848 N.W.2d 728
Wis.2014Background
- In 2001 the Sullivans executed a promissory note and a mortgage secured on a condominium; the mortgage was recorded with MERS named as mortgagee/nominee and U.S. Bank as lender.
- PHH later claimed it obtained the 2001 note (and thus the mortgage) and had been servicing the loan since 2001; Dow purchased the condo in 2009 and paid off a 2003 mortgage but the title commitment nonetheless listed the 2001 mortgage.
- Before closing Dow’s counsel was told the 2001 mortgage was listed in error; Dow closed, paid the 2003 obligation, and later was notified by PHH that the 2001 loan remained unpaid.
- Dow sued for declaratory judgment that the 2001 mortgage was not a lien at the 2009 sale (statute of frauds / written assignment required); PHH foreclosed and the actions were consolidated.
- The circuit court granted summary judgment to PHH holding the note-holder equitably received the mortgage; the court of appeals affirmed the equitable-assignment ruling but reversed summary judgment and remanded because PHH had not shown enforceable possession of an authenticated note.
- The Wisconsin Supreme Court affirmed the court of appeals: it held equitable assignment applies in Wisconsin and that equitable assignment falls within the statute-of-frauds exception for transfers “by act or operation of law,” but remanded the issue of whether PHH can actually produce/enforce the note to the circuit court.
Issues
| Issue | Plaintiff's Argument (Dow) | Defendant's Argument (PHH) | Held |
|---|---|---|---|
| Does equitable assignment apply in Wisconsin so that a mortgage follows an assigned note? | Equitable-assignment doctrine is outdated or distinguishable and should not apply to modern transactions. | Historic Wisconsin case law and UCC § 409.203(7) codify that assignment of a debt carries the security; mortgage follows the note. | Yes. Wisconsin recognizes equitable assignment; mortgage passes with assignment of the note. |
| Does Wis. Stat. § 409.203(7) codify equitable assignment? | Interpreted narrowly by Dow as applying only when the debt itself is assigned as security to another. | § 409.203(7) (adopting UCC § 9‑203(g)) codifies the common-law rule that a transfer of an obligation transfers the security. | Yes. The court interprets § 409.203(7) as codifying equitable assignment. |
| Does the statute of frauds (Wis. Stat. § 706.02) bar equitable assignment unless a written mortgage assignment exists? | The statute of frauds requires a written assignment of interests in land (mortgages); equitable assignment cannot circumvent that requirement. | Equitable assignment operates "by act or operation of law," which is an express exception to the statute of frauds in Wis. Stat. § 706.001(2)(a). | No. Equitable assignment occurs by operation of law and falls within the statute‑of‑frauds exception. |
| Was summary judgment proper for PHH because it holds enforceable possession of the note? | The record does not show PHH held the note at summary judgment; Dow argued PHH could not enforce without authenticated note. | PHH claimed it received and serviced the note since 2001 and thus had the mortgage by equitable assignment. | The court did not decide note-possession sufficiency on appeal; the court of appeals’ reversal remanding that factual question stands and must be resolved below. |
Key Cases Cited
- Croft v. Bunster, 9 Wis. 503 (1859) (early Wisconsin articulation that transfer of the debt carries the mortgage)
- Tidioute Sav. Bank v. Libbey, 101 Wis. 193 (1898) (transfer of notes carries securities by operation of law; supports equitable assignment)
- Tobin v. Tobin, 139 Wis. 494 (1909) (states rule that a mortgage securing a note passes as an incident upon transfer of the note)
- Muldowney v. McCoy Hotel Co., 223 Wis. 62 (1936) (applies equitable‑assignment principle to security instruments, here a chattel mortgage)
- Carpenter v. Longan, 83 U.S. 271 (1872) (U.S. Supreme Court statement that transfer of a note carries the security without formal assignment)