Third) of
Suretyship and Guaranty sensibly resolves this confusion by taking a unified
and functional approach, referring to "obligors" and
"obligees." In the
Restatement, the principal obligor is the debtor. Section 1, cmt. c. of the Restatement notes
that differences between sureties and guaranties "have been the subject of
extended debate, not all of which is illuminating. A 'surety' is typically jointly and severally
liable with the principal obligor on an obligation to which they are both
bound, while a 'guarantor' typically contracts to fulfill an obligation upon
the default of the principal obligor.
The provisions of a particular guaranty or suretyship contract, however,
will often blur much of this distinction."
Black's Law Dictionary (8th ed. 2004), in defining
"surety," asserts, "A surety differs from a guarantor, who is liable
to the creditor only if the debtor does not meet the duties owed to the
creditor; the surety is directly liable."
Regardless of the choice of terms employed, as discussed below, see ¶6 & n.6, ¶9, the guarantors in this case are made liable to the creditor under the terms of their agreement without requiring prior collection or action against the principal debtor.
[28] Bae & McGrath, supra note 1, at 783.
[29] The court of appeals
referenced the Restatement (Third) in Insurance Co. of North America
v. DEC International, Inc., 220
The Reporter for the Restatement commented at the time the Restatement was being drafted that the most recent treatises on suretyship dated to 1950 and 1951. Neil B. Cohen, Striking the Balance: The Evolving Nature of Suretyship Defenses, 34 Wm. & Mary L. Rev. 1025, 1025-26 & n.1 (1993) (citing Arthur A. Stearns, The Law of Suretyship (5th ed. 1951); Laurence P. Simpson, Handbook on the Law of Suretyship (1950)).
For more recent texts on suretyship, see Peter A. Alces, The Law of Suretyship and Guaranty (1996); The Law of Suretyship (Edward G. Gallagher ed., 2d ed. 2000).
[30] See supra note
2; First Wis. Nat'l Bank of
[31] The guaranty in the present case explicitly states that the guarantors remain liable to the Bank even though any obligation is invalid or unenforceable against any debtor. The guaranty provides: "This guaranty is valid and enforceable against the undersigned [guarantors] even though any Obligation is invalid or unenforceable against any Debtor." This language appears to state that as between the guarantor and the creditor, the guarantor will not impose defenses the debtor may have against the creditor regarding the validity of the debtor's obligation. In other words, the guarantor waives defenses. In other provisions of the guaranty, the guarantor consents in advance to various acts the creditor and debtor may perform. The effect of these provisions is to render the guarantor liable even when the guarantor's risk is increased by the debtor and creditor.
The question before the court is whether Wis. Stat. § 846.103(2), which protects those who are "personally liable for the debt" against a deficiency judgment, trumps the waiver and consent language in the guaranty and protects guarantors against suit by the creditor on the guaranty. The majority opinion in effect holds that the waiver and consent language of the guaranty trumps Wis. Stat. § 846.103(2).
[32] Bank Mut. v. S.J. Boyer
Constr., Inc., 2009 WI App 14, ¶15,
316
[33] Kramer, 74
[34]
[35] The brief of the Wisconsin Bankers Association as amicus curiae states on page 1, "The situation presented in the Bank Mutual case is typical. A lender makes a loan to a small or medium sized business, often a closely-held corporation or limited liability company, secured by a mortgage on real estate owned by the principal borrower. Often the lender will also require the personal guaranties of the principals of the business to further support the loan and protect the lender."
[36] Majority op., ¶¶39, 41.
[37] City of Chicago v. Chatham Bank of Chicago, 203 N.E.2d 788, 792 (Ill. App. 1964) (relying on Schnur v. Bernstein, 32 N.E.2d 675 (Ill. App. 1941); Walsh v. Van Horn, 22 Ill. App. 170 (1887).
[38]
[39] Since
"[T]he Judicial Article embodied in the
Illinois Constitution of 1970 has abolished the distinction between courts
of law and equity so that our State's circuit courts have 'original
jurisdiction of all justiciable matters.' . . . "
. . . .
Since jurisdiction over the cause of action was vested generally in the circuit courts, which are organized and divided for administrative convenience, the transfer of the equitable cause of action from the Chancery Division to the Law Division does not limit the remedy available to one at law. Equitable relief is available even though the case is in the Law Division. No error resulted from the transfer of the plaintiffs' claim.
