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COURT OF APPEALS DECISION DATED AND RELEASED SEPTEMBER 12, 1995 |
NOTICE |
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A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-0119
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT III
AGRIBANK, FCB, A
FEDERALLY
CHARTERED
INSTRUMENTALITY,
F/K/A FARM CREDIT BANK
OF ST. PAUL, F/K/A THE
FEDERAL LAND BANK OF
ST. PAUL,
Plaintiff-Respondent,
v.
RONALD MALUEG
AND LESLIE MALUEG,
Defendants-Appellants.
APPEAL from a judgment
and an order of the circuit court for Outagamie County: JAMES T. BAYORGEON, Judge. Affirmed in part; reversed in part and
cause remanded for further proceedings.
Before Cane, P.J.,
LaRocque and Myse, JJ.
LaROCQUE, J. Ronald Malueg and Leslie Malueg appeal a
judgment of foreclosure, a personal judgment and an order dismissing Ronald
Malueg's counterclaim. The circuit
court granted AgriBank a judgment of foreclosure on property owned by Leslie to
satisfy a debt Ronald owed to AgriBank, and entered a personal judgment against
Ronald in the amount of $16,791.39. The
court also denied Ronald's counterclaim that AgriBank violated
§§ 428.103(1)(c) and (e), Stats. The issues are whether (1) the mortgage
Leslie signed is enforceable, (2) $16,791.39 was the proper amount of the
judgment against Ronald and (3) AgriBank violated the named subsections of ch.
428.
We conclude that the
mortgage is enforceable, $16,791.39 is the proper amount of the judgment and
therefore affirm those parts of the judgment.
However, we conclude that AgriBank violated § 428.103(1)(c), Stats., and remand to determine
damages. Finally, we conclude that the
case must be remanded to determine whether AgriBank violated
§ 428.103(1)(e), Stats.
Ronald received a loan
of $23,000 from AgriBank in 1982 and used the loan proceeds as a down payment
for a land contract purchase. Ronald's
loan was secured by property owned by his parents, Leslie and Margaret.
Ronald signed the note,
but not the mortgage on his parents' property, and his parents signed the
mortgage, but not the note. However,
both the note and the mortgage had the same loan number, and the note recites at
the top, "Secured by a mortgage dated January 20, 1982," the date of
Ronald's note.
Ronald
defaulted on his payments to AgriBank in 1994.
Pursuant to the Agricultural Act of 1987, AgriBank sent written notice
to Ronald, with a copy to Leslie, informing them that they had forty-eight days
to submit a restructure proposal on the debt.
AgriBank did not receive any response to its notice, and it sent an
acceleration notification on March 2, 1994, demanding payment in full on the
loan.
Ronald responded to this
acceleration letter by requesting an extension of time to restructure, and
Leslie phoned AgriBank to discuss the matter.
AgriBank responded to the extension request in a March 21, 1994, letter
by setting forth conditions for the reinstatement of the loan. These conditions required Leslie to become
personally obligated on the loan and required payment of approximately $2,000
in reinstatement fees. AgriBank also
informed the Maluegs that by consenting to restructure, they would avoid legal
costs of approximately $3,000 for the foreclosure. The Maluegs refused AgriBank's reinstatement offer.
AgriBank commenced a
foreclosure action on Leslie's property and demanded a personal judgment
against Ronald.[1] The Maluegs answered by claiming that the
mortgage was invalid, and counterclaimed by alleging that AgriBank had violated
§§ 428.103(1)(c)[2]
and (e), Stats., by asserting in
its March 21 letter that the Maluegs would be responsible for attorney fees.
The circuit court
granted AgriBank a judgment of foreclosure, holding that parol evidence
surrounding the signing of the note and mortgage established that the parties
intended Leslie's mortgage to secure the note.
Next, the circuit court entered a personal judgment against Ronald for
$16,791.39. Finally, the circuit court
denied Ronald's counterclaim that AgriBank violated § 428.103(1)(e), Stats., because it did not represent
the $2,000 fees to be attorney fees and found a violation of
§ 427.104(1)(j), Stats., but
did not find any damages.
CLAIM THAT THE MORTGAGE IS INVALID
The Maluegs first claim
that the mortgage on Leslie's land is invalid.
They offer three arguments to support their claim: (1) Leslie received no consideration for
signing the mortgage; (2) if we construe the mortgage as a security agreement
for Ronald's debt, § 241.02(1)(b), Stats.,
invalidates the mortgage because the mortgage itself did not clearly identify
the obligation owed; and (3) § 422.305(1), Stats.,[3]
invalidates the mortgage because Leslie did not receive a copy of the
promissory note signed by Ronald.
