Mutual Federal S & L Ass'n v. Wisconsin Wire Works

Citation58 Wis.2d 99,205 N.W.2d 762
Decision Date09 April 1973
Docket NumberNo. 36,36
CourtUnited States State Supreme Court of Wisconsin
Parties, 69 A.L.R.3d 702 MUTUAL FEDERAL S & L ASSN., Appellant, v. WISCONSIN WIRE WORKS et al., Respondents.

Frisch, Dudek, Slattery & Denny, Milwaukee, Edward A. Dudek and Jerry H. Friedland, Milwaukee, of counsel, for appellant.

Fulton, Menn & Nehs, Appleton, for respondent Brownell.

Adolph I. Mandelker, Milwaukee, David M. Kaiser, Milwaukee, of counsel, for Megal Development Corp.

HEFFERNAN, Justice.

We see no ambiguity in the terms of the contract. The entire balance due on the mortgage note is to become due and payable at the option of the mortgagee if the Mortgagor:

'. . . shall convey away said mortgaged premises or if the title thereto shall become vested in any other person or persons in any manner whatsoever unless the consent . . . is first obtained.'

In Wisconsin, a state which follows the lien theory of mortgages, the mortgagee does not have legal title. The full ownership, both equitable and legal, is in the mortgagor, and the interest of the mortgagee is that of a lien holder. The mortgagee is merely the holder of a security interest. Osborne, Mortgages (Hornbook Series), p. 208, sec. 127. Under the facts of this case, Wisconsin Wire Works, despite the prior mortgage of Mutual, held the full interest in the land, including the right of possession, subject however to the security interest of Mutual. When Wisconsin Wire Works entered into a land contract, the vendee Megal, by the process of equitable conversion, became the owner of the land in equity, while Wisconsin Wire Works retained the legal title to secure the balance due on the purchase price. Kallenbach v. Lake Publications, Inc. (1966), 30 Wis.2d 647, 142 N.W.2d 212. The equitable title acquired by Megal remained subject not only to the vendor's legal title but also to the lien of Mutual's mortgage. By the contract in question, Megal or its assignees became entitled to physical possession and occupancy of the premises.

We see no ambiguity in the phrase, 'conveying away.' Language of a contract is to be considered as a whole. When so considered, the words or phrases therein that are reasonably or fairly susceptible to more than one construction are ambiguous. Lemke v. Larsen Co. (1967), 35 Wis.2d 427, 432, 151 N.W.2d 17.

"(L)anguage of a contract is to be accorded its popular and usual significance." Schluckebier v. Arlington Mutual Fire Ins. Co. (1959), 8 Wis.2d 480, 483, 99 N.W.2d 705, 707. In North Gate Corp. v. National Food Stores (1966), 30 Wis.2d 317, 321, 140 N.W.2d 744, 747, this court accepted with approval the rule appearing in 17 Am.Jur.2d, Contracts, p. 643, sec. 251, that:

". . . technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless the context of the contract or an applicable custom or usage clearly indicates that a different meaning was intended."

Black's Law Dictionary (Rev.Fourth Ed.), page 402, defines 'conveyance' as follows:

'. . . In real property law. In the strict legal sense, a transfer of legal title to land. In the popular sense, and as generally used by lawyers, it denotes any transfer of title, legal or equitable . . . The transfer of the title of land from one person or class of persons to another . . .. An instrument in writing under seal (anciently termed an 'assurance,') by which some estate or interest in lands is transferred from one person to another; such as a deed, mortgage, etc. . . .'

One definition of 'convey' appears in Webster's Third International Dictionary (1965): 'To transfer or deliver (as property) to another; specif: to transfer (as real estate) or pass (a title, as to real estate) by a sealed writing.' The term 'convey' applies to any transfer of title to the mortgaged property whether legal or equitable. By the execution of a land contract which conferred equitable title on Megal, Wisconsin Wire Works conveyed away the mortgaged premises. The contractual term is not ambiguous. In the parlance of both laymen and lawyers, a land contract is a conveyance.

In view of common and technical usage of the term 'convey' and the purpose of the 'due on sale clause' of the mortgage and note, there is no ambiguity. The land contract was a conveyance that gave the purchaser an equitable title to the property as well as the immediate right to possession.

The trial judge, having found the contractual terms ambiguous, dismissed the complaint without the necessity of determining whether an acceleration clause of this type is valid. It is argued, however, by the appellants that the clause is not contrary to the public interest. We agree.

