The Trusted Adviser August 2009 | Volume 2 - Number 6

ATTORNEYS | Practice Notes



Bank Mutual v S J Boyer Construction, Inc, 762 NW2d 826, 2008 AP 912 (Wis Ct App 2008).

Facts:Steve and Marcy Boyer executed a "Continuing Guaranty (unlimited)" on February 1, 2000, guaranteeing payment of Boyer Construction's obligations to Bank Mutual. Boyer Construction defaulted on the business notes, and Bank Mutual commenced an action against Boyer Construction and the Boyers. There were five claims for foreclosure, one for each business note, and a claim for judgment against the Boyers for the amounts due under the notes.

The court granted two motions for summary judgment filed by Bank Mutual. The court awarded $1,435,457, excluding attorney's fees and expenses. The court entered a foreclosure judgment against the Boyers, and sold the mortgaged real estate at a sheriff's sale. Bank Mutual purchased all of the property for $1,180,000.

Boyer Construction and the Boyers objected to the order for confirmation of sale because it did not preclude a judgment for the deficiency against Steven and Marcy Boyer. They also moved for relief for judgments under multiple subsections of Wisconsin Statutes Section 806.07. They relied on Section 846.103(2), which provides that when a plaintiff elects a shorter redemption period when foreclosing on certain types of real estate, generally commercial real estate, the plaintiff must waive judgment for any deficiency against "every party who is personally liable for the debt secured by the mortgage" and no judgment for a deficiency can be rendered against a party personally responsible.

The trial court concluded the deficiency issue should have been raised previously as objections to the findings of fact, conclusions of law and judgments and overruled the objections. The trial court also went on to conclude the guaranty entered into by the Boyers was a separate contract and Wisconsin Statutes Section 646.103(2) did not prohibit judgment against the Boyers. The Boyers appealed the order denying the motions for relief from the judgments.

Holding:Reversed and remanded with directions. Bank Mutual obtained a shortened redemption period under Section 846.103(2) and was able to reduce the redemption period from six months to three months. Therefore, the court of appeals held that Bank Mutual was required to forego judgment for a deficiency against any parties "personally liable for the debt secured by the mortgage." See Wis. Stat. &§ 846.103(2), which category included the Boyers.

The court of appeals looked at the guaranty signed by the Boyers to decide if they were personally liable for the debt secured by the mortgage. Generally, a "guaranty agreement is collateral to the principal contract, and the guarantor's liability is secondary to that of the principal debtor." 38 AM.JUR. 2D Guaranty &§ 70 (1999). However, if the guaranty is absolute or unconditional the guarantor becomes a debtor to the party guaranteed and primarily liable when the principal obligation has matured and is not performed.

Under the guaranty signed by the Boyers, liability of the guarantors was not conditioned upon pursuing payment from the debtor or taking any action on collateral. Therefore, the court concluded that the Boyers executed an unconditional guaranty of payment, not a conditional guaranty of collection. The court concluded the Boyers were personally liable for the debts secured by the mortgages, and as such, Bank Mutual should not have obtained a shortened redemption period.

Bank Mutual argued the Boyers were personally liable only on the guaranty, but not on the debts guaranteed. The court addressed this argument by pointing out how Bank Mutual ignored the effect of the guaranty of payment, which made the Boyers primarily liable on the underlying debts as principal obligors.

Finally, the court noted that its conclusion was consistent with prior decisions on how guaranties of payment were interpreted under Wisconsin foreclosure law with the discussion of past precedents. Therefore, because the Boyers were personally liable for the debts secured by the mortgages, the trial court erred when denying the Boyers' motions for relief from the judgments.






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[Last update: 7-27-09]