Bank Mutual v. S.J. Boyer Construction, Inc. , 326 Wis. 2d 521 ( 2010 )

SHIRLEY S. ABRAHAMSON, C.J.

¶ 82. (dissenting). This case raises a question of statutory interpretation in the context of commercial lending. It arises in the context of Wisconsin statutes governing mortgage proceedings, but the case is also enmeshed in the "hoary and distinctive body of law"¹ that governs suretyship and guaranty relationships.²

¶ 83. The majority opinion resolves this case with a narrow focus, looking at a portion of the immediate statutory language at issue without an eye to the broader foreclosure scheme in which the case unfolds and without addressing the law governing the relationships and obligations among creditors, debtors, and guarantors.

¶ 84. As one commentary notes, "[D]espite its long history, suretyship is an area of the law that has received scant attention in recent years .... [EJxcept for those who work in commercial lending or the issuing of contract bonds, most attorneys remain unaware of even the basics ... ."³ This court has seldom been asked in recent years to unravel the complexities of the law involving guarantors. Although the Restatement (Third) of Surety and Guaranty was published in 1996 and offers a potentially invaluable tool to clarify and modernize the law, it appears that the Restatement (Third) has never been referenced by this court and the majority does not address it in the present case.⁴

¶ 85. In my view, this case can not be resolved properly without addressing the law governing guarantors. Because the majority does not address this area of the law, it leaves important issues unresolved or re solves them without a view to the implications for future cases. By failing to consider carefully the interrelationship between the law governing guarantors and the foreclosure statute it interprets, the majority has, in my view, reached the wrong result in this case.

¶ 86. Wisconsin Stat. § 846.103(2), protects those who are "personally liable for the debt secured by the mortgage" against a "judgment for any deficiency which may remain due to the plaintiff' following a foreclosure sale. The question in this case is whether this provision protects the guarantors sued by the creditor, in addition to protecting the debtor.

¶ 87. It is undisputed that guarantors are liable according to the terms of their guaranty contract, which in the present case is a guaranty of payment, not a guaranty of collection.⁵ The majority opinion parlays this truth to mean that guarantors do not come within the statutory phrase "personally liable for the debt"⁶ and therefore, according to the majority opinion, are "not members of the class of persons against whom a mortgagee must waive judgment" when the mortgagee elects to proceed under the shortened redemption period allowed under Wis. Stat. § 846.101. See majority op., ¶ 3. Here's where I part company with the majority.

¶ 88. To honor the common and ordinary meaning of the statutory language and to effectuate the purpose and intent of the statute, I conclude that the guarantors under the guaranty in the present case are within "the class of persons against whom a mortgagee must waive judgment when invoking Wis. Stat. § 846.103(2)." The guarantors are, in my view, "personally liable for the debt secured by the mortgage" within the operation of Wis. Stat. § 846.103(2).

I

¶ 89. I agree with the court of appeals that as a matter of law the guarantors are personally liable for the debt.⁷

¶ 90. As guarantors of payment, the guarantors in the present case are, under Wisconsin law, primarily liable for the payment of the debt secured by the mortgage.⁸ Majority op., ¶ 59. The Bank need not make any effort to collect the debt from the debtor or against the collateral before proceeding against the guarantor. Rather, the Bank can seek payment from the guarantor first, directly and with or without any action against the debtor.⁹ There is only one source of debt underlying this case, the debt due on the five notes secured by the mortgages. There is likewise no dispute that the money judgments entered against the guarantors correspond to the amount owing on this same debt, and there is no dispute that the guarantors are personally liable for payment of any unpaid portion of that debt.

¶ 91. Nevertheless, the majority insists that the guarantors are not "personally liable" for this debt within the meaning of Wis. Stat. § 846.103(2).

¶ 92. The majority opinion reaches this counterintuitive result by elevating form over substance, repeatedly asserting that the guarantors are liable on the guaranty, not for the underlying debt itself. I agree with the majority opinion that the guarantors' liability for the debt of the debtor is based on the guaranty. But the substantive effect of the guaranty is to render the guarantors personally obligated to pay the debt secured by the mortgage.