In Grootemaat v. Bertrand (1927), 192 Wis. 519, 213 N.W. 294, the court enforced an acceleration clause that provided the entire mortgage debt would be due and payable upon a default. In sustaining such clause, the court discussed acceleration clauses generally. It stated at page 521, 213 N.W. 295;

'. . . it may be said that such provisions are neither penalties nor forfeitures. They are merely conditions of the contract entered into by the parties. They result only in an acceleration of the time of payment. The duties and obligations of the mortgagors remain the same. They must pay that which the mortgage was given to secure. But by reason of the terms of their own contract the time of payment is hastened.'

Accordingly, it appears well settled that explicit contractual obligations may accelerate the obligation to pay the debt in full and are not contrary to public policy. Whether they may be utilized in a particular case is dependent upon the facts and whether the invocation of the acceleration clause would be inequitable under the circumstances.

The New York courts sanction the use of 'due on sale' acceleration clauses, but the mortgagee's option to accelerate the mortgage debt will be enforced only if it does so in good conscience and fairness to the mortgagor. Blomgren v. Tinton (1962), 33 Misc.2d 1057, 225 N.Y.S.2d 347.

In Loughery v. Catalano (1921), 117 Misc. 393, 191 N.Y.S. 436, 439, the New York court stated:

'It is a familiar principle of equity jurisprudence that a party having a legal right shall not be permitted to avail himself of it for the purposes of injustice or oppression.'

The Floida Court of Appeals has held that a mortgage foreclosure is an equity matter and that a mortgagee has a right to accelerate on the default of the mortgage conditions only if they are necessarily related to the preservation of the security. A Florida court will refuse to enter a foreclosure judgment when the acceleration of the due date would be unconscionable and its result would be inequitable and unjust. Clark v. Lachenmeier (Fla.App.1970), 237 So.2d 583, 584.

The California Supreme Court views acceleration clauses of this type as a device to restrain partially the mortgagor's right of alienation of the property. Mr. Justice Traynor, speaking for the California court, upheld this type of clause as a reasonable restraint on alienation, because it was designed to protect a justifiable security interest of the mortgagee. After discussing a number of types of restraints on alienation which the common law had found reasonable, Mr. Justice Traynor stated:

'In the present case it was not unreasonable for plaintiff to condition its continued extension of credit to the Enrights on their retaining their interest in the property that stood as security for the debt. Accordingly, plaintiff validly provided that it might accelerate the due date if the Enrights encumbered or transferred the property.' Coast Bank v. Minderhout (1964), 61 Cal.2d 311, 317, 38 Cal.Rptr. 505, 508, 392 P.2d 265, 268.

The Wisconsin Constitution, Art. I, sec. 14, provides:

'Feudal tenures; leases and grants; restraints upon alienation. Section 14. All lands within the state are declared to be allodial, and feudal tenures are prohibited. Leases and grants of agricultural land for a longer term than fifteen years in which rent or service of any kind shall be reserved, and all fines and like restraints upon alienation reserved in any grant of land, hereafter made, are declared to be void.'

We conclude, however, that it does not affect the type of transaction under consideration. 1

La Sala v. American Savings & Loan Association (1971), 5 Cal.3d 864, 878, 97 Cal.Rptr. 849, 489 P.2d 1113, reviewed the holding and rationale of Coast Bank v. Minderhout and discussed its application in respect to a 'due-on-encumbrance clause.' The case explains the rationale of Coast Bank and California Court of Appeals cases that followed it. The California Supreme Court stated, at pages 878, 880, 97 Cal.Rptr. at page 859, 489 P.2d at page 1123:

'Coast Bank, as we have seen, spoke of the borrowers 'retaining their interest in the property that stood as security for the debt.' (61 Cal.2d at p. 317, 38 Cal.Rptr. (505) at p. 508, 392 P.2d (265) at p. 268.) Hellbaum (Hellbaum v. Lytton Sav. & Loan Ass'n, 274 Cal.App.2d 456, 79 Cal.Rptr. 9), in similar language, noted the creditor's interest 'in maintaining the direct responsibility of the parties on whose credit the loan was made.' (274 Cal.App.2d 456, 458, 79 Cal.Rptr. 9, 11.) Cherry v. Home Sav. & Loan Ass'n discusses this reasoning in greater detail: 'Lenders run the risk that security may depreciate in value, or be totally destroyed. This risk of loss is reduced in the lender's viewpoint if the borrower is known to be conscientious, experienced and able. . . . If a borrower were able to sell the security without concern for the debt, he may take the proceeds of the sale, leaving for parts unknown, and the new owner of the property might permit it to run down and depreciate.' (276 Cal.App.2d (574) at pp. 578--579, 81 Cal.Rptr. (135) at p. 138.)

'The reasoning of these cases, while justifying enforcement of due-on-sale provisions clearly does not apply with equal force to restraints against future...

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