Bank of Sun Prairie v. Marshall Development Co.

• Decision Date: 22 February 2001
• Docket Number: No. 00-1076.,00-1076.
• Citation: 242 Wis.2d 355,2001 WI App 64,626 N.W.2d 319
• Parties: BANK OF SUN PRAIRIE, Plaintiff-Appellant, v. MARSHALL DEVELOPMENT COMPANY, Thomas E. Schoenauer, Kaltenberg Seed Farms, Inc., Badgerland Farm Credit Services, ACA, State of Wisconsin-Department of Workforce Development, and State of Wisconsin-Department of Revenue, Defendants, John J. GRIMMER, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

242 Wis.2d 355

2001 WI App 64

626 N.W.2d 319

BANK OF SUN PRAIRIE, Plaintiff-Appellant, v. MARSHALL DEVELOPMENT COMPANY, Thomas E. Schoenauer, Kaltenberg Seed Farms, Inc., Badgerland Farm Credit Services, ACA, State of Wisconsin-Department of Workforce Development, and State of Wisconsin-Department of Revenue, Defendants, John J. GRIMMER, Defendant-Respondent.¹

No. 00-1076.

Court of Appeals of Wisconsin.

Submitted on briefs November 7, 2000.

Decided February 22, 2001.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Kimberly P. Sebranek and Kevin M. Laffey of Eustice, Laffey & Shellander, S.C., Sun Prairie.

On behalf of the defendant-respondent, the cause was submitted on the brief of Robert J. Welcenbach and Michael J. Widmann of Welcenbach & Widmann, Milwaukee.

A nonparty brief was filed by John E. Knight and James E. Bartzen of Boardman, Suhr, Curry & Field LLP, Madison, for Wisconsin Bankers Association.

Before Vergeront, Roggensack and Deininger, JJ.

¶ 1. VERGERONT, J.

The Bank of Sun Prairie appeals the summary judgment dismissing its action for foreclosure of a mortgage on the ground that the Bank had previously obtained a deficiency judgment in a foreclosure action on another mortgage securing the same debt. The trial court concluded that under the doctrine of merger, the debt was extinguished when the deficiency judgment was entered, and the Bank's only remedy was to execute on the deficiency judgment. We agree with the Bank that the doctrine of merger does not bar this action, and we also conclude neither Wisconsin case law nor statutory law nor the doctrine of claim preclusion bars this action. We therefore reverse and remand for further proceedings.

BACKGROUND

¶ 2. The parties agree the facts are not in dispute. Central States Construction Company executed and delivered to the Bank a note in the amount of $198,000. The president of Central States, Thomas Ludlow, personally guaranteed the debt. The debt was secured by two mortgages: one granted by Central States on real estate located in Sun Prairie, Wisconsin, and one granted by Marshall Development Company on real estate located in Marshall, Wisconsin. After Central States defaulted on the note, the Bank brought an action against Central States and Ludlow, requesting foreclosure of the Sun Prairie mortgage and a deficiency judgment. The court in that action entered a judgment of foreclosure, which provided that if the proceeds of the sale of the Sun Prairie property were insufficient to pay the amount due the Bank under the note, a deficiency judgment was to be entered against Central States and Ludlow. On April 2, 1998, the court entered an order in that action confirming the sheriff's sale and directing a deficiency judgment to be entered against Central States and Ludlow, jointly and severally in the amount of $173,636.41. ¶ 3. The Bank filed this action against Marshall Development on June 9, 1999, alleging the amount due under the judgment against Central States and Ludlow and requesting foreclosure of the Marshall mortgage. The Bank also named as defendants persons with an interest in the Marshall property, including John Grimmer. Grimmer moved for summary judgment, asserting that the note and all mortgages merged into the deficiency judgment and the Bank was thus precluded from foreclosing on the Marshall mortgage. He also asserted the doctrine of claim preclusion barred the Bank from maintaining this action.² The court agreed with Grimmer's merger argument and did not reach the issue of claim preclusion. Relying on Production Credit Ass'n v. Laufenberg, 143 Wis. 2d 200, 205, 420 N.W.2d 778 (Ct. App. 1988), the court ruled that, by operation of the doctrine of merger, with the entry of the deficiency judgment the note ceased to bind the parties, and the Bank's only recourse was to enforce the deficiency judgment. The court concluded: "[t]o permit the Bank to foreclose on the second mortgage in addition to collecting on the deficiency judgment would result in a windfall to the plaintiff and allow the Bank to foreclose on a mortgage that secures a debt that no longer exists."