¶ 93. I agree with the court of appeals that as a matter of law the guarantors are personally liable for the debt.

II

¶ 94. The common and ordinary definition of the statutory phrase "personally liable for the debt secured by the mortgage" includes guarantors. The majority opinion, ¶ 39, effectively admits as much, conceding that the phrase "does not clearly exclude guarantors" and that "reasonable people could read the language to cover the Boyers." The court of appeals similarly concluded that "nothing in the plain language of the phrase categorically excludes guarantors of a debt from being personally liable."

¶ 95. Unless there is a good reason to interpret a statute other than by using the ordinary meaning of words, a statute should be interpreted in the way that lawyers and non-lawyers who read the statute will understand it without examining multiple other authorities.

¶ 96. jBlack's Law Dictionary (8th ed. 2004) defines "personal liability" to mean "[liability for which one is personally accountable and for which a wronged party can seek satisfaction out of the wrongdoer's personal assets." No one contests that the liability of the guarantors in the present case is "personal liability" in this sense. Indeed, the whole point of requiring the personal guaranty of the principals or owners of a corporation is that those individuals will be personally liable to repay the debts of the corporation.¹⁰

¶ 97. The majority departs from the dictionary approach (an approach favored by this court) and treats the phrase "personally liable for the debt secured by the mortgage" as "a legal term of art," susceptible of a special meaning "in the context of foreclosure law."¹¹

¶ 98. The majority therefore sets out to determine the "specific legal meaning" of the words "personally liable," an endeavor that involves reading Wisconsin and Illinois cases and numerous other legal authorities. Majority op., ¶¶ 41-52. I would take a shorter and simpler route of statutory interpretation in the instant case.

¶ 99. Mortgages and guaranties are the everyday business of lenders and borrowers. Some persons are represented by lawyers when signing mortgages and guaranties, many are not. Lawyers and non-lawyers alike ought to be able to read and understand Wis. Stat. § 846.103(2) without going outside the statute books to determine whether words that have a common, ordinary meaning take on a "specific legal meaning" when interpreted by reference to other authorities. The common and ordinary understanding of the statutory language is that guarantors are personally liable for the debt secured by the mortgage. I would adopt that understanding.

Ill

¶ 100. The statutory phrase "personally liable for the debt secured by the mortgage" is used in three statutory provisions in chapter 846: Wis. Stat. §§ 846.04, 846.101, and 846.103(2). Section 846.04 governs a complaint seeking foreclosure and any deficiency that may remain due the plaintiff "against every party who is personally liable for the debt secured by the mortgage." Section 846.101 and § 846.103(2), the statute at issue here, are similar provisions applicable to different types of property; each provides for foreclosure with a shortened redemption period but without deficiency.

¶ 101. I agree with the majority opinion that the same statutory language in each of these statutes should be given a consistent meaning. But I depart from the majority's analysis and conclusion on this point.

¶ 102. The majority attempts to determine the meaning of the phrase "personally liable for the debt secured by the mortgage" in § 846.103(2) by examining the same phrase in Wis. Stat. § 846.04 but comes up empty-handed. Majority op., ¶¶ 32-38. The majority's analysis of Wisconsin cases cannot determine what the phrase means in § 846.04 and concedes that the law reveals "inconsistent results." Majority op., ¶ 38. The majority's own review of the law therefore seems to conflict with its premise that the phrase "personally liable" as used in Wis. Stat. §§ 846.04 and 846.103(2) is a term of art embodying a single, pre-existing "specific legal meaning." Majority op., ¶ 39.

¶ 103. The majority therefore resolves the meaning of the phrase "personally liable for the debt secured by the mortgage" first by even further narrowing its focus to examine only the words "personally liable," eventually turning to Illinois law, relying on City of Chicago v. Chatham Bank of Chicago, 203 N.E.2d 788 (Ill. App. 1964) to inform its definition of "personally liable" in the Wisconsin statutes. Majority op., ¶¶ 48-50.

