John v. Md. Cas. Co.

• Decision Date: 05 April 1932
• Citation: 242 N.W. 201,207 Wis. 589
• Parties: JOHN ET AL. v. MARYLAND CASUALTY CO.
• Court: Wisconsin Supreme Court

207 Wis. 589

242 N.W. 201

JOHN ET AL.

v.MARYLAND CASUALTY CO.

Supreme Court of Wisconsin.

April 5, 1932.

Appeal from an order of the Circuit Court for Milwaukee County; John J. Gregory, Circuit Judge.

Action by August F. John and others against the Maryland Casualty Company. From an order sustaining a demurrer to defendant's counterclaim, defendant appeals.--[By Editorial Staff.]

Affirmed.

Action begun May 29, 1931; order entered October 12, 1931. Action by receivers. Demurrer to counterclaims filed by the defendant. The Milwaukee Tank Works, a Wisconsin corporation, executed an instrument transferring all of its assets to the plaintiffs as trustees for the benefit of its creditors. The trustees were to continue the operations of the company and pay claims ratably. At the time of the transfer one Walter F. Vogel was employed by the Milwaukee Tank Works as branch manager in the city of New York. When the plaintiffs took over the business of the Milwaukee Tank Works they continued Walter F. Vogel as such branch manager. On July 27, 1923, the defendant issued to the Milwaukee Tank Works an indemnity bond by which it agreed to reimburse the Milwaukee Tank Works for any loss by reason of any act or dishonesty on the part of Walter F. Vogel, which was renewed from time to time. Upon transfer of the business to the plaintiffs on June 30, 1930, the defendant placed upon such indemnity contract an indorsement or rider whereby the bond was continued in force in favor of the Milwaukee Tank Works and the plaintiffs. Subsequent to the making of such indorsement upon the indemnity contract, the plaintiffs sustained a loss covered by the contract, Walter F. Vogel defaulting, in a sum in excess of $5,000.

This action was begun to enforce the liability of the defendant upon the contract of indemnity. The answer set up two equitable counterclaims. In the first it was alleged that the plaintiffs' assignor was indebted to the defendant in the sum of $10,151.86, on account of certain sums paid by the defendant for the benefit of the Milwaukee Tank Works in an action brought against it in the circuit court of Milwaukee county; that by the terms of the contract the plaintiffs' assignor was to indemnify and save harmless the defendant from any loss. The second counterclaim by the defendant was based upon the assignment to it of a judgment entered in the circuit court of Milwaukee county on January 29, 1930, in favor of M. P. Reilley for salary or wages in the sum of $5,808.53, which sum defendant had been obliged to pay on account of a supersedeas bond issued by it for the Milwaukee Tank Works upon an appeal taken by it to the Supreme Court of the state of Wisconsin. The plaintiffs demurred to each of the counterclaims on the ground that the facts alleged were not facts sufficient to constitute a counterclaim or set-off. From an order sustaining the demurrer, the defendant appeals.James E. Coleman, of Milwaukee (William J. McCauley, of Milwaukee, of counsel), for appellant.

Bender, Trump, McIntyre & Freeman, of Milwaukee, for respondents.

ROSENBERRY, C. J.

Upon the theory that a demurrer to a counterclaim opens the record and raises the sufficiency in law of any prior pleading, the defendantseeks to attack the complaint upon the ground that, by reason of the failure of the plaintiffs to allege compliance with the statute regulating voluntary assignments, the instrument under which they took title is void, and therefore of no effect.

At common law the rule was that a demurrer to a pleading opened the record and raised the sufficiency in law of all prior pleadings. Lawe v. Hyde, 39 Wis. 345, and cases cited. The basis of the rule at common law was that if the pleadings prior to the one demurred to were not sufficient in law, there was no obligation to plead thereto. As was often said: “A bad answer is sufficient for a bad complaint.”

In Lawe v. Hyde, supra, the question arose as to whether or not a demurrer to a counterclaim had the same effect as a demurrer to a mere answer. The court said:

“The distinction has been so slight that it has sometimes been a nice question of construction whether the pleading be an answer proper or a counterclaim or both in one. But aside from all rules of construction, the statute itself appears not only to make a counterclaim a pleading to the complaint, but to make it essentially an answer in all cases; for it requires the answer to set up new matters constituting defense or counterclaim. Whatever may be its effect by way of cross action, it is certainly a pleading to the complaint. And the old rule that demurrers reach back to the first defective pleading still applies where the complaint discloses want of jurisdiction or fails to state a cause of action.”

In Lawe v. Hyde, the demurrer was to the answer as well as to the counterclaim.

In Lyndon Lumber Co. v. Sawyer, 135 Wis. 525, 116 N. W. 255, there was also a demurrer to an answer and a counterclaim, and it was held that this requires an examination of the sufficiency of the complaint, citing Lawe v. Hyde. Lyndon Lumber Co. v. Sawyer was cited in State ex rel. Williams v. Kaempfer, 176 Wis. 283, 187 N. W. 215, but in that case there was no counterclaim, merely an answer.

In Fulton County G. & E. Co. v. Hudson River T. Co., 200 N. Y. 287, 93 N. E. 1052, 1053, the question of whether or not a demurrer to a counterclaim raised the sufficiency of the complaint was squarely before the court. After stating the question, the court said:

“These authorities rest their conclusion upon two grounds: The one, a demurrer searches all the pleadings prior to itself for the first fault in pleading, and, upon the trial of the issues created by the demurrer, judgment is to be given against the party who committed that first fault; the other, a counterclaim is a pleading in the action and to the complaint and is subject to the rule that a demurrer reaches back to the first defective pleading. The second ground cannot be sustained. A counterclaim is a statutory remedy. The Code of Procedure created it in an amendment of 1852 of subdivision 2 of section 149 thereof. Such subdivision continued unchanged until it was repealed in 1877, in consequence of the enactment of section 500 of the Code of Civil Procedure. The Code of Procedure in its section 150 contained provisions now represented by section 501 of the Code of Civil Procedure. Under the provisions of the Code of Civil Procedure, which prescribe the fabric and regulate the exercise of a counterclaim, the facts alleged as a counterclaim must be sufficient to constitute a perfect cause of action in favor of the defendant and against the plaintiff and to sustain the judgment against the plaintiff which the defendant thereby seeks and must demand. * * * They must be alleged as a counterclaim in order that they shall not be deemed a mere defense. * * * They may be verified as an independent pleading where the complaint is not verified. * * * They may be demurred to upon the ground that they are not sufficient to constitute a cause of action * * * and must be answered by a reply in the substance and form of the answer to a complaint, if defendant shall not have, through default of plaintiff, the judgment he demands. * * * The mode of trial of an issue of fact arising upon a counterclaim is the same as if it arose in an action brought by the defendant against the plaintiff for the cause of action stated in the counterclaim and demanding the same judgment * * * and the...