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									                      Wisconsin supreme Court addresses
                   Guarantor Liability after Waiver of Deficiency
                                                                                                                     by Daniel W. Gentges
                                                                                                              Whyte Hirshboeck Dudek S.C.

1. synopsis: Waive the deficiency                      statute therefore allows lenders to take    Boyer Construction under section
in Wisconsin, when you have a                          advantage of the shortened redemption       846.103(2).
guarantor on the hook.                                 period with respect to Wisconsin mort-
On July 9, 2010, the Wisconsin Supreme                 gagors without losing the right to pursue   Section 846.103(2) permits a shortened
Court held that a mortgagee who elects to              guarantors of the mortgage debt.            redemption period of three months with
foreclose a mortgage using a shortened                                                             respect to most commercial properties,
redemption period does not forfeit the                 2. Factual and Procedure                    provided the mortgagee waives its right
right to obtain a judgment against a guar-             background of boyer                         to claim a deficiency against the mort-
antor of the underlying mortgage debt. In              construction.                               gagor. Section 846.103(2) states in per-
Bank Mutual v. S.J. Boyer Construction,                The background facts in Boyer               tinent part that:
Inc.,1 the court concluded that guaran-                Construction are straight forward. In
tors of payment are not members of the                 February 2000, Steven and Marcy Boyer             [i]f the mortgagor of real property
class of persons against whom a mort-                  (the Boyers) executed a Continuing                other than a one- to 4-family resi-
gagee must waive a deficiency judgment                 Guaranty (Unlimited) to First Northern            dence that is owner-occupied… a
when electing the shortened redemption                 Savings Bank (n/k/a Bank Mutual) (the             farm, a church or a tax-exempt
period under Section 846.103(2) of the                 Bank). The Boyers’ guaranty was joint             nonprofit charitable organization
Wisconsin Statutes 2, because guaran-                  and several, and was an unlimited guar-           has agreed in writing at the time
tors are not “personally liable for the                anty of payment and not of collection.            of execution of the mortgage to
debt secured by the mortgage [being                    Between 2003 and 2005, the Boyers’                the provisions of this section, the
foreclosed].”3                                         company, S.J. Boyer Construction, Inc.            plaintiff in a foreclosure action
                                                       (Boyer Construction), executed sev-               of a mortgage,… , may elect by
The court concluded that the phrase “per-              eral business notes to the Bank, total-           express allegation in the com-
sonally liable for the debt” in the defi-              ing approximately $1.4 million. The               plaint to waive judgment for any
ciency statute is a term of art that must              notes were made in connection with                deficiency… against every party
be given its legal meaning. The court                  business loans from the Bank to Boyer             who is personally liable for the
consequently held that the phrasing of                 Construction. The loans were secured              debt secured by the mortgage…
the deficiency statute distinguishes the               by several mortgages against properties           When the plaintiff so elects, judg-
personal liability of a mortgage loan bor-             owned by Boyer Construction.                      ment shall be entered as provided
rower from the liability of a guarantor of                                                               in [chapter 846], except that no
the mortgage loan, because the guaran-                 Boyer Construction ultimately                     judgment for deficiency may be
tor’s liability arises not from the mort-              defaulted on the notes, and the Bank              ordered nor separately rendered
gage debt but from a separate contractual              initiated a lawsuit to recover against            against any party who is person-
obligation—the guaranty.4 The court’s                  Boyer Construction and the Boyers in              ally liable for the debt secured by
clarification of Wisconsin’s deficiency                February 2007. The bank’s complaint               the mortgage and the sale of the
                                                       included five counts of foreclosure               mortgaged premises shall be made
    2010 WI 74.                                        with respect to the properties secured            upon the expiration of 3 months
    Textual references to the Wisconsin Statutes are   by Boyer Construction’s mortgages                 from the date when [the foreclo-
    hereafter indicated as “chapter xxx” or “sec-      and a separate claim directly against             sure] judgment is entered.5
    tion xxx.xx,” without the designation “of the
    Wisconsin Statutes.”                               the Boyers on their guaranty. For each
    Wis. Stat. § 846.103(2).                           foreclosure claim, the Bank waived any      5
                                                                                                       Id. ¶ 30 (quoting Wis. Stat. § 846.103(2)) (empha-
    Boyer Constr., 2010 WI 74, ¶ 3.                    claim for deficiency judgment against           sis added).