Kaplan v. Keith,
377 N.E.2d 279,
282 (
The majority does not address whether the law/equity
distinction underlying the
[40] See also Bank of Sun Prairie v. Marshall Dev. Co., 2001 WI App 64, ¶2, 242 Wis. 2d 355, 626 N.W.2d 319 (mortgagee sued guarantor (as well as debtor) in foreclosure/deficiency action).
[41] The majority argues that Wis. Stat. § 846.04 "permits a deficiency judgment within the foreclosure action" only against the borrower. Majority op., ¶51. This argument simply applies the conclusion that the majority has already reached to § 846.04. It does not provide any additional argument supporting the majority's unpersuasive conclusion that the guarantors are not among the parties "personally liable for the debt secured by the mortgage."
[42] "Thus, while a mortgagee may bring a claim against a guarantor as part of the same legal proceeding, it must bring a separate cause of action and separately prove the guarantor's liability on the contract of guaranty." Majority op., ¶51.
In
[43] See Neil B. Cohen, Striking the Balance: The Evolving Nature of Suretyship Defenses, 34 Wm. & Mary L. Rev. 1025, 1043-44 (1993).
[44] The judgment entered against the guarantors was not for the amount of the deficiency but for the total amount of the debt owing on the notes ($1,436,457.85). See majority op., ¶9.
Thus the question immediately presented is not whether the a deficiency judgment may be entered against the guarantors. Rather, the present case comes before the court on motions objecting to confirmation of the foreclosure sale and seeking relief from judgment. Wisconsin Stat. § 806.07(1)(e) provides that the court may relieve a party from a judgment when "[t]he judgment has been satisfied, released or discharged."
If the operation of the Bank's waiver under Wis. Stat. § 846.013(2) is to discharge the underlying debt, then under the principle of guaranty law recognized in Akwa, the guarantor's obligation will also be satisfied. If, on the other hand, the operation of the waiver under § 846.013(2) is construed as merely a promise by the Bank not to sue the mortgagor (Boyer Construction) for the amount of the deficiency, then under Akwa it appears the guarantors would still be liable. The majority's failure to address this issue amounts to a failure to resolve the bottom line dispute in the present case: whether the guarantors are entitled to relief from the judgment entered against them, in other words, whether the Boyers are personally liable to Bank Mutual for the amount of the deficiency.
[45] For a collection of cases on the issue of the rights of the guarantor against the debtor, see J.A. Bryant, Jr., Mortgages: Effect upon Obligation of Guarantor or Surety of Statute Forbidding or Restricting Deficiency Judgments, 49 A.L.R.3d 554, § 2[a] (1973) ("It has been argued that if guarantors, sureties, and the like are construed not to have been afforded the protection of the statute, upon being recovered from, they will be able to assert rights over against the principal obligors, and that such action would defeat the purpose of the statutes, thus allowing to be accomplished in two steps what was forbidden in one.").
[46] The guaranty in the
present case recognizes the rights of the guarantor against a debtor who
defaults on the debt. See
guaranty at majority op., ¶5. The Restatement (Third) of Suretyship and
Guaranty § 22(1)
(1996) provides that subject to certain exceptions, "when the principal
obligor [the debtor] is charged with notice of the secondary obligation [that
of the guarantor] it is the duty of the principal obligor to reimburse the
secondary obligor to the extent that the secondary obligor: (a) performs the
secondary obligation . . . ." See also Hills Bank &
Trust Co. v. Converse, 772 N.W.2d 764
(Iowa 2009) ("Where a guarantor, who has entered into contract of guaranty . . . pays or is compelled to
pay his principal's debt, the law raises an implied promise . . . on the part of the
principal to reimburse the guarantor . . . ." (quoting Halverson
v. Lincoln Commodities, Inc., 297 N.W.2d 518, 522 (
In Charmley v. Charmley, 125
[47] This court recognized
the balance of interests intended by the legislature interpreting it the
parallel provisions of Wis. Stat. § 816.101(2)
(1973) in Glover v. Marine Bank of Beaver Dam, 117
[T]he legislature sought to . . . shorten[] the period of redemption in a complicated, costly, time-consuming procedure. This obviously benefits the mortgagee, since the mortgagee may be able to reduce the losses normally attendant to the twelve-month redemption period. . . . However, the mortgagor is also protected, because at the end of this shortened period, the mortgagor is secure in the knowledge that he or she will not be responsible for any deficiency resulting from the sale.