¶ 104. The majority's reliance on the Chatham, case is misplaced. The reasoning of the Chatham case rests on two factors that do not bear on the resolution of the present case: (1) the language and interpretation of the Illinois statute, and (2) an outmoded jurisdictional distinction in Illinois between judgments entered in law and in equity.

¶ 105. The Illinois foreclosure statutes allowed "a personal deficiency decree against the persons indicated as being personally liable therefor .. . ." Chatham, 203 N.E.2d at 793. A long line of Illinois cases established that a guarantor could not he joined in the action of foreclosure and the equitable remedy of a deficiency decree could not be entered against the guarantor in a foreclosure action. Rather, the liability of the guarantor "was a purely legal liability, enforceable only in a court of law."¹² Therefore the established law of Illinois was that "the Circuit Court sitting in chancery" lacked jurisdiction to render a deficiency judgment against the guarantor.¹³ Chatham simply applied long-standing Illinois case law to hold that a guarantor cannot be sued "in a foreclosure action."¹⁴

¶ 106. Wisconsin law governing foreclosure and deficiency is not the same as Illinois law. Law and equity jurisdiction are merged in Wisconsin, and Wis. Stat. § 846.04 provides a more flexible foreclosure action than the Illinois law reviewed in Chatham.

¶ 107. In Wisconsin, a plaintiff in a foreclosure action may "demand judgment for any deficiency that may remain due the plaintiff after sale of the mortgaged premises against every party who is personally liable for the debt secured by the mortgage." Wis. Stat. § 846.04(1). Indeed in the present case the Bank brought a single action seeking both foreclosure and a judgment against the guarantors.¹⁵ This procedure is consistent with the majority's reading of the deficiency statute, which the majority acknowledges "permits a combination of two causes of actions" and "unites an action in equity on the foreclosure with an action in law on the debt." Majority op., ¶¶ 43-44 (quoting and explaining Farmers & Merchants Bank v. Matsen, 219 Wis. 401, 263 N.W. 192 (1935)).

¶ 108. The majority conclusorily treats the operation of the deficiency provisions as extending to the debtor but not to the guarantor. See majority op., ¶ 51.¹⁶ But in Wisconsin, in contrast to Illinois, a guarantor can be made a party in a foreclosure/deficiency action.¹⁷ The present case illustrates that the mortgagee may proceed under Wis. Stat. § 846.04, bringing interdependent claims both for foreclosure and for a money judgment against a guarantor for any amount still owing. Here, the claim against the guarantors, brought together with the foreclosure action, was for the "amounts alleged owing" on the notes secured by the mortgages. Neither statutory procedure nor a distinction between law and equity jurisdiction requires these claims to be brought separately in Wisconsin.

¶ 109. Under the Wisconsin statutes, the "judgment for deficiency" is to be both ordered as part of the "original [foreclosure] judgment" and also "separately rendered against the party liable." Wis. Stat. § 846.04(1).

¶ 110. And in fact separate judgments were rendered in the present case: A foreclosure judgment was entered on the five mortgaged properties; a separate judgment for the total amount owing on the notes was entered against Steven Boyer as guarantor; and a similar default judgment was entered for the same amount against Marcy Boyer as guarantor. See majority op., ¶ 9. No judgment for the amount due on the notes was separately rendered against Boyer Construction, the debtor.

¶ 111. The present case, in contrast to the Illinois law relied upon by the majority, therefore illustrates that there is no procedural or jurisdictional bar in Wisconsin to seeking judgment for the amount owed by a guarantor in the same suit in which foreclosure is sought under Wis. Stat. § 864.04.

¶ 112. Taking a realistic view of the situation, what is at stake in the single foreclosure suit brought by the plaintiff in the instant case is a deficiency judgment, whether the judgment is entered under the foreclosure causes of action or "separately rendered" under the interdependent cause of action brought against the guarantors. To say that the judgment sought against the guarantors is not a deficiency judgment would only further elevate form over substance.

