COURT OF APPEALS DECISION DATED AND RELEASED November
15, 1995 |
NOTICE |
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. 95-0488
STATE OF WISCONSIN IN
COURT OF APPEALS
DISTRICT II
STROMBECK
PARTNERSHIP,
Plaintiff-Respondent,
v.
JOSEPH
P. APOLLO and
ROSEMARY
J. APOLLO,
Defendants-Appellants,
JOHN MAGLIO,
Defendant.
APPEAL
from a judgment of the circuit court for Waukesha County: ROBERT G. MAWDSLEY,
Judge. Affirmed.
Before
Anderson, P.J., Brown and Snyder, JJ.
BROWN,
J. Joseph
P. and Rosemary J. Apollo appeal from an order of summary judgment in favor of
the Strombeck Partnership. The Apollos
argue that the trial court erred when it interpreted the Apollos' failure to
pay late payment charges as an event triggering default under the mortgage
note. They also seem to assert that
either the doctrine of “clean hands” or equitable estoppel, or both, prevent
the Strombecks from foreclosing because the Strombecks failed to turn over
security deposits assigned as part of the real estate transaction.
We
conclude that the mortgage and note unambiguously mandated that the Apollos pay
a late charge in the event of an installment overdue by more than five days and
that such late charge had to be paid along with the installment within fifteen
days of the due date. Failure to
include the late charge along with the installment constituted default. We further conclude that because no cause
and effect relationship existed or could exist between the failure to pay late
charges and the alleged failure of the Strombecks to turn over security
deposits, the Apollos' equitable arguments fail. We affirm.
In
November 1993, the Apollos offered to purchase commercial real property from
the Strombecks. Their offer was
accepted. As part of the deal, the
Apollos gave a mortgage to the Strombecks in the amount of $91,700. The parties executed a note on December 28,
1993.
The
first monthly installment was due on January 28, 1994. Although there is a dispute as to whether
payment was made within fifteen days of the due date, it is undisputed that the
Apollos failed to make the installment payment within five days of the due
date. This triggered a late payment
charge of five percent of the unpaid installment under the terms of the
mortgage note, which charge was never paid.
The
second installment was due on February 28, 1994, but was delivered on March 10,
1994, again triggering the late payment charge. Once again, the Apollos did not pay the late payment charge.
The Strombecks notified the Apollos in
writing on March 7 that payments due under the mortgage note had not been
received. On March 24, the Strombecks
notified the Apollos that because they had not paid either of the late payment charges
(and also because of the disputed late installment payment), they were
accelerating the note and that the full amount was due.
In
considering the propriety of an order for summary judgment, this court uses the
same methodology as the trial court and our review is de novo. See Preloznik v. City of
Madison, 113 Wis.2d 112, 115-16, 334 N.W.2d 580, 582-83 (Ct. App.
1983). We first consider the Apollos'
contention that failure to pay late payment charges is not an event triggering
default under the terms of the mortgage and mortgage note.
Two
provisions of the mortgage note are pertinent.
The first concerns late payment charges:
In the event any installment payment
(including, without limitation, the entire principal balance upon maturity)
becomes more than 5 days past due, Borrower shall pay a late payment charge to
Holder equal to 5% of the entire unpaid amount of the installment (including
principal and interest).
The second provision permits acceleration:
If Borrower
fails to make any payment due under this Note or the Mortgage within 15 days
after it becomes due, or upon any default (other than non-payment) under the
Mortgage securing this Note which is not cured within 15 days following the
date of mailing of written notice to Borrower, the Holder may accelerate the
entire principal balance of this Note and declare the same immediately due and
payable without notice or demand.
The
Apollos contend that under these provisions, the late payment charge is not a
“payment” and that the nonpayment of that charge cannot therefore justify
acceleration. They argue that the
mortgage note is ambiguous in that it seems to distinguish between “payments”
and “charges.” Implicit in the
definition of a payment, they contend, is a requirement that it have a fixed
due date in order to measure when default occurs. Since the note does not identify a date when the late payment
charge becomes due, it is not a payment and cannot trigger default.
We
agree with the Strombecks, however, that the language of the note is clear and
unambiguous. The late charge is
a “payment” and became due along with the installment payment as soon as the
installment payment was not made within five days of its due date.
We arrive at this conclusion after having
examined the mortgage and note in a manner consistent with our standard of
review. In interpreting contractual
language, the goal is to ascertain the parties' true intentions, as evidenced
by the language they used. Where the
language is clear and unambiguous, we construe it as it stands. Whether language is ambiguous is a question
of law which we review de novo. See
Bank of Barron v. Gieseke, 169 Wis.2d 437, 455, 485 N.W.2d 426,
432 (Ct. App. 1992). Mortgages and
mortgage notes are to be read together as one instrument. Goebel v. First Fed. Savs. & Loan,
83 Wis.2d 668, 679, 266 N.W.2d 352, 358 (1978).
In
this case, the mortgage contains a provision, recognized by the Apollos, that
“time is of the essence with respect to payment of principal and interest when
due and in the performance of any of the covenants and promises of the
Mortgagor contained herein or in the note(s) secured hereby.” When a provision like this one is agreed
upon, the obvious intent is to provide for prompt payment of installments and
all charges under the note. A
reasonable person would therefore construe an accompanying late payment charge
provision as designed to encourage prompt payment by immediately penalizing the
mortgagor if an installment is late. By
having to pay more money in order to cure the lateness of the payment, the
mortgagor is thereby encouraged to refrain from being late with future
installments.
