Opinion ID: 2214876
Heading Depth: 3
Heading Rank: 2

Heading: Nature of the guarantor's liability

Text: ¶ 53 Our conclusion that the phrase personally liable for the debt secured by the mortgage does not include guarantors of payment is further supported by the principle that a guarantor's liability arises not from the debt itself, but from a separate guaranty contract. Therefore, although guarantors of payment are personally liable for some amount according to the terms of their guaranty contract, they are not personally liable for the debt secured by the mortgage. ¶ 54 Wisconsin law treats the liability of a guarantor as separate and distinct from the liability of the borrower, arising not from the debt itself but from the terms of the guaranty contract. In Continental Bank & Trust v. Akwa, 58 Wis.2d 376, 206 N.W.2d 174 (1973), a guarantor raised certain affirmative defenses based on provisions of the Uniform Commercial Code (UCC). This court, relying on a provision of the UCC stating that [n]o person is liable on [a negotiable] instrument unless his signature appears thereon, Wis. Stat. § 403.401, explained: [The plaintiff] is not proceeding on the Akwa-Downey notes but upon a breach of the contract of guaranty. . . . [A]n action to enforce the liability of the guarantor must be in the form of an action for damages for a breach of the contract of guaranty, and not an action upon the underlying indebtedness. While the affirmative defenses . . . may be fatal to plaintiff's cause of action, if he were proceeding upon the instruments, they are not necessarily fatal to plaintiff's cause of action upon its separate and independent contract of guaranty with the defendants. Id. at 387, 206 N.W.2d 174. ¶ 55 The reasoning in Akwa directly supports our conclusion that guarantors are not personally liable for the debt secured by the mortgage under Wis. Stat. § 846.103(2). It articulates a clear rule that guarantors are liable only according to the terms of their contracts, and are not liable for the debt itself. [12] This principle is codified in the phrase personally liable for the debt secured by the mortgage. We see no reason to believe that this language encompasses parties whose liability arises from an independent contract of guaranty. ¶ 56 This conclusion is further supported by Kramer. In Kramer, as in this case, a corporation executed a mortgage and two individuals guaranteed the amount of the underlying debt. Kramer, 74 Wis.2d at 209, 246 N.W.2d 536. The bank foreclosed and brought a separate action against the guarantors for the deficiency. Id. The defendants argued that the suit against them personally was not timely until an appeal of the foreclosure judgment was resolved. Id. This court held that no efforts to collect from the . . . corporation or to foreclose under the mortgage were necessary as a prerequisite to enforcing the primary liability of these guarantors under their individual guaranties of payment. Id. at 212, 246 N.W.2d 536. We relied on the distinction between a guaranty of collection and a guaranty of payment to conclude that the bank was entitled to pursue the guarantors under a guaranty of payment regardless of what steps were currently being taken to foreclose. Id. at 215, 246 N.W.2d 536. ¶ 57 The Kramer case did not address whether the defendants, as guarantors, were parties personally liable for the debt secured by the mortgage, and could have been included in the foreclosure action on the deficiency judgment. Nonetheless, the case stands for the proposition that guarantors' liability arises from the guaranty contract, not from the debt secured by the mortgage. ¶ 58 In this case, the court of appeals reasoned, applying Kramer, that the Boyers were personally liable for the debt secured by the mortgage because they were primarily liable for the debt. It concluded that [b]ecause they were principal obligors and primarily liable for the debts secured by the mortgages, it follows that the Boyers were `personally liable for the debts secured by the mortgages,' under Wis. Stat. § 846.103(2). Bank Mutual, 316 Wis.2d 266, ¶ 16, 762 N.W.2d 826. ¶ 59 We disagree. The court of appeals' reasoning confused terms. Boyer Construction was personally liable for the debt secured by the [five] mortgage[s]. It was also primarily liable for the debt as it was directly responsible for it. See Black's Law Dictionary 933 (8th ed.2004) (primary liability is [l]iability for which one is directly responsible, as opposed to secondary liability.). By contrast, Steven and Marcy Boyer were neither personally liable nor primarily liable on the debt because they did not sign the notes secured by the mortgages. However, Steven and Marcy Boyer signed the guaranty, a separate contract. They were personally liable on this contract of guaranty and primarily liable on it because they signed the guaranty. The Boyers also were primarily liable on the guaranty in a temporal sense because Bank Mutual did not have to wait for a foreclosure on the mortgages to proceed personally against the Boyers. See Kramer, 74 Wis.2d at 212, 246 N.W.2d 536. ¶ 60 The early Wisconsin cases discuss the distinction between a guarantor of collection and guarantor of payment. As we see it, however, when a guarantor's liability arises from a completely separate contract of guaranty, the guarantor is not personally liable for the debt secured by the mortgage and, in such a case, neither a guaranty of payment nor a guaranty of collection comes within the scope of the redemption statute. [13] A mortgagee may proceed on a guaranty of payment upon a different timeline than it may proceed on a guaranty of collection. In neither case, however, is the guarantor liable for the debt secured by the mortgage; rather, the guarantor is liable for what he or she agreed to in the guaranty. ¶ 61 The Boyers also argue that the phrase nor separately rendered in Wis. Stat. § 846.103 expands the scope of that statute to include guarantors who are liable on a separate document. This phrase, however, merely keeps the language of Wis. Stat. § 846.103(2) consistent with that of Wis. Stat. § 846.04(1), which permits a deficiency judgment to be ordered in the original judgment and separately rendered against the party liable. A court may order a deficiency judgment in the original foreclosure judgment, but cannot actually render the deficiency judgment until after the sale is confirmed. Glover, 117 Wis.2d at 695, 345 N.W.2d 449. [14] The phrase separately rendered, in § 846.103(2) underscores the fact that a deficiency judgment may not be rendered in the foreclosure following a shortened redemption period, nor separately rendered later. It does not refer to a guarantor against whom action may be taken in a separate suit or claim on the guaranty. [15]