¶ 113. Thus I conclude that the guarantors in the present case are "part[ies] personally liable for the debt secured by the mortgage" under both Wis. Stat. § 846.04 and § 846.103(2).

¶ 114. The majority focuses its analysis narrowly on interpreting the phrase "personally liable." See majority op., ¶¶ 41-47. The circuit court in the instant case noted that "in a lot of ways that's what this case comes down to[,] . . . that the damages act as a deficiency. I guess that's the question. Do they act as a deficiency." The majority focuses on the question of whether the guarantor is "personally liable" for the debt in this case and does not take up the intertwined question of whether the judgment from which the defendants seek relief qualifies as a "judgment for any deficiency" under Wis. Stat. §§ 846.04(1) and 846.103(2).

¶ 115. The majority does not take a realistic view of the situation in the present case and relies on foreign law that presupposes both a narrower statutory remedy than applies here and a delineation of law and equity jurisdiction which no longer has any force.

¶ 116. By contrast, I conclude that the guarantors in the present case are "parties] personally liable for the debt secured by the mortgage" under both Wis. Stat. § 846.04 and § 846.103(2).

¶ 117. To proceed in this suit under the shortened redemption period allowed by Wis. Stat. § 846.103(2), the plaintiff must waive judgment for the amount of deficiency against "every party who is personally liable for the debt secured by the mortgage," and "no judgment for deficiency may be . . . separately rendered" against such parties. Reading Wis. Stat. § 846.103(2) together with Wis. Stat. § 846.04(1) and applying the statutes to the facts of the present case, I conclude that the Bank was required to waive the right to have a judgment for the amount of deficiency entered against the guarantors when it elected to proceed under Wis. Stat. § 846.04(1).

IV

¶ 118. The majority does not reckon with the body of law governing guarantors in Wisconsin. Critical questions implicating surety and guaranty law are raised but unanswered by the majority. The questions the majority leaves open under guaranty law raise serious misgivings about whether the majority's opinion undermines the purpose of Wis. Stat. § 846.103(2) to protect the debtor.

A

¶ 119. The majority does not discuss whether a plaintiffs (mortgagee's) election of waiver under Wis. Stat. § 846.103(2) functions as a discharge of the debt or only as the creditor's promise not to sue the debtor for the deficiency. This question is part of a larger issue in guaranty law relating to actions that give rise to guarantors' defenses.¹⁸ The question is significant here because it may affect whether the guarantors can or cannot ultimately recover from the debtor the amount they pay the creditor.¹⁹

¶ 120. This issue was explored in Continental Bank & Trust Co. v. Akwa, 58 Wis. 2d 376, 206 N.W.2d 174 (1973). In Akwa, the creditor settled with the debtor and released the debtor from personal liability, reserving its rights against the guarantor. The creditor then sued the guarantor.

¶ 121. The Akwa court concluded that when the release of the debtor is an agreement not to sue the debtor for the deficiency, the creditor may still make a claim against the guarantor under a guaranty (or settlement agreement) and the guarantor's remedies against the debtor remain unaffected. The reasoning is that the release is in effect merely a promise by the creditor not to sue the debtor and does not discharge the underlying debt. Accordingly, under these circumstances the guarantor is liable to the creditor for the underlying debt and the debtor remains liable to the guarantor. Akwa, 58 Wis. 2d at 392-93.

¶ 122. In contrast, according to Akwa, if the creditor's release of the debtor amounts to a discharge of the debt, then the underlying obligation is terminated and the guarantor is also released. Obviously, if the guarantor is released the guarantor does not have a claim against the debtor. Akwa, 58 Wis. 2d at 392-93.

¶ 123. If the court applies the Akwa case, it should analyze whether Wis. Stat. § 846.103(2) functions as a promise by the creditor not to sue the debtor for the deficiency or as a discharge of the debtor's debt. This analysis not only affects the liability of the guarantor to the creditor but also affects the rights of the guarantor against the debtor.

¶ 124. The majority opinion fails to address this issue.