So
it is with this transaction. The note
clearly and unambiguously conveys that the Apollos trigger a late payment
charge whenever an installment payment is more than five days past due. Any reasonable person would consider that
this charge becomes part of the “payment” due and must be paid by the fifteenth
day following the installment's due date.
The construction advanced by the Apollos
would produce a nonsensical result in that a charge designed to encourage
prompt payment of installments would not itself come due with the
installment. This would defeat the very
purpose for which the charge is created.
Contractual language is to be given a construction which will render the
contract a rational business instrument.
Borchardt v. Wilk, 156 Wis.2d 420, 427, 456 N.W.2d 653,
657 (Ct. App. 1990) The only rational
interpretation of a late payment charge is that it is due with the installment.
The Apollos further contend that the note
should not be construed as written because to do so produces the absurd result
that a $91,000 note is defaulted based upon the failure to pay $160.72 in late
charges. This is indeed an unfortunate
result from the Apollos' perspective, and one which this court would be
reluctant to permit if this were a case where the mortgage note was drawn up by
one party who was in a stronger position and attempted to exploit an
unsophisticated buyer by hiding the crucial clauses in fine print. See Discount Fabric House, Inc.
v. Wisconsin Tel. Co., 113 Wis.2d 258, 262, 334 N.W.2d 922, 924 (Ct.
App. 1983), rev'd on other grounds, 117 Wis.2d 587, 345 N.W.2d
417 (1984). The record reveals,
however, that the Apollos were represented by counsel at the closing and that
their attorney prepared the mortgage and note, both of which are standard forms
from the State Bar of Wisconsin. The
fact that the amount of the default is relatively small is of no significance.
We
now address the Apollos' second argument, that the doctrines of “clean hands”
and equitable estoppel should be implemented to prevent this foreclosure
because the Strombecks failed to transfer security deposits pursuant to the
assignment of the property's leases.
The trial court found that the Strombecks were under no obligation to
turn over the deposits. We do not
address that issue here and will assume arguendo that the Apollos were entitled
to the deposits. Nonetheless, we still
affirm.
Parenthetically, we observe that it is
unclear from the briefs whether the Apollos are asserting the “clean hands”
doctrine or the distinct doctrine of equitable estoppel. In the interests of
judicial repose, we will address the Apollos' argument from both
perspectives. In either case, however,
the answer is the same. Whether the
Strombecks failed to hand over the security deposits had absolutely no bearing
on the Apollos' duty to pay installments on time and the corresponding duty to
pay the late charges with the due installments. Because there is no nexus between the Strombecks' failure to turn
over the security deposits and the Apollos' failure to pay the late payment
charges, neither doctrine applies.
Foreclosure
is an equitable proceeding, and one of the maxims of equity is the doctrine of
“clean hands”—that is, a plaintiff who seeks affirmative equitable relief must
have clean hands before the court will entertain his or her plea. Westfair Corp. v. Kuelz, 90
Wis.2d 631, 637, 280 N.W.2d 364, 367 (Ct. App. 1979). The Apollos apparently assert that the Strombecks do not have
“clean hands” because they wrongfully withheld the security deposits. Nevertheless, before a court may apply the
“clean hands” doctrine to preclude recovery, it must find that the plaintiff
seeks relief from a harm caused by his or her own wrongful or unlawful
course of conduct. S & M
Rotrogravure Serv. v. Baer, 77 Wis.2d 454, 467, 252 N.W.2d 913, 919
(1977). The failure to turn over the
security deposits did not cause the Apollos to be late with their
payments or fail to pay the late charges.
Indeed, the Apollos make no such claim and could not. Security deposits cannot be used by the
Apollos to make the payments. The
“clean hands” argument is rejected.
The doctrine of equitable estoppel also
recognizes that a party may be precluded, because of his or her own conduct,
from asserting rights he or she would otherwise have enjoyed. Unlike the “clean hands” doctrine, equitable
estoppel does not require that the plaintiff has acted wrongfully. It does, however, require a showing of three
elements: (1) action or inaction by one
party, (2) which induces reasonable and justifiable reliance by another party
and (3) to the latter party's detriment.
State v. City of Green Bay, 96 Wis.2d 195, 202-03, 291
N.W.2d 508, 511-12 (1980). Here, the
Apollos do not argue, and indeed cannot argue, that the Strombecks' failure to
turn over security deposits induced them not to pay the late charges. The equitable estoppel argument, if this be
the Apollos' argument, is also rejected.
By
the Court.—Judgment affirmed.
Not
recommended for publication in the official reports.