                                                            The absTracT    7   Fall 2010
Boyer Construction and Steven Boyer          all parties “personally liable” for the                 it from seeking a deficiency judgment
answered the Bank’s complaint, admit-        mortgage debt.7 Boyer Construction                      against the Boyers on their guaranty.
ting most of the allegations but denying     and the Boyers then appealed.                           The court rejected the Bank’s argu-
Steven’s liability under the guaranty.                                                               ment that the Boyers’ guaranty liabil-
Marcy Boyer did not answer the com-          The Wisconsin Court of Appeals                          ity was separate from the underlying
plaint. The Bank moved for summary           reversed the circuit court’s decisions                  mortgage debt. The court also rejected
judgment against Steven and Boyer            in a unanimous, published opinion.8                     the Bank’s argument that restricting its
Construction, and for default judgment       The court looked to the text of section                 right to deficiency was inappropriate in
against Marcy. The circuit court granted     846.103(2) and observed that nothing                    this instance because the Bank could
both motions and ultimately entered          in the statutory language explicitly                    have proceeded separately and directly
judgments against the Boyers person-         excluded guarantors from those “per-                    against the Boyers without foreclos-
ally in an amount in excess of $1.4          sonally liable for the debt secured by                  ing the Boyer Construction mortgages.
million. The circuit court also entered      the mortgage.”9                                         The Bank then petitioned the Wisconsin
foreclosure judgments on the properties                                                              Supreme Court for review, which the
owned by Boyer Construction, order-          The court of appeals then examined                      court granted in August 2009.
ing that the properties be sold. The         whether the Boyers’ guaranty made
court acknowledged the Bank’s waiver         them personally liable for the business                 3. the Wisconsin supreme
of a deficiency claim against Boyer          notes executed by Boyer Construction.                   court’s review: the majority
Construction.6                               The court distinguished between abso-                   finds ambiguity in the haystack
                                             lute guaranties of payment and con-                     of plain language.
Because of the shortened redemption          ditional guaranties of collection. The                  The Wisconsin Supreme Court acknowl-
period under section 846.103(2), three       court noted that in the case of an abso-                edged its responsibility to interpret sec-
months after entry of the foreclosure        lute guaranty, a mortgagee may proceed                  tion 846.103(2)—and specifically, the
judgments, the mortgaged properties          directly against the guarantor without                  statutory phrase “personally liable for
were sold at a sheriff’s sale. The Bank      first proceeding against either the                     the debt secured by the mortgage”—to
then moved to confirm the sheriff’s sale.    mortgagor or the mortgaged property.                    place the deficiency statute in its proper
Boyer Construction and Steven Boyer          Conversely, in the case of a conditional                context and clarify the manifest pur-
objected to confirmation on the basis        guaranty, a mortgagee must exhaust all                  pose of the statute.11 Accordingly, the
that the sale violated section 846.103(2),   remedies against the principal debtor                   court characterized its interpretive role
because the Bank elected the shortened       before proceeding against the guarantor.                with respect to the language of section
redemption period afforded by the            In other words, absolute guarantors are                 846.103(2) as confined by the context
statute but did not waive its right to a     liable as principals.10                                 of Wisconsin’s foreclosure statute as a
deficiency against the Boyers on their                                                               whole.12
guaranty. Marcy Boyer then moved             The court of appeals held that the
the court to re-open her default judg-       Boyers’ guaranty was an absolute guar-                  The court noted that Wisconsin’s fore-
ment and objected to entry of judgment       anty of payment and not a conditional                   closure statute (chapter 846) establishes
against her on the guaranty for the same     guaranty of collection. Accordingly,                    a comprehensive scheme of foreclosure,
reason given in Steven’s objection to        the Boyers were principally liable for                  including the substantive and proce-
confirmation.                                the Boyer Construction business notes                   dural requirements for obtaining a defi-
                                             and the Bank’s decision to shorten the                  ciency judgment for the unpaid portion
The circuit court denied the objections,     redemption period applicable to its                     of a mortgage debt after a sheriff’s sale.