B

¶ 125. This discussion leads us to another critical question not addressed in the majority opinion, namely whether the guarantors (Steven and Marcy Boyer, individually), after paying any sums they owe to the mortgagee, can in turn sue the debtor (Boyer Construction) to recover for the amount they have paid to cover the debt.²⁰

¶ 126. A guarantor who pays the debtor's obligation to the creditor ordinarily has recourse against the debtor to recover the amount the guarantor paid.²¹ If the guarantors have recourse against the debtor in the present case to collect what the guarantor paid, then Wis. Stat. § 846.103(2), which is designed to protect the debtor against personal liability, will be defeated in this second stage of litigation.

¶ 127. Thus the majority first recognizes that the statute is meant to protect the mortgagor but then adopts an interpretation of the statute that risks defeating that very purpose of the statute. The majority opens the door to more litigation.

¶ 128. A central reason why the guarantor may proceed against the debtor is that it is unfair for the creditor to use the statute totally to its advantage and harm the guarantor by changing the nature of the guarantor's obligations. The mortgagee (the Bank) has elected under the statute to impose a different risk on the guarantor than the guarantors understood at the time they agreed to the guaranty. A guarantor must expect to pay the debt but also can expect that the debtor remains under a compulsion to pay. The Akwa court, 58 Wis. 2d at 392-94, explained at length the unfairness of a rule that imposes continuing liability upon the guarantor when the debtor is released from liability and the burden. It is unfair to guarantors to hold them liable after the debtor is released; the guarantor's risk is increased. See Akwa, 58 Wis. 2d at 392.

¶ 129. Neither the text of Wis. Stat. § 846.103(2) nor the majority opinion provides an answer to the question of who wins in a guarantor's suit against the debtor when the mortgagee forecloses under § 846.103(2) and recovers against the guarantor. The question of the rights of the guarantor against the debtor is for another day as a result of the majority opinion.

¶ 130. I would resolve the interpretation of Wis. Stat. § 846.103(2) in a manner that does not open the door to further litigation or leave unaddressed a legal determination that is necessary to effectuate the purpose of the statute. I conclude that if the mortgagee proceeds under § 846.103(2), the guarantor for payment is released from liability as a party personally liable for the debt secured by the mortgage.

¶ 131. I reason as follows: The statute provides the plaintiff (usually the creditor) in a foreclosure action with a choice: the creditor may choose a longer six-month redemption period and preserve its right to collect any deficiency after the property is sold, or the creditor may choose to complete the foreclosure more quickly, electing the three-month redemption period under Wis. Stat. § 846.101(2). To gain the advantage of the shorter redemption period, the creditor must give something up, specifically, its right to collect the amount of deficiency after sale.

¶ 132. The basic outline of this legislative scheme is embodied in Wis. Stat. 846.103(1) and (2), and the majority acknowledges the obvious tradeoff this statutory scheme puts in place: "Both Wis. Stat. § 846.101 and 846.103(2) permit shortened redemption periods in exchange for waivers of certain deficiency judgments." Majority op., ¶ 31.²²

¶ 133. But under the majority's interpretation, the basic principle of this "exchange" is vitiated. The creditor may shorten the redemption period, limiting the mortgagor's opportunities to avoid foreclosure, but the creditor gives up little, if anything, in exchange, if there is a guarantor. So long as there is a guarantor, the creditor, under the majority opinion, may still collect the deficiency. Simply put, the majority displaces the choice the legislature created for mortgagees/lenders proceeding in foreclosure actions and now allows mortgagees to "have their cake and eat it too."

¶ 134. The practical effect of the majority's thin-slicing of the statutory language is that property owners facing foreclosure around Wisconsin will now have three months in which to avoid foreclosure instead of the six months for which the legislature has generally provided. Creditors who otherwise would have allowed the six-month redemption period to run in order to preserve their right to collect any deficiency will now have incentive to elect the shortened redemption period and then also proceed against any guarantors for the amount of the deficiency.

¶ 135. The majority reaches this result on the basis of a counterintuitive and narrow reading of the statutory language that ignores numerous critical questions. I therefore do not join the majority's interpretation, which is contrary to the common meaning of the words themselves and substantially undermines the operation and purpose of the statute.

