McGovern v. Kraus

• Decision Date: 05 November 1929
• Citation: 200 Wis. 64,227 N.W. 300
• Parties: MCGOVERN v. KRAUS ET AL.
• Court: Wisconsin Supreme Court

200 Wis. 64

227 N.W. 300

MCGOVERN

v.KRAUS ET AL.

Supreme Court of Wisconsin.

Nov. 5, 1929.

Appeal from an order of the Circuit Court for Vernon County; R. S. Cowie, Circuit Judge.

Action by Edward McGovern, as trustee of the estate of Fred Kraus, a bankrupt, against Fred Kraus, Levi Eckhart, and others. From an order sustaining demurrer to complaint of defendant last named, plaintiff appeals. Reversed, and remanded with directions.--[By Editorial Staff.]

This action was commenced about April 1, 1925, by the plaintiff, as trustee in bankruptcy of defendant Fred Kraus, to set aside certain conveyances or securities and to recover damages for transactions between the defendants Kraus and Eckhart in 1924 and with defendant Glick in January, 1925. Eckhart demurred to the amended third cause of action November, 1928, and it was sustained April 29, 1929.

This case has been here twice: 192 Wis. 558, 213 N. W. 332 (April 5, 1927): and 196 Wis. 178, 218 N. W. 830 (June 18, 1928).

For the determination of this case we deem the following summary of the amended third cause of action sufficient:

That plaintiff is trustee in the voluntary bankruptcy proceedings of defendant Fred Kraus.

That on July 15, 1924, the defendant Kraus was largely indebted in several valid claims against him and thereafter his estate.

That, except as to the property concerned in the transactions herein referred to, said Kraus was, at the time of such transactions, and his estate still is, without sufficient property to pay such indebtedness.

That at the time of the transactions between them defendant Fred Kraus was, to the knowledge of defendant Eckhart, unsophisticated, gullible, and lacking in ability to look after and protect his own interests in business matters, and reposed great trust in Eckhart who was, or posed as, a friend of Kraus and having knowledge and competency to judge of the value of horses.

That $3,000 in amount of a certain note secured by a chattel mortgage made by Kraus to Eckhart represented the purchase price of two alleged pure-bred Percheron mares.

That November 19, 1924, defendant Kraus gave defendant Eckhart his promissory note for $6,000, a bill of sale, and a real estate mortgage purporting to secure the same.

That the indebtedness purporting to be evidenced by the said $6,000 note so secured is claimed by Eckhart and Kraus to represent the purchase price of said two mares and two alleged pure-bred Percheron stallions claimed to have been sold by Eckhart to Kraus at $1,500 each.

That the mares and stallions were actually worth not to exceed $300 each; and that the alleged sale price of each of them was so grossly excessive over the actual value as to make any such sale utterly unconscionable by reason of the fraud upon Kraus perpetrated by Eckhart.

That Eckhart, under the situation between himself and Kraus, owed the duty of fairly and fully advising and acquainting Kraus with the facts concerning the condition and value of such animals.

That Eckhart falsely and fraudulently represented that all of said animals were free from defects; that he had been selling animals of like character at $1,500 each or more; and that such was their actual and reasonable value; that there was a ready market therefor at said price; and that he had disposed of a carload thereof in Pennsylvania at like or greater prices.

That, if Kraus actually made the purchase at the price of $1,500 each for the animals, it was by reason of the representations aforesaid.

That the promissory note for $6,000 was taken by Eckhart from Kraus by the means aforesaid.

That Eckhart claims that the consideration for the note aforesaid was two stallions and two mares sold by him to Kraus.

“7. That said note did not have written or printed thereon in red ink, or otherwise, ‘the consideration for this note is the sale of a * * * stallion, * * *, or interest therein,’ or any words of like or similar import, nor did it contain any recital whatsoever as to the nature of said consideration, as required by section 116.03 of the Wisconsin statutes. That for said reason, as plaintiff is informed and believes, said note was so taken and obtained in violation of law and was illegal and void in the hands of defendant Eckhart, and defendant, Fred Kraus, had a full and complete defense thereto while in the hands of said Eckhart, for said reason, as well as by reason of the fraud which had been perpetrated upon him in the alleged sale of said mares and stallions as hereinbefore set forth.”

