Jackson v. DeWitt

• Court: Wisconsin Court of Appeals
• Writing for the Court: ANDERSON
• Citation: Jackson v. DeWitt, 592 N.W.2d 262, 224 Wis.2d 877 (Wis. App. 1999)
• Decision Date: 24 February 1999
• Docket Number: No. 98-0493,98-0493
• Parties: Michael JACKSON, Plaintiff-Appellant, v. James DeWITT, d/b/a Pure Water Unlimited, and Kathleen M. DeWitt, Defendants, Associates Financial Services Company of Wisconsin, Inc., Defendant-Respondent.

Page 262

592 N.W.2d 262

224 Wis.2d 877

Michael JACKSON, Plaintiff-Appellant, v. James DeWITT, d/b/a Pure Water Unlimited, and Kathleen M DeWitt, Defendants Associates Financial Services Company of Wisconsin, Inc. Defendant-Respondent.

No. 98-0493.

Court of Appeals of Wisconsin.

Submitted on Briefs Oct. 21, 1998.

Opinion Released Feb. 24, 1999.

Opinion Filed Feb. 24, 1999.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Scott V. Lowry of Waukesha.

On behalf of the defendant-respondent, the cause was submitted on the brief of Kathryn M. West and Elizabeth M. Estes of Whyte Hirschboeck Dudek S.C. of Milwaukee.

Before SNYDER, P.J., BROWN and ANDERSON, JJ.

ANDERSON, J.

Michael Jackson appeals from the order of the circuit court dismissing his action against Associates Financial Services Company of Wisconsin, Inc. (Associates). The court held that the home improvement contract he made with James DeWitt, who assigned his interest to Associates, was not a negotiable instrument and Jackson could not seek relief under WIS. ADM.CODE § ATCP 110.06. The court also held that because Jackson had paid the entire balance of the loan before Associates became aware of his claims, he was foreclosed from seeking relief under § 422.408, S TATS. We reverse because § ATCP 110.06 provides that any assignee of a home improvement contract takes subject to the claims and defenses of the consumer without regard to negotiability. In addition, § 422.408 is not a safe harbor for the assignee or holder of an "interlocking consumer loan" when that loan is also a "home improvement contract."

Jackson entered into a contract for the construction of an in-ground lap pool with DeWitt. The contract provided for a 12' X 60' pool at an estimated cost of $21,000. At the time the contract was signed, Jackson paid DeWitt $11,400 in cash and financed $7500 through a Retail Installment Security Agreement (RISA). Associates provided DeWitt with all the forms necessary to document the financing of home improvements. Consumer requests for financing were subject to Associates' approval, which was given for Jackson's lap pool. When the RISA was completed DeWitt assigned it to Associates. Jackson made two monthly payments of $202.90 and a final payment of $7094.20 while the lap pool was still under construction. When the pool was filled it failed to hold water and Jackson had the pool and deck removed.

Approximately ten months after making the final payment under the RISA, Jackson started this action against DeWitt and Associates. Jackson pled two causes of action solely against DeWitt--first, a breach of contract and second, a violation of WIS. ADM.CODE ch. ATCP 110. He also pled two causes of action against Associates and DeWitt jointly. First, he sought a declaratory judgment that the RISA was void as contrary to law and public policy. Second, he alleged that Associates violated ch. ATCP 110 and he asserted "against Associates Financial Services Company of Wisconsin, Inc. all of the valid claims and defenses it [the plaintiff] has against James DeWitt ." For relief against Associates, Jackson sought return of the $7500 he had financed.

Associates and Jackson filed competing motions for summary judgment. Associates sought summary judgment on the grounds that because the loan was paid in full before Jackson had knowledge that the pool was defective, it had no liability under the Wisconsin Consumer Act (WCA). Associates also sought dismissal of the claim that it violated WIS. ADM.CODE § ATCP 110.06 because the RISA was not a negotiable instrument. Jackson's competing motion for summary judgment contended that he was not limited to the remedies provided in the WCA; rather, he could select his remedies and had chosen the remedies provided by § ATCP 110.06.

The circuit court granted summary judgment to Associates. The circuit court held that the RISA was an "interlocking consumer loan" under § 422.408, STATS.; that Associates' liability was limited to the balance due at the time Associates had notice of claim against DeWitt; and, because Jackson had paid the amount due in full before learning of any claim against DeWitt, Associates was not liable to Jackson. The circuit court denied Jackson's competing motion for summary judgment. The court reasoned that the RISA was not a negotiable instrument; therefore, Jackson could not state a cause of action under WIS. ADM.CODE § ATCP 110.06.

