Klaus v. Vander Heyden

• Decision Date: 02 March 1982
• Docket Number: No. 80-539,80-539
• Citation: 316 N.W.2d 664,106 Wis.2d 353
• Parties: Warren J. KLAUS, as receiver of Peter Mark, et al., Plaintiff-Appellant, v. Arthur P. VANDER HEYDEN and Alois Fons, Jr., and each of them, Defendants- Respondents-Petitioners.
• Court: Wisconsin Supreme Court

Page 664

316 N.W.2d 664

106 Wis.2d 353

Warren J. KLAUS, as receiver of Peter Mark, et al., Plaintiff-Appellant, v. Arthur P. VANDER HEYDEN and Alois Fons, Jr., and each of

them, Defendants- Respondents-Petitioners.

No. 80-539.

Supreme Court of Wisconsin.

Argued Feb. 3, 1982.

Decided March 2, 1982.

Alan Goldberg, Milwaukee (argued), for defendants-respondents-petitioners; Larry J. Ratzel and L. John Ratzel, Jr., Elm Grove, on brief.

Warren J. Klaus and Henry C. Friend, Milwaukee, for plaintiff-appellant.

CALLOW, Justice.

This is a review of an unpublished decision of the court of appeals, 306 N.W.2d 306, which reversed a January 24, 1980, order entered by Milwaukee county circuit court Judge William A. Jennaro granting defendants' motion to dismiss pursuant to sec. 802.06(2)(h), Stats., on the ground that the action was res judicata. We hold that the plaintiff's action was barred by the doctrine of res judicata, and therefore we reverse the court of appeals.

The plaintiff in this action, Warren J. Klaus, is the receiver appointed by the circuit court for Milwaukee County to manage the assets of Peter Mark, as successor receiver to the late Paul Moskowitz. According to the allegations set forth in the complaint by Klaus, the following chain of events led to the present controversy.

Mark, who is now deceased, was an attorney who possessed expertise in the area of real estate investment. Sometime in 1964 he located a parcel of land at South 35th Street and College Avenue in the city of Franklin, Wisconsin, which he determined was well suited for the construction of apartments. He negotiated for the purchase of the land for $42,000. Mark's credit, however, was impaired by the entry of judgments against him, and he was unable to personally finance the purchase of the land. Mark contacted two investors, one of whom he had dealt with previously, to arrange for the purchase of the property. Mark, Arthur Vander Heyden, and Arthur Pett entered into an agreement whereby Vander Heyden and Pett were to purchase and take title to the property in their names. Vander Heyden and Pett were to pay the annual taxes and assessments against the property and to sell the property when the market became favorable. Upon the sale Vander Heyden and Pett were to receive all the funds they had advanced. If additional funds remained, Mark, Vander Heyden, and Pett were each to receive one-third of the profits. On or about July 20, 1965, Pett assigned his interest in the arrangement to Alois Fons, Jr., who is a party to the present action.

In December of 1966, Vander Heyden and Fons commenced an action for declaratory relief in the Milwaukee County circuit court against Paul Moskowitz, Mark's receiver at that time. The amended complaint for declaratory relief filed May 15, 1967, stated two causes of action: First, that the defendant Moskowitz claimed some interest in the property, "the exact nature, extent, and quality of which claims are unknown to plaintiffs," and that upon demand, the defendant failed to assert or define the nature and extent of his claim "but has merely threatened to place some document of record in the Office of the Register of Deeds ... sufficient to prevent the plaintiffs from dealing with the said real estate so as to protect their investment and best interest." The second cause of action asserted "[t]hat the defendant claims an interest in any profits on the sale of the real estate ... pursuant to a verbal agreement ... that plaintiffs further allege that all such claims are void as a matter of law and are further invalid and of no force and effect by virtue of indefiniteness and uncertainty." Moskowitz failed to answer the complaint, and Milwaukee County circuit court Judge Ronold A. Drechsler entered a default judgment on May 18, 1967, concluding as a matter of law "[t]hat the plaintiffs are entitled to the relief demanded in their complaint" and "[t]hat the defendant, and all persons claiming under him, are forever barred from any estate or interest in the property, or the proceeds thereof."

On June 9, 1967, Moskowitz petitioned the court for an order requiring Vander Heyden and Fons to show cause why the judgment should not be reopened to allow the filing of his answer and counterclaims, most of which were unrelated to the declaratory judgment action. We note that neither Mark nor his receivers has ever asserted any ownership interest in the property. On June 12, 1967, Milwaukee County circuit Judge Harvey Neelen issued an order to show cause. On July 12, 1967, following a hearing, Judge Drechsler denied Moskowitz's motion to reopen the judgment without prejudice. Moskowitz failed to appeal this order within the statutorily prescribed time limits of sec. 269.46, Stats., 1965 (precursor to sec. 806.07, Stats.).

