Authors: Attorney Daniel J. Schlichting & Law Clerk Sarah E. Schuchardt

Phone: (608) 257-0945

Email: dschlich@hbslawfirm.com

In Bank Mutual v. Sherman, 2015AP2357 (WI App 2017), the court concluded that Bank Mutual could enforce Bohringer’s guaranty of Sherman’s debt against Bohringer and his farm, even though the new debt was incurred after the parties divorced. ¶ 21.

In December 2005, Bohringer and Sammy’s Taste of Chicago (hereinafter “Sammy’s”) guarantied Bank Mutual’s extensions of credit to Sherman, who was married to Bohringer at the time. ¶ 2. These guaranties obligated Bohringer and Sammy’s to make payments for financial obligations for past, present, and future credit granted by Bank Mutual to Sherman. ¶ 2. In July 2010, Bohringer and Sherman divorced. ¶ 3. Sherman was awarded the commercial building in which Sammy’s was located, which was secured with a $226,567 note and mortgage to Bank Mutual. ¶ 3. Sherman became responsible for paying the mortgage on the commercial property. ¶ 3. Bohringer was awarded the Sammy’s business and the farm in Lancaster, Wisconsin. ¶ 3.

After the divorce, Sherman took out more notes from Bank Mutual without any notice given to Bohringer. ¶ 4. In 2012, Sherman defaulted on a note to Bank Mutual and in 2014, Bank Mutual foreclosed and sold the commercial property that secured the note. ¶ 4. Bank Mutual then went and executed on Bohringer’s farm in order to collect the $52,947 deficiency that remained that Bohringer was liable for under his guaranty of Sherman’s debts. ¶ 4.

Bohringer asked the circuit court to halt the execution of Bank Mutual’s judgment on his farm, but the court concluded that it could not because the farm was not an exempt homestead. ¶ 5. The circuit court also concluded that Bohringer was liable to Bank Mutual because of his guaranty. ¶ 5. Bohringer then appealed the circuit court’s judgment. ¶ 5.

Bohringer argued on appeal, without showing any support for the proposition, that the divorce caused Sherman to become a “different legal entity,” thus making him not liable for his guaranty. ¶ 7. The court stated that the guaranty was a contract between Bohringer and Bank Mutual, which makes his liability separate from Sherman’s liability to Bank Mutual. ¶ 8. Therefore, Bohringer’s liability is governed by the language contained in the guaranty. ¶ 8. The court found that there was no ambiguity in the guaranty – it stated that it “shall continue in full force and effect notwithstanding any change in structure or status of Debtor, whether by merger, consolidation, reorganization, or otherwise.” ¶ 9. Bohringer had signed to guarantee the past, present, and future debts of Sherman; her status as his wife or ex-wife had no effect upon Bohringer’s obligations under the guaranty. ¶ 9.

Bohringer also argued, again without showing support, that Bank Mutual had waived its right to enforce the guaranty because it did not enforce it before the divorce. ¶ 10. However, the court again determined that the language of the guaranty was clear and controlling – Bank Mutual did not have to give notice to Bohringer when it planned to proceed against a guarantor. ¶ 10. The court also noted that Bohringer had waived “all other legal and equitable surety defenses.” ¶ 10.

Bohringer then argued that the transactions between Sherman and Bank Mutual implicated Bank Mutual’s “duty of good faith and fair dealing toward him as the guarantor” because he was not informed of the additional loans. ¶ 11. The court was confused as to how this argument would help Bohringer, since it noted that Bohringer waived notice under the guaranty of future loans extended to Sherman. ¶ 11. Furthermore, the court stated the Bohringer failed to show that Bank Mutual had not acted in accordance with the terms of the guaranty. ¶ 11. The court thus concluded that Bohringer’s guaranty of Sherman’s debt was enforceable. ¶ 12.

Bohringer also objected to the characterization that his farm was not homestead property and claimed that a jury should have determined whether it was a homestead. ¶ 13. The circuit court concluded that based on the facts relating to the stay request, Bohringer’s farm did not qualify under the legal standard for an exempt homestead, so Bank Mutual was allowed to execute judgment on it for payment of the guaranty. ¶ 15. The court found that Bohringer told the IRS and the Waukesha County circuit court that he lived in an apartment in Oconomowoc. ¶ 15. Bohringer claimed that the trailer on the farm was his dwelling, but the court found that no mail was sent to the farm and the trailer was not connected to any utilities. ¶ 15. Therefore, the court concluded that Bank Mutual had shown that the farm did not qualify as homestead property. ¶ 15. On reconsideration, the court made all of the same findings, which supported the circuit court’s conclusion that the farm did not satisfy the requirements in order to be classified as homestead property. ¶ 16-18.

This case provides a cautionary tale for parties going through a divorce. The lesson: revoke all guaranties of your soon-to-be ex-spouse’s debts at the time of the divorce. Most guaranties have a provision under which revocation of the guaranty for all future debts may be made in writing.