Opinion ID: 1253349
Heading Depth: 2
Heading Rank: 2

Heading: Rights of the Debtor in Default in this Case

Text: [6] ¶ 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. [7] ¶ 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 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 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. [8] ¶ 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 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.