Schwabe v. Chantilly, Inc.
| Decision Date | 06 March 1975 |
| Docket Number | No. 371,371 |
| Citation | 226 N.W.2d 452,67 Wis.2d 267 |
| Parties | James R. SCHWABE et al., Appellants, v. CHANTILLY, INC., a Wisconsin Corp., et al., Respondents. (1974). |
| Court | Wisconsin Supreme Court |
Frisch, Dudek, Slattery & Denny, Milwaukee, for appellants; Robert A. Slattery and Jeffrey P. Aiken, Milwaukee, of counsel.
Bernstein, Wessel & Lewis, Milwaukee, for respondents.
This is a landlord-tenant case presenting a question of civil procedure. In a prior action, the landlord, Chantilly, Inc., sued the tenants, James and Mary Schwabe, for nonpayment of rent. The Schwabes set up the affirmative defense that they were fraudulently induced to sign the lease, but they did not counterclaim. Judgment was awarded to the Schwabes based upon this defense. Now in the present action they seek compensatory and punitive damages against Chantilly and Chantilly's managing officer, Abraham Wolinsky, based upon the fraud and upon malicious prosecution. Chantilly and Wolinsky moved to strike the causes of action based on fraud, arguing that by setting up the affirmative defense in the first action the Schwabes obliged themselves to also counterclaim in that action or else lose the claim completely. The trial court agreed and ordered the fraud causes of action struck from the complaint. The Schwabes appeal. We reverse.
A single issue is presented by this appeal: Where in a prior action by the landlord for nonpayment of rent by the tenants, and where the tenants had set up an affirmative defense, but not a counterclaim, based on fraud in the inducement, and where the tenants were successful in that defense in that action, may a subsequent action be maintained by the tenants seeking affirmative relief based on the fraud? Yes.
Plaintiffs' amended complaint alleges the following facts. Defendant Chantilly, Inc., is a corporation owning, operating and renting apartments in Milwaukee. Defendant Wolinsky is an apartment manager, and officer and managing agent of Chantilly. Plaintiffs alleged they signed a two-year apartment lease which Wolinsky fraudulently represented included a provision for termination at any time following sixty days' written notice. The lease contained no such provision. During the lease term plaintiffs vacated after giving the sixty days notice. Chantilly then sued the Schwabes in Milwaukee county court for nonpayment of rent. This Schwabes set up the affirmative defense of fraud and following a jury trial, judgment was rendered in their favor. The court's written judgment provides, in part, as follows:
'The above-entitled action having come on for trial on the 9th day of November, 1971, the Honorable Elliot N. Walstead presiding; and
'The some having been tried before a jury and a verdict returned on the 10th day of November, 1971; and
'The jury having found that Mr. Wolinsky, an officer and agent of the plaintiff, did represent to Mr. and Mrs. Schwabe, the defendants, that they could terminate the lease which is the subject of this lawsuit, at any time by giving sixty (60) days notice in writing, and that the said Mr. and Mrs. Schwabe did believe said representation and did sign the said lease in reliance thereon; and
'It having been admitted that said lease does not in fact contain such provision for termination; and
'The Court having found that the defendants have proven their affirmative defense based on fraud, and
'The time for motions after verdict having expired and the plaintiff having filed and submitted none:
'NOW, THEREFORE, on Motion of FRISCH, DUDEK, SLATTERY AND DENNY, attorneys for the defendants,
'IT IS ORDERED, ADJUDGED AND DECREED that the Complaint of the plaintiff against the defendants be and the same is hereby dismissed upon its merits and that the defendants have and recover of the plaintiff their costs in the sum of $360.23 to be taxed and entered herein by the Clerk.'
The tenants' present action was commenced approximately four months later. Their amended complaint contains causes of action for fraud against each defendant (as well as causes of action for malicious prosecution) seeking compensatory damages of $18,566.90 and punitive damages of $50,000. 1 Defendants then filed a joint motion asking the court to strike certain portions of the amended complaint for irrelevancy and redundancy. In addition, however, in their trial court brief, defendants argued that plaintiffs were barred from pleading causes of action based on fraud because of the prior litigation between the parties. The trial court relied on this latter ground in striking the causes of action for fraud from the complaint.
It is clear that the trial court treated the motion to strike as equivalent to a demurrer and therefore the standard of review on appeal is the same as that applied to evaluate an order sustaining a demurrer. 2
The sole question presented here is whether plaintiffs are barred from maintaining these causes of action for fraud because they raised fraud as an affirmative defense to the prior rent-collection action brought by Chantilly one of the defendants here. This court considered a related problem in Wm. H. Heinemann Creameries v. Milwaukee Automobile Ins. Co. 3 arising from personal injury litigation following an auto collision between A and B. In the first action where A sued B, the suit was dismissed by court order upon stipulation of the parties. Than in a subsequent action, B sued A and one question raised on appeal was whether B's action was barred on principles of res judicata because B had not counterclaimed in the first suit. Relying on sec. 263.14(1), Stats. making all counterclaims permissive, and sec. 58 of the Restatement of Judgments, the court held B's action not barred in this ground. 4 Sec. 263.14(1), Stats., provides:
'A defendant may counterclaim any claim which he has against a plaintiff, upon which a judgment may be had in the action.' (Emphasis supplied.) 5
Sec. 58 of the Restatement of Judgments provides, at page 230:
'Where the defendant does not interpose a counterclaim although he is entitled to do so, he is not precluded thereby from subsequently maintaining an action against the plaintiff on the cause of action which could have been set up as a counterclaim.'
In discussing this section, the court in Heinemann particularly relied on comments b and f. However, comments c and d following this section apply to the facts in the instant case where plaintiffs set up an affirmative defense but not a counterclaim in the first action.
The comments distinguish between situations where the plaintiff in the second action lost in the first case and where he won. Where he loses in the first case, he is barred from commencing a new action. As comment c to sec. 58 provides
However, where the party wins in the first action, based on the affirmative defense, it is permissible then to start a new action. He is then not in the position of attacking facts previously established. As comment d indicates:
The examples following this comment illustrate the principle:
'9. A brings an action against B for the negligent driving of an automobile by B resulting in a collision with an automobile driven by A. B in his answer denies that he was negligent and alleges that the collision was due to A's negligence. After a trial of these issues judgment is given for B. B is not precluded from thereafter maintaining an action against A for the damage done to him by the collision.
'10. A brings an action against B, his employer, alleging that B wrongfully discharged him. B in his answer justifies the discharge on the ground that A embezzled B's money. After trial of this issue judgment is given for B. B is not precluded from thereafter maintaining an action against A for the embezzlement.
'11. A, a physician, brings an action against B for medical services rendered to B. B in his answer alleges that A was negligent and that the services were of no value. After trial if this issue judgment is given for B. B is not precluded from thereafter maintaining an action against A for damage caused to him by A's malpractice.
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...adoption of the court of appeals opinion in Head & Seemann, we examined the election of remedies doctrine in Schwabe v. Chantilly, Inc., 67 Wis.2d 267, 269, 226 N.W.2d 452 (1975). In Schwabe, a landlord sued the tenants for nonpayment of rent. Id. at 268-69, 226 N.W.2d 452. The tenants rais......
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...court decision relied on Heinemann's reasoning in its discussion of the permissive counterclaim statute. See Schwabe v. Chantilly Inc., 67 Wis.2d 267, 271-76, 226 N.W.2d 452 (1975). ABCG contends that because the relevant language of sec. 802.07(1), Stats., mirrors that of its predecessor, ......
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