Court Opinion

ID: 9673745
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:17:31.553567+00
Date Added: 2024-06-11T18:16:23.831593
License: Public Domain

*176Connor T. Hansen, J.
For the purposes of this appeal, the plaintiff will be identified as “Security” and the defendants as “Callan.”
On July 31,1962, Callan executed a mortgage note with Sherman Savings and Loan, the predecessor of plaintiff - Security Savings, in the amount of $114,000. Callan is engaged in the real estate business. He had entered into a number of similar business transactions with Sherman Savings, but has done no business with Security, with the apparent exception of matters relating to obligations outstanding at the time Security took over Sherman Savings.
The mortgage note contains the following clause in paragraph one:
“. . . The rate of interest stipulated herein may be increased at the option of the Association; provided, however, that the Association may not exercise such right in less than 3 years from the date of the loan, and then only upon at least four months’ written notice to the borrower; and provided that in the event of such an increase in the stipulated rate of interest the borrower may prepay the loan within such notice period without penalty.”
Pursuant to that clause, Security increased the rate of interest on the mortgage note from 5y% percent to iy% percent on June 28, 1968, and from 7% percent to 8% percent on May 28,1970.
On February 10,1971, Callan’s mortgage account passbook showed a remaining balance of $40,605.55. On February 19, 1971, Security Savings advanced $1,604.91 to defendant for payment of real estate taxes. By check dated February 24, 1971, Callan attempted to pay the balance owing by presentation to Security of a check bearing the notation “mortgage principal balance in full,” in the amount $40,605.55.
Security returned the check because allegedly insufficient to constitute payment in full of the principal indebtedness which included additional interest and moneys *177advanced for tax payments. The partial payjnent of real estate taxes advanced by Security had been added to the principal indebtedness as provided in the mortgage contract.
On March 12, 1971, Callan paid Security the amount of the tax advance. On May 26, 1971, the original check was again presented to Security and again rejected for the same reasons previously given.
The particular-determinations of the trial court which are pertinent to this appeal are: (1) Security could not increase the interest rate more than once during the mortgage term, and (2) the facts relating to the presentation of the check by Callan were such that it constitutes prepayment of the loan.
Specifically, we perceive the two issues presented for determination by this court to be:
1. Was the plaintiff prohibited by the terms of the mortgage note from increasing the interest thereon more than once?
2. Was the accrual of interest on the balance due on the mortgage note terminated by defendant’s presentation to plaintiff on February 26, 1971, of a check in the amount of $40,605.55?

Interest escalator clause'.

