Kafka v. Pope

• Decision Date: 26 June 1995
• Docket Number: No. 94-0098,94-0098
• Citation: 194 Wis.2d 234,533 N.W.2d 491
• Parties: Joseph J. KAFKA, Plaintiff-Appellant, v. James W. POPE and Rosanne Pope, Defendants-Respondents-Petitioners, M & I Northern Bank, First Financial Bank, F.S.B. and Chase Manhattan Leasing Corp., Defendants-Respondents.
• Court: Wisconsin Supreme Court

Page 491

533 N.W.2d 491

194 Wis.2d 234

Joseph J. KAFKA, Plaintiff-Appellant, v. James W. POPE and Rosanne Pope, Defendants-Respondents-Petitioners M & I Northern Bank, First Financial Bank, F.S.B. and Chase Manhattan Leasing Corp., Defendants-Respondents.

No. 94-0098.

Supreme Court of Wisconsin.

Argued May 25, 1995.

Decided June 26, 1995.

For the defendants-respondents-petitioners there were briefs by Timothy V. Langer and Haight, Fabyan & Langer, S.C., Hartland and oral argument by Timothy V. Langer.

For the plaintiff-appellant there was a brief by Gerald J. Mayhew and Trebon & Mayhew, Milwaukee and oral argument by Gerald J. Mayhew.

WILCOX, Justice.

This case involves review of a published decision of the court of appeals, Kafka v. Pope, 186 Wis.2d 472, 521 N.W.2d 174 (Ct.App.1994), reversing an order of the circuit court for Waukesha County, Robert G. Mawdsley, Circuit Judge. Joseph J. Kafka brought suit against James W. Pope, et al. (Pope) demanding contribution and/or subrogation rights for monies paid by Kafka in satisfying a corporate debt. The circuit court granted Pope's summary judgment request to dismiss the complaint against him. The court of appeals reversed, holding that a guarantor may be entitled to contribution from another guarantor, even though their guaranties are evidenced by separate instruments, so long as the underlying debt for which they are liable is the same. Id. at 473, 521 N.W.2d at 175.

The question we consider on review is whether an action for contribution is available to a co-guarantor when that person has paid more than his fair share of a common obligation, even though the guaranties are evidenced by separate instruments. We conclude that such an action may be maintained. We further conclude that a material issue of fact exists as to whether Kafka paid an unfair share of a common obligation and, as such, affirm the decision of court of appeals and remand the case for further proceedings. ¹

The relevant facts necessary for a resolution of the issue before us are not in dispute. Petitioner Kafka was a majority shareholder and officer of Wisconsin Truck Center, Inc. (WTC), a corporation involved in trucking concerns. Respondent Pope was a minority shareholder and officer of WTC. On May 14, 1986, WTC executed three promissory notes payable to M & I Northern Bank (M & I) totalling $650,000.00. Both Kafka and Pope executed separate personal guaranties for the notes. The personal guaranties were secured by mortgages on real property owned by each person. ²

The notes subsequently were extended, modified, and renewed. In the meantime, WTC began experiencing cash flow problems and was unable to meet its payments on the three promissory notes. As expected, M & I took action to recover the money loaned to WTC. In separate actions, M & I foreclosed on two mortgages given by Kafka, and the proceeds from those properties were applied to the principal owed by WTC. At the time the complaint was filed herein, Kafka had paid $200,000.00 of his personal funds toward the amounts due on the notes, and Pope had paid nothing. ³

On March 17, 1993, Kafka filed a complaint against Pope asserting, among other things: (1) "[b]y virtue of the Guaranties executed, Kafka and Pope are each obligated to pay one-half of the total amount of debt which was not paid by WTC on the Notes. Kafka had paid more than one-half and, accordingly, is entitled to judgment for contribution from Pope;" and (2) "according to the law of restitution and equity, Kafka, having paid more than his fair share of the amount due on the Notes, is subrogated to M & I's mortgage lien rights against the Property under the Pope Mortgage to the extent of said excess payments." Pope responded that Kafka's claims of contribution and/or subrogation were meritless and, in any event, because of Pope's bankruptcy "any obligation to [Kafka] has been discharged." ⁴

Pope brought a summary judgment motion asking the circuit court to dismiss the lawsuit brought against him. On October 20, 1993, the circuit court issued a written decision granting Pope's summary judgment request. As to the contribution claim, the court concluded that Kafka and Pope "are parties to separate contracts/guaranties with M & I" and, therefore, "neither has a cause of action for contribution against the other on the grounds of paying more than his fair share." The court then concluded that Kafka's subrogation claim also must be dismissed because Pope was not "unjustly enriched" by Kafka's payments on the WTC notes since "[he] was merely paying off the debt he contracted to guarantee [sic]." Kafka appealed and the court of appeals, addressing only the contribution claim, reversed the circuit court. The appellate court, looking to "principles of equity and natural justice," concluded:

Thus, it is apparent that while the trial court looked to contract principles to resolve the issue, contribution, at its root, is an equity principle. It is founded upon the relationship between persons paying a "just proportion," not upon express contract. The trial court treated the question as one of contract law; it more precisely should have been acting in equity.