¶ 136. For the foregoing reasons, I write separately in dissent.

¶ 137. I am authorized to state that Justice ANN WALSH BRADLEY joins this opinion.

1 Frank S.H. Bae & Marian E. McGrath, The Rights of a Surety (Or Secondary Obligor) Under the Restatement of the Law, Third, Suretyship and Guaranty, 122 Banking L. J. 783, 783 (2005) (quoting Donald J. Rapson, History and Background of the Restatement of Suretyship, 34 Wm. & Mary L. Rev. 989, app. B (1993).

2 Various authorities use the terms "guaranty" and "surety" to describe similar kinds of relationships and obligations. Here the agreement in question is termed a guaranty and I follow that terminology. The relevant rules of law do not depend on the label which is applied.

"There is still considerable dispute about the distinction between a surety and a guaranty." Bae & McGrath, supra note 1, at 786. The Restatement (Third) of Suretyship and Guaranty sensibly resolves this confusion by taking a unified and functional approach, referring to "obligors" and "obligees." In the Restatement, the principal obligor is the debtor. Section 1, cmt. c. of the Restatement notes that differences between sureties and guaranties "have been the subject of extended debate, not all of which is illuminating. A 'surety' is typically jointly and severally liable with the principal obligor on an obligation to which they are both bound, while a 'guarantor' typically contracts to fulfill an obligation upon the default of the principal obligor. The provisions of a particular guaranty or suretyship contract, however, will often blur much of this distinction." Black's Law Dictionary (8th ed. 2004), in defining "surety," asserts, "A surety differs from a guarantor, who is liable to the creditor only if the debtor does not meet the duties owed to the creditor; the surety is directly liable."

Wisconsin case law, however, has drawn essentially this same functional distinction by distinguishing between a "guaranty of payment" and a "guaranty of collection." See Schlesinger v. Schroeder, 210 Wis. 403, 406-07, 245 N.W. 666 (1932) (under a guaranty of payment, "[tjhere is no obligation on the part of the creditor to proceed against the principal debtor, and if the latter fails to pay, an action may generally be maintained against the guarantor, without a demand or legal proceedings against the principal. Nor is a creditor, before proceeding against the guarantor, under any legal obligation to resort to securities given by the principal debtor.").

Regardless of the choice of terms employed, as discussed below, see ¶ 6 & n.6, ¶ 9, the guarantors in this case are made liable to the creditor under the terms of their agreement without requiring prior collection or action against the principal debtor.

3 Bae & McGrath, supra note 1, at 783.

4 The court of appeals referenced the Restatement (Third) in Insurance Co. of North America v. DEC International, Inc., 220 Wis. 2d 840, 849-51, 586 N.W.2d 691 (Ct. App. 1998). An unpublished circuit court decision also referenced Section 48 of the Restatement (Third). See M&I Marshall & Ilsley Corp. v. Hougard, unpublished slip op., No. 03-CV-1039, 2004 WL 3252086 (Cir. Ct. Brown Co. May 13, 2004) ("[T]he Wisconsin Courts are in accord with the Restatement 3rd, Section 48"). These cases appear to be the only readily discoverable citations to the Restatement (Third) in the Wisconsin courts.

The Reporter for the Restatement commented at the time the Restatement was being drafted that the most recent treatises on suretyship dated to 1950 and 1951. Neil B. Cohen, Striking the Balance: The Evolving Nature of Suretyship Defenses, 34 Wm. & Mary L. Rev. 1025, 1025-26 & n.l (1993) (citing Arthur A. Stearns, The Law of Suretyship (5th ed. 1951); Laurence P Simpson, Handbook on the Law of Suretyship (1950)).

For more recent texts on suretyship, see Peter A. Alces, The Law of Suretyship and Guaranty (1996); The Law of Suretyship (Edward G. Gallagher ed., 2d ed. 2000).

