Case Name: Luetzke and others, Respondents, vs. Roberts and others, imp., Appellants
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1906-12-04
Citations: 130 Wis. 97
Docket Number: 
Parties: Luetzke and others, Respondents, vs. Roberts and others, imp., Appellants.
Judges: 
Reporter: Wisconsin Reports
Volume: 130
Pages: 97–106

Head Matter:
Luetzke and others, Respondents, vs. Roberts and others, imp., Appellants.
November 9
December 4, 1906.
Appeal and error: Findings, when disturbed: Corporations: Subscription to stoclc: Promoters: Fraudulent representation: Cancella- > tion of instruments: Evidence: Substituted service: Appearance: Jurisdiction of the person: Equity: Remedies: Personal judgment: Measure of damages.
1. Where the evidence adduced on an issue is conflicting, and there is no clear preponderance to support appellant’s claim, the find- . ings thereon will be affirmed.
2. In an action to cancel a note given for subscription to corporate stock, the evidence, stated in the opinion, is held to sustain findings that two of the parties appearing on the subscription contract as purchasers of shares were not bona fide subscribers.
3. Where plaintiffs signed a subscription contract for shares of stock in a proposed corporation, upon an agreement between each subscriber, respectively, and the promoters of the corporation that no signature to such contract would be binding until bona fide subscribers thereto for all the shares of stock had been obtained, and the promoters presented a list of persons, some of whom were not in fact bona fide subscribers, and thereby induced plaintiffs to execute joint notes for the amount of the total subscriptions, the action of the promoters was a wrong, fraudulent in its nature, which rendered the transaction based on it void as against plaintiffs.
4. In such case representations by the promoters’ agent that the parties whose names were on the subscription contract and who had not signed the notes when plaintiffs executed them were then ready and willing to become joint makers of the notes, and that if they did not sign the notes they would pay in cash for the shares for which they had apparently subscribed, were material, and, their falsity being shown, such representations were fraudulent and rendered the transaction voidable.
5. In an action planted in equity, demanding cancellation of notes upon the ground of fraud, there was substituted service, but the defendants appeared in the action and answered generally, denying the fraud and insisting upon the validity of the notes. With such answer defendants appeared at the trial and litigated all the issues thus raised. Held, that the court was thereby given jurisdiction of the defendants personally, and was empowered to render whatever personal judgment was warranted by the facts and circumstances adduced within the litigated issues of the cause.
6. The effect of such appearance was to waive the want of personal jurisdiction under substituted service, and operated to confer jurisdiction as to defendants, and thus to change the character of the proceeding from one in rem to one in personam.
7. In an action in equity to cancel notes on the ground of fraud the court found, among other things, that the transaction was fraudulent; that when the action was commenced the plaintiffs had ground to and did believe that the defendants owned and held the notes in question, and that they had not pledged or hypothe-cated them; that they properly demanded that defendants be commanded to bring the notes into court to be canceled and annulled, and that after the action was commenced the defendants had transferred the notes to bona fide purchasers for value. Reid, that such facts presented a case wherein the equitable relief sought could not be awarded, and that the only relief available was to offset plaintiffs’ liability on the notes by a judgment for pecuniary compensation.
8. In such case compensatory damages are ascertainable and can be awarded in advance of actual payment of the notes by plaintiffs.
‘9. In- such case the correct measure of damages is the amount called for by the face of the notes, with interest.
Appeal from a judgment of the circuit court for Manito-woc county: Michael KjewaN, Circuit Judge.
Affirmed.
