Title: National Operating v. Mutual Life Insurance Company of New York

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2001 WI 87 
 
SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
99-1119 
 
 
Complete Title 
of Case: 
 
National Operating, L.P.,  
 
Plaintiff-Appellant-Petitioner, 
 
v. 
Mutual Life Insurance Company of New York, and 
Bridgeview Plaza Partnership,  
 
Defendants-Respondents.  
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  232 Wis. 2d 558, 608 N.W.2d 437 
 
 
(Ct. App. 1999-Unpublished) 
 
 
Opinion Filed: 
July 3, 2001 
Submitted on Briefs: 
      
Oral Argument: 
January 3, 2001 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
La Crosse 
 
JUDGE: 
Ramona A. Gonzalez 
 
 
JUSTICES: 
 
Concurred: 
      
 
Dissented: 
CROOKS, J., dissents (opinion filed). 
 
 
WILCOX, J., joins dissent. 
 
Not Participating:       
 
 
ATTORNEYS: 
For the plaintiff-appellant-petitioner there were 
briefs by Mark F. Foley, G. Michael Halfenger, David W. Simon, 
Rebecca E.W. Wegner and Foley & Lardner, Milwaukee, and oral 
argument by Mark F. Foley. 
 
 
For the defendant-respondent, Mutual Life 
Insurance Company of New York, there was a brief by Thomas M. 
Olejniczak, Robert M. Charles, Paula J. Lynch and Liebmann, 
 
2 
Conway, Olejniczak & Jerry, S.C., Green Bay, and oral argument by 
Thomas M. Olejniczak. 
 
 
For the defendant-respondent, Bridgeview Plaza 
Partnership, there was a brief by Maureen L. Kinney and Johns, 
Flaherty & Rice, La Crosse. 
 
2001 WI 87 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear 
in the bound volume of the official reports. 
 
 
No. 99-1119  
 
STATE OF WISCONSIN                    :  
  IN SUPREME COURT 
 
 
National Operating, L.P.,  
 
          Plaintiff-Appellant-Petitioner, 
 
     v. 
 
Mutual Life Insurance Company of New  
York, and Bridgeview Plaza Partnership,  
 
          Defendants-Respondents. 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
cause remanded. 
 
¶1 
DAVID T. PROSSER, J.   This is a review of an 
unpublished decision of the court of appeals,1 affirming an order 
of the La Crosse County Circuit Court, Ramona A. Gonzalez, 
Judge.  The case addresses the rights of a debtor in default 
under Article 9 (Secured Transactions) of the Uniform Commercial 
Code, both before and after a declaratory judgment obtained by 
the secured party to declare its rights in relation to the 
debtor.   
                     
1 Nat'l Operating, L.P. v. Mut. Life Ins. Co. of N.Y., 
unpublished slip op. (Wis. Ct. App. Dec. 23, 1999).    
FILED 
 
JUL 3, 2001 
 
Cornelia G. Clark 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
No. 99-1119   
 
 
2 
¶2 
To state the case briefly, National Operating, L.P. 
(National Operating), the debtor in default, filed suit against 
Mutual Life Insurance Company of New York (MONY) and Bridgeview 
Plaza 
Partnership 
(Bridgeview). 
 
During 
this 
litigation, 
National Operating moved for partial summary judgment.  MONY and 
Bridgeview, in turn, moved to dismiss National Operating's suit 
on the basis of claim preclusion resulting from a declaratory 
judgment obtained by MONY two years earlier.  The circuit court 
denied National Operating's motion for partial summary judgment 
and granted the MONY/Bridgeview motions to dismiss.  The court 
of appeals affirmed. 
¶3 
After carefully examining the rights of a debtor in 
default under Article 9 of the Uniform Commercial Code (U.C.C. 
or the Code), as well as the scope and claim preclusive effect 
of the declaratory judgment issued by the La Crosse County 
Circuit Court in 1996, we reverse. 
 
I.  FACTS AND PROCEDURAL HISTORY 
 
¶4 
This case involves a series of commercial transactions 
among National Operating, MONY, and Bridgeview.  National 
Operating is a Delaware limited partnership headquartered in 
Dallas, Texas.  It is the successor to McNeil Real Estate Fund 
VII, Ltd., on a loan obligation to MONY.   
¶5 
MONY is a New York corporation that became the payee 
on a note assigned to it by the Trustees of MONY Mortgage 
Investors, the entity that lent money to McNeil Real Estate. 
No. 99-1119   
 
 
3 
¶6 
Bridgeview is an Illinois general partnership.  It 
owns the Bridgeview Plaza shopping center in La Crosse. 
¶7 
In April 1978 National Operating borrowed $3,433,000 
from MONY to purchase Bridgeview Plaza.2  In return for MONY's 
loan, National Operating gave MONY a 30-year note (Underlying 
Note).  The Underlying Note called for National Operating to 
make 359 monthly payments of $27,951 to MONY, beginning February 
1, 1979,3 plus a final payment of any remaining balance.  
However, MONY had the option of "calling" its loan and 
accelerating the repayment during the 15th loan year (1993).4  
                     
2 The actual parties to the April 1978 transaction were 
McNeil Real Estate Fund VII, Ltd. and the Trustees of MONY 
Mortgage Investors.  The 1978 Mortgage Note contemplated the 
assignment of the Note from MONY Mortgage Investors to MONY.  
This assignment was made on December 12, 1978.  National 
Operating later merged with McNeil Real Estate Fund VII, Ltd.  
For simplicity we will refer to the borrower and the lender in 
the April 1978 transaction as "National Operating" and "MONY," 
respectively.  
3 The Mortgage Note called for monthly interest payments 
from June 1, 1978 until the earliest of "(a) the first day of 
the first month following the endorsement and assignment of this 
Note to [MONY]; or (b) May 1, 1979."  Monthly payments on the 
principal and interest would commence on the earliest of "(a) 
June 1, 1979 or (b) on the first day of the second month 
following the endorsement and assignment of this Note to 
[MONY]." 
The first day of the first month after the December 12, 
1978 assignment to MONY was January 1, 1979.  Therefore the 
final interest payment was payable on January 1, 1979, and the 
initial payment on the principal and interest was payable on 
February 1, 1979. 
4 The pertinent paragraph of the Mortgage Note reads as 
follows: 
No. 99-1119   
 
 
4 
MONY's loan was secured by a "Mortgage and Security Agreement" 
on Bridgeview Plaza.  The security documents included an 
"Assignment of Leases and Rents" so that in the event of a 
default by National Operating, MONY would assume National 
Operating's "right, title and interest in, to and under all 
leases and agreements relating to the use or occupancy of the 
Premises." 
¶8 
In February 1990, after conferring with MONY, National 
Operating sold the shopping center to Bridgeview in exchange for 
a $5.5 million wrap-around note (Wrap Note) and a mortgage 
(Mortgage) on the property.  This arrangement did not alter 
National Operating's debt to MONY.  Rather, it required 
Bridgeview to make monthly interest payments on the Wrap Note to 
National Operating, and then a $5.5 million balloon payment on 
                                                                  
Borrower agrees that notwithstanding the scheduled 
maturity of this Note, Payee or the then holder of this 
Note shall have the right during the fifteenth Loan Year to 
call the loan and accelerate the maturity date of this Note 
by giving at least six (6) months written notice to 
Borrower prior to the date of such acceleration.  In the 
event Payee or the then holder of this Note shall exercise 
such right, the unpaid principal balance of this Note, 
together with all interest accrued thereon, shall be due 
and payable in full, without prepayment premium, at the 
date specified by Payee or the then holder of this Note in 
the written notice to Borrower of the exercise of such 
right. 
No. 99-1119   
 
 
5 
February 29, 2000.5  Bridgeview's monthly interest payment to 
National Operating exceeded National Operating's monthly payment 
to MONY so that National Operating was able to retain a portion 
of Bridgeview's monthly payments.  However, the Wrap Note did 
not authorize National Operating to "call" for a lump sum 
payment from Bridgeview before February 29, 2000, unless 
Bridgeview defaulted. 
¶9 
In 1993, during the 15th year of the first agreement, 
MONY called its loan.  National Operating was unable to respond 
by tendering a full repayment of the balance ($2,832,861.91).  
Consequently, MONY considered foreclosing on the property, and 
National Operating considered filing for bankruptcy.  Instead, 
the two parties agreed to renegotiate the loan.  In November 
1993, National Operating and MONY agreed to a "Loan Modification 
and Extension Agreement" (Loan Extension) and an "Assignment" 
(Assignment), both effective January 1, 1993, the date on which 
MONY's final payment had been due.  
¶10 The Loan Extension increased the interest rate on the 
Underlying Note from 9 1/8 percent to 10 percent.  In addition, 
National Operating agreed to pay MONY $100,000 toward the loan 
                     
5 National Operating received payments from Bridgeview under 
the Wrap Note, and continued to make payments to MONY on the 
Underlying Note.  No agreement existed between Bridgeview and 
MONY.  This type of arrangement is typical in wrap-around notes. 
"Under wraparound financing, the purchaser makes an installment 
note which includes, or 'wraps around,' the principal balance of 
an underlying indebtedness.  The purchaser expressly does not 
assume responsibility for the underlying indebtedness."  Summers 
v. Consol. Capital Special Trust, 783 S.W.2d 580, 581 (Tex. 
1990).   
No. 99-1119   
 
