Molitor v. Advantage Cmty. Bank

• Decision Date: 06 December 2012
• Docket Number: No. 2012AP487.,2012AP487.
• Citation: 826 N.W.2d 123,345 Wis.2d 848,2013 WI App 13
• Parties: James E. MOLITOR and Beverly B. Molitor, Plaintiffs–Appellants, v. ADVANTAGE COMMUNITY BANK, Defendant–Respondent.
• Court: Wisconsin Court of Appeals

345 Wis.2d 848
826 N.W.2d 123
2013 WI App 13

James E. MOLITOR and Beverly B. Molitor, Plaintiffs–Appellants,
v.
ADVANTAGE COMMUNITY BANK, Defendant–Respondent.

No. 2012AP487.

Court of Appeals of Wisconsin.

Dec. 6, 2012.

Appeal from a Judgment of the Circuit Court for Clark County: Todd P. Wolf, Judge. Affirmed.
Before HIGGINBOTHAM, BLANCHARD and KLOPPENBURG, JJ.¶ 1KLOPPENBURG, J.

This case concerns the effects of a chapter 7 bankruptcy and the doctrine of accord and satisfaction in the context of one residential mortgage securing two different loans. James and Beverly Molitor appeal a circuit court order denying their claims seeking a declaration that the mortgage lien on the residential property was satisfied upon their having tendered to Advantage Community Bank (the Bank) a check for the outstanding balance on one of the loans. They contend that their reaffirmation of that first loan in bankruptcy eliminated the debt under the second loan so that no mortgage lien remained upon payment in full of the debt under the first loan. In addition, they argue that they satisfied the entire debt secured by the mortgage when the Bank accepted and cashed their check, under the doctrine of accord and satisfaction. We disagree and affirm the circuit court's denial of their claims.

BACKGROUND

¶ 2 James and Beverly Molitor owned and operated a restaurant, the Old Saloon, until it burned down in 2004. They opened a second restaurant, which we will refer to as the New Saloon, in 2001. Beverly and two Molitor children, Troy and Eve, created TEB, Inc., to be the owner and operator of the New Saloon. James owned the real estate where the New Saloon was located. The New Saloon ultimately closed. Various loans were taken out to finance the New Saloon, before James and Beverly declared bankruptcy in 2009. The following are documents related to these loans:

1. 2001 Personal Guaranty: In October 2001, James, Beverly and their children Troy and Eve each signed a continuing guaranty for all credit “past, present and future” to induce the predecessor to the Bank to extend credit to TEB, Inc.

2. 2001/2002 TEB Business Loan: In 2001/2002, the Bank loaned TEB, Inc. $508,614.12.

3. 2002 Real Estate Mortgage: In June 2002, James and Beverly executed a mortgage on the New Saloon property, which secured the 2001/2002 TEB Business Loan.

4. 2007 Personal Loan: In February 2007, the Bank loaned James and Beverly $15,000, identified as Loan No. 71533.

5. 2007 Real Estate Security Agreement (2007 RESA): In February 2007, James and Beverly executed a Real Estate Security Agreement, pursuant to which James and Beverly executed a mortgage and granted a lien on their residential property to secure the 2007 Personal Loan, and “to secure all debts, obligations and liabilities arising out of all credit previously granted, all credit contemporaneously granted and all credit granted in the future....”

6. 2008 TEB Business Loan: In May 2008, Advantage Community Bank renegotiated the 2001/2002 TEB Business loan for $405,357.45, identified as Loan No. 68390. The note for this loan was signed by Beverly, Troy, and Eve, as TEB, Inc. officers.

7. 2008 Personal Loan: In October 2008, James and Beverly renegotiated the 2007 Personal Loan for $14,311.02, which was secured by James and Beverly's residential property under the 2007 RESA.

8. 2008 Business Work–Out Agreement: In October 2008, James and Beverly signed a work-out agreement for the 2008 TEB Business Loan. This agreement noted that the 2008 TEB Business Loan was secured by the 2007 RESA (document number 5 above) on James and Beverly's residential property. Under this 2008 agreement, TEB, Inc. surrendered the New Saloon restaurant, restaurant property, and restaurant equipment to the Bank for $250,000, leaving approximately $150,000 due on the 2008 TEB Business Loan No. 68390; and James and Beverly were given three years to sell their residential property, with proceeds going first to pay off the note to a different bank holding the first mortgage on the property, second to pay off the 2008 Personal Loan, third to pay closing costs, and fourth to pay forty percent of any remaining proceeds to the Bank and sixty percent to James and Beverly.

9. 2009 Reaffirmation Agreement: In 2009, James and Beverly filed for chapter 7 bankruptcy. After filing, they executed a Reaffirmation Agreement, reaffirming the “home equity loan,” namely the 2007 Personal Loan renewed by the 2008 Personal Loan, for $14,280.15.¹ Paragraph 1.d. of the Reaffirmation Agreement provided that the “Real Estate Mortgage on 202 Poplar St.” remains “subject to such security interest or lien in connection with the debt or debts being reaffirmed”—the $14,280.15 debt.