A determination whether
a mortgage contract is ambiguous is a question of law that we consider de
novo. See Lamb v. Manning,
145 Wis.2d 619, 627, 427 N.W.2d 437, 441 (Ct. App. 1988). However, after finding ambiguity,
construction of a contract using parol evidence presents a question of
fact. Welter v. Singer,
126 Wis.2d 242, 248, 376 N.W.2d 84, 86 (Ct. App. 1985). We accept the trial court's findings of fact
unless they are clearly erroneous.
Section 805.17(2), Stats.
The Maluegs argue that
Leslie received no consideration for signing the document because he did not
personally receive a loan. They assert
that we should not regard the loan to Ronald as consideration because the
mortgage document did not refer to Ronald's loan. The Maluegs contend we should not use parol evidence to determine
Leslie's intent because the mortgage is not ambiguous. See Clark Oil & Refining Corp. v.
Leistikow, 69 Wis.2d 226, 237-38, 230 N.W.2d 736, 743 (1975).
A contract provision is
ambiguous only if it is reasonably susceptible to more than one
interpretation. Garriguenc v.
Love, 67 Wis.2d 130, 135, 226 N.W.2d 414, 417 (1975). The mortgage document provides "the
mortgagor shall pay to the mortgagee ... the sum loaned with interest ...
according to the terms of a promissory note bearing even date herewith, or
subsequent notes .... " (Emphasis added.) The mortgage document is ambiguous because it refers to a note,
but does not specify the note or notes to which it refers. A reasonable person could interpret this
mortgage's reference to "a promissory note" as referring to a
subsequent note that Leslie will sign or the note Ronald signed the same day
Leslie signed the mortgage. We
therefore conclude that the trial court correctly used parol evidence to
interpret the mortgage.
Parol evidence
establishes that Leslie received consideration for signing the note consisting
of Ronald receiving the loan. When
Ronald initially applied for the loan, an AgriBank officer told him that
AgriBank would deny his application unless Leslie pledged some land as
security. Leslie agreed to do so
because he had earlier mortgaged some of his land for the benefit of another
son. Other relevant parol evidence
includes Ronald's loan application listing the property Leslie mortgaged as
security. Finally, the promissory note
and the mortgage referenced one another by means of the same loan number. Because Leslie signed the mortgage to ensure
AgriBank would make the loan to Ronald, that loan constituted sufficient
consideration to support the contract between Leslie and AgriBank.
Next, the Maluegs argue
that the statute of frauds, § 241.02(1)(b), Stats.,[4]
invalidates the mortgage because the mortgage itself does not clearly identify
the obligation owed.
We conclude that the
Maluegs waived their right to assert the statute of frauds. Section 802.02(3), Stats. requires affirmative defenses, including the statute
of frauds, to be raised in a responsive pleading. Neither Leslie nor Ronald raised the statute of frauds issue in
any responsive pleading. Therefore, the
trial court properly declined to consider the issue when it was raised for the
first time at trial.[5]
Finally, the Maluegs
argue that § 422.305(1), Stats.,
invalidates the mortgage because Leslie did not sign or receive the
documentation required by that section.
The trial court held that § 422.305(1) does not apply to this
transaction because ch. 428, Stats.,
does apply.[6] We agree.
Section 428.101(3), Stats., states that ch. 428 applies to
"[l]oans made on or after November 1, 1981 by a creditor to a customer and
which are secured by a first lien real estate mortgage or equivalent security
interest if the amount financed is $25,000 or less." This subsection encompasses the transaction
at issue. The record shows that
AgriBank made Ronald's loan in January 1982, that the loan amount was $23,000
and that the mortgage was a first mortgage on Leslie's land. We have determined that Leslie's mortgage
secures Ronald's debt. Consequently,
ch. 428 applies because this transaction meets its requirements.
THE AMOUNT OF THE JUDGMENT
Ronald argues that the
trial court erred by finding the amount of the judgment to be $16,791.39.[7] He contends that the trial court erred in
two ways: First, by including $571.81
for an advance to Leslie to pay real estate taxes on the mortgaged property;
second, by including $984.50 for fees and costs AgriBank incurred administering
the loan.
AgriBank paid $571.81 in
real estate taxes on Leslie's mortgaged land.
AgriBank added the payment to the principal amount on Ronald's note
based on the following clause in the promissory note: "All advances made by the holder hereof for payment of
taxes, liens, judgments, assessments and insurance premiums shall be secured by
and under the mortgage and shall be payable with interest from the date each
advance is made." The trial court
held that this contractual language allowed AgriBank to add the taxes paid to
the principal balance of the note. We agree.
The advance satisfied
the literal terms of the mortgage note because AgriBank lent the money for the
payment of taxes. Furthermore, because
the mortgaged land secured Ronald's note, logic and commercial practice[8]
dictate that AgriBank protect its collateral from the rights of superior
lienors, such as taxing authorities.
