## Facts

- Borrowers executed a $17,000 mortgage note and mortgage requiring monthly installments of $110 beginning January 1965 and full repayment within 25 years.
- The note permitted the lender, after three years and on at least four months’ written notice, to change the interest rate on unpaid balances; borrowers could prepay in the notice period without penalty, and the lender was to endorse the change on the note.
- The note also contained separate, express provisions allowing increased monthly payments for specified events (e.g., additional advances or necessary cash expenditures connected to the loan).
- In 1973 the lender gave notice of an interest-rate increase (ultimately to 7%) and told borrowers they must either increase the monthly payment by $7.49 or extend the loan term by two years to cover the higher interest.
- Borrowers continued paying $110 and brought a class action on behalf of similarly situated borrowers using the same form documents, alleging the lender lacked contractual authority to require higher payments or extended terms due solely to the rate increase.
- The circuit court certified a class and granted summary judgment for borrowers; the lender appealed.

## Issues

1. Whether the note and mortgage authorized the lender, after increasing the interest rate under the adjustable-rate clause, to require either higher monthly installments or an extended loan term to absorb the increased interest.
2. Whether the action was properly certified as a class action based on uniform form contracts and common legal questions.

## Decision

- The Wisconsin Supreme Court affirmed summary judgment for borrowers.
- The court held the documents authorized only a change in the interest rate (subject to notice and no-penalty prepayment rights), not unilateral changes to the fixed installment amount or the 25-year maturity.
- The court affirmed class certification because the case turned on interpretation of substantially identical form note and mortgage language presenting common questions of law.

## Legal Principles

- Contract interpretation of mortgage instruments is governed by state contract law, including construing ambiguities against the drafter of a form contract.
- A contractual right to adjust an interest rate does not, without clear language, imply a right to change other material repayment terms such as the monthly installment amount or the loan’s maturity date.
- Express contractual authorization to increase payments in specified situations supports a negative inference that payment increases are not permitted in unmentioned situations.
- Where an adjustable-rate clause provides notice and a no-penalty prepayment option, that mechanism, absent additional language, is the agreed response to a rate change rather than unilateral reamortization by the lender.
- Class treatment is appropriate when a standardized form contract is used and the controlling questions are common and predominate over individualized issues.

## Conclusion

The court held that, under the parties’ form note and mortgage, the lender could raise the interest rate only as provided but could not compel borrowers to increase fixed monthly payments or extend the loan term to accommodate the higher rate, and it affirmed class certification because the dispute presented common contract-interpretation questions for similarly situated borrowers.


Goebel v. First Fed. Sav. & Loan Ass’n of Racine, 83 Wis. 2d 668, 266 N.W.2d 352 (Wis. 1978)