 
6 
balance, a $25,000 loan extension fee, and MONY's legal costs of 
$5,725.  In exchange, MONY agreed to extend the maturity date of 
the loan to December 31, 1995.  
¶11 The 
Assignment 
from 
National 
Operating 
to 
MONY 
contained three paragraphs relevant to this case.  The first 
relevant paragraph provided that National Operating assigned 
"all of its right, title and interest in those certain rights 
and remedies granted in the Wrap Note and Mortgage" by 
Bridgeview, to MONY.  A second paragraph provided that at any 
time after default, MONY could exercise the rights and remedies 
granted in the Wrap Note and Mortgage at the same time and 
instance as National Operating would have been able to exercise 
them.  The third relevant paragraph provided that upon payment 
of the Underlying Note and any amounts due under the underlying 
Mortgage, MONY was required to reconvey the Wrap Note and 
Mortgage on the shopping center to National Operating. 
¶12 The Assignment was drafted by MONY.  However, the 
paragraph about payment of the Underlying Note and reconveyance 
of the Wrap Note and Mortgage was added at the request of 
National Operating. 
¶13 In late 1995, aware that National Operating was having 
difficulty obtaining financing to pay off the soon-to-mature 
Underlying Note, MONY offered to extend the loan again, for 
another fee and another increase in the interest rate.  On 
December 31, 1995, however, the Underlying Note matured without 
a second extension.  National Operating made a monthly payment 
No. 99-1119   
 
 
7 
of $44,899, but it failed to make full repayment on the loan.  
In short, it defaulted. 
¶14 On February 14, 1996, MONY called a default on the 
Underlying Note and notified National Operating of its intent to 
exercise its rights under the Assignment, as payee and mortgagee 
under the Wrap Note.  Its February 14 letter also was sent to 
Bridgeview and directed Bridgeview to make its payments on the 
Wrap Note to MONY beginning March 1, 1996. 
¶15 On February 22, 1996, MONY brought a declaratory 
judgment action, seeking to confirm the operation of the 
Assignment.  It asked for a declaratory judgment, confirming 
MONY's assumption of the Wrap Note, confirming MONY's interest 
as primary mortgagee and holder of the Wrap Note and Mortgage, 
and extinguishing the rights of National Operating as a payee 
and a mortgagee under the Wrap Note and Mortgage.  
¶16 MONY attached more than 70 pages of exhibits to its 
complaint and incorporated them by reference.  The exhibits 
included: (1) the Underlying Note and Security Agreement between 
National Operating and MONY; (2) the Wrap Note and Purchase 
Money Mortgage and the accompanying Security Agreement between 
National Operating and Bridgeview; and (3) the Loan Modification 
and Extension Agreement and the accompanying Assignment between 
National Operating and MONY. 
¶17 National Operating did not answer the declaratory 
judgment complaint.  Thus, on March 28, 1996, in an order 
drafted by MONY, the La Crosse County Circuit Court, Michael J. 
Mulroy, 
Judge, 
granted 
MONY 
a 
default 
judgment. 
 
This 
No. 99-1119   
 
 
8 
declaratory judgment by 
default confirmed 
the 
Assignment, 
confirmed MONY's status as primary mortgagee and holder of the 
Wrap Note and Mortgage, and extinguished the rights of National 
Operating as a payee and a mortgagee under the Wrap Note and 
Mortgage.  The declaratory judgment faithfully mirrored the 
language of MONY's complaint. 
¶18 After the February 14 letter, confirmed by the March 
28 declaratory judgment, MONY took over the Wrap Note and 
Mortgage.  It stepped into National Operating's shoes and began 
to receive Bridgeview's monthly payments.  
¶19 Two years later (1998), MONY and Bridgeview negotiated 
an agreement under which Bridgeview would pay MONY $4 million to 
satisfy its $5.5 million debt on the Wrap Note, thereby 
satisfying its debt for $1.5 million less than it owed.  MONY 
would receive a payment from Bridgeview of $4 million, about 
$1.6 million more than the approximately $2.4 million that 
remained unpaid by National Operating on the Underlying Note.  
From this agreement, National Operating would get nothing. 
¶20 When National Operating learned of the impending 
transaction, it informed MONY that it wished to tender full 
payment of its debtapproximately $2.4 millionand to exercise 
its right to reconveyance of the Wrap Note and Mortgage.  MONY 
refused the tender, claiming that National Operating's rights 
had been totally extinguished by the 1996 declaratory judgment. 
¶21 National Operating reacted in May 1998 by filing a 
multi-count lawsuit against MONY and Bridgeview, commencing this 
cause.  The complaint alleged that MONY was on the verge of 
No. 99-1119   
 
 
9 
unlawfully disposing of National Operating's collateral in 
violation of Chapter 409 of the Wisconsin Statutes (Article 9 of 
the U.C.C.), relating to the rights of debtors in default in 
secured transactions.  It asked for an injunction to prevent 
disposal of the collateral in a commercially unreasonable manner 
and a declaratory judgment interpreting the 1993 Assignment as 
requiring a reconveyance of the Wrap Note to National Operating 
after MONY was paid in full.  National Operating also raised 
numerous other claims, including breach of contract, breach of 
the implied covenant of good faith and fair dealing, unjust 
enrichment, 
intentional 
interference 
with 
a 
contractual 
relationship, and civil conspiracy. 
¶22 MONY and Bridgeview answered, and MONY moved to 
dismiss National Operating's action on the grounds of res 
judicata and collateral estoppel (claim preclusion and issue 
preclusion).  MONY contended that in the 1993 Assignment, 
National Operating had assigned to MONY all its rights in the 
Wrap Note and Mortgage, and that the declaratory judgment had 
confirmed that National Operating had no remaining rights. 
¶23 In November 1998 
National 
Operating 
amended its 
complaint, taking into account the answers it had received to 
its original complaint.  Then it moved for partial summary 
judgment on the issue of whether it was entitled to the surplus 
equity in the Wrap Note.  National Operating claimed that MONY 
was prohibited from selling the Wrap Note and thereafter 
retaining surplus equity in the Note.  It claimed that MONY was 
required by the Assignment, after repayment of the original 
No. 99-1119   
 
 
10
loan, to reconvey the Wrap Note and Mortgage to National 
Operating.  In response, MONY and Bridgeview each filed motions 
to dismiss National Operating's action. 
¶24 The circuit court, Judge Gonzalez presiding, granted 
the motions to dismiss on the grounds of claim preclusion, and 
denied National Operating's motion for partial summary judgment. 
 The court found that MONY had sought in its declaratory action 
to confirm its assumption of the Wrap Note and Mortgage pursuant 
to the Assignment, and to extinguish the rights of National 
Operating to the Wrap Note and Mortgage.  It found that the 1996 
judgment declared that National Operating had "no right of 
reconveyance or right to surplus equity."  It concluded that in 
the 
prior 
declaratory 
action, 
MONY 
was 
"[i]n 
effect . . . asserting its right in full to the Wrap Note and 
Mortgage" and that National Operating's claims "would nullify 
the default judgment entered previously by depriving [MONY] of 
its property right in the Wrap Note and Mortgage."  The court 
therefore determined that National Operating's claim was barred 
by claim preclusion. 
¶25 The 
court 
of 
appeals affirmed, determining 
that 
National 
Operating’s 
claims 
were 
precluded 
by 
the 
1996 
declaratory judgment against it.  The court stated that MONY's 
declaratory action had sought to "confirm its assumption of the 
wrap note and mortgage under the assignment and to extinguish 
all of National [Operating]'s rights in those instruments."  
Nat'l Operating, L.P. v. Mut. Life Ins. Co. of N.Y., unpublished 
No. 99-1119   
 
 
11
slip op. at 3 (Wis. Ct. App. Dec. 23, 1999).  It stated that 
MONY alleged in its declaratory action that: 
 
National [Operating]'s rights under the wrap note and 
mortgage had been extinguished as a result of its 
default on the underlying note.  [MONY] was asserting 
its rights under the wrap note and mortgage in full, 
claiming, in effect, that National [Operating] had no 
remaining rights in or under either document.  And the 
judgment expressly declared the parties' rights in all 
those respects.  
Id. at 6-7. 
¶26 The 
court 
of 
appeals 
acknowledged 
that 
MONY's 
complaint for declaratory judgment did not specifically refer to 
the "repayment" or "reconveyance" provisions of the Assignment. 
Id. at 7 n.4.  It determined, however, that the entire 
Assignment was incorporated by reference, and thus those 
provisions "must be considered to have been pleaded."  Id.  The 
court 
concluded 
that 
National 
Operating’s 
"repayment" 
or 
"reconveyance" rights were "alleged in the complaint and 
declared in the judgmentand are deemed to have been litigated 
in that action."..Id. at 7 n.5. 
¶27 We granted National Operating’s petition to review the 
decision of the court of appeals.  
 
II.  STANDARD OF REVIEW 
 
¶28 The circuit court resolved the case by granting 
MONY/Bridgeview's motions to dismiss, and denying National 
Operating's motion for partial summary judgment.  We review de 
No. 99-1119   
 
 
12
novo a circuit court's grant of a motion to dismiss or denial of 
a motion for partial summary judgment.  Alberte v. Anew Health 
Care Servs., Inc., 2000 WI 7, 232 Wis. 2d 587, ¶6, 605 N.W.2d 
515; Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 
235, 245, 593 N.W.2d 445 (1999).  In reviewing summary judgment 
rulings, we apply the same methodology as the circuit court, 
relying upon Wis. Stat. § 802.08(2) (1999-2000).6  Thorp v. Town 
of Lebanon, 2000 WI 60, ¶17 n.5, 235 Wis. 2d 610, 612 N.W.2d 59. 
 The circuit court and the court of appeals both decided this 
case on the basis of claim preclusion.  Whether claim preclusion 
applies to a given set of facts is also a question of law, which 
we review de novo.  Lindas v. Cady, 183 Wis. 2d 547, 552, 515 
N.W.2d 458 (1994).  
 
III. ANALYSIS 
 
A.  Article 9 Rights of Debtor in Default  
 
                     
6 Wisconsin Stat. § 802.08(2) provides in relevant part: 
 
The 
judgment 
sought 
shall 
be 
rendered 
if 
the 
pleadings, depositions, answers to interrogatories, 
and admissions on file, together with the affidavits, 
if any, show that there is no genuine issue as to any 
material fact and that the moving party is entitled to 
a judgment as a matter of law. 
 
