Goebel v. First Federal Sav. and Loan Ass'n of Racine

• Decision Date: 06 June 1978
• Docket Number: No. 76-074,76-074
• Citation: 266 N.W.2d 352,83 Wis.2d 668
• Parties: Douglas R. GOEBEL and Patricia A. Goebel, on behalf of themselves and on behalf of all others similarly situated, Respondents, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF RACINE, Appellant.
• Court: Wisconsin Supreme Court

Page 352

266 N.W.2d 352

83 Wis.2d 668

Douglas R. GOEBEL and Patricia A. Goebel, on behalf of themselves and on behalf of all others similarly situated, Respondents, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF RACINE, Appellant.

No. 76-074.

Supreme Court of Wisconsin.

Argued May 3, 1978.

Decided June 6, 1978.

This is an appeal by First Federal Savings & Loan Association of Racine, defendant-appellant, from a judgment which granted the motion of Douglas R. Goebel and Patricia A. Goebel, plaintiffs-respondents, on behalf of themselves and on behalf of all others similarly situated, for summary judgment, and denied the motion of First Federal for summary judgment.

The plaintiffs had executed a real estate mortgage note and mortgage in favor of First Federal. It was adjudged that the case could properly proceed as a class action, and that the provisions of the particular note and mortgage did not allow First Federal the contractual right to require the plaintiffs and members of the class to increase the amounts of their monthly payments or extend the term of their loans to absorb an increased interest rate.

Thompson & Coates, Ltd., Racine, on brief, for appellant; James W. Hill, Racine, argued.

James N. Youngerman, Madison, argued and on brief, for respondents.

CONNOR T. HANSEN, Justice.

The facts in the case are not in dispute. Although First Federal is a federally regulated institution, see: Kaski v. First Fed. S. & L. Assn. of Madison, 72 Wis.2d 132, 240 N.W.2d 367 (1976), the resolution of the instant controversy depends on the interpretation of the note and mortgage as a matter of state contract law.

On May 29, 1964, the plaintiffs, as mortgagors, executed a mortgage in favor of First Federal, as mortgagee, in the amount of $17,000, with interest at six percent annually, payable in monthly installments.

The note contained the following interest rate adjustment provision:

" . . . The interest for each month shall be calculated upon said unpaid balance due as of the last day of the previous month at the rate of 6 per cent per annum or such other rate of interest on unpaid balances as may be fixed by the Association from time to time at its option, provided however, that the Association may not change the rate of interest except at any time after three years from the date hereof, and then upon 4 months or more written notice to the Promissors. Notice shall be deemed received when the same is deposited in the United States mail, postage prepaid, addressed to the Promissors at their last address as it appears on the record of the Association. The Promissors upon receiving notice of such change may repay the entire balance due on this obligation during said 4 months period without penalty. Any change in the rate of interest shall be endorsed on this mortgage note by the Association, stating the effective date of such change, the balance then due, and the new rate."

The plaintiffs do not contest the legality or the conscionableness of such a provision. ¹ However, they argue that in the instant case, First Federal is precluded, by other provisions of the mortgage note, from effectuating an interest rate increase either by increasing the term of the note or by increasing the amount of the monthly installments. As completed, the note obligated the plaintiffs to pay to First Federal:

" . . . the principal sum of Seventeen Thousand and 00/100 Dollars, ($17,000.00) and such additional sums as may be subsequently advanced hereon to the Promissors and Mortgagors by the ASSOCIATION, together with interest as hereinafter provided, until such loan shall have been fully paid; such principal and interest payable in monthly installments of One Hundred Ten Dollars Cents, ($110.00) on or before the 10th day of each and every month, commencing January 10, 1965; said principal and interest, including advances, notwithstanding any other provisions in this note or the mortgage given as collateral security, shall be paid in full within 25 years from the date hereof, and in the event of an additional advance hereon over and above the principal sum stated above, such monthly installments shall be adjusted to conform to this provision."

In September, 1973, First Federal notified the plaintiffs that as a result of unfavorable economic conditions, the interest rate on their loan would be increased from six percent to eight percent, effective February 1, 1974. In November, 1973, the plaintiffs were informed that the new rate would be seven percent rather than eight percent and that they could elect to absorb the increased interest expense either by paying an additional $7.49 per month or by extending the term of their loan approximately two years. The plaintiffs did not reply to this letter, and they continued to make monthly payments of $110.