This court's review of the circuit court's grant of summary judgment is de novo, applying the same summary judgment methodology of § 802.08, STATS. See Millers Nat'l Ins. Co. v. City of Milwaukee, 184 Wis.2d 155, 164, 516 N.W.2d 376, 378 (1994). Additionally, both parties moved for summary judgment which is equivalent to a stipulation of facts, thus permitting the circuit court to decide the case only on legal issues. See Flynn v. Department of Admin., 216 Wis.2d 521, 533, 576 N.W.2d 245, 250 (1998).

On appeal, Jackson makes alternative arguments. First, he argues for an in pari materia treatment of WIS. ADM.CODE § ATCP 110.06 and § 422.408, STATS. Jackson contends that these two provisions have an underlying theme--the protection of the consumer. Because of this theme, Jackson believes these provisions must be construed to accomplish the common purpose. He reads § 422.408 as limiting a consumer's remedies to the unpaid balance of the "interlocking consumer loan" to cases where the consumer seeks relief under the statute. He reads § ATCP 110.06 as encompassing all home improvement contracts, including "interlocking consumer loans" and providing a consumer with a greater variety of remedies. Finally, he maintains that the consumer who has a home improvement contract that is also an "interlocking consumer loan" has the choice of proceeding under the statute or the administrative code.

In the alternative, Jackson disputes the circuit court's conclusion that the RISA was not a negotiable instrument. His first proposition is that the fact that DeWitt assigned the RISA to Associates is proof that it is a negotiable instrument. His second proposition is that although the Uniform Commercial Code (U.C.C.) does not apply to consumer transactions, it may be looked to for guidance, and the RISA carries all the indicia of a negotiable instrument.

This appeal requires an interpretation of the interplay of the WCA and an administrative rule promulgated by the Department of Agriculture, Trade and Consumer Protection. Section 422.408, STATS., regulates "interlocking consumer loans" and provides in pertinent parts (1) The lender in an interlocking consumer loan is subject to the claims and defenses the consumer may have against the seller or lessor in the consumer transaction for which the proceeds of the loan are used, subject to sub. (3).

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(3) For purposes of this section, a consumer loan transaction is an "interlocking consumer loan" if the creditor knows or has reason to know that all or a meaningful part of the proceeds of the loan are used to pay all or part of the customer's obligations to the seller or lessor under a consumer sale or lease, and if:

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(b) The lender supplies to the seller or lessor, or the seller or lessor prepares, documents used to evidence the loan, other than sales slips or drafts used to evidence purchases pursuant to an open-end credit plan;

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(4) To the extent that a lender under an interlocking consumer loan is subject to claims or defenses of the customer against a merchant under this section, the lender's liability is limited to claims or defenses arising from the consumer transaction financed by the proceeds of the loan, and may not exceed that portion of the unpaid balance of the loan at the time the lender has notice of the claim or defense, which the proceeds used to pay all or part of the customer's obligation on which the claim is based bears to the entire amount financed of the loan, unless the customer has obtained a judgment against the merchant and execution thereon has been returned unsatisfied, in which event the lender shall in addition be liable in a similar manner for the proportionate amount paid by the customer to the lender with respect to the interlocking consumer loan before the lender received notice of the claim or defense of the customer.

WISCONSIN ADM.CODE § ATCP 110.06, governs home improvement contracts and provides:

(1) Every assignee of a home improvement contract takes subject to all claims and defenses of the buyer or successors in interest.

(2) No seller shall enter into any home improvement contract wherein the buyer waives the right to assert against the seller or any assignee any claim or defense the buyer may have against the seller under the contract.

(3) No seller shall use any promissory note or instrument, other than a check, in connection to a home improvement contract unless it bears the following statement in contrasting bold-face type: "This is a home improvement instrument and is non-negotiable. Every holder takes subject to claims and defenses of the maker or obligor."

(4) Every holder or transferee of a negotiable instrument executed in violation of this section, who knew or should have known at the time the document was acquired that it was made to evidence an obligation for home improvements, or who knew or should have known that the payee or transferor was engaged in the home improvement business, takes subject to all claims and defenses of the maker or obligor.

(5) Claims and defenses of any buyer against an assignee or transferee under the contract shall be limited to the total amount for which the buyer was obligated at the time of entering into the contract.

In holding that the RISA was not a negotiable instrument, the circuit court adopted the brief filed by Associates. Associates contends the RISA does not fall under the purview of WIS. ADM.CODE § ATCP 110.06 because the application of § ATCP 110.06(4) is limited to a "holder or transferee of a...