All subsequent references to the Wisconsin Statutes are to 
the 1999-2000 version.  
No. 99-1119   
 
 
13
¶29 National 
Operating 
contends 
that 
this 
case 
is 
controlled by the provisions of Article 9 of the Uniform 
Commercial Code (1972)7 (Secured Transactions).  Hence, we begin 
our analysis with the Code. 
¶30 The Uniform Commercial Code is a series of related 
uniform laws that are intended to "simplify, clarify and 
modernize the law governing commercial transactions."  Wis. 
Stat. § 401.102(2)(a).  Another goal of the Code is to "make 
uniform the law among the various jurisdictions."  Wis. Stat. 
§ 401.102(2)(c).  We therefore rely on precedent from this and 
other jurisdictions in interpreting and applying the provisions 
of the U.C.C. 
¶31 Wisconsin has adopted each section of the U.C.C. 
relevant to this case.  This includes all of Article 9, which is 
embodied in Chapter 409 of the Wisconsin Statutes.  Chapter 409 
does not vary in any material respect from the uniform law.  
Hence, Article 9 and Chapter 409 are identical for purposes of 
our analysis and we refer to them interchangeably.8 
                     
7 All subsequent references to Article 9 of the Uniform 
Commercial Code are to the 1972 version unless otherwise 
indicated.   
8 Wisconsin Stat. ch. 409 is virtually identical to Article 
9 of the U.C.C.  Wisconsin Stat. §§ 409.501, 409.502, 409.503, 
409.506, and 409.507 are identical to U.C.C. §§ 9-501, 9-502, 9-
503, 9-506, and 9-507, respectively.  Wisconsin Stat. §§ 409.504 
and 
409.505 
are 
similar 
to 
U.C.C. 
§§ 9-504 
and 
9-505, 
respectively, and are identical insofar as they are relevant to 
the resolution of this case.   
No. 99-1119   
 
 
14
¶32 Chapter 409 governs secured transactions in Wisconsin, 
but 
it 
does 
not 
specifically 
define 
the 
term 
"secured 
transaction."  Instead, it provides that Chapter 409 applies to 
any transaction that is intended to create a security interest. 
 Wis. Stat. § 409.102(1)(a). 
¶33 Section 409.102 broadly describes the "[p]olicy and 
subject matter of [the] chapter."  It states:  
 
(1) Except as otherwise provided in s. 409.104 on 
excluded transactions, this chapter applies: 
 
(a) To any transaction (regardless of its form) 
which is intended to create a security interest in 
personal 
property 
or 
fixtures 
including 
goods, 
documents, instruments, general intangibles, chattel 
paper or accounts. 
 
. . . . 
 
(2) This chapter applies to security interests 
created by contract including pledge, assignment . . . 
  intended as security.  
 
(3) The application of this chapter to a security 
interest in a secured obligation is not affected by 
the fact that the obligation is itself secured by a 
transaction or interest to which this chapter does not 
apply. 
Wis. Stat. § 409.102 (emphasis added). 
¶34 Official Comment 1 to U.C.C. § 9-102 (Wis. Stat. 
§ 409.102), explains: 
 
[T]he principal test whether a transaction comes under 
this Article is: is the transaction intended to have 
effect as security? . . . When it is found that a 
security interest as defined in Section 1-201(37) was 
intended, this Article applies regardless of the form 
of the transaction or the name by which the parties 
may have christened it. 
No. 99-1119   
 
 
15
Unif. Commercial Code § 9-102, 3 U.L.A. 75 (2000), reprinted in 
Wis. Stat. Ann. § 409.102 (West Supp. 2000).9 
¶35 As a general rule, Chapter 409 applies to any 
transaction that is intended to secure payment or performance of 
an obligation.  Wis. Stat. § 409.102(2); see also Brown v. 
Baker, 
688 
P.2d 
943, 
947 
(Alaska 
1984). 
 
Chapter 
409 
specifically applies to assignments, if they are intended to 
secure payment or performance of an obligation.  Wis. Stat. 
§§ 409.102(1)(a) and 401.201(37). 
¶36 A portion of Chapter 409 (Wis. Stat. §§ 409.501 to 
409.507) applies to secured transactions in default.  Section 
409.501 establishes the rights and remedies of both the secured 
creditor and the debtor in default.10  It states in relevant 
part: 
 
Default; procedure when security agreement covers 
both real and personal property.  (1) When a debtor is 
in default under a security agreement, a secured party 
has the rights and remedies provided in ss. 409.501 to 
409.507 and except as limited by sub. (3) those 
provided in the security agreement. 
                     
9 Section 1-201(37) (Wis. Stat. § 401.201(37)) provides in 
relevant part that "'Security interest' means an interest in 
personal 
property 
or 
fixtures 
that 
secures 
payment 
or 
performance of an obligation."  U.C.C. § 1-201(37).  
10 There is no definition of default within the U.C.C.; 
beyond the requirements of good faith and the limitations of the 
unconscionability doctrine, default is "'whatever the security 
agreement says it is.'"  4 James J. White & Robert S. Summers, 
Uniform Commercial Code, § 34-2, at 386 (4th ed. 1995) (quoting 
2 Grant Gilmore, Security Interests in Personal Property § 43.3, 
at 1193 (1965)).  There is no dispute that National Operating 
defaulted on the Underlying Note when it failed to make the 
required payment to MONY on December 31, 1995.  
No. 99-1119   
 
 
16
 
. . . . 
 
(2) After default, the debtor has the rights and 
remedies provided in ss. 409.501 to 409.507, those 
provided in the security agreement and those provided 
in s. 409.207. 
 
(3) To the extent that they give rights to the 
debtor and impose duties on the secured party, the 
rules stated in the sections and subsections referred 
to in pars. (a) to (e) may not be waived or varied 
except 
as 
provided 
with 
respect 
to 
compulsory 
disposition 
of 
collateral 
(ss. 
409.504(3) 
and 
409.505(1)) 
and 
with 
respect 
to 
redemption 
of 
collateral (s. 409.506) but the parties may by 
agreement 
determine 
the 
standards 
by 
which 
the 
fulfillment of these rights and duties is to be 
measured 
if 
such 
standards 
are 
not 
manifestly 
unreasonable.  
 
(a) Sections 409.502(2) and 409.504(2) insofar 
as they require accounting for surplus proceeds of 
collateral; 
 
(b) Sections 409.504(3) and 409.505(1) which 
deal with disposition of collateral; 
 
(c) Section 
409.505(2) 
which 
deals 
with 
acceptance of collateral as discharge of obligation; 
 
(d) Section 409.506 which deals with redemption 
of collateral; 
 
(e) Section 409.507(1) which deals with the 
secured party's liability for failure to comply with 
ss. 409.501 to 409.507.  
Wis. Stat. § 409.501 (emphasis added). 
¶37 Certain of the provisions enumerated in Wis. Stat. 
§§ 409.501(3)(a)-(e) (U.C.C. § 9-501(3)(a) to (e)), "may not be 
waived or varied to the extent that those provisions give rights 
to the debtor and impose duties upon the secured party."  9 
William D. Hawkland et al., Uniform Commercial Code Series § 9-
No. 99-1119   
 
 
17
501:9, at 643 (1997).  These provisions include the right to an 
accounting 
for 
surplus 
equity 
under 
§§ 409.502(2) 
and 
409.504(2), and the right to disposition of collateral in a 
commercially reasonable manner under § 409.504(3).  U.C.C. § 9-
501(3)(a)-(b).  The right to redeem collateral under § 409.506 
may be waived, but only at a specific time in a specific manner. 
9 Hawkland, supra, § 9-501:9, at 643.  
¶38 These rights should be examined in turn.  First, a 
debtor in default has a right to surplus equity resulting from 
the 
secured 
creditor's 
disposal 
of 
collateral. 
 
Section 
409.502(2) governs the secured creditor's rights to collect 
collateral in the event of the debtor's default.  Section 
409.503 authorizes the secured creditor to take possession of 
the collateral upon default.  Section 409.504 then describes the 
secured party’s right to dispose of the collateral after 
default. 
¶39 Section 409.504(2) provides: "If the security interest 
secures an indebtedness, the secured party must account to the 
debtor for any surplus, and, unless otherwise agreed, the debtor 
is liable for any deficiency."  Wis. Stat. § 409.504(2) 
(emphasis added). 
¶40 Official Comment 3 to U.C.C. § 9-504 (Wis. Stat. 
§ 409.504) explains:  "In any security transaction the debtor 
 . . . is entitled to any surplus which results from realization 
on the collateral; the debtor will also, unless otherwise 
agreed, be liable for any deficiency.  Subsection (2) so 
provides."  Unif. Commercial Code § 9-504, 3B U.L.A. 130 (2000) 
No. 99-1119   
 
 
18
(emphasis added), reprinted in Wis. Stat. Ann. § 409.504 (West 
2000). 
¶41 The secured creditor may choose the manner in which it 
disposes of collateral, "subject to the limitation that the 
disposition must be commercially reasonable.  Thereafter, the 
creditor must account for a surplus and may sue for a 
deficiency."  IFG Leasing Co. v. Gordon, 776 P.2d 607, 612 (Utah 
1989). 
¶42 The secured creditor is not authorized to retain 
surplus equity.  The debtor in default has the right to surplus 
equity, and it may not waive the right.  Major's Furniture Mart, 
Inc. v. Castle Credit Corp., 602 F.2d 538, 542 (3d Cir. 1979); 
Bill Fitts Auto Sales, Inc. v. Daniels, 922 S.W.2d 718, 722 
(Ark. 1996).  
¶43 Second, a debtor in default has the right to require a 
secured creditor to dispose of collateral in a commercially 
reasonable manner.  This right may not be waived or varied.  
Wis. Stat. §§ 409.501(3), 409.502(2), and 409.504(3); see also 
Tropical Jewelers, Inc. v. Nationsbank, N.A. (South), 781 So.2d 
392, 394 (Fla. Dist. Ct. App. 2000).  "[E]very aspect of the 
disposition including the method, manner, time, place and terms 
must be commercially reasonable."  Wis. Stat. § 409.504(3).  
"[W]hen a transaction is governed by Article 9, a guarantor's 
'waiver of the right to the commercially reasonable disposition 
of collateral as set forth in U.C.C. § 9-504 is null and void.'" 
 Bank of China v. Chan, 937 F.2d 780, 785 (2d Cir. 1991) 
No. 99-1119   
 
 
19
(quoting Marine Midland Bank v. CMR Indus., 559 N.Y.S.2d 892, 
893 (N.Y. App. Div. 1990)). 
¶44 Third, a debtor in default has the right to redeem the 
collateral 
under 
Wis. 
Stat. 
§ 409.506. 
 
