Capocasa v. First Nat. Bank of Stevens Point

• Decision Date: 28 November 1967
• Parties: Carole J. CAPOCASA, Appellant, v. FIRST NATIONAL BANK OF STEVENS POINT, Respondent.
• Court: Wisconsin Supreme Court

Page 271

154 N.W.2d 271

36 Wis.2d 714

Carole J. CAPOCASA, Appellant, v. FIRST NATIONAL BANK OF STEVENS POINT, Respondent.

Supreme Court of Wisconsin.

Nov. 28, 1967.

Robert Dewa, Madison, for appellant.

Peickert, Anderson, Fisher, Shannon & O'Brien, Stevens Point, for respondent.

HEFFERNAN, Justice.

The mortgage executed in June of 1963 by the Capocasas provided not only that the property serve as security for the present consideration of $10,600, but also for any 'further sums of money which may be or become owing' to the bank. There is no doubt that mortgages to secure future advances serve a socially and economically desirable purpose. ¹

Wisconsin has long recognized that a mortgage can secure future advances and the lien of the mortgage will attach at the time of the mortgage even though the advances are made at a later date. Carter v. Rewey (1885), 62 Wis. 552, 22 N.W. 129; Wisconsin Planing Mill Co. v. Schuda (1888), 72 Wis. 277, 39 N.W. 558; Claridge v. Evans (1908), 137 Wis. 218, 118 N.W. 198, 118 N.W. 803, 25 L.R.A.,N.S., 144.

Sec. 215.21(4)(b), Stats., specifically recognizes that saving and loan associations may enter into mortgages that will secure additional advances so long as the total does not exceed the stated amount of the mortgage.

However, the question posed by this appeal is whether the mortgage will secure a subsequent note given by one of the borrowers, in this case the husband, for a consideration unrelated to the original purpose of the mortgage when the other party had no knowledge of the other mortgagor's personal note and did not consent to subjecting the mortgaged property to this additional debt.

The bank relies upon the express language of the mortgage:

'Provided Always, and these presents are upon this express condition, that if the said parties of the first part, their heirs, executors and administrators, shall pay or cause to be paid to the said party of the second part, its successors or assigns, the sum of Ten Thousand Six Hundred and no/100 Dollars, according to the conditions of one promissory note bearing even date herewith (and any and all renewals or partial renewals thereof), executed by said parties of first part to said party of second part, and also such further sums of money which may be or become owing by the parties of the first part, or any or either of them, to the party of the second part, its successors or assigns, at any time hereafter and prior to the release in writing of this mortgage by the party of the second part, its successors or assigns, and shall moreover punctually and exactly perform, keep and observe each and every covenant, agreement, stipulation and condition herein contained, then these presents shall be null and void.' (Emphasis supplied.)

Taken literally, this language is sufficient to embrace Capocasa's subsequent note to the bank as being within the security afforded by the mortgage. The new note given by him was for a 'further sum(s) of money which * * * become(s) owing by * * * either (mortgagor) * * * to the party of the second part (the bank).'

Yet it is apparent that the literal enforcement of the clause would result, under the circumstances, in the perpetration of an inequitable result not intended by the parties. The bank claims that any indebtedness by any of the parties, no matter how incurred, falls within the net of the mortgage. The burden of specifically proving the indebtedness secured by the mortgage is upon the mortgagee. 59 C.J.S. Mortgages § 163, page 212. Any ambiguity, of course, must be resolved against the mortgagee. McCollum v. Braddock Trust Co. (1938), 330 Pa. 293, 198 A. 803. The bank appears to rely upon the marital relationship for its proof. The bank takes the position that Carole Capocasa took Lawrence Capocasa as her husband for 'better or worse' and that, therefore, she has no reason to complain if he improvidently signed a note that subjected the property to a further mortgage liability. The sweep of the respondent's claim is indicative of the harsh results that would result not only in this case but in others if the bank's rationale is to prevail. That rationale is, however, inappropriate; for the significant relationship is not that Lawrence and Carole were husband and wife, but that they were joint tenants and co-martgagors of the same real estate. The rule that defendant proposes is, therefore, not limited to the marital relationship, for its Draconian effect would apply to all who, with others, sign mortgages that contain the 'dragnet' clause. In the instant case it is apparent that the plaintiff was not aware of her husband's giving the personal note until she was so informed when she tried to sell her property and until that time had no idea that such conduct could affect her interests in the property.