Kafka, 186 Wis.2d at 475-76, 521 N.W.2d at 176. Consequently, the court held that "[a]s a matter of equity, both should be equally liable." Id. at 476, 521 N.W.2d at 176. Pope petitioned for review which we accepted on November 16, 1994.

Procedurally, this case is before the court on a motion for summary judgment. This court reviews a grant or denial of summary judgment de novo, applying the standards set forth in sec. 802.08(2), STATS., in the same way as the circuit court applies them. Sprangers v. Greatway Ins. Co., 182 Wis.2d 521, 531, 514 N.W.2d 1, 4 (1994); Voss v. City of Middleton, 162 Wis.2d 737, 748, 470 N.W.2d 625, 629 (1991). A motion for summary judgment is intended to discover whether there is any issue of fact which entitles the plaintiff to a determination thereof by a trial. Grams v. Boss, 97 Wis.2d 332, 338, 294 N.W.2d 473, 477 (1980); Fredrickson v. Kabat, 260 Wis. 201, 204, 50 N.W.2d 381, 382 (1951). Where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law, summary judgment shall be granted in favor of the moving party. Home Ins. Co. v. Phillips, 175 Wis.2d 104, 110, 499 N.W.2d 193, 196 (Ct.App.1993). As noted in Fredrickson, however, "[s]ummary judgment should be granted only when it is perfectly plain that there is no substantial issue to be tried." Fredrickson, 260 Wis. at 204, 50 N.W.2d at 383. At this point in the proceedings, there is no dispute as to the relevant facts and, therefore, the case turns on a resolution of the question of law.

The underlying action in this case sounds in contract. As noted above, M & I brought an action against Kafka, based on the personal guaranty, seeking monetary reimbursement for the loans extended to WTC. Pope argues that because "[t]he doctrine of contribution is an action in tort, ... [it] is inapplicable to a contract action." Pope's argument, however, misconstrues the nature of the doctrine of contribution.

In State Farm Mutual Automobile Ins. Co. v. Schara, 56 Wis.2d 262, 264, 201 N.W.2d 758, 759 (1972), this court noted that "a cause of action for contribution is separate and distinct from the underlying cause of action whether that underlying cause sounds in contract or in tort." The Schara court explained:

The nature of the newly accrued cause of action is not dependent on whether the obligation discharged resulted from contract or tort. The cause of action that accrues depends not one whit upon the nature of the origin of liability. It is enough that joint liability from whatever source exist.

....

All contribution claims have in common the characteristic that the party having a right against another also liable has discharged more than his share of the liability. It is the bearing of a greater share of a common liability than is justified, and not the source of the underlying liability, that characterizes a cause of action for contribution.

Id. at 266, 201 N.W.2d at 760. See also Wait v. Pierce, 191 Wis. 202, 226, 210 N.W. 822, 823 (1926) ("Whether the common obligation be imposed by contract or grows out of a tort, the thing that gives rise to the right of contribution is that one of the common obligors has discharged more than his fair equitable share of the common liability."); Bushnell v. Bushnell, 77 Wis. 435, 438, 46 N.W. 442, 443 (1890) (Contribution "is a legal action to recover money paid to the use of the defendant, and stands upon the same footing as any other action founded upon an implied contract.").

Accordingly, the case law makes clear that an action for contribution does not fall merely because the underlying action is one of contract. Rather, instead of looking to the nature of the underlying transaction, the question is simply whether one person jointly liable paid more than his fair share for a common obligation. Thus, despite Pope's assertions to the contrary, Kafka's action for contribution does not fail because the original action was based on a breach of contract. ⁵

A right to contribution may be based on an express contract between the parties. ⁶ It may also arise by operation of law to rectify an inequity resulting when a co-obligor pays more than a fair share of a common obligation. In the latter instance, the contract is implied by law. Schara, 56 Wis.2d at 267, 201 N.W.2d at 760-61. When no express agreement confers a right of contribution, a party's right to seek contribution against another is premised on two conditions: (1) the parties must be liable for the same obligation; and (2) the party seeking contribution must have paid more than a fair share of the obligation. See Wait, 191 Wis. at 226, 210 N.W. at 823 (determining that what gives rise to the right of contribution is that one co-obligor has discharged more than his fair equitable...