Section 
409.506 
provides: 
 
At any time before the secured party has disposed 
of collateral or entered into a contract for its 
disposition under s. 409.504 or before the obligation 
has been discharged under s. 409.505(2) the debtor or 
any other secured party may unless otherwise agreed in 
writing 
after 
default 
redeem 
the 
collateral 
by 
tendering fulfillment of all obligations secured by 
the collateral as well as the expenses reasonably 
incurred by the secured party.11 
Wis. Stat. § 409.506 (emphasis added). 
¶45 A debtor's right of redemption "exists until the 
secured party has disposed of or contracted to dispose of the 
collateral."  Emmons v. LeMaster, Inc., 10 P.3d 33, 36 (Kan. Ct. 
App. 2000). 
¶46 A debtor may waive or vary its right to redeem 
collateral, but only in writing, after default.  Before default, 
the debtor may not waive its right to redeem the collateral, 
even in writing.  Kellos v. Parker-Sharpe, Inc., 263 S.E.2d 138, 
140 (Ga. 1980).  Thus, a debtor may not waive its right to 
                     
11 Under Wis. Stat. § 409.505(2), a secured creditor may, 
after default, propose to retain the collateral in satisfaction 
of the debt secured by the collateral.  The creditor must inform 
the debtor in writing if it proposes to retain the collateral, 
unless 
the 
debtor 
has 
signed 
after 
default 
a 
statement 
renouncing its right to notice.  After receiving notice, the 
debtor has 21 days to object to the retention of the collateral. 
 If the debtor so objects, the creditor must dispose of the 
collateral pursuant to § 409.504.  Wis. Stat. § 409.505(2).   
No. 99-1119   
 
 
20
redeem 
its 
collateral 
as 
part 
of 
a 
security 
agreement. 
Indianapolis Morris Plan Corp. v. Karlen, 268 N.E.2d 632, 633-34 
(N.Y. Ct. App. 1971).  "[T]he debtor may not before default, as 
in the security agreement, modify or vary his or her right of 
redemption under section 9-506 since it is one of those rights 
which may not be modified or varied under subsection 9-501(3)." 
 9 Hawkland, supra, § 9-506:5, at 795.  
¶47 In summary, a secured transaction debtor in default 
may not waive or vary its right to surplus equity upon the 
disposition of the collateral, or its right to contest the 
commercial reasonableness of the disposition of its collateral. 
 It may waive or vary its right to redeem the collateral by 
tendering fulfillment of its obligation, but only in writing, 
after default.  The purpose of these restrictions on the ability 
to waive or vary the debtor's rights in default is explained in 
Official Comment 4 to U.C.C. § 9-501, which states in part: 
 
In the area of rights after default our legal system 
has traditionally looked with suspicion on agreements 
designed to cut down the debtor's rights and free the 
secured party of his duties: no mortgage clause has 
ever been allowed to clog the equity of redemption.  
The 
default 
situation 
offers 
great 
scope 
for 
overreaching; the suspicious attitude of the courts 
has been grounded in common sense. 
 
Subsection (3) of this section [U.C.C § 9-501, 
Wis. Stat. § 409.501] contains a codification of this 
longstanding and deeply rooted attitude: the specified 
rights of the debtor and duties of the secured party 
may not be waived or varied except as stated. 
Unif. Commercial Code § 9-501, 3B U.L.A. 11 (2000) (emphasis 
added), reprinted in Wis. Stat. Ann. § 409.501 (West 2000). 
No. 99-1119   
 
 
21
¶48 The purpose of Article 9 protections for debtors is 
further explained in Walker v. Grant County Savings and Loan 
Ass'n, 803 S.W.2d 913, 916 (Ark. 1991): "One clear policy reason 
underlying Article 9 default provisions is the protection of 
post default debtors from the potential of overbearing tactics 
and intimidation by secured parties." 
 
¶49 We now apply the principles of Chapter 409 to the 
facts of this case. 
 
B.  Rights of the Debtor in Default in this Case 
 
¶50 Two of the transactions central to this casethe loan 
from MONY to National Operating in exchange for the Underlying 
Note and Mortgage, and the sale of Bridgeview Plaza from 
National Operating to Bridgeview in exchange for the Wrap Note 
and Mortgage——are clearly labeled as security agreements.  The 
Underlying Note states that it is a "Mortgage Note" secured by a 
"Mortgage and Security Agreement."  The Mortgage and Security 
Agreement specifically states that the loan secured by the 
Underlying Note is a "'security agreement' . . . subject to 
Article 9 of the Uniform Commercial Code." 
¶51 Likewise, the Wrap Note is an "all-inclusive purchase 
money promissory note and is secured by an all-inclusive 
purchase money Mortgage and Security Agreement . . . between 
the . . . mortgagor, and  . . .  the mortgagee."  The Wrap Note 
explicitly states that it "creates a security interest."  Both 
the Underlying Note and the Wrap Note were therefore clearly 
No. 99-1119   
 
 
22
intended as security agreements, and both are subject to Chapter 
409.  
¶52 The 1996 Assignment was also intended as a security 
agreement.  In its first amended complaint, National Operating 
alleged that "[a]s additional security for the now extended 
Underlying Note, National Operating made a collateral assignment 
of the Wrap Note to MONY."  In its answer, MONY admitted 
National Operating's allegation.   
¶53 That the Assignment was intended as security is also 
established in the deposition of James J. Postweiler, the former 
real 
estate 
vice 
president 
of 
MONY, 
who 
negotiated 
the 
Assignment for MONY.12  Postweiler acknowledged that the language 
in the Assignment regarding MONY taking the assignment of rights 
and remedies under the Wrap Note in the event of default was 
inserted to provide MONY with additional security, stating: "the 
concept of receiving the assignment as additional security in 
the event of default . . . was represented in the final 
agreement."  He also stated: "My understanding with regard to 
the assignment is very clearly that that assignment was there as 
additional security during the extension period or after in any 
event of default." 
 
¶54 National Operating agreed to the Assignment, pledging 
the Wrap Note and Mortgage as collateral, to give MONY 
                     
12 At some point after MONY and National Operating agreed to 
the Assignment, Postweiler left his employment at MONY.  At the 
time of his October 8, 1998 deposition, Postweiler represented 
Bridgeview, "working with Bridgeview Plaza in their efforts to 
refinance the property."  
No. 99-1119   
 
 
23
additional security for the Underlying Note and the Loan 
Extension.  Consequently, all the pertinent transactions in this 
case were secured transactions to which Chapter 409 of the 
statutes applies.  We must look to Chapter 409 to ascertain the 
rights and remedies that the parties possessed as creditors and 
debtors in the event of default. 
¶55 In 1993, during the 15th year of its agreement with 
National Operating, MONY called its loan.  National Operating 
was unable to make full repayment.  This is when the Loan 
Modification and Extension Agreement and the Assignment were 
negotiated.   
¶56 If we assume that National Operating's failure to pay 
off the loan in 1993 was a default, National Operating could 
have executed a written waiver of its right to redeem its 
collateral by full payment of its loan obligation.  Wis. Stat. 
§ 409.506.  However, the notion that the 1993 Assignment was a 
written 
waiver 
of 
the 
statutory 
right 
of 
redemption 
is 
inconsistent 
with 
the 
paragraph 
in 
the 
Assignment 
that 
reaffirmed National Operating's right to reconveyance of the 
Wrap Note and Mortgage upon full payment of its obligation.13 
Inasmuch as the Assignment was a new security agreement, it is 
doubtful that it could have contained a written waiver.  See 9 
Hawkland, supra, § 9-506:5, at 796. 
                     
13 The last substantive paragraph of the Assignment reads: 
"Upon payment of the Note and any amounts due under the 
Mortgage, Assignee shall convey the Wrap Note and Mortgage to 
Assignor." 
   
No. 99-1119   
 
 
24
¶57 In any event, National Operating could not waive its 
statutory right to commercially reasonable disposal of the 
collateral or its statutory right to surplus equity.  It could 
not waive these two rights before default or after default.  It 
could not waive these rights under any circumstances. 
¶58 Furthermore, there is some question whether National 
Operating should be viewed as a debtor in default in 1993 
inasmuch as it renegotiated an extension of its loan and paid 
heavily to do so. 
¶59 After 
December 
31, 
1995, 
the 
situation 
clearly 
changed.  National Operating became a debtor in default because 
of its failure to pay off the full loan and its failure to 
secure an additional extension. 
¶60 After this default, MONY was entitled to exercise its 
rights as a secured creditor under Chapter 409 and its rights 
under the negotiated Assignment.  However, any rights it secured 
in the negotiated Assignment had to be consistent with rights it 
was authorized to obtain through negotiation under Chapter 409. 
¶61 After default, National Operating was entitled to its 
rights as a debtor in default.  Chapter 409 gave this debtor two 
rights——the 
right 
to 
surplus 
equity 
and 
the 
right 
to  
commercially reasonable disposal of the collateral.  Wis. Stat. 
§§ 409.502, 409.504.  The debtor could not waive these two 
rights.  Chapter 409 gave the debtor another right——the right to 
redemption 
of 
the 
collateral 
upon 
full 
payment 
of 
the 
obligation, provided the collateral was still available.  Wis. 
Stat. § 409.506.  This right could have been waived in writing 
No. 99-1119   
 
 
25
after default, but there is no written waiver of this right in 
any document after the 1995 default. 
¶62 To sum up, looking solely at Chapter 409, we conclude 
that National Operating retained all the debtor's rights 
enumerated in the statute. 
 