Action to cancel and annul three promissory notes, executed by the plaintiffs to the defendants Roberts, Leggetand Hanen, who were copartners doing business under the name ■of “Westfield Importing Company” of Westfield, Indiana. The defendant John Gutman signed the notes. Upon his refusal to join as plaintiff in the action he was made a defendant. The defendants Schmitz, Burke, and Craite were attorneys for Roberts, Legget, and Hanen and were joined as parties in the action upon the ground that plaintiffs believed the notes in question were in their possession as such attorneys. They with their principals were temporarily restrained from transferring or parting with the possession of the notes. The defendants Alton P. Nave and the Citizens’ National Bank, a foreign corporation, after the action had been begun, petitioned, as bona fide owners of the notes, to be made parties defendant, and by order of the court they were allowed to intervene and were made parties defendant, whereupon they appeared generally in the action and served their answers. Before trial the complaint and answers were severally ¡amended at different times. These need not be particularly :reeited. After trial, upon notice, the complaint was further ■amended to conform to proof, received without objection, to ■the effect that the principal defendants had secured the subscriptions of plaintiffs and others for shares in the proposed ■company upon the representation, promise, and agreement with them that they would expressly warrant the mentioned horse to be sound and "free from disease. The court’s findings cover the facts of the case sufficiently to present the questions upon which error is assigned upon this appeal. The •material facts found by the court are as follows: In January, 1903, the defendants Roberts, Legget, and Hanen were co-■partners and continued so until after this action was commenced. They were engaged, under their firm name, in the buying and selling of borses, tbeir principal place of business being Westfield, Indiana. E. M. O’Connell was tbeir agent, and as sucb agent exhibited tbeir horse, named “Eusil,” to the plaintiffs and others at the villages of Valders and St. Nazianz in Manitowoc county, for the purpose of making a sale. To make a sale of the horse, O’Connell presented to plaintiffs and others a subscription agreement of the tenor following:
“We, the undersigned subscribers, realizing the necessity of improving our stock, do hereby agree to pay the Westfield Importing Company $100 for each share in the Perdieron Horse Company now being formed at Valders, Wis., to buy one Perdieron stallion of the Westfield Importing Co., of Westfield, Ind. Capital stock, $3,000. Name of horse, Eusil. 31,079 (48,951). Payments to be made, one third in one-year, one third in two years, one third in three years, security by joint notes with interest or by cash.”
He solicited subscriptions to the undertaking, and secured' plaintiffs’ assent and subscriptions
“upon an understanding and agreement between each of them, respectively, and the Westfield Importing Company that no signature to said contract would be binding until' bona fide subscribers thereto for thirty shares had been obtained by said Westfield Importing Company.”
Prior to February 28, 1903, plaintiffs were informed by-O’Connell that he had secured bona fide subscriptions to the-written contract for the thirty shares. Eelying upon such, representation as true and correct, plaintiffs signed and executed three promissory notes, each for $1,000, in form, to wit :•
“$1,000.00. February 28th, 1903.
“Sixteen months after date, for value received, we or either of us, promise to pay the Westfield Importing Co., or order,. $1,000.00 at the Manitowoc Savings Bank, with interest at 6 per cent, per annum, interest payable annually.”