Ronald argues that
AgriBank failed to meet its burden of proof with respect to the addition of
$984.50 in fees and costs to the principal balance of the loan because AgriBank
did not advance "clear and convincing evidence" to support the
increase. The trial court found that
the unchallenged testimony of a bank employee established the basis to add
these fees and costs to the principal balance.
We agree with the trial court.
A plaintiff need not
prove the exact amount of damages; rather, evidence of damages is sufficient if
it enables the fact finder to make a fair and reasonable approximation. Carlson & Erickson Bldrs. v.
Lampert Yards, 190 Wis.2d 651, 674, 529 N.W.2d 905, 914 (1995). Paul Anderson, an AgriBank employee,
testified that the $984.50 addition was composed of "fees and costs"
and gave an example of such a cost as an insurance policy for $150. We conclude that the trial court's
acceptance of Anderson's testimony was reasonable and affirm its decision with
respect to the amount of the judgment.
COUNTERCLAIM UNDER CH. 428, Stats.
The Maluegs claim that
the trial court erred by dismissing their counterclaim under
§ 428.103(1)(e), Stats.,
because AgriBank's March 21, 1994, letter contracted for attorney fees. Section 428.103(1)(e) provides:
The creditor shall not contract for or
charge its attorneys fees to the customer except as follows:
1. Reasonable fees for opinions of title.
2. In
foreclosure cases, 5% of the amount adjudged due the creditor; or if the
dispute is settled prior to judgment, a reasonable fee based on the time,
nature and extent of the work involved, but not to exceed 2-1/2% of the unpaid
principal balance of the loan.
AgriBank's March 21,
1994, letter to Ronald and Leslie stated that AgriBank would be willing to
reinstate Ronald's accelerated loan account if certain conditions were met,
including:
You
will be responsible for all fees and costs incurred by AgriBank for the
reinstatement of the loan account. This
is estimated to be approximately $2,000.00 to date. The exact amount will be determined once I receive an itemized
accounting from my attorney for fees and costs to date.
The
letter is unclear as to what portion, if any, of the $2,000 constitutes
attorney fees.
We must know the exact
amount of the attorney fees AgriBank charged to determine whether its
collection efforts fell within the exception of § 428.103(1)(e)1, Stats.
AgriBank's settlement offer qualifies for the exception in
§ 428.103(1)(e)1 because a mortgage foreclosure action had been filed by
AgriBank against Leslie and Ronald on March 14, 1994. However, the exception only covers up to 2-1/2% of the unpaid
principal balance, so AgriBank qualifies for the exception only if it
contracted for less than $372.03 in attorney fees.[9]
The trial court's
finding and the testimony at trial did not specify what portion of the $2,000
was attorney fees. Paul Anderson, an
AgriBank employee, testified that the $2,000 referred to in the letter included
"several hundred dollars" of attorney fees. The trial court found that $100 and "maybe more" were
attorney fees. In the same discussion,
the trial court also said "[b]ut the $2,000 I'm satisfied is not attorney
fees." Due to the contradictory
nature of these statements, we must remand to the trial court to find the exact
amount of the attorney fees contracted for in the March 21, 1994, letter. On remand, if the court finds that AgriBank
contracted for more than $372.03 in attorney fees, it should apply
§ 428.103(2), Stats., to
determine the amount of damages.
The Maluegs also claim
that the trial court erred by denying recovery under § 428.103(1)(c)1, Stats.
The trial court's application of ch. 428 to undisputed facts is a
question of law that we review independently.
See Brandt v. LIRC, 160 Wis.2d 353, 361, 466 N.W.2d 673,
676 (Ct. App. 1991).
Section 428.103(1)(c)1, Stats., incorporates the prohibitions
of § 427.104(1)(a) to (L), Stats.,
in the context of debt collection.
Section 427.104(1)(j), Stats.,
states that a debt collector cannot
"Claim, or attempt or threaten to enforce a right with knowledge or
reason to know that the right does not exist." The Maluegs claim that AgriBank violated this subsection in two
different letters by threatening to charge Ronald for AgriBank's attorney fees
in excess of the amount permitted under § 428.103(1)(e)1, Stats.
AgriBank's March 21,
1994, letter to the Maluegs stated:
"The advantage of this proposal over the current foreclosure action
is that you will save approximately $3,000 on attorney fees ...." If more than one reasonable inference may be
drawn from the evidence, we must accept the inference that the trial court
chose to draw. Cogswell v.
Robertshaw Controls Co., 87 Wis.2d 243, 250, 274 N.W.2d 647, 650
(1979). The trial court concluded that
language did not constitute a threat under § 428, Stats., to charge AgriBank's attorney fees to the Maluegs,
but rather suggested that the Maluegs would otherwise spend about $3,000 on
attorney fees to defend themselves.