C.  Declaratory Judgment and Claim Preclusion 
 
¶63 MONY presents a dramatically different perspective of 
this case.  It argues that its 1996 declaratory judgment, based 
upon an alternative interpretation of the facts, totally 
extinguished National Operating's rights.  It asserts that the 
declaratory judgment thus precluded any claims founded in 
Article 9.14 
¶64 MONY contends that in 1993, National Operating, after 
defaulting, convinced MONY to execute the Loan Modification and 
Extension Agreement, which extended the maturity date on the 
loan until the end of 1995.  MONY argues in its brief:  "In 
addition, and as a means to provide MONY with additional 
security for the extension, National Operating assigned to MONY 
'all of its rights, title and interest in those certain rights 
                     
14 In their briefs, neither MONY nor Bridgeview address the 
applicability of the U.C.C. to the issues in this case, despite 
National Operating having argued extensively to the circuit 
court, 
the 
court 
of 
appeals, 
and 
this 
court 
that 
the 
transactions in this case were secured transactions, governed by 
the U.C.C.  
No. 99-1119   
 
 
26
and remedies 
granted in 
the Wrap 
Note and 
Mortgage by 
Bridgeview.'" 
¶65 When National Operating defaulted at the end of 1995, 
MONY brought a declaratory judgment action seeking to confirm 
the 
operation 
of 
the 
Assignment 
"in 
light 
of 
National 
Operating's second default on the Underlying Note."  According 
to MONY's brief, 
 
MONY prayed for a declaration confirming its full and 
unconditional ownership of the Wrap Note and Mortgage 
and "extinguishing" National Operating's remaining 
rights in these instruments. 
 
. . . .  
 
. . . On March 28, 1996 . . . the Court entered a 
declaratory judgment consistent with MONY's request. 
 
. . . . 
  
In 
response 
to 
National 
Operating's 
[1998] 
Complaint, MONY moved to dismiss the action on [claim] 
preclusion grounds.  MONY argued that the 1996 
Declaratory Judgment, which confirmed the complete 
assignment of the Wrap Note and Mortgage to MONY, as 
well as the resulting extinguishment of National 
Operating's 
rights 
in 
those 
instruments, 
barred 
National Operating's current efforts. 
¶66 This, in essence, was the view adopted by the circuit 
court and the court of appeals.  MONY's interpretation of the 
1996 
declaratory 
judgment 
requires 
us 
to 
address 
claim 
preclusion under declaratory judgments.  
       
1.  Claim Preclusion 
 
No. 99-1119   
 
 
27
¶67 The circuit court and the court of appeals both 
determined that National Operating's claims were barred by claim 
preclusion.  Under the doctrine of claim preclusion, formerly 
known as res judicata, a final judgment is conclusive in all 
subsequent actions between the same parties as to any claim or 
cause of action that was litigated or could have been litigated 
in the first action.  Sopha v. Owens-Corning Fiberglas Corp., 
230 Wis. 2d 212, 233, 601 N.W.2d 627 (1999).  
¶68 In Barbian v. Lindner Bros. Trucking Co., 106 Wis. 2d 
291, 296-97, 316 N.W.2d 371 (1982), this court examined whether 
the same claim preclusion rule applies to declaratory judgments. 
 We concluded that it does not, stating: "[A] declaratory 
judgment is only binding as to matters which were actually 
decided therein and is not binding to matters which 'might have 
been litigated' in the proceeding."  Barbian, 106 Wis. 2d at 
297. 
¶69 The declaratory judgment here was a default judgment. 
Subsequent actions may be precluded by a prior default judgment. 
 A.B.C.G. Enters. v. First Bank Southeast, 184 Wis. 2d 465, 481, 
515 N.W.2d 904 (1994).  However, in default judgments, relief 
"is limited to that which is demanded in the plaintiff's 
complaint."  Klaus v. Vander Heyden, 106 Wis. 2d 353, 359, 316 
N.W.2d 664 (1982).  "The judgment does not extend to issues 
which were not raised in the pleadings."  Id. at 360. 
¶70 For claim preclusion to apply to an action, "the 
following factors must be present: (1) an identity between the 
parties or their privies in the prior and present suits; (2) an 
No. 99-1119   
 
 
28
identity between the causes of action in the two suits; and (3) 
a final judgment on the merits in a court of competent 
jurisdiction."  Northern States Power Co. v. Bugher, 189 Wis. 2d 
541, 551, 525 N.W.2d 723 (1995).  
¶71 The parties agree that the "identity between the 
parties" and the "final judgment" requirements are met in this 
case.  MONY, National Operating, and Bridgeview were the named 
parties in the 1996 declaratory action, which was decided by a 
final declaratory judgment.  The question for the court is 
whether an identity exists between the claims National Operating 
raised in its current action, and the causes of action pleaded, 
actually 
litigated, 
and 
decided 
in 
the 
1996 
declaratory 
judgment. 
 
2.  Assignment, Complaint, and Declaratory Judgment 
 
¶72 To determine what was actually pleaded and litigated 
in the declaratory judgment, we must examine the Assignment, 
MONY's declaratory complaint, and the resulting declaratory 
judgment. 
¶73 We begin with the Assignment.  The Assignment from 
National Operating to MONY states in relevant part: 
 
NOW, THEREFORE, [National Operating] does hereby 
assign to [MONY] all of its right, title and interest 
in those certain rights and remedies granted in the 
Wrap Note and Mortgage by Bridgeview, to [National 
Operating].  
 
No. 99-1119   
 
 
29
At any time after default, under the Wrap Note 
and Mortgage, [MONY] may exercise said rights and 
remedies 
at 
such 
time 
and 
instance 
[National 
Operating] would be able to exercise those rights and 
remedies, upon notice to and without recourse from 
[National Operating]. 
 
Upon payment of the [underlying] note and any 
amounts due under the [underlying] mortgage, [MONY] 
shall convey the Wrap Note and Mortgage to [National 
Operating]. 
¶74 The heart of the Assignment includes three distinct 
paragraphs.  Because the effectiveness of the first paragraph 
depends entirely upon the "default" referenced in the second 
paragraph, the Assignment cannot be viewed as an absolute 
assignment in which there is an immediate, absolute transfer of 
rights.  An example of this kind of assignment, the 1978 
assignment of the Underlying Note from the Trustees of MONY 
Mortgage Investors to MONY, is described above.  See supra ¶7 
note 2.  It must instead be viewed as a collateral assignment, 
in which the collateral serves as security for a loan,15 and as a 
conditional assignment in which the condition precedent is 
default on the loan.  
                     
15 National Operating's legal counsel, Cary L. Newburger, 
stated 
in 
an 
affidavit 
that 
he 
suggested 
inserting 
the 
reconveyancing paragraph into the Assignment "to clarify that 
National Operating was assigning the Wrap Note to MONY as 
additional security for National Operating's obligation to 
MONY."  Newburger further stated that "[t]his was always 
intended to be a standard assignment for security purposes: 
National Operating assigned the Wrap Note to MONY as additional 
security for its debt to MONY, and upon repayment of National 
Operating's debt to MONY, the Wrap Note was to be returned to 
National Operating." 
  
No. 99-1119   
 
 
30
¶75 The declaratory complaint was filed on February 22, 
1996, eight days after MONY notified National Operating that it 
would exercise its rights under the Assignment.  In the 
complaint, MONY meticulously details the relationships and 
transactions among the parties and attaches and incorporates by 
reference about 70 pages of exhibits, including the Underlying 
Note and Security Agreement, the Wrap Note and Purchase Money 
Mortgage along with the Security Agreement, and the Loan 
Modification and Extension Agreement along with the Assignment. 
¶76 Paragraph 11 of the complaint reads in part: "In 
consideration 
of 
the 
Loan 
Modification 
and 
Extension 
Agreement . . . National 
Operating . . . assigned 
its 
rights 
under the Note and Mortgage between it and . . . Bridgeview 
Plaza 
Partnership . . . to 
the 
Plaintiff 
pursuant 
to 
an 
Assignment dated October 18, 1993. . . .  A copy of this 
Assignment is attached and incorporated herein by reference." 
¶77 Paragraph 12 of the complaint states: "Pursuant to the 
terms 
of 
the 
Assignment, 
notice 
was 
given 
to 
[National 
Operating] that [MONY] will exercise the rights and remedies of 
[National 
Operating] 
under 
the 
[Wrap] 
Note 
and 
Mortgage 
described in the Assignment." 
¶78 After alleging the facts, MONY specifically sought 
relief in the form of: 
 
a Declaratory Judgment of this Court confirming its 
assumption 
of 
the 
Notes 
between 
the 
Defendant, 
National 
Operating, 
L.P., 
and 
the 
Defendant, 
Bridgeview Plaza Partnership; extinguishing the rights 
of the Defendant, National Operating, L.P., as a 
mortgagee 
under 
said 
Mortgage; 
extinguishing 
the 
No. 99-1119   
 
 
31
rights of the Defendant, National Operating, L.P., as 
payee under the Note; and confirming the Plaintiff’s 
interest as primary mortgagee and holder of the Note 
and Mortgage declared herein. 
¶79 When National Operating did not answer the complaint, 
Judge Mulroy granted MONY a default judgment on March 28, 1996: 
 (1) "confirming the assignment and assumption of the Notes 
between . . . National 
Operating, . . . and 
Bridgeview 
Plaza 
Partnership, in LaSalle National Bank, as Indenture Trustee";16 
(2) 
"extinguishing 
the 
rights 
of . . . National 
Operating, . . . as 
a mortgagee under 
said 
Mortgage"; (3) 
"extinguishing the rights of . . . National Operating . . . as 
payee under the Note"; and (4) "confirming LaSalle National Bank 
as the primary mortgagee and holder of the Note and Mortgage." 
¶80 Taking a close look at the complaint, there is no 
reference to the contingency enumerated in the Assignment of the 
right to reconveyance of the Wrap Note and Mortgage upon payment 
of the Underlying Note.  There is no reference in the complaint 
to the Uniform Commercial Code.  There is no claim that National 
Operating had waived a statutory right.  There is only a demand 
to extinguish "certain" of National Operating's rights. 
¶81 The 
declaratory 
judgment 
closely 
follows 
the 
complaint.  It does not acknowledge and then confirm, in 
specific terms, a waiver of National Operating's right to redeem 
collateral upon payment of the loan, nor does it make any 
                     
