Wilke v. First Federal Sav. and Loan Ass'n of Eau Claire

• Decision Date: 27 July 1982
• Docket Number: No. 81-1633,81-1633
• Citation: 323 N.W.2d 179,108 Wis.2d 650
• Parties: Gerald L. WILKE and Diane K. Wilke, James V. Swift and Dorothy V. Swift, on behalf of themselves and on behalf of all others similarly situated, Plaintiffs-Respondents, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF EAU CLAIRE, Defendant-Appellant. Denison L. WILLIAMS and Cherlon F. Williams, on behalf of themselves and on behalf of all others similarly situated, Plaintiffs-Respondents, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF EAU CLAIRE, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

Page 179

323 N.W.2d 179

108 Wis.2d 650

Gerald L. WILKE and Diane K. Wilke, James V. Swift and Dorothy V. Swift, on behalf of themselves and on behalf of all others similarly situated, Plaintiffs-Respondents, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF EAU CLAIRE,

Defendant-Appellant.

Denison L. WILLIAMS and Cherlon F. Williams, on behalf of

themselves and on behalf of all others similarly

situated, Plaintiffs-Respondents, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF EAU CLAIRE,

Defendant-Appellant.

No. 81-1633.

Court of Appeals of Wisconsin.

Submitted on Briefs May 6, 1982.

Opinion Released July 27, 1982.

Opinion Filed July 27, 1982.

John D. Hibbard, Donald R. Marjala and Hibbard, Proctor, Schrage & Marjala, Eau Claire, for defendant-appellant.

John A. Kaiser and Losby, Riley, Farr & Ward, Eau Claire, and James N. Youngerman and Montie & Youngerman, Madison, for plaintiffs-respondents.

Before FOLEY, P. J., and DEAN and CANE, JJ.

CANE, Judge.

The issue is whether the interest-escalation clause in the parties' notes allows a federal savings and loan association to increase the interest portion of each monthly payment, in effect, reamortizing the loan over a longer period without changing the monthly payment. The circuit court concluded it does not. We reverse.

The named borrowers brought these actions, consolidated by stipulation, for declaration of their rights. They sought to require First Federal Savings and Loan Association of Eau Claire (First Federal) to roll back the escalated interest on loans to themselves and similarly situated borrowers. Because summary judgment was granted only in favor of the named borrowers, the notes between First Federal and the other members of the proposed class are not before us on appeal.

At the time the named borrowers financed their homes, First Federal used a note with the following escalator clause:

The interest rate provided herein may be increased or decreased at the option of the Association, with a corresponding adjustment in the required monthly payment. However, the Association shall not increase the rate of interest until after three years from the date of this note, and then only upon at least four months' written notice to the Promisors and Mortgagors who may then repay the loan within such notice period without penalty.

Effective April 10, 1972, federal regulations codified at 12 C.F.R. § 541.14(a) provided:

Installment loan. The term 'installment loan' means any loan repayable in regular periodic payments sufficient to retire the debt, interest and principal, within the loan term. However, no required payment after the first payment shall be more, but may be less, than any preceding payment.

The named borrowers purchased homes with loans from First Federal, closing after April 10, 1972. The loans were amortized over twenty-five years, but the note stated that the loan should be "paid in full" within the time prescribed by law, which at that time was thirty years.

First Federal mailed notices in November, 1979, informing the borrowers of an increase effective April 1, 1980. First Federal collected a higher rate of interest by increasing the interest portion of each monthly payment. Since the principal payments were smaller each month, each loan was effectively extended over a term longer than twenty-five years. The adjustment did not cause any of the loans to extend beyond thirty years, however.

The trial court interpreted the escalator clause to allow increases or decreases only by changing the amount of the total monthly payment. Since federal regulation prohibited raising the monthly payment, the circuit court's interpretation left First Federal with no way to increase the interest rate on the named borrowers' loans.

The named borrowers assert the increase in payment to be the only method of imposing a rate increase permitted by the clear and unambiguous language of the note. If the note is found ambiguous, they contend that the ambiguity should be construed against the drafter, First Federal. First Federal argues that the escalation clause in its note is not ambiguous, but is flexible, permitting it to effect increases in the interest rate by adjusting the proportion of interest to principal in each monthly payment and extending the term or by raising the monthly payment.

The circuit court did not think the escalation clause was ambiguous and, apparently, neither did the parties arguing the motion for summary judgment, though they could not agree on its unambiguous effect. Ambiguity exists when a statute or contract "is capable of being understood by reasonably well-informed persons in either of two or more senses." Security Savings & Loan Association v. Wauwatosa Colony, Inc., 71 Wis.2d 174, 179, 237 N.W.2d 729, 732 (1976). A clause is not ambiguous, however, merely because its language is general enough to encompass more than one option. Broad terms may be used to permit flexibility in the choice of methods available without creating an ambiguity. The term "corresponding adjustment in the required monthly payment" is an example. The interpretation advanced by named borrowers, though reasonable, does not preclude application of the interpretation advanced by First Federal.

There is more than one way to make a "corresponding adjustment in the required monthly payment." It may refer to a change in the total amount of the payment, as the named borrowers argue. It could mean reamortizing the loan over a longer period so that a greater portion of the present payments would be allocated to interest. It could also mean reamortizing with the intent to collect only the number of payments that the...