The two other notes were payable in two years and four-months and three years and four months after date. Eleven, of tbe persons wbo were represented to plaintiffs as subscribers to tbe subscription contract for shares in tbe borse refused to sign these notes after plaintiff bad signed them, and tbe Importing Company has never collected or enforced payment from them upon their alleged subscriptions. An action was instituted against one of such subscribers, Knut Berg, by the company to recover $100, tbe amount of one share in tbe Percberon Horse Company, which action terminated by entry of judgment dismissing tbe complaint on June 22, 1903, tbe date tbe instant action was begun. Two of tbe alleged subscribers to shares in tbe Percberon Horse Company, named Alfson and Nelson, were not in fact bona fide subscribers, though their names were on tbe subscription contract. They bad signed and made their subscriptions upon the' express oral understanding and agreement between them and O’Connell, as agent of tbe Importing Company, that such subscriptions were not to bold them to liability on tbe contract. It was further represented by tbe agent, O’Connell, to three of tbe plaintiffs that no signature to these notes would be binding until every subscriber to tbe shares in tbe Per-cberon Horse Company bad signed them, or, in lieu of signing these notes, bad paid their shares in cash. To tbe other plaintiffs in this action it was represented that all tbe other subscribers would sign these notes or pay their subscriptions in cash, and that such payments, to apply on tbe purchase price, would, in case of default, be enforced against them severally. Plaintiffs relied on this, but none of these conditions have been performed, nor has tbe Importing Company enforced such payments. Tbe court also found that tbe representation by O’Connell to tbe effect that be bad obtained subscriptions for thirty shares of $100 each in tbe proposed Percberon Horse Company was in fact untrue, that be knew it to be false, and that plaintiffs believed it to be true, relied on it, and were thereby induced to execute tbe notes. It was also found that plaintiffs bad good reason to believe and did believe that the defendants — copartners in the Importing Company at the time this action was commenced — had these notes, and had not sold, pledged, or hypothecated them or any of them; that plaintiffs before action offered the horse in question to these defendants and demanded the return of the notes; and that defendants refused to receive him and have so refused to receive him ever since, and have not returned the notes to plaintiffs.. Plaintiffs, therefore, have been compelled to keep, feed, and care for the horse ever since, and such feed and care is found to be worth $12 per month.
The court found upon the issues that the defendants Have and the Citizens’ Rational Bank became the holders and owners of these notes in good faith, before maturity, and without notice or knowledge of any infirmity as to their validity, and that plaintiffs were liable thereon to such defendants, but that, as between plaintiffs and the defendants Roberts, Legget, and Eanen, the notes were fraudulent and of no effect, and that they had fraudulently and wrongfully transferred them under circumstances which enabled the transferees to collect and enforce them against plaintiffs to their damage to their face amounts, namely, the sum of $3,000, with interest from their date. Upon these findings the court held that the equitable relief prayed for in the complaint could not be awarded, but it retained the action and awarded the only relief available to plaintiffs, namely, a recovery of damages in the sum of $3,000, with interest, and costs of the suit. From this judgment the defendants Roberts, Legget, and Eanen appeal. '
For the appellants there was a brief by Burke & Craite, and oral argument by I. Craite.
For the respondents there was a brief by A. L. Hougen and Nash & Nash, and oral argument by L. J. Nash.

Opinion:
Siebecker, J.
Error was assigned upon the court's finding that two of the parties, appearing on the subscription contract as purchasers of two shares in the company about to be organized for the purchase of the horse, were not bona >-fide subscribers, but that they had made such subscription with the express understanding between them and the defendants who owned the horse that they were not to be liable on such subscriptions. The evidence adduced on this issue is conflicting, but we can find no such clear preponderance of the evidence in support of appellants' claim as to warrant reversing the conclusion of the trial court thereon. The effect of the transaction can scarcely be in doubt in view of the conditions under which the plaintiffs appended their signatures to the subscription agreement. The court finds the fact, by consent of counsel for all the parties to the action, that
"plaintiffs [signed] the subscription contract for a share or shares of stock in the proposed horse company, upon an understanding and agreement between each of them, respectively, and the Westfield Importing Company that no signature to said contract would be binding until bona fide subscribers thereto for thirty shares had been obtained by said Westfield Importing Company."