Callan argues that the increase in interest rate which took place on November 1, 1968, exhausted Security’s right to invoke the escalator clause. The trial court found, as contended by Callan, that the plain meaning of the escalator clause denoted contemplation of a single-time use, and that had the possibility of multiple uses been intended, it would have been easy to use terminology indicating such intent.
Security contends that this determination was erroneous because the terms of the disputed clause must be *178construed in connection with the statutory section governing escalator clauses in mortgages held by savings and loan associations. Section 215.21 (3) (b), Stats., provides:
“ (b) The mortgage or mortgage note may provide that the interest rate may be increased after 3 years from the date thereof, by giving to the borrower at least 4 months’ notice of such intention. The borrower may, after receipt of such notice, repay his loan within the time specified in such notice without the payment of any penalty.”
The composition and powers of savings and loan associations are governed by the provisions of ch. 215, sec. 215.01, et seq., Stats. Because there is a specific provision within that chapter dealing with the power to escalate interest rates during the term of the mortgage, the construction of the statute is dispositive of the questions relating to the power of Security to invoke the escalator clause contained in the mortgage here in dispute. It is manifestly clear that by including the escalator clause in the mortgage contract, the parties were doing so pursuant to the statute.
This type of association existed at common law and possessed common-law rights. De Fazio v. Haven Savings and Loan Association (1956), 22 N. J. 511, 126 Atl. 2d 639. Therefore, it must be resolved whether the statute is subject to the strict construction applicable to statutes in derogation of common-law rights.
Generally, statutes restraining the freedom of contract have been considered subject to these rules. 82 C. J. S., Statutes, p. 942, sec. 393. However, comprehensive legislation dealing with these associations, having common-law rights, is regulatory, placing limits on those rights, rather than enabling, or conferring power or authority on the association. Julien v. Model B., L. & I. Asso. (1902), 116 Wis. 79, 89, 90, 92 N. W. 561. In this context, the rule of strict construction has its limits:
*179“. . . An exception to the rule of strict construction is customarily made in the case of a statute which purports to provide a complete system of law covering all aspects of the subject with which it deals, so as to supersede all prior law on the subject, whether common or statutory law .... (<
“. . . Modern regulatory legislation, moreover, is generally regarded as a newly conceived system of legal arrangements to deal with newly emergent problems in society, entitled to liberal construction because of its remedial character and not subject to the rule of strict construction of statutes in derogation of the common law because its genesis and conception are wholly outside and apart from any common law frame of reference . . . .” Sutherland, Statutory Construction (4th ed., 1974), Statutes in Derogation of the Common Law: Limitations on the rule, pp. 51, 52, sec. 61.03.
The law of this state is in accord with this proposition. Heiden v. Milwaukee (1937), 226 Wis. 92, 100, 101, 275 N. W. 922; and Schumacher v. Milwaukee (1932), 209 Wis. 43, 46, 243 N. W. 756. Therefore, normal rules of statutory construction are applicable to the instant provision.
Amidzich v. Charter Oak Fire Ins. Co. (1969), 44 Wis. 2d 45, 51, 170 N. W. 2d 813, stated:
“. . . When a plain meaning of a word of a statute or contract is apparent, we need not resort to either construction or case law to bolster our recognition of that plain meaning ....’’
Are the terms of the statute and mortgage so plain and clear as to preclude the necessity for construction?
In Madison Metropolitan Sewerage Dist. v. DNR (1974), 63 Wis. 2d 175, 179, 216 N. W. 2d 533, the following rule was restated:
“. . . The test of ambiguity has been consistently stated: ““A statute or portion thereof is ambiguous when it is capable of being understood by reasonably well-informed persons in either of two or more senses.’ ” ’ ”
*180We are of the opinion this statutory provision is ambiguous in that it is “capable of being understood by reasonably well-informed persons in either of two or more senses.”
In Ortman v. Jensen & Johnson, Inc. (1975), 66 Wis. 2d 508, 520, 225 N. W. 2d 635, it was stated:
“This court has held that where a statute is ambiguous, this court must ascertain the legislative intention as disclosed by the language of the statute in relation to its scope, history, context, subject matter and the object intended to be remedied or accomplished. Wisconsin Southern Gas Co. v. Public Service Comm. (1973), 57 Wis. 2d 643, 205 N. W. 2d 403. The object to be accomplished by a statute must be given great weight in determining legislative intent. Town of Menominee v. Skubitz (1972), 53 Wis. 2d 430, 192 N. W. 2d 887. . . .”
The considerations mandated by Ortman, supra, necessitate review of the various policy arguments. The court in Bruce v. Blalock (1962), 241 S. C. 155, 163, 127 S. E. 2d 439, 443, in construing the terms of a contract setting utility rates, described the purpose of escalator clauses:
“The provision ... is known in law as an ‘escalator clause.’ The Courts have recognized the necessity for such a clause because of the sharply inflationary and changing economic conditions prevailing in this country for the past several years. As a means of coping with such changing economic conditions, with resultant price variations, many contracts fix a base price but contain a provision whereby the seller may raise such price. The necessity for this type clause was brought about because of long term contracts when the parties thereto could not anticipate all price factors which might occur during the existence of the said contract. . . .”
The concerns there expressed are equally applicable to the necessity for interest adjustments in mortgage loans, and have been recognized as such. See: Comment, The Variable Interest Rate Clause and Its Use in California Real Estate Transactions, 19 U. C. L. A. Law Rev. 468 *181(1971-1972), which notes that “[w]hen the effects of the recent inflationary period adversely limited the supply of funds for residential homebuilding, savings and loan institutions attempted to use . . . , escalator clauses, in their lending agreements. . . .”
The validity of the clause itself is not in question. The issue is whether this particular statute, and the mortgage executed pursuant thereto, allow multiple increases during the term of the mortgage. We first observe there is no language in the statute which prohibits multiple escalations. The controlling words of both the statute and the note are “interest . . . may be increased.” This language in no way limits the number of times the escalation clause may be used. The statute does establish the manner in which the use of the clause is to be exercised. It provides that three years must elapse from the date of the loan and then a four months’ notice must be given to the borrower. The statute provides that the borrower may repay the loan within that time without the payment of any penalty.
A report from the commissioner of savings and loan associations to the governor in January, 1975, reflects the commissioner’s interpretation of sec. 215.21 (3) (b), Stats. This report states that the statute imposes virtually no legal or contractual limits on the amount or frequency of escalations that borrowers might expect in the future. The commissioner then proceeds to make recommendation for legislative modification of the statute to impose additional restrictions.
The terms of real estate mortgage notes cover long periods of time, often twenty to thirty years. If the clause were limited in use to a single occasion, the association would necessarily be forced to make the single increase as large as possible, since it could not foresee what might happen in terms of economic conditions during the intervening years between the increase and the *182end of the mortgage term. The terms of the clause prohibiting increase in less than three years following the date of the mortgage points to the conclusion that it was not contemplated that the association would elect to wait a substantial period of time, in comparison to the length of the mortgage, before invoking the clause. In other words, the relatively short time limitation does not support the argument that a single-use interpretation is reasonable even if it forces an association into waiting fifteen to twenty years into the term of the note to assess economic pressures and invoke the clause at that point in time. The association would, of necessity, if limited to a single increase, make that increase as large as possible. Besides being more onerous on the borrower, this would preclude realistic appraisal of economic conditions at any one point in time, and of their effects on the institution, its members, and the particular borrower himself. With institutions subject to such extensive regulations as savings and loan associations, it is not sufficient to say that the then current money market would adequately control these situations. Moreover, other terms in the statute operate to place a maximum beyond which rates cannot be raised.
Sec. 215.09 (12) : “. . . The board of directors shall fix and determine the interest rate to be charged on all loans, provided such rates of interest conform, to the general range of interest rates approved by the commissioner, but such rates of interest may not exceed the rates permitted by ch. 422 [consumer credit transaction] where applicable.” (Emphasis added.)
Sec. 215.13: “Savings and loan associations may: ((
“ (30) . . . Assess and collect from members interest, premiums, fines, fees, and other charges. No savings and loan association shall demand or receive for loans or discounts a rate of interest exceeding that allowed by law.”
*183These statutory provisions, to some extent, serve to limit interest increases.
Therefore, having reference to the scope of the statute, the policy behind the clause, the ability of savings and loan associations to effectively manage the funds of its members and at the same time provide funds for borrowers, we conclude that the appropriate construction of the statute and, therefore, of the mortgage clause here in dispute, is one that allows multiple increases based on assessment of economic needs at on-going intervals. Whether further restrictions on the conditions imposed by sec. 215.21 (3) (b), Stats., are desirable is a matter for legislative consideration.