16 Both MONY and National Operating acknowledge that MONY 
had transferred its interest in the Wrap Note to LaSalle 
National Bank, which later transferred it back to MONY. 
No. 99-1119   
 
 
32
specific reference to extinguishing rights under Article 9 or 
Chapter 409. 
¶82 The declaratory judgment grants only what MONY asked 
in its complaint; it could have granted nothing more.  Wis. 
Stat. § 806.01(1)(c);17 Klaus, 106 Wis. 2d at 359. 
¶83 The issue then is whether this 1996 declaratory 
judgment precludes the present claims by National Operating, 
irrespective of its rights under Chapter 409, because the 
substance of these claims was aptly pleaded by MONY and fully 
determined by the circuit court. 
¶84 Once again, the rule on claim preclusion in a 
declaratory judgment action is different from the rule on claim 
preclusion in typical litigation: A declaratory judgment is 
binding only as to matters which were actually decided in the 
action, not to matters which might have been litigated in the 
proceeding but were not.   Barbian, 106 Wis. 2d at 297.  
¶85 Put bluntly, did MONY plead and did Judge Mulroy 
decide 
that 
National 
Operating, 
in 
the 
1993 
Assignment, 
bargained away its right to all surplus equity in the collateral 
and 
its 
right 
to 
commercially 
reasonable 
disposition 
of 
collateral, notwithstanding the protective provisions of Chapter 
                     
17 Wisconsin Stat. § 806.01(1)(c) provides in relevant part: 
Every final judgment shall grant the relief to 
which the party in whose favor it is rendered is 
entitled, even if the party has not demanded the 
relief in the pleadings.  If there be no answer the 
relief granted to the plaintiff shall not exceed that 
demanded in the complaint. 
No. 99-1119   
 
 
33
409?  We see no evidence that MONY articulated such a far-
reaching claim in its complaint and no evidence that Judge 
Mulroy bought into such a claim.  To accept that proposition 
would require us to believe that Judge Mulroy consciously 
disregarded the statutory law.  We decline to do so. 
¶86 Whether National Operating waived its right to redeem 
collateral in the 1993 Assignment is a closer question.  
Nevertheless, for MONY to prevail, it must argue that its 
declaratory complaint implicitly alleged that National Operating 
defaulted in 1993; that after this default, National Operating 
consciously waived its right to redeem collateral within the 
written 
Assignment; 
that 
Judge 
Mulroy 
understood 
this 
implication of the complaint; that he made a determination that 
the "default" referred to in Wis. Stat. § 409.506 was the 1993 
default, not the 1995 default; and that he granted judgment to 
confirm MONY's theory. 
¶87 Such an argument is unreasonable for several reasons. 
 Contrary to MONY's assertions, the 1993 Assignment does not on 
its face assign all right, title and interest in the Wrap Note 
and Mortgage to MONY.  Instead, National Operating assigns "all 
of its right, title and interest in those certain rights and 
remedies granted in the Wrap Note and Mortgage" (emphasis 
added).  We perceive significance in this limiting language.  
Obviously, none of the debtor's rights in Chapter 409 is 
"granted in the Wrap Note and Mortgage."  Moreover, the right to 
reconveyance in the Assignment——a right that parallels the right 
of redemption in Wis. Stat. § 409.506——is simply different from 
No. 99-1119   
 
 
34
any right of redemption granted in the Wrap Note and Mortgage.  
After all, National Operating possessed the Wrap Note and 
Mortgage before default.  Any right to redemption "granted in 
the Wrap Note and Mortgage" would have been Bridgeview's right, 
not National Operating's right, and would have come into play if 
and when Bridgeview paid off its obligation to National 
Operating.  The surrender of some right to redemption "granted 
in the Wrap Note and Mortgage" is not the same as the surrender 
of a right to reconveyance granted in the Assignment. 
¶88 MONY contends that the second and third relevant 
paragraphs of the Assignment are mutually exclusive and that the 
third paragraph of the Assignment on reconveyance applies only 
if National Operating paid the Underlying Note in full, without 
defaulting.  These interpretations are not self-evident from the 
text, and MONY's interpretation of the third paragraph does not 
make sense.  Why would National Operating insist on including a 
paragraph in the Assignment that substantively reduced its 
statutory right of redemption? 
¶89 When a debtor in default waives its statutory right to 
redeem collateral by paying off the obligations secured by the 
collateral, the waiver must be agreed to in writing by the 
parties.  Wis. Stat. § 409.506.  A clear, explicit written 
waiver records the agreement of the parties.  Unclear, ambiguous 
language that is subject to after-the-fact interpretation is 
No. 99-1119   
 
 
35
inconsistent with the debtor protections contained in Article 9 
of the Code.18 
¶90 Turning to the complaint, MONY asserts that the 
complaint 
alleged 
and 
sought 
a 
judgment 
declaring 
the 
extinguishment of all National Operating's rights in the Wrap 
Note and Mortgage.  It claims that even if it did not 
specifically 
allege 
the 
extinguishment 
of 
all 
National 
Operating's rights, it effectively pleaded every provision of 
the Underlying Note, Wrap Note, and Assignment by incorporating 
each of those documents by reference.  It cites Wis. Stat. 
§ 802.04(3) for the proposition that "a copy of any written 
instrument which is an exhibit to a pleading is a part thereof 
for all purposes."  It therefore asserts that inasmuch as these 
documents were attached to the complaint and incorporated by 
reference, they were aptly pleaded, citing to A.B.C.G. Enters., 
184 Wis. 2d at 481. 
¶91 We disagree.  MONY did not aptly plead all provisions 
of the Underlying Note, Wrap Note, and Assignment, as well as 
all the other documents, simply by attaching them to the 
complaint and incorporating them by reference. 
¶92 MONY's complaint consisted of six pages.  Its request 
for relief was contained in a single tightly-written paragraph. 
 National Operating could have read the complaint without 
                     
18 Under appropriate circumstances, a debtor in default 
ought to be willing to waive its redemption right, knowing that 
a secured creditor may thus be motivated not to rush to dispose 
of the collateral. 
No. 99-1119   
 
 
36
discerning the interpretation now being advanced by MONY and 
without suspecting that the 70 pages of exhibits were more than 
documentation. 
¶93 Wisconsin Stat. § 802.04(3) must not be interpreted to 
mean that in a declaratory judgment action, a party aptly pleads 
every provision of every document that it incorporates by 
reference, for claim preclusion purposes.  In a declaratory 
judgment action, claim preclusion is limited to those matters 
that are actually litigated.  Barbian, 106 Wis. 2d at 297.  To 
be actually litigated in this context, a matter must be pled 
with sufficient clarity to give notice to the opposing party and 
the court of what claims are at stake so that they will 
understand the claims that will be barred in future litigation. 
¶94 Here there was a default judgment.  By failing to 
answer the complaint, National Operating was conceding every 
claim actually pleaded.  But National Operating was not given 
fair notice in the complaint that MONY sought to extinguish all 
its rights, as opposed to the "certain" rights granted it as a 
payee or mortgagee under two specific documents.  This court 
will not countenance a procedure that permits a party to 
unconsciously surrender what it could not consciously waive, or 
to lose in ambiguity what it could only waive in an explicit 
writing. 
¶95 The declaratory judgment——a document drafted by MONY——
granted precisely the relief sought in MONY's complaint, nothing 
more.  The broad scope attributed to the declaratory judgment by 
MONY simply is not present in the legal document. 
No. 99-1119   
 
 
37
¶96 By its plain 
language, 
the 
declaratory judgment 
confirmed the Assignment and MONY's assumption of the Wrap Note, 
confirmed MONY’s interest as primary mortgagee and holder of the 
Wrap Note and Mortgage, and extinguished the rights of National 
as payee and mortgagee.  It did not declare that National 
Operating had given up all its rights in or to the Wrap Note.  
It did not declare that National Operating agreed in the 
Assignment to give up its rights under Chapter 409.  It did not 
by its plain language extinguish National Operating's right of 
reconveyance 
of 
collateral 
were 
MONY 
paid 
in 
full 
for 
obligations owed it on the Underlying Note.  Consequently, MONY 
is still required to reconvey the collateral to National 
Operating once National Operating satisfies all its obligations, 
if the collateral is still available.  Wis. Stat. § 409.506. 
¶97 The declaratory judgment enforced the terms of the 
Assignment.  It thereby eliminated any doubt that Bridgeview 
should make monthly interest payments on the Wrap Note to the 
assignee.  It enabled MONY to dispose of the collateral in a 
commercially reasonable manner.  Thus, MONY was authorized to 
sell the collateral to Bridgeview if it did so in a commercially 
reasonable manner. 
¶98 Conversely, MONY was not authorized to sell the 
collateral without notice to National Operating.  Wis. Stat. 
§ 409.504(3).  It was not authorized to dispose of the property 
in a manner that was not commercially reasonable.  Wis. Stat. 
§§ 409.501(3), 409.502(2), and 409.504(3).  And it was not 
No. 99-1119   
 
 
38
authorized to keep surplus equity for itself.  Wis. Stat. 
§ 409.504(2). 
¶99 The Uniform Commercial Code is one of the preeminent 
achievements of American law.  It is constantly under review so 
that it can address changing practices in the world of 
commerce.19  Our role as a court is not to question the effect of 
Code provisions in a particular case.  Our role is to apply the 
law. 
 
