Grosskopf Oil, Inc. v. Winter

• Decision Date: 08 May 1990
• Docket Number: No. 89-1406,89-1406
• Citation: 156 Wis.2d 575,457 N.W.2d 514
• Parties: GROSSKOPF OIL, INC., a Wisconsin corporation, Plaintiff-Respondent, v. Galen D. WINTER, Defendant-Third Party Plaintiff-Appellant, v. Steven ASCHENBRENNER, and Wisconsin Lawyers Mutual Insurance Company, Third Party Defendants-Respondents. d
• Court: Wisconsin Court of Appeals

Page 514

457 N.W.2d 514

156 Wis.2d 575

GROSSKOPF OIL, INC., a Wisconsin corporation, Plaintiff-Respondent, v. Galen D. WINTER, Defendant-Third Party Plaintiff-Appellant, v. Steven ASCHENBRENNER, and Wisconsin Lawyers Mutual Insurance

Company, Third Party Defendants-Respondents.

d

No. 89-1406.

Court of Appeals of Wisconsin.

Submitted on Briefs Feb. 19, 1990.

Opinion Released May 8, 1990.

Opinion Filed May 8, 1990.

Richard C. Rowland of Bollenbeck, Block, Seymour, Rowland & Samson, S.C., on brief, Appleton, for defendant-third party plaintiff-appellant.

Jerome E. Smyth and Cynthia M. Caine of Liebmann, Conway, Olejniczak & Jerry, S.C., on brief, Green Bay, for plaintiff-respondent.

Before CANE, P.J., and LaROCQUE and MYSE, JJ.

MYSE, Judge.

Grosskopf Oil, Inc., initiated this legal malpractice action against attorney Galen Winter, who in turn brought a third-party action against attorney Steven Aschenbrenner. The alleged legal malpractice involved a real estate transaction and foreclosure suit resulting in Grosskopf losing its leasehold interest in certain real property it operated as a gas station. Winter had represented Grosskopf at the time it had entered into the lease, and Aschenbrenner had represented Grosskopf in the foreclosure action. On motion for summary judgment, the trial court dismissed Winter's complaint against Aschenbrenner, concluding that Aschenbrenner's representation was not negligent as a matter of law. On appeal, Winter argues that factual issues regarding Aschenbrenner's defense of the foreclosure suit require trial.

Winter argues that the trial court erred when it concluded that sec. 706.11, Stats., establishes priority of a subsequent mortgage over a lease as a matter of law. Winter also argues that the failure to record the lease does not establish the priority of the mortgage as a matter of law. We agree with both contentions. The effect of nonrecording requires a factual determination of the mortgagee's good faith. We conclude that the trial court erred when it ruled that Aschenbrenner was absolved of liability as a matter of law. Therefore, the issue of Aschenbrenner's liability remains an issue for further litigation. Accordingly, we reverse and remand for further proceedings.

Carl Danen purchased a gas station from Grosskopf in order to remodel it and build a car wash. Winter represented Grosskopf in connection with the negotiations, which resulted in the sale of the property to Danen and a fifteen-year lease back to Grosskopf. Danen also executed a promissory note to Grosskopf for the balance due on the sale. Under the lease, Grosskopf retained possession as tenant and continued its operation of the service station. The lease was never recorded. The lease contained an ambiguous provision purporting to subordinate itself to mortgages for construction loans, but reserved the right of possession with the tenant. ¹ Danen subsequently executed two mortgages on the property, one to De Pere Savings and Loan and one to American Industrial Leasing. ²

After a series of events, De Pere Savings and Loan commenced foreclosure proceedings. ³ Grosskopf retained Aschenbrenner to represent it in the foreclosure proceeding. After filing an answer asserting Grosskopf's lease was superior to the mortgages, Aschenbrenner took no further steps to defend the action. Summary judgment was entered in favor of De Pere Savings and Loan, based upon a ruling that the mortgage was superior to the unrecorded lease, thereby foreclosing Grosskopf's leasehold interest. Danen's obligation to Grosskopf on the promissory note was discharged in bankruptcy.

Grosskopf then initiated this legal malpractice action against Winter, alleging

negligence in failing to adequately draft and record the lease to protect Grosskopf's interests. Winter brought a third-party action against Aschenbrenner, alleging that in the foreclosure action Aschenbrenner failed to adequately protect Grosskopf's lease rights. Winter moved for summary judgment seeking dismissal of the complaint against himself and judgment against Aschenbrenner. Aschenbrenner also moved for summary judgment.

The trial court concluded as a matter of law that Aschenbrenner was not negligent for failing to pursue a defense to the foreclosure action because it was an "obvious losing cause." The court ruled that sec. 706.11, Stats., gave the subsequent mortgage priority over the unrecorded lease as a matter of law and dismissed the complaint against Aschenbrenner. The trial court denied Winter's motion seeking dismissal of Grosskopf's complaint against him, concluding that disputed issues of material fact remained for trial. Winter appeals the summary judgment in favor of Aschenbrenner.