Because § 428.103, Stats.,
does not prohibit a debtor from paying his or her own attorney fees, the trial
court found no violation. We conclude
the trial court's holding with regard to the $3,000 was not clearly erroneous.
The Maluegs claim that
AgriBank also violated § 428.103(1)(c)1, Stats.,
in a letter dated August 10, 1993, which stated: "Depending upon when you pay current, legal fees can range
from $1,000 to $3,000. Therefore, your
delinquency amount can jump from $180.63 to $1,180.63 - $3,180.63." The trial court found that this language
violated § 428.103(1)(c)1, but did not award damages because it found no
actual damages in the case. Based on
the language in the letter, we conclude that the court did not err by finding a
violation. However, we conclude that
the trial court erred by failing to award damages. Section 428.103(2), Stats.,
does not require proof of actual damages because it provides a statutory
penalty in subsec. (2)(a).[10] Therefore, we remand this issue to the trial
court to determine the amount of damages under subsec. (2)(a).
CONCLUSION
In sum, we hold that the
mortgage on Leslie's land is valid and that the trial court correctly
determined the amount of the personal judgment against Ronald to be
$16,791.39. However, we remand the case
to the trial court to determine if AgriBank violated § 428.103(1)(e), Stats., and to determine the proper
statutory penalty for AgriBank's violation of 428.103(1)(c), Stats.
By the Court.—Judgment
and order affirmed in part; reversed in part and cause remanded for further
proceedings. No costs on appeal.
Not recommended for
publication in the official reports.
[1] Agribank's complaint originally named both Leslie and Margaret Malueg as defendants. Agribank amended the complaint, dropping Margaret as a defendant because she passed away in March 1994 and her share of the mortgaged property passed to Leslie, the surviving joint tenant.
[2] The Maluegs' counterclaim alleged that AgriBank had violated § 427.104(1)(j), Stats. Section 428.103(1)(c), Stats., incorporates the prohibitions of § 472.104(1)(a) to (L), Stats., by reference.
[3]
Section 422.305, Stats.,
provides:
Notice to obligers. (1) No
natural person is obligated to assume personal liability for payment of an
obligation arising out of a consumer credit transaction unless the person, in
addition to signing the writing evidencing the consumer credit transaction, or
a separate guaranty or similar instrument, also either receives a copy of each
instrument, document, agreement and contract which is signed by the customer
and which evidences the customer's obligation to pay, or signs and receives at
the time of signing a separate instrument in substantially the following
language:
EXPLANATION OF
PERSONAL OBLIGATION
(a) You have agreed to pay the total of payments under a consumer
credit transaction between .... (name of customer) and.... (name of merchant)
made on .... (date of transaction) for .... (description of purpose of credit,
i.e. sale or loan) in the amount of $.....
(b) You will be liable and fully responsible for payment of the above
amount even though you may not be entitled to any of the goods, services or
loan furnished thereunder.
(c) You may be sued in court for the payment of the amount due under
this consumer credit transaction even though the customer named above may be
working or have funds to pay the amount due.
(d) This explanation is not the agreement under which you are
obligated, and the guaranty or agreement you have executed must be consulted
for the exact terms of your obligations.
(e) You are entitled now, or at any time, to one free copy of any
document you sign evidencing this transaction.
(f) The undersigned acknowledges receipt of an exact copy of this
notice.
....
(Signature)
Section 428.103(1)(b), Stats., provides:
Any cosigner, other than the spouse of the customer, shall be given a notice substantially the same as that required by s. 422.305, and the cosigner shall be entitled to a copy of any document evidencing the obligation to pay the debt.
[4]
Section 241.02, Stats.,
provides in part:
Agreements, what must be
written. (1) In the following case
every agreement shall be void unless such agreement or some note or memorandum
thereof, expressing the consideration, be in writing and subscribed by the
party charged therewith:
....
(c) Every agreement, promise or undertaking made upon consideration of marriage, except mutual promises to marry.
[5] Were we to address the Maluegs' statute of frauds argument, it would appear that AgriBank established clear and convincing equitable grounds to reform the mortgage to reflect the loan to Ronald as permitted by § 706.04(1), Stats., which provides: "The deficiency of the conveyance may be supplied by reformation in equity ...."
[6] Except as noted hereafter, § 421.202(7), Stats., states that chs. 421 to 427, Stats., do not apply to transactions subject to ch. 428, Stats.
[10]
Section 428.103(2), Stats.,
states:
(2) A person who commits a
violation of this section is liable to the customer in an amount equal to the
greater of:
(a) Twice the amount of the
interest to be charged on the transaction, except that the liability under this
subsection shall not be less than $100 nor greater than $1,000; or
(b) The actual damages, including any incidental and consequential damages, sustained by the customer by reason of the violation.