Security Sav. and Loan Ass'n v. Wauwatosa Colony, Inc., 596

• Citation: 71 Wis.2d 174,237 N.W.2d 729
• Decision Date: 24 November 1975
• Docket Number: No. 596,596
• Parties: SECURITY SAVINGS AND LOAN ASSOCIATION, Appellant, v. WAUWATOSA COLONY, INC., and James L. Callan, Inc., Respondents. (1974). . Oral Argument
• Court: United States State Supreme Court of Wisconsin

Page 729

237 N.W.2d 729

71 Wis.2d 174

SECURITY SAVINGS AND LOAN ASSOCIATION, Appellant, v. WAUWATOSA COLONY, INC., and James L. Callan, Inc., Respondents.

No. 596 (1974).

Supreme Court of Wisconsin.

Oral Argument Nov. 24, 1975.

Feb. 3, 1976.

Briefs by: Schoendorf & Schoendorf, Milwaukee, argued by: Joseph F. Schoendorf, Milwaukee, for appellant.

Brief by: Charles L. Goldberg and Francis X. Krembs, Milwaukee, argued by: Francis X. Krembs, Milwaukee, for respondents.

CONNOR T. HANSEN, Justice.

For the purposes of this appeal, the plaintiff will be identified as 'Security' and the defendants as 'Callan.'

On July 31, 1962, Callan executed a mortgage note with Sherman Savings and Loan, the predecessor of plaintiff-Security Savings, in the amount of $114,000. Callan is engaged in the real estate business. He had entered into a number of similar business transactions with Sherman Savings, but has done no business with Security, with the apparent exception of matters relating to obligations outstanding at the time Security took over Sherman Savings.

The mortgage note contains the following clause in paragraph one:

'. . . The rate of interest stipulated herein may be increased at the option of the Association; provided, however, that the Association may not exercise such right in less than 3 years from the date of the loan, and then only upon at least four months' written notice to the borrower; and provided that in the event of such an increase in the stipulated rate of interest the borrower may prepay the loan within such notice period without penalty.'

Pursuant to that clause, Security increased the rate of interest on the mortgage note from 5 1/2 percent to 7 1/2 percent on June 28, 1968, and from 7 1/2 percent to 8 1/2 percent on May 28, 1970.

On February 10, 1971, Callan's mortgage account passbook showed a remaining balance of $40,605.55. On February 19, 1971, Security Savings advanced $1,604.91 to defendant for payment of real estate taxes. By check dated February 24, 1971, Callan attempted to pay the balance owing by presentation to Security of a check bearing the notation 'mortgage principal balance in full,' in the amount of $40,605.55.

Security returned the check because allegedly insufficient to constitute payment in full of the principal indebtedness which included additional interest and moneys advanced for tax payments. The partial payment of real estate taxes advanced by Security had been added to the principal indebtedness as provided in the mortgage contract.

On March 12, 1971, Callan paid Security the amount of the tax advance. On May 26, 1971, the original check was again presented to Security and again rejected for the same reasons previously given.

The particular determinations of the trial court which are pertinent to this appeal are: (1) Security could not increase the interest rate more than once during the mortgage term, and (2) the facts relating to the presentation of the check by Callan were such that it constitutes prepayment of the loan.

Specifically, we preceive the two issues presented for determination by this court to be:

1. Was the plaintiff prohibited by the terms of the mortgage note from increasing the interest thereon more than once?

2. Was the accrual of interest on the balance due on the mortgage note terminated by defendant's presentation to plaintiff on February 26, 1971, of a check in the amount of $40,605.55?

INTEREST ESCALATOR CLAUSE.

Callan argues that the increase in interest rate which took place on November 1, 1968, exhausted Security's right to invoke the escalator clause. The trial court found, as contended by Callan, that the plain meaning of the escalator clause denoted contemplation of a single-time use, and that had the possibility of multiple uses been intended, it would have been easy to use terminology indicating such intent.

Security contends that this determination was erroneous because the terms of the disputed clause must be construed in connection with the statutory section governing escalator clauses in mortgages held by savings and loan associations. Section 215.21(3)(b), Stats., provides:

'(b) The mortgage or mortgage note may provide that the interest rate may be increased after 3 years from the date thereof, by giving to the borrower at least 4 months' notice of such intention. The borrower may, after receipt of such notice, repay his loan within the time specified in such notice without the payment of any penalty.'

The composition and powers of savings and loan associations are governed by the provisions of ch. 215, ss. 215.01 et seq., Stats. Because there is a specific provision within that chapter dealing with the power to escalate interest rates during the term of the mortgage, the construction of the statute is dispositive of the questions relating to the power of Security to invoke the escalator clause contained in the mortgage here in dispute. It is manifestly clear that by including the escalator clause in the mortgage contract, the parties were doing so pursuant to the statute.