5 See supra note 2; First Wis. Nat'l Bank of Oshkosh v. Kramer, 74 Wis. 2d 207, 246 N.W.2d 536 (1976).

6 The guaranty in the present case explicitly states that the guarantors remain liable to the Bank even though any obligation is invalid or unenforceable against any debtor. The guaranty provides: "This guaranty is valid and enforceable against the undersigned [guarantors] even though any Obligation is invalid or unenforceable against any Debtor." This language appears to state that as between the guarantor and the creditor, the guarantor will not impose defenses the debtor may have against the creditor regarding the validity of the debtor's obligation. In other words, the guarantor waives defenses. In other provisions of the guaranty, the guarantor consents in advance to various acts the creditor and debtor may perform. The effect of these provisions is to render the guarantor liable even when the guarantor's risk is increased by the debtor and creditor.

The question before the court is whether Wis. Stat. § 846.103(2), which protects those who are "personally liable for the debt" against a deficiency judgment, trumps the waiver and consent language in the guaranty and protects guarantors against suit by the creditor on the guaranty. The majority opinion in effect holds that the waiver and consent language of the guaranty trumps Wis. Stat. § 846.103(2).

7 Bank Mut. v. S.J. Boyer Constr., Inc., 2009 WI App 14, ¶ 15, 316 Wis. 2d 266, 762 N.W.2d 826 ("Given the effect of the guaranty of payment, we conclude the Boyers were personally liable for the debts secured by the mortgages.")

8 Kramer, 74 Wis. 2d at 212 (the guarantors "are individually liable as principals").

9 Id.

10 The brief of the Wisconsin Bankers Association as amicus curiae states on page 1, "The situation presented in the Bank Mutual case is typical. A lender makes a loan to a small or medium sized business, often a closely-held corporation or limited liability company, secured by a mortgage on real estate owned by the principal borrower. Often the lender will also require the personal guaranties of the principals of the business to further support the loan and protect the lender."

11 Majority op., ¶¶ 39, 41.

12 City of Chicago v. Chatham Bank of Chicago, 203 N.E.2d 788, 792 (Ill. App. 1964) (relying on Schnur v. Bernstein, 32 N.E.2d 675 (Ill. App. 1941); Walsh v. Van Horn, 22 Ill. App. 170 (1887).

13 Chatham, 203 N.E.2d at 792 (quoting Schnur v. Bernstein, 32 N.E.2d 675 (Ill. App. 1941).

14 Since Chatham was decided, Illinois law appears to have abolished the distinction between law and equity while maintaining an administrative division between chancery and law courts:

"[T]he Judicial Article embodied in the Illinois Constitution of 1970 has abolished the distinction between courts of law and equity so that our State's circuit courts have 'original jurisdiction of all justiciable matters.'..."

Since jurisdiction over the cause of action was vested generally in the circuit courts, which are organized and divided for administrative convenience, the transfer of the equitable cause of action from the Chancery Division to the Law Division does not limit the remedy available to one at law. Equitable relief is available even though the case is in the Law Division. No error resulted from the transfer of the plaintiffs' claim.

Kaplan v. Keith, 377 N.E.2d 279, 282 (Ill. App. 1978) (quoted source omitted).

The majority does not address whether the law/equity distinction underlying the Chatham case still provides principled reasoning in Illinois. No such jurisdictional distinction affects the resolution of the present case in Wisconsin courts.

15 See also Bank of Sun Prairie v. Marshall Dev. Co., 2001 WI App 64, ¶ 2, 242 Wis. 2d 355, 626 N.W.2d 319 (mortgagee sued guarantor (as well as debtor) in foreclosure/deficiency action).

16 The majority argues that Wis. Stat. § 846.04 "permits a deficiency judgment within the foreclosure action" only against the borrower. Majority op., ¶ 51. This argument simply applies the conclusion that the majority has already reached to § 846.04. It does not provide any additional argument supporting the majority's unpersuasive conclusion that the guarantors are not among the parties "personally liable for the debt secured by the mortgage."

17 "Thus, while a mortgagee may bring a claim against a guarantor as part of the same legal proceeding, it must bring a separate cause of action and separately prove the guarantor's liability on the contract of guaranty." Majority op., ¶ 51.