concluding that the Boyers’ guaranty         mortgage foreclosure action precluded                   The court acknowledged chapter 846’s
was a contract separate from the business                                                            two-step foreclosure procedure, begin-
notes executed by Boyer Construction                                                                 ning with a judgment of foreclosure
                                                  Id. ¶ 9.
and therefore provided a basis for the                                                               and sheriff’s sale of a mortgaged prop-
                                                  See id. ¶ 12.
Boyers’ personal liability despite the                                                               erty and concluding with confirmation
                                                  Bank Mutual v. S.J. Boyer Constr., Inc., 2009 WI
language in section 846.103(2) condi-             App 14, 316 Wis. 2d 266, 762 N.W.2d 826.
tioning a shortened redemption period        9
                                                  Id. ¶ 12.                                          11
                                                                                                          Boyer Constr., 2010 WI 74, ¶ 22.
on waiver of deficiency claims against       10
                                                  See id. ¶ 13.                                      12
                                                                                                          Id. ¶ 12.

                                                       The absTracT         8   Fall 2010
of the sale, determination of any defi-                   Boyers. The court nonetheless con-          to distinguish only the mortgage bor-
ciency and entry of judgment for the                      cluded that the statutory phrase was a      rower’s personal liability for the debt
deficiency.                                               term of art that must be given its legal    from its liability under the mortgage
                                                          meaning. The court then embarked            with respect to the property securing
The court also recognized that the                        on an extensive, somewhat circuitous        the debt. The court distinguished the
foreclosure process under chapter 846                     analysis of the statutory history under-    mortgage borrower’s liability under
entails a redemption period, which in                     lying chapter 846 and the common law        chapter 846 from the liability of a guar-
most commercial foreclosures runs                         of foreclosure in Wisconsin and other       antor of the mortgage debt, noting that
for six months after the foreclosure                      jurisdictions to reach the conclusion       judgment against a guarantor does not
judgment. Section 846.103(2), quoted                      that by using the phrase “personally lia-   follow automatically from a judgment
above, permits a shortened redemption                     ble for the debt” in section 846.103(2),    of foreclosure. A separate legal cause
period of three months if the mortgagee                   the Wisconsin legislature intended to       of action must be asserted against the
waives its right to judgment for a defi-                  give effect to the specific legal mean-     guarantor, either outside of the foreclo-
ciency “against every party who is per-                   ing of the phrase and did not intend for    sure proceeding or concurrently with
sonally liable for the debt secured by                    the phrase to encompass parties who         the foreclosure proceeding (as was the
the mortgage.” (Emphasis added.) If                       guarantee a mortgage debt through a         case with the Bank’s claim against the
the mortgagee elects to waive its right                   contract separate from the note creating    Boyers).17
to a deficiency, the foreclosure judg-                    the mortgage debt.14
ment will be entered as provided under                                                                The court then turned its analysis to the
chapter 846, “except that no judgment                     The court noted that within the context     nature of a guarantor’s liability under
for deficiency may be ordered nor sepa-                   of foreclosure law, the statutory phrase    common law principles. The court
rately rendered against any party who                     has been used traditionally to distin-      noted the long-recognized principle
is personally liable for the debt secured                 guish the mortgagor’s liability on the      that a guarantor’s liability arises from