Eleven years later, on May 19, 1978, the property was sold for approximately $168,000. When Klaus, successor receiver to Moskowitz, discovered that the property had been sold, he commenced the instant action on August 22, 1979, in Milwaukee County circuit court for an accounting of the profits from the sale of the property, naming Vander Heyden and Fons as defendants. On September 20, 1979, Vander Heyden and Fons filed a motion to dismiss pursuant to sec. 802.06(2)(h), Stats., ¹ alleging that the May 18, 1967, default judgment barred the present action because it was res judicata on the issue of profit from the sale of the property. On January 24, 1980, circuit court Judge William A. Jennaro issued an order dismissing the complaint of receiver Klaus as res judicata, pursuant to sec. 802.06(2)(h), Stats. Judge Jennaro in his memorandum decision reasoned:

"[T]he issue of profit from the proceeds of the sale is and has been the position of the receiver since before the instigation of [the case] and would have been within the jurisdiction of the court to determine had the receiver answered in the original action. Therefore, the proposition that profit from sale or trade was not considered and that as a result the issue has not been adjudicated thereby barring the doctrine of res judicata is untenable. In fact, the suit to declare the interests of the parties to realty and the suit to recover an incidence of that interest cover the identical issues and is barred by res judicata. A judgment being conclusive between the parties and their privies in a second cause of action on the same issues regarding the same realty as to all questions that were or ought to have been litigated in the first cause of action." (Citations omitted.)

On appeal the court of appeals reversed, holding that there was no identity of issues between the 1967 action and the present action because the 1967 default judgment sought only to quiet title and "did not address the matter of the oral contract for profits."

The issue before us is whether the May 18, 1967, default judgment bars the receiver's suit for an accounting of the profits from the sale of the property. We hold that it does.

The May 18, 1967, action was one for declaratory relief. The granting of relief in a declaratory judgment action rests within the sound judicial discretion of the trial court. Sec. 806.04(6), Stats.; Kerotest Manufacturing Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183-84, 72 S.Ct. 219, 221, 96 L.Ed. 200 (1952); Tooley v. O'Connell, 77 Wis.2d 422, 433, 253 N.W.2d 335 (1977); Pension Management, Inc. v. DuRose, 58 Wis.2d 122, 127, 205 N.W.2d 553 (1973) [quoting Selective Insurance Co. v. Michigan Mutual Liability Insurance Co., 36 Wis.2d 402, 408, 153 N.W.2d 523 (1967) ]. Sec. 806.04, Stats., the Uniform Declaratory Judgments Act, states that the Act's "purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status and other legal relations; and is to be liberally construed and administered." Sec. 806.04(12), Stats. The Act further provides that declaratory judgments "shall have the force and effect of a final judgment or decree." ²

The declaratory judgment in the controversy before us was rendered in default. Although the general rule is that a court may grant such relief as it feels a party is entitled to, even if such relief has not been demanded, this rule sees exception with default judgments. In the case of a default judgment, relief is limited to that which is demanded in the plaintiff's complaint. Sec. 806.01(1)(c), Stats.; Wisconsin National Loan and Building Association v. Pride, 136 Wis. 102, 105, 116 N.W. 637 (1908).

To determine what is demanded in the Vander Heyden and Fons amended complaint, we must consider several rules of construction. The familiar rule that "[a]ll pleadings shall be so construed as to do substantial justice," sec. 802.02(6), Stats., is foundational to any analysis. The prayer of the complaint has been said to form no part of the complaint, and although it is required by statute, it in no way limits judicial ascertainment of the claim for relief. Estate of Mayer, 26 Wis.2d 671, 678, 133 N.W.2d 322 (1965). The prayer of the complaint is, of course, important in ascertaining the intention of the pleader, id., and this is of particular significance in cases of default judgments where it is of great importance to limit the relief obtainable. In a judgment rendered by default, we must ensure that the defendant's right to notice has been protected.

We note that the conclusiveness of a default judgment is limited to the material issuable facts which are well pleaded in the declaration or complaint. The judgment does not extend to issues which were not raised in the pleadings. 50 C.J.S. Judgments sec. 706 (1947); Mitchell v. Jones, 172 Cal.App.2d 580, 586, 342 P.2d 503, 506-07 (1959) (default judgment is res judicata as to all issues aptly pleaded in the complaint, and defendant is estopped to deny in a future action any allegation contained in the former complaint).

In examining the Vander Heyden and Fons amended complaint for declaratory relief in the 19...