In Wisconsin, the mortgagee has a choice whether to seek payment from a guarantor in the foreclosure action or to bring a separate action. See majority op., ¶ 56.

18 See Neil B. Cohen, Striking the Balance: The Evolving Nature of Suretyship Defenses, 34 Wm. & Mary L. Rev. 1025, 1043-44 (1993).

19 The judgment entered against the guarantors was not for the amount of the deficiency but for the total amount of the debt owing on the notes ($1,436,457.85). See majority op., ¶ 9.

Thus the question immediately presented is not whether a deficiency judgment may be entered against the guarantors. Rather, the present case comes before the court on motions objecting to confirmation of the foreclosure sale and seeking relief from judgment. Wisconsin Stat. § 806.07(l)(e) provides that the court may relieve a party from a judgment when "[t]he judgment has been satisfied, released or discharged."

If the operation of the Bank's waiver under Wis. Stat. § 846.013(2) is to discharge the underlying debt, then under the principle of guaranty law recognized in Akwa, the guarantor's obligation will also be satisfied. If, on the other hand, the operation of the waiver under § 846.013(2) is construed as merely a promise by the Bank not to sue the mortgagor (Boyer Construction) for the amount of the deficiency, then under Akwa it appears the guarantors would still be liable. The majority's failure to address this issue amounts to a failure to resolve the bottom line dispute in the present case: whether the guarantors are entitled to relief from the judgment entered against them, in other words, whether the Boyers are personally liable to Bank Mutual for the amount of the deficiency.

20 For a collection of cases on the issue of the rights of the guarantor against the debtor, see J.A. Bryant, Jr., Mortgages: Effect upon Obligation of Guarantor or Surety of Statute Forbidding or Restricting Deficiency Judgments, 49 A.L.R.3d 554, § 2[a] (1973) ("It has been argued that if guarantors, sureties, and the like are construed not to have been afforded the protection of the statute, upon being recovered from, they will be able to assert rights over against the principal obligors, and that such action would defeat the purpose of the statutes, thus allowing to be accomplished in two steps what was forbidden in one.").

21 The guaranty in the present case recognizes the rights of the guarantor against a debtor who defaults on the debt. See guaranty at majority op., ¶ 5. The Restatement (Third) of Suretyship and Guaranty § 22(1) (1996) provides that subject to certain exceptions, "when the principal obligor [the debtor] is charged with notice of the secondary obligation [that of the guarantor] it is the duty of the principal obligor to reimburse the secondary obligor to the extent that the secondary obligor: (a) performs the secondary obligation ...." See also Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764 (Iowa 2009) ("Where a guarantor, who has entered into contract of guaranty... pays or is compelled to pay his principal's debt, the law raises an implied promise ... on the part of the principal to reimburse the guarantor...." (quoting Halverson v. Lincoln Commodities, Inc., 297 N.W.2d 518, 522 (Iowa 1980))).

In Charmley v. Charmley, 125 Wis. 297, 304, 103 N.W. 1106 (1905), the wife sued the deceased husband's estate for the money she paid on the mortgage the deceased husband had assumed. The court concluded that when a "person paying off the [mortgage] lien is secondarily liable for the debt, there springs out of the transaction an implied promise by the one primarily liable to repay the money. That does not rest on the law of subrogation. It is enforceable as a legal liability ...."

22 This court recognized the balance of interests intended by the legislature interpreting it the parallel provisions of Wis. Stat. § 816.101(2) (1973) in Glover v. Marine Bank of Beaver Dam, 117 Wis. 2d 684, 694-95, 345 N.W.2d 449 (1984):

[T]he legislature sought to ... shorten[] the period of redemption in a complicated, costly, time-consuming procedure. This obviously benefits the mortgagee, since the mortgagee may be able to reduce the losses normally attendant to the twelve-month redemption period.... However, the mortgagor is also protected, because at the end of this shortened period, the mortgagor is secure in the knowledge that he or she will not be responsible for any deficiency resulting from the sale.