Affidavits submitted in support of the motions for summary judgment allege that First Federal has increased the interest rate of 488 borrowers whose mortgage notes were executed on forms identical to that completed by the plaintiffs, and that 119 of these borrowers have elected to pay larger monthly installments to absorb the increase in interest rates.

This action was commenced by the plaintiffs, as a class action, on behalf of themselves and all others similarly situated. They argue that the terms of their note preclude any alteration by First Federal that would either increase the amount of their monthly payments or extend the term of their loan to accommodate an increased interest rate. The issues presented on appeal are whether the terms of the mortgage note permit First Federal to increase the interest rate by increasing the amount of the monthly installments or by extending the term of the loan ² and whether the case can proceed as a class action.

Whether First Federal can increase the amount of the plaintiffs' monthly payments so as to absorb a higher interest rate rests, to a significant extent, on the principle of expressio unius est exclusio alterius. Under this principle, a specific mention in a contract of one or more matters is considered to exclude other matters of the same nature or class not expressly mentioned, even when all such matters would have been inferred had none been expressed. Corbin on Contracts (hornbook ed., 1952), sec. 554, p. 522; First Wisconsin Trust Co. v. Perkins, 275 Wis. 464, 82 N.W.2d 331 (1957); 17A C.J.S. Contracts § 312, pp. 171-173.

The mortgage documents leave no doubt as to the right of the mortgagee to increase monthly payments to accommodate repayment of future advances and the lender's cash expenditures to protect its security interest. With equal clarity, the draftsman could have provided the same express means to accommodate the interest escalation clause. Other mortgage notes introduced in evidence did so by providing that interest could be increased or decreased with a corresponding adjustment in the required monthly payments.

The note specifically states that First Federal may advance additional sums to the borrowers and provides that " . . . in the event of an additional advance hereon over and above the principal sum stated above, such monthly installments shall be adjusted to conform to this provision." (Emphasis added.) In addition, the note authorizes First Federal to protect its security interest in the mortgaged property by paying taxes, purchasing insurance, making repairs or discharging any encumbrance upon the premises, and the note requires the borrowers to repay any such outlays "upon demand" by First Federal. The trial court concluded that First Federal's right to be repaid for such disbursements "upon demand" necessarily embraces a right to forego immediate repayment and instead to increase the borrower's monthly payments to recoup the outlays.

The mortgage note fails to make similar provision for an increase in payments when the interest rate is raised. The trial court interpreted this omission to demonstrate that no such increase was contemplated. This conclusion is supported by the decision of this court in Godfrey v. Crawford, 23 Wis.2d 44, 50, 126 N.W.2d 495, 498 (1964), where this court stated that in some cases such an omission "might well be the decisive factor . . . ."

In Farley v. Salow, 67 Wis.2d 393, 227 N.W.2d 76 (1975), this court relied on the inclusion of an express cut-off date in one contract as a basis for refusing to imply such a cut-off date in a related, contemporaneous contract drafted by the same lawyer. It was observed in Farley, supra, that the omission of words from a contract is sometimes instructive. The court quoted from North Gate Corp. v. National Food Stores, 30 Wis.2d 317, 323, 140 N.W.2d 744 (1966), where it was said that:

". . . 'We cannot ignore the draftsman's failure to use an obvious term, especially where it is the draftsman who is urging a tenuous interpretation of a term in order to make it applicable to a situation which would clearly have been covered if the obvious term had been chosen.' " Farley, supra, 67 Wis.2d at 405, 227 N.W.2d at 83.

This observation reflects the general rule that ambiguous contract language must be construed against the drafter. Garriguenc v. Love, 67 Wis.2d 130, 226 N.W.2d 414 (1975); Moran v. Shern, 60 Wis.2d 39, 208 N.W.2d 348 (1973); North Gate Corp., supra; Marion v. Orson's Camera Centers, Inc., 29 Wis.2d 339, 138 N.W.2d 733 (1966). This rule has particular force where, as here, there is a substantial disparity of bargaining power between the parties, and a standard form is supplied by the party drafting the form.

Applying these principles to the instant case, the trial court properly held that the failure to provide explicitly for an increase in monthly payments to absorb an interest increase demonstrated that no such increase was contemplated by the parties. The trial court stated:

". . . The contract does not leave to implication the right of the mortgagee to increase the monthly installment amounts to accomodate (sic)...