Hammel v. Ziegler Financing Corp.

• Decision Date: 22 April 1983
• Docket Number: No. 82-1216,82-1216
• Citation: 113 Wis.2d 73,334 N.W.2d 913
• Parties: , 36 UCC Rep.Serv. 1496 Richard J. HAMMEL, Plaintiff-Respondent, * v. ZIEGLER FINANCING CORPORATION, a domestic corporation, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

Page 913

334 N.W.2d 913

113 Wis.2d 73, 36 UCC Rep.Serv. 1496

Richard J. HAMMEL, Plaintiff-Respondent, ^* v. ZIEGLER FINANCING CORPORATION, a domestic corporation,

Defendant-Appellant.

No. 82-1216.

Court of Appeals of Wisconsin.

Submitted on Briefs Feb. 24, 1983.

Opinion Released April 22, 1983.

Opinion Filed April 22, 1983.

Stephen O'Meara of O'Meara, Eckert & Pouros, West Bend, for defendant-appellant; William D. Gehl, West Bend, of counsel.

Denny, Yanisch & Binder, Milwaukee, for plaintiff-respondent; William A. Denny and Terry J. Booth, Milwaukee, of counsel.

Before SCOTT, C.J., VOSS, P.J., and BROWN, J.

BROWN, Judge.

Ziegler Financing Corporation appeals from a summary judgment granted to Richard Hammel. The trial court ruled that Ziegler had charged usurious interest rates to Hammel from March 1980 to March 1981; the rate charged on a mortgage note executed by Hammel to Ziegler sometimes exceeded twelve percent during this period. Ziegler contends that the trial court erred in concluding that Wisconsin usury law, and not Missouri statutes, controlled the contractual relationship of the parties. The choice of law is relevant because Missouri law clearly permits rates greater than twelve percent. ¹ We conclude that Ziegler is correct and reverse.

On February 28, 1975, Ziegler sold Hammel a mobile home park located in Pettis County, Missouri. The parties, both residents of this state, executed a purchase money note for $430,000 and a Missouri deed of trust pledging the park as security. Each was effectuated in Wisconsin. The original note was due August 31, 1976. Hammel was unable to secure substitute financing as this date approached, and Ziegler agreed to extend the maturity date to February 28, 1977. When this next due date approached, Hammel requested that payment again be delayed, and Ziegler consented. In like manner, Ziegler subsequently granted several additional extensions, though the interest rate was sometimes altered. In March of 1980, the parties entered into what became the final modification agreement. The agreement made the outstanding sum payable on demand and tied the interest rate to the prime rate charged by a major Chicago bank. During the remainder of 1980 and until full payment in March 1981, Hammel was sometimes charged interest in excess of twelve percent under the terms of this final arrangement.

After paying the amount outstanding, Hammel sued Ziegler, seeking the return of interest paid during the months when the rate exceeded twelve percent. He alleged that under sec. 138.05(1)(a), Stats., ² the amounts collected during these months were usurious. The trial court agreed and granted summary judgment to Hammel.

Ziegler claims the trial court erred in ruling that the Wisconsin statute was applicable to the transaction. It contends that the parties selected Missouri law to control their contractual relationship when they included the following provision in the promissory note This Note is secured by a First Deed of Trust of even date herewith on property located in Pettis County, Missouri, and this Note and all documents given to secure its payment are to be construed according to the laws of the State of Missouri. [Emphasis added.]

Although it is not disputed that the parties to a contract may specify the state law which is to control, see First Wisconsin National Bank of Madison v. Nicolaou, 85 Wis.2d 393, 397-98 n. 1, 270 N.W.2d 582, 584-85 (Ct.App.1978), appeal dismissed, 87 Wis.2d 360, 274 N.W.2d 704 (1979), the trial court ruled that Hammel and Ziegler had not satisfactorily indicated a choice of Missouri law. Apparently, the trial court believed the use of the word "construed" evidences only an intention that Missouri law control mere contract construction. The court stated that had the parties wanted the Missouri statutes to regulate legal aspects of the transaction, including interest rate limits set by law, they could have said the documents were to be governed by the law of that state. We disagree with the trial court's analysis.