This type of association existed at common law and possessed common-law rights. De Fazio v. Haven Savings and Loan Association (1956), 22 N.J. 511, 126 A.2d 639. Therefore, it must be resolved whether the statute is subject to the strict construction applicable to statutes in derogation of common-law rights.

Generally, statutes restraining the freedom of contract have been considered subject to these rules. 82 C.J.S. Statutes § 393, p. 942. However, comprehensive legislation dealing with these associations, having common-law rights, is regulatory, placing limits on those rights, rather than enabling, or conferring power or authority on the association. Julien v. model B., L. & I. Assoce. (1902), 116 Wis. 79, 89, 90, 92 N.W. 561. In this context, the rule of strict construction has its limits:

'. . . An exception to the rule of strict construction is customarily made in the case of a statute which purports to provide a complete system of law covering all aspects of the subject with which it deals, so as to supersede all prior law on the subject, whether common or statutory law. . . .

'. . .

'. . . Modern regulatory legislation, moreover, is generally regarded as a newly conceived system of legal arrangements to deal with newly emergent problems in society, entitled to liberal construction because of its remedial character and not subject to the rule of strict construction of statutes in derogation of the common law because its genesis and conception are wholly outside and apart from any common law frame of reference. . . .' Sutherland, Statutory Construction (4th ed., 1974), Statutes in Derogation of the Common Law: Limitations on the rule, pp. 51, 52, sec. 61.03.

The law of this state is in accord with this proposition. Heiden v. Milwaukee (1937), 226 Wis. 92, 100, 101, 275 N.W. 922, and Schumacher v. Milwaukee (1932), 209 Wis. 43, 46, 243 N.W. 756. Therefore, normal rules of statuory construction are applicable to the instant provision.

Amidzich v. Charter Oak Fire Ins. Co. (1969), 44 Wis.2d 45, 51, 170 N.W.2d 813, 816, stated:

'. . . When a plain meaning of a word of a statute or contract is apparent, we need not resort to either construction or case law to bolster our recognition of that plain meaning. . . .'

Are the terms of the statute and mortgage so plain and clear as to preclude the necessity for construction?

In Madison Metropolitan Sewerage Dist. v. DNR (1974), 63 Wis.2d 175, 179, 216 N.W.2d 533, 535, the following rule was restated:

'. . . The test of ambiguity has been consistently stated: "'A statute or portion thereof is ambiguous when it is capable of being understood by reasonably well-informed persons in either of two or more senses.""

We are of the opinion this statutory provision is ambiguous in that it is 'capable of being understood by reasonably well-informed persons in either of two or more senses.'

In Ortman v. Jensen & Johnson, Inc. (1975), 66 Wis.2d 508, 520, 225 N.W.2d 635, 642, it was stated:

'This court has held that where a statute is ambiguous, this court must ascertain the legislative intention as disclosed by the language of the statute in relation to its scope, history, context, subject matter and the object intended to be remedied or accomplished. Wisconsin Southern Gas Co. v. Public Serv. Comm. (1973), 57 Wis.2d 643, 205 N.W.2d 403. The object to be accomplished by a statute must be given great weight in determining legislative intent. Town of Menominee v. Skubitz (1972), 53 Wis.2d 430, 192 N.W.2d 887. . . .'

The considerations mandated by Ortman, supra, necessitate review of the various policy arguments. The court in Bruce v. Blalock (1962), 241 S.C. 155, 163, 127 S.E.2d 439, 443, in construing the terms of a contract setting utility rates, described the purpose of escalator clauses:

'The provision . . . is known in law as an 'escalator clause'. The Courts have recognized the necessity for such a clause because of the sharply inflationary and changing economic conditions prevailing in this country for the past several years. As a means of coping with such changing economic conditions, with resultant price variations, many contracts fix a base price but contain a provision whereby the seller may raise such price. The necessity for this type clause was brought about because of long ferm contracts when the parties thereto could not anticipate all price factors which might occur during the existence of the said contract. . . .'

The concerns there expressed are equally applicable to the necessity for interest adjustments in mortgage loans, and have been recognized as such. See: Comment, The Variable Interest Rate Clause and Its Use in California Real Estate Transactions, 19 U.C.L.A.Law.Rev. 468 (1971--72), which notes that '(w) hen the effects of the recent inflationary period adversely limited the supply of funds for residential homebuilding, savings and loan institutions attempted to use ....