by the mortgage,” and the sale of the                     mortgage note, which is personal in         a separate guaranty contract and not
mortgaged premises shall thereafter                       nature, from the mortgagor’s liability      from the debt being guaranteed. In a
occur following expiration of three                       on the mortgage, which is limited to        carefully worded analysis, the court
months from the date the foreclosure                      the property given to secure the mort-      concluded that although guarantors of
judgment is entered.13                                    gage note. Examining one of its earlier     payment are personally liable under the
                                                          decisions, in which a bank was permit-      terms of their guaranty contract, they
 The court acknowledged that the phrase                   ted to commence an action to collect        are not directly liable for the underly-
“personally liable for the debt secured                   the amount due on a note after having       ing debt for which their guaranty was
 by the mortgage,” when read according                    commenced an action to foreclose a          given.18 The court held that this prin-
 to its common and ordinary meaning,                      mortgage securing the note,15 the court     ciple is codified in section 846.103(2)
 does not clearly exclude guarantors.                     stated that the purpose of the statutory    through the phrase “personally liable for
 The court also acknowledged that rea-                    phrase “personally liable for the debt      the debt secured by the mortgage.”19
 sonable people could read the statutory                  secured by the mortgage” contained
 language to protect guarantors like the                  in section 846.04 is to unite in a single   The court specifically rejected the
                                                          action both foreclosure of the mortgage     Wisconsin Court of Appeals’ analysis
     See id. ¶ 30 (quoting Wis. Stat. § 846.103(2))       and a personal claim against the mort-      of the Boyers’ primary liability as guar-
     (emphasis added).                                    gagor/maker of the mortgage note.16         antors of payment and not of collection.
     See id. ¶ 39.                                                                                    As noted above, the court of appeals
     Farmers & Merchants Bank v. Matsen, 219 Wis.         The court concluded that while section
     401, 263 N.W. 192 (1935) (cited in Boyer Constr.,
     2010 WI 74, ¶ 42).                                   846.04 establishes the unity of action      17
                                                                                                           See Boyer Constr., 2010 WI 74, ¶ 51.
     Boyer Constr., 2010 WI 74, ¶ 44. See also Wis.       with respect to the mortgage being fore-    18
                                                                                                           See id. ¶¶ 53-54 (citing Continental Bank & Trust
                                                                                                           Co. v. Akwa, 58 Wis. 2d 376, 387, 206 N.W.2d
     Stat. § 846.04, which is the statutory foundation    closed and the underlying mortgage               174 (1973) for the proposition that an action to
     for deficiency judgments generally in chapter
     846. Section 846.04 permits a deficiency judg-
                                                          debt, the phrase “personally liable for          enforce a guarantor’s liability must be in the form
                                                                                                           of a claim for damages based on breach of contract
     ment within the foreclosure action only against      the debt secured by the mortgage” con-           and not an action on the underlying guaranteed
     parties “personally liable for the debt secured by
     the mortgage”—the same phrasing used in section
                                                          tained both in section 846.04 and in             indebtedness).
     846.103(2).                                          section 846.103(2) must be interpreted      19
                                                                                                           Id. ¶ 55.

                                                               The absTracT    9   Fall 2010
characterized the Boyers as “person-        period) consistently with the language     4. the dissent’s case: Plain
ally liable for the debt secured by the     of section 846.04(1) (which addresses      language has plain meaning.