This case seems to be one of first impression in this jurisdiction. However, a study of the cases elsewhere shows that such clauses and claims like that asserted by the bank herein are likely to be looked upon with disfavor by the courts. In Brose v. International Milling Co. (1964), 256 Iowa 875, 879--880, 129 N.W.2d 672, 675, the Iowa Supreme Court stated:

'* * * such provisions are not favored and should be closely scrutinized, but it will be enforced to the extent it appears to have been within the intent of the parties. First v. Byrne, 238 Iowa 712, 28 N.W.2d 509, 172 A.L.R. 1072, and cases therein referred to.'

The Arkansas Supreme Court, in Berger v. Fuller (1929), 180 Ark. 372, 377, 21 S.W.2d 419, 421, has denominated such clauses as 'anaconda' clauses:

'* * * as by their broad and general terms they enwrap the unsuspecting debtor in the folds of indebtedness embraced and secured in the mortgage which he did not contemplate, and to extend them further than has already been donw would, in our opinion, be dangerous and unwise; for, if this should be done, some one who might have been engaged extensively in business, and by reason of financial reverses become largely indebted, and who had selected from his property a small portion upon which he and his family might dwell as their homestead, and from that vantage point begin the battle of life anew, might be deprived of it by grasping and unconscionable creditors.'

The writer of a note appearing in 38 Minnesota L.Rev. (1953--54) 507 observed courts generally view 'these clauses with disfavor, and generally place limitations on the indebtedness which may be secured by the mortgage' (P. 512), and 'The use and enforcement of clauses as broad in scope as the ill-reputed 'dragnet-clause' could curtail the widespread acceptability of these mortgages.' (P. 522)

In the case of First v. Byrne (1947), 238 Iowa 712, 28 N.W.2d 509, 172 A.L.R. 1072, the court refused to allow the promissory note of one of two mortgagors given for an antecedent personal debt to be secured by the interest in the property of the other mortgagor. The 'dragnet' clause in that case provided:

"It is further expressly agreed that this mortgage shall stand as security for any other indebtedness, direct or contingent, that the mortgagee may now hold or in the future during the life of this mortgage acquire against the said mortgagors or either or any of them." (P. 713, 28 N.W.2d p. 510.)

The court, in holding the clause ineffective to charge the other mortgagor's interest and only effective to charge the interest of the mortgagor giving the note, said:

'To construe the language here as creating such a relationship to secure indebtedness the existence of which was unknown to the surety, and, of course, not intended by him to be secured, would be to countenance a situation inviting abuse and unfair dealing. It would give the indebted comortgagor and contenant in effect a power of attorney to impose a lien upon the other's interest for his own benefit, to make the other a surety for the payment of his own debt. As a court of equity we cannot so construe it. Such a result should not be presumed or declared except upon a clear showing of intention.' (P. 719, 28 N.W.2d p. 513.)

The Iowa court thus takes the position that a joint mortgagor is bound by the 'dragnet' clause to the extent that his individual interest in the property will be security for his own antecedent or subsequent obligations to the mortgagee.

Other courts have held that the dragnet clauses are wholly ineffective unless the debts they purport to secure 'were in the contemplation of the parties' at the time the mortgage was executed. Typical of these cases is Wood v. Parker Square State Bank (1966), Tex., 400 S.W.2d 898, in which a mortgagor borrowed from a bank under a clause that provided that the trust deed covered all other indebtedness that might accrue and become owing in the future. Subsequently, the bank purchased the borrower's note from an unsecured creditor and sought to enfold it within the protection of the 'anaconda' clause of the mortgage. The Texas court refused to allow it, saying:

'Here * * * there is no showing...