¶ 3 In late 2008, the Bank sued Molitor children Troy and Eve seeking repayment of the balance due on the 2008 TEB Business Loan. The parties stipulated to a third-party appraisal of the restaurant and restaurant property, and to the children's payment to the Bank of the difference, if any, between the appraisal and the amount due on the 2008 TEB Business Loan if the appraisal came in below that loan amount. The appraisal came in above the loan amount, and the parties stipulated to dismissal of the suit. In November 2009, the court ordered the case dismissed based on the stipulation.

¶ 4 James and Beverly received their discharge in bankruptcy in August 2009.

¶ 5 In October 2009, James and Beverly's attorney wrote the Bank, asking for the Bank's position on the effect of the bankruptcy discharge. The letter stated that the work-out agreement that surrendered the restaurant created an unsecured obligation to pay forty percent of the sale of the home proceeds, which did not appear to have been reaffirmed in the bankruptcy. The letter concluded, “so it would appear that that obligation was discharged in the bankruptcy.”

¶ 6 In November 2009, the Bank responded by letter stating that the 2007 RESA (the document identified as number 5 in our summary above) securing the debt owed on the 2008 TEB Business Loan “passed intact through the bankruptcy,” and that the bankruptcy discharge did not impair the Bank's “perfected security interest in the Molitor home.... Additionally, the Bank retains its right to foreclose on its security interest, if necessary.”

¶ 7 In October 2010, James and Beverly received from the Bank a loan payoff calculation for Personal Loan No. 71533 in the amount of $13,544.50. On October 14, 2010, James and Beverly's attorney sent the Bank a letter entitled “Payoff of Mortgage and Recordable Satisfaction of Mortgage,” with a reference line of “Loan Account: 71533.” The letter enclosed a check for $13,544.50 on which was written “Mortgage Paid in Full.” The letter also stated that the Bank must “ ‘execute and record a proper and full satisfaction of mortgage” ’ within thirty days. Also enclosed was a check for $30 for the mortgage recording fee.

¶ 8 The Bank cashed the $13,544.50 check on October 15, 2010, and on October 18, 2010, returned the $30 check with a letter stating that the Bank had applied the $13,544.50 to the home equity loan and would not release the mortgage because it continued to secure the 2008 Business Work–Out Agreement.

¶ 9 James and Beverly commenced this action seeking to quiet title and a declaration that the mortgage lien on their residential property was satisfied upon their having tendered the check for the outstanding balance on the 2008 Personal Loan, No. 71533. They based their complaint on their claim that the 2008 TEB Business Loan, No. 68390, no longer existed after they had reaffirmed their debt with the Bank for $14,280.15 during the course of their bankruptcy.

¶ 10 The circuit court denied the Bank's motion to dismiss. In response to the Bank's subsequent summary judgment motion, the court ruled that James and Beverly's personal liability on the 2008 TEB Business Loan had been discharged in bankruptcy, but the Bank's security interest in the mortgage securing that loan survived the bankruptcy. The court also ruled that material issues of fact remained regarding whether payment of the check satisfied only the 2008 Personal Loan or the 2008 TEB Business Loan as well.

¶ 11 After a bench trial, the circuit court denied the claims, finding that: (1) the 2009 Reaffirmation Agreement did not address the debt created by the 2008 TEB Business Loan or rewrite the 2008 Business Work–Out Agreement, so that the payment by James and Beverly satisfied only the debt on the 2008 Personal Loan and not the debt on the 2008 TEB Business Loan, leaving the mortgage in place; (2) the payment by James and Beverly did not constitute an accord and satisfaction because there was no reasonable notice on the check that it was intended to satisfy the debt secured under the 2008 TEB Business Loan as well as the debt created under the 2008 Personal Loan; (3) claim preclusion and issue preclusion arising from the stipulation to settle the Bank's suit against the adult children did not apply because there was no final judgment on the merits and the issue was not actually litigated; and (4) there was no slander of title, judicial estoppel did not exist, and the joint debtor law did not apply. James and Beverly appealed the circuit court's first three findings. We affirm those findings for the reasons we explain below.

DISCUSSION

¶ 12 We first interpret the plain language of the 2009 Reaffirmation Agreement in light of the general rule that debts are discharged in bankruptcy but security interests typically survive discharge. Applying this rule to the plain language of the agreement, we conclude that only the 2008 Personal Loan secured by the residential mortgage was reaffirmed and the debt on the 2008 TEB Business Loan remained outstanding. Next, we determine that, in paying off the undisputed amount of that loan, James and Beverly could not avail themselves of accord and satisfaction relating to the 2008 TEB Business Loan secured by the residential mortgage. Finally,...