D.  Disposition of Motions in this Case 
 
 
¶100 In its first amended complaint, National Operating 
raised 11 claims.  The circuit court dismissed all these claims, 
finding that: 
 
All of [National Operating's] claims in the 
present action, Unlawful Disposition of Collateral, 
Anticipatory Breach of Contract, Breach of Implied 
Covenant of Good Faith and Fair Dealing, Unjust 
Enrichment, Intentional Interference With Contractual 
Relationship, Civil Conspiracy, and Accounting, if 
                     
19 In 1998, a revised Article 9 was approved by the National 
Conference of Commissioners on Uniform State Laws and the 
American Law Institute.  Unif. Commercial Code § 9-101, cmt. 2, 
(amended 2000), 3 U.L.A. 21 (2000).  The revised Article 9, 
which was made effective July 1, 2001, "reflects a substantial 
reorganization of former Article 9 and renumbering of most 
sections."  Unif. Commercial Code § 9-101, cmt. 3, (amended 
2000), 3 U.L.A. 21 (2000).  Wisconsin amended Wis. Stat. Chapter 
409, adopting revised Article 9, on June 22, 2001, effective 
July 1, 2001.  2001 Wis. Act 10.  While this opinion would have 
referred to different sections of the statutes had the amended 
Chapter 409 been in effect for this case, the changes to Chapter 
409 affirm our reasoning and would not have altered the result 
of this case. 
No. 99-1119   
 
 
39
successfully litigated, would nullify the default 
judgment previously entered by depriving [MONY] of its 
property 
right 
in 
the 
Wrap 
Note 
and 
Mortgage.  
Therefore [National Operating]'s claims are barred by 
the doctrine of claim preclusion. 
¶101 A moving party is entitled to summary judgment when no 
genuine issue of material fact exists and it is entitled to 
judgment as a matter of law.  Nierengarten v. Lutheran Soc. 
Servs., 219 Wis. 2d 686, 695, 580 N.W.2d 320 (1998).  We have 
determined that National Operating possesses certain rights in 
and to the Wrap Note and Mortgage that were not litigated in the 
declaratory judgment action nor declared in the resulting 
judgment.  We therefore conclude that National Operating's 
claims are not barred by claim preclusion.  They should not have 
been dismissed on that basis.  We hereby remand this case to the 
circuit 
court 
with 
instructions 
to 
reinstate 
National 
Operating's claims.   
¶102 In its motion for partial summary judgment, National 
Operating sought only a declaration "that it is entitled to the 
surplus equity in the security (Wrap Note) it assigned to Mutual 
Life Insurance Company of New York (MONY) as collateral for 
National Operating's obligation to MONY."  The circuit court 
denied the motion.  It is undisputed that National Operating 
assigned the Wrap Note to MONY as security for its obligation on 
the Underlying Note.  We conclude that the assignment of the 
Wrap Note and Mortgage was a secured transaction governed by 
Chapter 409.  Under Chapter 409, a debtor in default in a 
secured transaction has a non-waivable and non-variable right to 
surplus equity in the collateral, as provided in the statutes.  
No. 99-1119   
 
 
40
There are therefore no remaining issues of material fact or 
questions of law relative to National Operating's motion.  
Accordingly, we remand to the circuit court with instructions to 
grant National Operating's motion for partial summary judgment, 
declaring that National Operating is entitled to surplus equity 
after disposition of the Wrap Note by MONY.    
 
IV. CONCLUSION 
 
¶103 We hold that under the facts of this case, National 
Operating is a debtor in default in a secured transaction 
pursuant to Chapter 409 of the Wisconsin Statutes (Article 9 of 
the U.C.C.).  It therefore possesses and retains certain non-
waivable and non-variable rights, including the right to contest 
the reasonableness of any disposition of the collateral, and the 
right to receive any surplus equity after disposition of 
collateral by MONY.  It also has a right to redeem the 
collateral if it satisfies certain obligations, provided the 
collateral is still available.  These rights were not "bargained 
away" by National Operating, litigated in MONY's declaratory 
judgment action, nor declared in the declaratory judgment.  
Since these rights are the basis of National Operating's current 
claim, we determine that the circuit court improperly granted 
the motions to dismiss filed by MONY and Bridgeview.  We further 
determine that National Operating is entitled as a matter of law 
to partial summary judgment on its claim that it has a right to 
surplus equity after disposition of the Wrap Note. 
No. 99-1119   
 
 
41
By the Court.—The decision of the court of appeals is 
reversed and the cause is remanded.  
 
No. 99-1119.npc 
 
1 
¶104 N. PATRICK CROOKS, J. (dissenting).  I cannot join the 
majority opinion because Chapter 409 of the Wisconsin Statutes 
does not control the result of this case.  The majority opinion 
is putting the cart before the horse, beginning its analysis 
with Chapter 409, before addressing the doctrine of claim 
preclusion.  In my view, the court of appeals correctly held 
that National Operating is precluded from bringing its claims 
against MONY and Bridgeview.  The March 28, 1996, default 
declaratory judgment extinguished any rights guaranteed to 
National Operating under Chapter 409.  As a result, National 
Operating is barred under the doctrine of claim preclusion from 
asserting its rights under Chapter 409 in the present case.    
¶105 I have no substantial dispute with the majority 
opinion's discussion of the doctrine of claim preclusion, 
however, I strongly disagree with the majority's application of 
that doctrine to the facts of this case.  I agree with the 
majority opinion that there is common identity among the 
parties.  Majority op. at ¶71.  In the declaratory judgment 
action, MONY, National Operating, and Bridgeview were the named 
parties.  In the present case, MONY, National Operating, and 
Bridgeview are the named parties.  I also agree with the 
majority that the previous action is a final judgment, on the 
merits, in a court of competent jurisdiction.  Id.  For the 
purposes of a claim preclusion analysis, a default judgment is a 
final judgment.  See A.B.C.G. Enters., Inc. v. First Bank 
Southeast, 184 Wis. 2d 465, 481, 515 N.W.2d 904 (1994).  In 
MONY's declaratory judgment action, the circuit court granted a 
No. 99-1119.npc 
 
2 
default judgment against National Operating.  Pl.-Appellant-
Pet'r App. at 136.  The declaratory judgment in favor of MONY is 
a final judgment for claim preclusion purposes.   
¶106 Where I disagree with the majority opinion is the 
conclusion that the substance of the present claims was not 
aptly pleaded by MONY and was, therefore, not fully decided by 
the circuit court.  The analysis concerns what was actually 
decided in the declaratory judgment action and what material 
issuable facts were well pleaded in MONY's complaint.  See 
Barbian v. Lindner Bros. Trucking Co., 106 Wis. 2d 291, 297, 316 
N.W.2d 371 (1982); Klaus v. Vander Heyden, 106 Wis. 2d 353, 359-
60, 316 N.W.2d 664 (1982). 
¶107 I begin the analysis, therefore, by examining what was 
well pleaded in MONY's complaint for declaratory judgment.  The 
majority opinion acknowledges the comprehensive nature of the 
information contained within MONY's complaint:  
 
MONY meticulously details the relationships 
and 
transactions 
among 
the 
parties 
and 
attaches and incorporates by reference about 
70 
pages 
of 
exhibits, 
including 
the 
Underlying Note and Security Agreement, the 
Wrap Note and Purchase Money Mortgage along 
with the Security Agreement, and the Loan 
Modification and Extension Agreement along 
with the Assignment. 
 
Majority op. at ¶75.  In its complaint MONY asked that: 
[t]he Plaintiff [MONY] seeks a Declaratory 
Judgment 
of 
this 
Court 
confirming 
its 
assumption 
of 
the 
Notes 
between 
the 
Defendant, National Operating, L.P., and the 
Defendant, 
Bridgeview 
Plaza 
Partnership; 
extinguishing the rights of the Defendant, 
No. 99-1119.npc 
 
3 
National Operating, L.P., as a mortgagee 
under 
said 
mortgage; 
extinguishing 
the 
rights of the Defendant, National Operating, 
L.P., 
as 
payee 
under 
the 
Note; 
and 
confirming 
the 
Plaintiff's 
interest 
as 
primary mortgagee and holder of the Note and 
Mortgage declared herein. 
 
Compl. of MONY at 5 (emphasis added).  The Assignment, which was 
attached to MONY's complaint for declaratory judgment, stated, 
in part: 
NOW, THEREFORE, Assignor does hereby 
assign to Assignee all of its right, title 
and interest in those certain rights and 
remedies 
granted 
in 
the 
Wrap Note 
and 
Mortgage by Bridgeview, to Assignor. 
At any time after default, under the 
Wrap 
Note 
and 
Mortgage, 
Assignee 
may 
exercise said rights and remedies at such 
time and instance Assignor would be able to 
exercise those rights and remedies, upon 
notice 
to 
and 
without 
recourse 
from 
Assignor. 
 
Pl.-Appellant-Pet'r App. at 125-26 (emphasis added).  
 