“8. That as plaintiff is informed and believes, defendant Eckhart, knowing that said note was obtained by the fraudulent means aforesaid, and was subject to defense while in his hands by reason thereof, and void for the further reason that it contained no recital of the consideration therefor as required by law, for the purpose of enabling himself to realize therefrom and consummate said fraud, fraudulently transferred the same to defendant Glick, and claims to have received full consideration therefor from said Glick.”

That defendants Eckhart and Glick each give out and claim that the latter is the owner and holder in due course of the note and the real estate mortgage purporting to secure the same, and Glick claims also that he is the bona fide owner of said bill of sale; that since the commencement of this action the defendant Glick has instituted a suit to foreclose the real estate mortgage, which is now pending in a court of competent jurisdiction of Richland county, presently, however, subject to a restraining order.

That if Glick be a holder in due course of said instruments, or any of them, then such results from the fraudulent acts of Eckhart in so transferring the same as to deprive the maker of the several defenses existing thereto as before alleged and his willful failure to disclose and concealment of the consideration for said note. That but for such the note could not have been transferred as to a bona fide holder for value.

Various forms of relief are asked for, among others, that defendant Eckhart should be required to respond in damages or account to plaintiff as trustee for the Kraus estate for the loss and damage ensuing thereto, and for such sum as shall equal the liability of said Kraus or his estate upon the said note or the amount to which the said estate is deprived of property or depleted because thereof, and for such other and further judgment or relief upon this third cause of action as may be just and proper.Grady, Farnsworth & Walker, of Portage, for appellant.

C. J. Smith, of Viroqua (J. Henry Bennett, of Viroqua, of counsel), for respondents.

ESCHWEILER, J.

Respondent Eckhart elected to demur to the amended third cause of action rather than to have resorted to what would seem the much more orderly and appropriate procedure of a motion to have the complaint made more definite and certain. Simpson v. Cornish, 196 Wis. 125, 133, 218 N. W. 193;McIntyre v. Carroll, 193 Wis. 382, 387, 214 N. W. 366;Lawver v. Lynch, 191 Wis. 99, 101, 210 N. W. 410.

We find great difficulty in determining from the amended third cause in this complaint, as it appears in the record, just what allegations, found in the first and second causes of action, are intended to be made a part of the third, and this in spite of what this court said in reference to such point, in the first opinion, 192 Wis., particularly at page 563, 213 N. W. 332. As now presented, the complaint does expressly make some of the allegations of the preceding causes a part of this one, but refers to other paragraphs or allegations in the preceding causes without making them a part of this one, and leaves out any direct references to certain paragraphs or allegations of the preceding causes, although inferential references seem to be made to such omitted matters.

In order, however, to finally, as we sincerely hope, dispose of the pleadings in this matter so that this litigation can end, we shall assume, for the purpose of disposing of this present appeal, that by the third cause of action the pleader intended to assert, as against Eckhart, a common-law action for fraud because he unlawfully and improperly obtained from Kraus his promissory note, chattel mortgage, bill of sale, and real estate mortgage and fraudulently conveyed such to defendant Glick who was or claimed to be an innocent holder thereof, and that such perpetration of a fraud resulted in a damage to the defendant Kraus which can be lawfully asserted by the plaintiff as trustee in bankruptcy.

That in addition thereto it is intended to assert that the transactions between Kraus and Eckhart culminating in the giving of a promissory note as a result of their transactions was, as to Eckhart, in violation of the penal statute, sec. 116.03 (St. 1925), which is given in substance in what appears quoted above as paragraph 7 of said third cause.

[1] If a cause of action on behalf of the plaintiff trustee as against Eckhart can be spelled out of the complaint on either or both of such theories, then the demurrer was improperly sustained. Respondent's remedy, if there was an improper mingling of two or more causes of action, would have been by motion rather than by demurrer. Ernest v. Schmidt, 198 Wis. ___, 223 N. W. 559.

[2] On the second appeal of this case, 196 Wis. 178, 181, 218 N. W. 830, 831, it was said as to the there presented third cause of action before its present amendment, as follows: “We express no opinion as to the right of the trustee to a common-law right of action for damages by reason of a fraud perpetrated on Kraus by Eckhart, if any.”

As to the question thus reserved on the second appeal we deem it sufficient to say that as we now view the presently alleged third cause of action, there are sufficient facts stated therein upon which there could be properly predicated a common-law action for damages as the result of a fraud.

The demurrer therefore should have been overruled to this amended third cause of action so far as it is...