DISCUSSION

¶ 4. The Bank³ argues on appeal that the trial court erred in applying the doctrine of merger to bar this action. It also argues the alternative grounds asserted by Grimmer to support the summary judgment —WIS. STAT. §§ 846.10 and 846.101 (1999-2000)⁴ as construed in Glover v. Marine Bank, 117 Wis. 2d 684, 693-94, 345 N.W.2d 449 (1984), and the doctrine of claim preclusion—do not bar this action.⁵

[1]

¶ 5. When we review a summary judgment we apply the same methodology as the trial court, and our review is de novo. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). The remedy is appropriate in cases where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Germanotta v. National Indem. Co., 119 Wis. 2d 293, 296, 349 N.W.2d 733 (Ct. App. 1984).

Merger

¶ 6. The general statement of the merger doctrine, which we adopted from RESTATEMENT (SECOND) OF JUDGMENTS § 18 (1982) in Waukesha Concrete Prods. v. Capitol Indem. Corp., 127 Wis. 2d 332, 343-44, 379 N.W.2d 333 (Ct. App. 1985), is:

When a valid and final personal judgment is rendered in favor of the plaintiff:

(1) The plaintiff cannot thereafter maintain an action on the original claim or any part thereof, although he may be able to maintain an action upon the judgment; and

(2) In an action upon the judgment, the defendant cannot avail himself of defenses he might have interposed, or did interpose, in the first action.

[2]

¶ 7. In Production Credit, we applied this doctrine to preclude recovery of costs and attorney fees under a contract provision after a judgment was entered on the claim for breach of that contract, and the judgment did not include costs and attorney fees as provided in the contract. Production Credit, 143 Wis. 2d at 205-06. We described the doctrine of merger as "a common law principle that is generally applied throughout state and federal forums in a consistent manner." Id. at 205. In Waukesha Concrete, we applied the doctrine to preclude recovery of the contractual rate of interest (rather than the statutory rate of 12% on judgments), concluding that, upon the entry of the judgment on the claim for breach of contract, the claim for interest under the contract was extinguished. Waukesha Concrete, 127 Wis. 2d at 343-44.

¶ 8. Our reasoning in Production Credit and Waukesha Concrete instructs that, with the entry of the deficiency judgment in the Bank's first action, the Bank's claim on the note merged with that judgment, thereby precluding the Bank from bringing another action to recover on the note. However, neither the general statement of the merger doctrine we adopted in Waukesha Concrete, nor the application of it in either that case or Production Credit, is a basis for concluding the deficiency judgment in the Bank's first action precludes a later lawsuit to foreclose on a mortgage securing the same debt, when that mortgage was not the subject of foreclosure in the first action. Indeed, RESTATEMENT (SECOND) OF JUDGMENTS § 18 cmt. g, illus. 10 (1982) specifically provides otherwise:

Incidents of claim preserved. When by reason of the plaintiffs obtaining judgment upon a claim the original claim is extinguished and rights arise upon the judgment, advantages to which the plaintiff was entitled with respect to the original claim may still be preserved despite the judgment. Thus if a creditor has a lien upon property of the debtor and obtains a judgment against him, the creditor does not thereby lose the benefit of the lien.

(Emphasis added.)

¶ 9. As courts in other jurisdictions that have followed RESTATEMENT cmt. g explain,

[t]he doctrine of merger is an aspect of res judicata⁶ which prevents relitigation of existing judgments . . . [and] serves to prevent the splitting of causes of action. . . . [However] [m]erger does not discharge the debt for all purposes. The judgment only changes the form of the action for recovery. The creditor retains the right to enforce a lien or gain possession of property held as collateral for the debt.

Brenton State Bank v. Tiffany, 440 N.W.2d 583, 585 (Iowa 1989) (footnote added) (citations omitted). See also Albrecht v. Zwaanshoek Holding En Financiering, 816 P.2d 808, 811 (Wyo. 1991)

.

¶ 10. Allowing an action to foreclose on a mortgage securing a debt that has been reduced to a judgment is the general rule:

Independent action as bar to foreclosure. Except as affected by statute in a few states and subject to the conflict of authority as respects the effect of an execution or an attachment upon the mortgaged property by the judgment creditor or a sale thereunder, the cases are uniform in holding that until the mortgage debt is actually satisfied, the recovery of a judgment on the obligation secured by a mortgage, without the foreclosure of the mortgage, although merging the debt in the judgment, has no effect upon the mortgage or its lien, does not merge it, and does not preclude its foreclosure in a subsequent suit instituted for that purpose, or the exercise of the power of sale contained in the mortgage or deed of trust—the conclusion often reached in such cases being that the debt is not destroyed by the merger and that the mortgage secures the debt in its new form as merged in the judgment.

55 AM. JUR. 2D § 524 (1996) (footnotes omitted). Accord 50 C.J.S. § 773(c) (1997) (in absence of statute to contrary, it is generally held that an unsatisfied judgment on a debt or a note evidencing it, is no bar to an action to enforce mortgage or other lien given as security for such debt). ¶ 11. Grimmer contends, however, that Wisconsin case law addressing the relationship between deficiency judgments and actions for foreclosure of mortgages require that we apply the doctrine of merger in this case. Our examination of the...