¶108 The broad language of MONY's complaint for declaratory 
judgment, and the extensive exhibits attached thereto, establish 
that MONY was seeking all rights in the Wrap Note and Mortgage. 
 In its complaint, MONY asked the circuit court to confirm its 
assumption of the Wrap Note and Mortgage between National 
Operating and Bridgeview.  Nowhere in the complaint is there a 
statement 
that 
this 
assumption 
is 
subject 
to 
National 
Operating's right of reconveyance or right to any surplus 
equity.  In addition, MONY asked the circuit court to extinguish 
No. 99-1119.npc 
 
4 
the rights of National Operating to the Wrap Note and Mortgage. 
 In its complaint, MONY did not ask that all of National 
Operating's rights would be extinguished, except for the right 
to reconveyance and the right to any surplus equity.     
¶109 MONY supplemented its requests in the complaint with 
all of the details and documents regarding the Wrap Note and 
Mortgage, including the Assignment.  It stated that all of the 
attached documents were incorporated by reference.  The majority 
opinion concludes that MONY did not aptly plead all of the 
provisions of the attached documents, including the Assignment, 
for claim preclusion purposes.  Majority op. at ¶¶91-93.  The 
problem is that the majority opinion provides no legal support 
for this conclusion.  Perhaps, this is because this conclusion 
is contrary to well-established law.  Any document attached to a 
pleading, if adopted by reference, becomes part of that pleading 
for all purposes.  Wis. Stat. § 802.04(3); See also Sedgwick v. 
Blanchard, 164 Wis. 421, 423, 160 N.W. 267 (1916) (holding that 
a contract attached to a complaint is part of that complaint for 
the purpose of testing the sufficiency of the complaint); 
Continental Bank & Trust Co. v. Akwa, 58 Wis. 2d 376, 387, n.11, 
206 N.W.2d 174 (1973) (holding that papers attached to a 
complaint and incorporated by reference are considered a part of 
the complaint).    
No. 99-1119.npc 
 
5 
¶110 Important among the documents attached to MONY's 
complaint is the Assignment between MONY and National Operating. 
In paragraph 1 of the Agreement section of the Assignment, 
National Operating specifically gave MONY all rights, title, and 
interest in the Wrap Note and Mortgage.  In paragraph 2 of the 
Agreement 
section 
of 
the 
Assignment, 
National 
Operating 
permitted MONY, in the event of a default by National Operating 
on the Underlying Note and Mortgage, to exercise all the rights 
to the Wrap Note and Mortgage, leaving National Operating 
without recourse.  The only reservation of rights in the 
Assignment is located in paragraph 3 of the Agreement Section, 
where MONY promised to reconvey the Wrap Note and Mortgage if 
National Operating paid the Underlying Note and Mortgage to 
MONY.  Paragraphs 2 and 3 are mutually exclusive alternatives.  
Paragraph 2 sets forth the consequences of a default, while 
Paragraph 3 sets forth the consequences of payment.    
¶111 Because National Operating defaulted on the Underlying 
Note and Mortgage, as the majority opinion concedes (majority 
op. at ¶13), paragraph 2 of the Agreement section of the 
Assignment becomes effective.  As a result of this default and 
the provisions of paragraph 2, MONY gained permission to 
exercise all of the rights to the Wrap Note and Mortgage, 
leaving National Operating without recourse.  Paragraph 3 is 
No. 99-1119.npc 
 
6 
immaterial, because National Operating had defaulted before 
offering payment of the Underlying Note and Mortgage to MONY. 
¶112 I, therefore, conclude that, for the purposes of 
determining what material issuable facts were well pleaded in 
MONY's complaint for declaratory judgment, MONY was seeking all 
rights in the Wrap Note and Mortgage.  Nowhere in its claim for 
all rights in the Wrap Note and Mortgage does MONY exclude 
National Operating's right to reconveyance, nor does MONY 
exclude National Operating's right to any surplus equity.  It is 
important to note, again, that MONY asked in its complaint for 
the extinguishing of the rights of National Operating. 
¶113 Having determined what was well pleaded in MONY's 
complaint for declaratory judgment, I now consider what was 
actually decided by the default declaratory judgment.  After 
presenting its findings of fact and conclusions of law, the 
circuit court stated: 
IT IS ORDERED, ADJUDGED AND DECREED: 
 
1.  
That 
the 
plaintiff 
[MONY] 
is 
entitled to a Declaratory Judgment pursuant 
to Section 806.04, Wis. Stats., as prayed 
for 
in 
plaintiff's 
Complaint 
and 
First 
Amended Complaint, and in accordance with 
the 
Findings 
of 
Fact, 
confirming 
the 
assignment 
and 
assumption 
of 
the 
Notes 
between the Defendant, National Operating, 
L.P., and the Defendant, Bridgeview Plaza 
Partnership, in LaSalle National Bank, as 
Indenture Trustee under an Indenture dated 
September 28, 1995; extinguishing the rights 
of the Defendant, National Operating, L.P., 
as 
a 
mortgagee 
under 
said 
Mortgage; 
No. 99-1119.npc 
 
7 
extinguishing 
the 
rights 
of 
National 
Operating, L.P., as payee under the Note; 
and confirming LaSalle National Bank, as 
Indenture Trustee under an Indenture dated 
September 28, 1995, as the primary mortgagee 
and holder of the Note and Mortgage declared 
herein. 
           
Pl.-Appellant-Pet'r App. at 142-43 (emphasis added).  I conclude 
that this judgment extinguished all of National Operating's 
rights under the Wrap Note and Mortgage, including the right to 
reconveyance and the right to any surplus equity.  The judgment 
confirmed the relevant terms of the Assignment from National 
Operating to MONY, paragraphs 1 and 2.  As stated above, the 
Assignment gave MONY all rights in the Wrap Note and Mortgage 
and permitted MONY to exercise those rights, leaving National 
Operating without recourse.  Accordingly, the judgment confirmed 
that MONY had all rights on the Wrap Note and Mortgage, and that 
MONY could exercise those rights without recourse from National 
Operating.  
¶114 Despite the broad language of MONY's complaint and of 
the default declaratory judgment, the majority opinion concludes 
that National Operating retained its right to reconveyance of 
the Wrap Note and Mortgage, and its right to any surplus equity. 
 Majority op. at ¶¶96-98.  In reaching this determination, the 
majority opinion relies on the fact that neither MONY's 
declaratory judgment complaint, nor the declaratory judgment 
itself specifically mentioned the right to reconveyance or any 
No. 99-1119.npc 
 
8 
rights under Chapter 409.  Majority op. at ¶¶80-81.  However, as 
stated above, the broad language of the complaint, including the 
Assignment attached thereto, established what MONY was seeking, 
and the broad language of the declaratory judgment established 
that it was granted all of the rights of National Operating to 
the Wrap Note and Mortgage.  Consequently, there was no need for 
MONY to include a specific reference to National Operating's 
right to reconveyance or the right to any surplus equity.     
¶115 In addition to the majority's misreading of MONY's 
complaint and the declaratory judgment, the majority opinion 
fails 
to 
take 
into 
account 
the 
common-law 
compulsory 
counterclaim rule as it relates indirectly to the present case. 
 This rule provides that there are circumstances where the 
failure to raise a counterclaim in a prior action prevents 
related claims from being brought in a subsequent action.  
A.B.C.G. Enters., Inc., 184 Wis. 2d at 476.  These circumstances 
are when "a favorable judgment in the second action would 
nullify the judgment in the original action or impair rights 
established in the initial action."  Id. at 476-77.   
¶116 At issue in A.B.C.G. was the effect of six prior 
foreclosure actions on A.B.C.G.'s instant action for fraud and 
other claims.  184 Wis. 2d at 472.  A.B.C.G. had defaulted in 
each of the prior actions.  Id. at 471.  A.B.C.G. contended that 
if claim preclusion barred the instant action, Wisconsin's 
No. 99-1119.npc 
 
9 
permissive counterclaim doctrine would be transformed into a 
compulsory one.  Id. at 473-74.  The court concluded that the 
common-law compulsory counterclaim rule applied; that is, where 
a successful counterclaim would nullify a prior judgment or 
impair 
rights 
established 
in 
the 
initial 
action, 
that 
counterclaim is barred by claim preclusion.  Id. at 480.  The 
court found a common identity of parties and claims or causes of 
action.  Id. at 481-82.  The court also found that if A.B.C.G. 
was successful in the instant action, First Bank would have to 
return the property it recovered via foreclosure.  Id. at 483.  
Correspondingly, the court held that claim preclusion barred the 
subsequent fraud action.  Id.   
¶117 In a case where a party seeks to bar a claim based on 
the doctrine of claim preclusion, once it has been established 
that there is a common identity of parties and of claims or 
causes of action, there must be a determination of whether a 
judgment in favor of the party seeking to avoid claim preclusion 
would either nullify the previous judgment or impair rights 
established by the previous judgment.  Id. at 476-77.  If so, 
then that party's claims are barred by the doctrine of claim 
preclusion.  Id. at 480. 
¶118 In this case, a favorable judgment for National 
Operating would both nullify the default declaratory judgment 
granted in favor of MONY, and also would impair MONY's rights 
No. 99-1119.npc 
 
10
that were established by the default declaratory judgment.  The 
default declaratory judgment gave MONY all rights to the Wrap 
Note and Mortgage.  In its complaint, National Operating sought 
an injunction preventing MONY from disposing of the Wrap Note 
and Mortgage in an unreasonable manner, from selling the Wrap 
Note and Mortgage to Bridgeview, and from retaining any surplus 
equity.  National Operating's First Am. Compl. at 12.  In 
addition, National Operating sought a declaratory judgment 
holding that the Assignment required MONY to reconvey the Wrap 
Note and Mortgage to National Operating, upon satisfaction of 
the Underlying Note and Mortgage.  Id.  If the circuit court 
granted the injunctions and the declaratory judgment requested 
by National Operating, MONY would no longer possess all rights 
to the Wrap Note and Mortgage, nullifying the previous judgment 
and 
impairing 
MONY's 
rights 
established 
by 
the 
previous 
judgment. 
¶119 I am not concluding that National Operating did not 
possess certain rights under Chapter 409.  However, the time to 
raise those rights has passed.  National Operating should have 
asserted these rights in an answer to MONY's complaint for 
declaratory judgment.  When National Operating failed to do so, 
the circuit court granted a default declaratory judgment.  The 
purpose of the doctrine of claim preclusion is to respect the 
finality of judgments and to prevent repetitive litigation.  
No. 99-1119.npc 
 
11
DePratt v. West Bend Mut. Ins. Co., 113 Wis. 2d 306, 311, 334 
N.W.2d 883 (1983).  Based on the doctrine of claim preclusion, 
the default declaratory judgment must be appropriately applied 
here, so that National Operating is precluded from claiming its 
Chapter 409 rights in the present case. 
¶120 In summary, I conclude that National Operating is 
barred from bringing its complaint by the doctrine of claim 
preclusion.  Accordingly, I would affirm the decision of the 
court of appeals, that affirmed the judgment of the circuit 
court, which granted MONY's and Bridgeview's motion to dismiss, 
and denied National Operating's motion for partial summary 
judgment. 
¶121 For the foregoing reasons, I respectfully dissent. 
¶122 I am authorized to state that Justice JON P. WILCOX 
joins this opinion.  
 
No. 99-1119.npc 
 
1