Accrml of interest.

Callan argues that accrual of interest on the mortgage loan should have terminated at the time he proffered a check in the amount of $40,605.55 to Security. The following facts are pertinent with respect to this issue. The last entry in Callan’s mortgage account passbook was dated February 10, 1971, and showed a balance owing of $40,605.55. On February 17, 1971, Security advanced the sum of $1,604.91 in behalf of defendant for payment of real estate taxes, since money deposited in an escrow account for tax payment purposes was insufficient in that amount. The amount so advanced was added to the principal indebtedness as provided in the mortgage contract. Thus, the balance due on the principal on February 19, 1971, was $42,210.46. On February 26, 1971, Callan presented a check, dated February 24th, to Security, in the amount of $40,605.55, with the notation “mortgage principal balance in full.” It was not accepted. On March 12, 1971, Callan reimbursed Security for the tax advance. Also, on that date, Security returned the February 26th check to Callan. On *184May 26, 1971, Callan presented the same check to Security. The check, once again, was not accepted.
The trial court concluded that the prepayment penalty clause in the mortgage note was valid, and that the check presented on February 26th was not payment in full, since the amount of the penalty was not included therein. Therefore, accrual of interest did not stop on that date. No issue is raised on this appeal in regard to the decision of the trial court on the effect of the prepayment penalty clause. Therefore we do not consider the issue. Callan argues, nevertheless, that the accrual of interest should have stopped because the amount of the check was the amount shown in the passbook; moreover, Callan subsequently deposited the check with the court, upon institution of this action, in accordance with the provisions of sec. 895.171, Stats., and, therefore, “kept the tender good.” It appears that no interest was paid subsequent to February 10,1971.
Regardless of the effect of the decision of the trial court as to the prepayment penalty, there is no way the check Callan presented on February 24,1971, can be construed to represent payment of the “mortgage principal balance in full.” The check represented the passbook balance due on February 10, 1971. It did not take into account the accrual of interest after February 10, 1971, or the tax payment advanced and capitalized by Security. The check presented was insufficient and the principle that: “. . . a regular and lawful tender of the amount due on a mortgage debt stops the running of interest thereon. . . .” 55 Am. Jur. 2d p. 460, sec. 431, is not applicable. Accrual of interest on the amount of the mortgage debt represented by the check could have stopped if Callan had not written on the check “mortgage principal balance in full.” The fact that Callan subsequently paid the check into court has no bearing on the determination of the trial court that the check was not payment in full *185and that the accrual of interest, therefore, was not halted. There remains the matter of interest from February 10, 1971, to May 26, 1971, the date of the second presentation of the check to Security. Callan paid the amount of the taxes advanced on March 12, 1971, which is the same date the check in question was returned to him. No tender was made of accumulated interest from February 10, 1971. The mortgage contract also provides that after sixty days the delinquent interest is to be capitalized. By the time the same check was again presented and refused on May 26,1971, the delinquent interest had been capitalized. The presentation of this check on February 26, 1971, still containing the statement on it that it was payment of “mortgage principal balance in full,” in fact at no time represented payment of the amount due. Haddow v. J. L. Owens Co. (1920), 172 Wis. 391, 179 N. W. 508. The accrual of interest was not halted.
Our attention is directed to testimony of Callan and the predecessor of Security concerning past practices of mortgage payments. We agree with the trial court. This testimony is of no probative value in this case.
By the Court. — Judgment affirmed in part; reversed in part.