mortgage” under section 846.103(2)          deficiency judgments generally), the       Chief Justice Shirley Abrahamson,
because they were guarantors of pay-        court concluded that the phrase “sepa-     joined by one other justice, dissented
ment and not of collection, and there-      rately rendered” in section 846.103(2)     from the court’s conclusions. In a tren-
fore primarily liable to the Bank for the   supports the procedural reality that a     chant opinion, the chief justice argued
Boyer Construction business notes.          deficiency judgment must follow from       that the court resolved the issues of
                                            a sheriff’s sale and its confirmation.21   the Boyer Construction case through
The Wisconsin Supreme Court charac-                                                    a narrow focus on the statutory phras-
terized the court of appeals’ reasoning   The court ended its analysis by turning      ing of section 846.103(2), without an
as confusing the primary liability of a   to the textually and contextually mani-      eye to the broader foreclosure scheme
borrower with the primary liability of a  fest purposes of section 846.103(2),         under which the case arose and with-
guarantor. Boyer Construction was pri-    ultimately concluding that by interpret-     out addressing the relationships among
marily liable for its business note obli- ing the phrase “personally liable for        and commercial expectations of credi-
gations, and was therefore “personally    the debt secured by the mortgage” to         tors, debtors and guarantors in the fore-
liable for the debt secured by [its five] exclude guarantors supports the pur-         closure process. Justice Abrahamson
mortgage[s]” under section 846.103(2).    poses of section 846.103(2) and those        argued that the court’s narrow focus
By contrast, the court asserted that the  of the Wisconsin foreclosure statute as      on the phrasing of section 846.103(2)
Boyers were not personally or primarily   a whole. The court asserted that sec-        failed to address the law governing
liable for the Boyer Construction notes   tion 846.103(2) serves two purposes:         guarantors and left open several issues
because the Boyers did not execute the    it expedites the foreclosure process by      with which she predicted future courts
notes. The Boyers executed a separate     shortening the redemption period and it      must wrestle.24
guaranty contract, and were therefore     protects the rights of mortgagors who
personally and primarily liable accord-   are relieved of personal liability as a      The chief justice argued that to honor
ing to the terms of that contract. The    consequence of the shortened redemp-         the common and ordinary meaning
court concluded that a guarantor’s lia-   tion period. The court concluded that        of the language contained in section
bility arises under a completely sepa-    if the phrase “personally liable for the     846.103(2), and to give effect to the pur-
rate contract. Accordingly, the guar-     debt secured by the mortgage” were           pose and intent of the statute, guarantors
antor cannot be “personally liable for    interpreted to protect both mortgagors       of payment, like the Boyers, must fall
the debt secured by the mortgage” as      and guarantors, the foreclosure process      within the class of persons protected by
contemplated by section 846.103(2).20     would be lengthened by fewer mortgag-        section 846.103(2) and against whom a
                                          ees electing the three-month redemp-         mortgagee must waive judgment when
The Boyers also argued that they were tion period and greater numbers of               seeking the shortened redemption
protected by section 846.103(2)’s man- mortgagors would thereby be exposed             period.25 The chief justice agreed with
date that “no judgment for deficiency to personal liability beyond the prop-           the analysis of the Wisconsin Court of
may be ordered nor separately rendered erty securing their mortgage debt.22 The        Appeals that guarantors of a mortgage
against any party who is personally court also noted the potential windfall to         loan (at least guarantors of payment, as
liable for the debt secured by the mort- guarantors by extending the protections       were the Boyers) are personally liable
gage.” The court rejected the Boyers’ of section 846.103(2) as asserted by the         for the underlying loan.
argument, asserting that the intent of Boyers. The court reasoned that reliev-
the statutory language is procedural— ing guarantors of their liability through        Justice Abrahamson noted that
namely, to mandate that a court may the shortened redemption period under-             there was only one source of debt
order a deficiency judgment within the mines the security afforded a mortgagee
confines of the original foreclosure who negotiates for and obtains a guar-            20
                                                                                            See id. ¶¶ 59-60.
judgment, but may not render the defi- anty in the course of its underwriting a        21
                                                                                            See id. ¶ 61.
ciency judgment until after the sheriff’s mortgage loan. The court held that the       22
                                                                                            See id. ¶ 70.
sale and its confirmation. Reading the Wisconsin legislature could not have            23
                                                                                            See id. ¶ 76.
language of section 846.103(2) (which intended such a result when it enacted           24
                                                                                            See id. ¶¶ 83-85 (Abrahamson, C.J., dissenting).
addresses a shortened redemption section 846.103(2).23                                 25
                                                                                            Id. ¶ 88.