The purpose of contractual construction is to ascertain the true intention of the parties as expressed by the contractual language, rather than to put a trick interpretation or twist on one word. Langer v. Stegerwald Lumber Co., 259 Wis. 189, 192, 47 N.W.2d 734, 735 (1951). A reasonable meaning should be given to all provisions of an agreement so as not to render any part of the contract surplusage. Hastreiter v. Karau Buildings, Inc., 57 Wis.2d 746, 748, 205 N.W.2d 162, 163 (1973). We recognize that some courts have attached significance to the distinction drawn by the trial court. See, e.g., Boat Town U.S.A., Inc. v. Mercury Marine Division of Brunswick Corp., 364 So.2d 15, 17 (Fla.App.1978). We conclude, however, that the better reasoned cases are in accord with C.A. May Marine Supply Co. v. Brunswick Corp., 557 F.2d 1163 (5th Cir.1977) (adopting district court opinion).

In C.A. May, the issue was whether the Wisconsin Fair Dealership Law applied to a contract made by a Georgia dealer and a Wisconsin manufacturer. The "interpretation" section of the dealership contract stated:

This agreement and all of its provisions are to be interpreted and construed according to the laws of the State of Wisconsin.

Like this case, it was argued in C.A. May that the law of the state named in the contract did not control the rights and duties of the parties because the contract used the terms "interpreted or construed" instead of "governed." Although it recognized that the terms are technically distinguishable, the court concluded it was unlikely such a fine distinction was intended by the parties. C.A. May, 557 F.2d at 1165. The court said that it could "conceive of few circumstances where resort must be had to state law to determine the meaning of ambiguous terms, but not to impose state substantive law upon the parties." Id. The court also determined the definition of the word "construe" as meaning that the law of the state named in the contract controlled the entire relationship. Id.

C.A. May is persuasive reasoning. It is highly unlikely that the parties to this contract intended to make the distinction drawn by Hammel and the trial court. Common sense tells us that the process of construing an agreement includes, in addition to the definition of possible ambiguous terms, the application of the terms to the case in question. This application may require resort to extrinsic sources such as the substantive law. Thus, by indicating the law to be used in construing a contract, the parties effectively involve the substantive law of that state. Construction of a contract is, after all:

The process, or the art, of determining the sense, real meaning, or proper explanation of obscure or ambiguous terms or provisions in a statute, written instrument, or oral agreement, or the application of such subject to the case in question, by reasoning in the light derived from extraneous connected circumstances or laws or writings bearing upon the same or a connected matter, or by seeking and applying the probable aim and purpose of the provision. Drawing conclusions respecting subjects that lie beyond the direct expression of the term.

The process of bringing together and correlating a number of independent entities, so as to form a definite entity. [Emphasis added.]

Black's Law Dictionary 283 (5th ed. 1979).

We, like the court in C.A. May, can conceive of few instances where it would be reasonable to look to the law of a specific state to define contractual terms but to the law of a second jurisdiction to ascertain the legal effect of the agreement. Such a maneuver would be unreasonable because the meaning associated with a term by one jurisdiction might not mesh with the statutory and common-law scheme of another. The meaning given a word or phrase by the lawmakers of a particular jurisdiction is necessarily bound to the statutory and common law of that state. Because it is our function to ascertain the true intention of the parties by giving a reasonable meaning to all provisions of the agreement, we conclude that the Missouri usury law is applicable. Therefore, the amount collected for interest was not unlawful.

Even if Wisconsin law were applicable, and we have ruled it is not, the interest rate charged would still not be usurious. In our view, the extension granted Hammel in March 1980 falls within the parameters of sec. 138.05(7), Stats. This subsection provides that the interest rate limits of sec. 138.05(1) do not apply to certain "forbearances" by the creditor:

(7) This section does not apply to any loan or forbearance in the amount of $150,000 or more made after May 26, 1978 unless secured by an encumbrance on a one- to four-family dwelling which the borrower uses as his or her principal place of residence. [Emphasis added.] ³

The principal amount owed by Hammel always exceeded $150,000. By refraining from insisting on payment of the note when due, forbearance occurred here. The definition of forbearance means "nothing more, as between a debtor and a creditor, than an agreement by the creditor not to attempt collection of a debt for an agreed length of time." State v. J.C. Penney Co., 48 Wis.2d 125, 134, 179 N.W.2d 641, 645 (1970). Hammel points to this very definition in J.C. Penney as his...