Our review of summary judgment is de novo. Green Spring Farms v. Kersten, 136 Wis.2d 304, 315, 401 N.W.2d 816, 820 (1987). The party moving for summary judgment has the burden to establish the absence of a factual dispute and that he is entitled to judgment as a matter of law. Grams v. Boss, 97 Wis.2d 332, 338-39, 294 N.W.2d 473, 476-77 (1980). In a legal malpractice action, the plaintiff has the burden to prove the attorney's negligence, but also must establish that, but for the attorney's negligence, the client would have been successful in the underlying action. Lewandowski v. Continental Cas. Co., 88 Wis.2d 271, 276 N.W.2d 284, 286 (1979).

Winter argues that Grosskopf's damages resulted from Aschenbrenner's failure to adequately defend the foreclosure suit. Winter contends that but for Aschenbrenner's negligence, the trial court in the foreclosure action would not have erroneously concluded that the mortgages had priority over the lease as a matter of law. We do not decide the issue of whether Aschenbrenner committed malpractice because this is not the issue before us on appeal. Rather, we conclude that the trial court erred when it ruled that Aschenbrenner was absolved from liability as a matter of law. We conclude that the respective priorities of the lease and the subsequently executed mortgages depend on unresolved factual issues and, therefore, summary judgment absolving Aschenbrenner of liability was inappropriate.

Here, the trial court predicated its judgment absolving Aschenbrenner on its erroneous conclusion that sec. 706.11, Stats., established the priority of the subsequent mortgage over the prior unrecorded lease, and therefore Grosskopf's leasehold interest was extinguished as a matter of law. The trial court ruled, in effect, that a lease was a lien governed by sec. 706.11. We disagree and conclude that sec. 706.11 does not apply to leases. ⁴

The interpretation of a statute is a question of law, which we review without deference to the trial court. Town of Seymour v. City of Eau Claire, 112 Wis.2d 313, 319, 332 N.W.2d 821, 823 (Ct.App.1983). Our first resort is to the statutory language itself. Id. In absence of ambiguity, judicial construction is not permitted, and the words of the statute must be given their obvious and ordinary meaning. Id. at 313, 332 N.W.2d at 823-24.

We conclude that the obvious and ordinary meaning of sec. 706.11, Stats., limits its application to the priority of certain mortgages over subsequently filed liens, and does not apply to leases. ⁵ The term "lease" is not included within the scope of the statutory language, and we conclude that the term "lien" does not encompass a lease. Although both encumber realty, they do so in different ways. The term lien is used indiscriminately at times. ⁶ The ordinary meaning of lien, however, is: "a charge upon real or personal property for the [payment] of some debt...." Webster's Third New Int'l Dictionary 1306 (4th ed.1976). This definition is consistent with the definition found in sec. 242.01(8), Stats. ⁷

In contrast, a lease transfers possessory interests in land. It is defined as: "[A] contract which conveys lands, tenements, or hereditaments for life, for a term of years, or at will or for any less interest than that of the lessor, usu[ally] for a specified rent...." Webster's Third New Int'l Dictionary 1286 (4th ed. 1976). This definition concurs with the statutory definition found in sec. 704.01, Stats. ⁸

Because the plain and obvious language of sec. 706.11, Stats., refers solely to liens, not leases, the trial court's reliance on this section was erroneous. We observe that sec. 706.11(3) also provides a trust fund for payment of all claims due or to become due "for lienable labor and materials...." This reference to construction liens demonstrates the statutory objective to address the respective rights of mortgagees and lien holders. In absence of any reference to leases, we conclude that the statute establishes priority of certain recorded mortgages over subsequently filed liens, but does not apply to leases.

Therefore, the mortgagee's rights are subject to those of the lessee unless the failure to record the lease affected the priority established by sec. 706.08, Stats., the race-notice statute. Section 706.08 may establish the priority of the subsequent mortgage over the prior unrecorded lease, but only if the mortgagee is in good faith, i.e., had no knowledge of the prior lease. ⁹ See Bump v. Dahl, 26 Wis.2d 607, 612-13, 133 N.W.2d 295, 299 (1965).

A purchaser or mortgagee in good faith is one without notice of existing rights in land. Id. at 613, 133 N.W.2d at 299. Recording and public records are two sources of notice. The third is "the land itself, to discover by observation the rights which arise outside the recording system by virtue of possession or use." Kordecki v. Rizzo, 106 Wis.2d 713, 719 n. 5, 317 N.W.2d 479, 483 n. 5 (1982). (Citations omitted). Thus, a mortgagee may be chargeable with notice of a tenant's possession under a lease. ¹⁰ Miller v. Green, 264 Wis. 159, 163-64, 58 N.W.2d 704, 706-07 (1953); see also J. MacDonald & W. Raushenbush, Wisconsin Real Est. Law, sec. 13.05 at 13-2, 13-3 (1989). Whether De Pere Savings and Loan had actual or...