                                                The absTracT    10   Fall 2010
underlying the Bank’s claims in
Boyer Construction: the business               aCMa—Membership selection Process
notes given by Boyer Construction
to the Bank and guaranteed by the
Boyers. She accused the court’s          The Membership Committee meets two           appears to be complete, the Member
majority of elevating form over          times each year (more if needed). Each       Services Manager will send the com-
substance to reach a counterin-          meeting is approximately eight weeks         pleted nominations to the respective
tuitive result. Notwithstanding the      prior to the Regents Meeting or the          State and Provincial Chairs for review
Boyers’ separate contractual obliga-     Annual Meeting, as applicable. This tim-     and approval or disapproval. These
tion through their guaranty, the chief   ing is intended to provide sufficient time   approvals or disapprovals are to be sent
justice argued that the substantive      for the Membership Committee to take         to the Member Services Manager no
effect of the Boyers’ guaranty was       action and for approved new Fellows to       later than two weeks after receipt of the
to render the Boyers personally obli-    be able to make travel arrangements and      nominations. In the case where a State
gated to pay the debt secured by the     register should they decide to attend the    or Provincial Chair is the nominator
Boyer Construction mortgages.26          upcoming meeting.                            of a candidate, the approval or disap-
                                                                                      proval of that candidate will come from
Justice Abrahamson argued that the       The Chair of the Membership                  the President.
common and ordinary definition           Committee sets a date for the next meet-
of the phrase “personally liable for     ing of the Membership Committee to           One week prior to the Membership
the debt secured by the mortgage”        review all ACMA nominations. Based           Committee meeting, the Member
contained in section 846.103(2)          on the date of that meeting, ACMA staff      Services Manager will forward all nom-
includes guarantors. She pointed         will set a deadline for receipt of nomi-     inations with supporting documentation
to the majority opinion’s recogni-       nations that are to be considered at that    to the Membership Committee mem-
tion that the phrase does not clearly    meeting. This deadline is announced          bers for review prior to the conference
exclude guarantors, and that rea-        to the State and Provincial Chairs by        call meeting.
sonable people could read the            the State/Provincial Chair Coordinator.
phrase to include guarantors like        The State and Provincial Chairs are          After the conference call meeting, the
the Boyers. The chief justice con-       expected to advise the Fellows in their      Chair of the Membership Committee
cluded this point with the admoni-       jurisdiction of the deadline. If the dates   will contact each nominator to let the
tion that unless there is a good rea-    for the meetings can be set sufficiently     nominator know if his or her nomi-
son to interpret a statute other than    in advance, these dates and deadlines        nees have been approved or disap-
by using the ordinary meaning of         can also be posted in The Abstract.          proved by the Membership Committee.
the words contained in the statute,                                                   Nominators should contact their suc-
the statute should be interpreted in     All nominations are due to ACMA              cessful nominees to congratulate them
a way that both lawyers and non-         Member Services Manager, Isabel              and to encourage them to attend the next
lawyers reading it will understand       Bailey, no later than the announced          meeting. Nominators for unsuccessful
it clearly and simply.u                  deadline. They are to be submitted elec-     nominees should contact those persons
                                         tronically to acma@mgmtsol.                  as well. An unsuccessful nominee will
                                                                                      receive no notice from the Membership
     Id. ¶¶ 90, 92
                                         As nominations are received, the             Committee or the College on the status
                                         Member Services Manager will for-            of his or her nomination.
                                         ward a copy to the President and the
                                         President-Elect (who is also the Chair       Those who are approved for member-
                                         of the Membership Committee) for             ship will receipt a letter of welcome
                                         review for completeness.                     from ACMA’s President and President-
                                                                                      Elect approximately one week after
                                         Once the President and President-Elect       the Committee meeting at which
                                         have indicated that the nomination           approved.u

                                              The absTracT    11   Fall 2010

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