An all-important fact to plaintiffs was that all the persons represented as being subscribers to this undertaking would be mutually bound to pay the $3,000 purchase money of the horse, hence their insistence that they were not to be liable on the subscriptions until the mutual agreement was subscribed by bona fide subscribers under the agreement with defendants. When defendants presented a list of persons, some of whom were not subscribers, and thereby induced plaintiffs to execute the notes in question, their action was a wrong, fraudulent in its nature, and rendering the transaction based on it void as against plaintiffs. The result is that the subscription contract, pursuant to which the notes were given, never became a binding agreement on the bona fide subscribers, and therefore could not be a valid basis for the notes. It is urged that the false representation by defendants' agent, to the effect that all subscribers to tbe subscription contract who had not signed-the notes when plaintiffs executed them would sign them or pay their amount in cash, and, in case of their refusal, payment would be enforced, was not a declaration on which plaintiffs could rely as a condition of executing the notes in question. This is urged upon the ground that it was merely an expression of opinion concerning the probable course of business, and was not a positive statement of fact. We cannot accede to this claim. The statement was that the parties whose names were on the subscription contract and who had not signed the notes when plaintiffs executed them were then ready and willing to become joint makers of the notes, and that if they did not so sign the notes they would pay in cash for the shares fox which they had apparently subscribed. These representations would be a material consideration in inducing plaintiffs to obligate themselves to join in the purchase of the horse, and they no doubt, were thereby induced to sign the notes. Their ^falsity being shown, it makes the representation a fraudulent one and renders the transaction voidable. Hodge v. Smith, post, p. 326. We deem well founded the trial court's conclusion that these fraudulent acts infected the whole transaction, and rendered voidable the notes given by plaintiffs to the defendants Roberts, Legget, and Hanen.
It is, however, claimed that the court erred in awarding judgment for damages. The action is one planted in equity, demanding cancellation of the notes upon the ground of fraud. Appellants contend in the first place that, since the service of the summons on the principal defendants was by substituted service, the action must be treated as one in rem, and no personal judgment could properly be rendered against them. The summons was served as claimed, but it appears that these defendants appeared in the action and answered generally in the case, denying the allegations of fraud and insisting upon the validity of the notes; and raised no question by their an swer as to tbe rights of transferees of tbe notes. With such an answer they appeared at tbe trial and litigated all tbe issues raised by their answer. This appearance gave the court jurisdiction of them personally, and empowered it to render whatever personal judgment was warranted by tbe facts and circumstances adduced within tbe litigated issues of tbe cause. Tbe effect of such appearance is to waive tbe want of personal jurisdiction under substituted service, and operates to confer jurisdiction as to them, and thus changes tbe character of tbe proceeding from one in rein to one in personam. Pennoyer v. Neff, 95 U. S. 714; Upper Miss. Trans. Co. v. Whittaker, 16 Wis. 220; Heeron v. Beckwith, 1 Wis. 17; Heidenheim v. Sprague, 5 Wis. 258, and cases in note; Jarvis v. Barrett, 14 Wis. 591; Anderson v. Coburn, 27 Wis. 558; Damp v. Dane, 29 Wis. 419; German Mut. F. F. Ins. Co. v. Decker, 74 Wis. 556, 43 N. W. 500; 2 Ency. Pl. & Pr. 646 et seq., "Waiver of defective service." Appellants further urge that, if tbe court acquired jurisdiction of tbe persons of these defendants, it bad no authority to enter a personal judgment against them, because such an adjudication improperly determines rights of tbe parties wholly outside of tbe issues presented. Tbe court found that plaintiffs bad ground to and did believe, at tbe time this action was commenced, that these defendants Roberts, Legget, and Hanen owned and held these notes; that they bad not pledged or hypothecated them; that they properly demanded that defendants be commanded to bring them into court to cancel and annul them; and that these defendants, through their further wrongful and fraudulent acts, had •transferred them to the defendant Nave, that he in turn transferred them to the defendant b$nk, and that both of, them were bona fide purchasers for value; that no relief of an equitable nature is now available, and that the only relief now available to offset plaintiffs' liability on the notes is a pecuniary compensation. These facts present a case wherein the ^equitable relief sought cannot be awarded, and the only rein- edy available is tbe one of damages. This brings the case-within the principle followed in a number of decisions of this-court, where the cause was retained and such legal remedy awarded as the facts and circumstances proven justified. In. the case of Cole v. Getzinger, 96 Wis. 559, 71 N. W. 75, in. treating of this subject, it is said:
"It appears to be well settled that where a court of equity obtains jurisdiction for the purpose of granting some distinctively equitable relief, such as . . . the -rescission or cancellation of some instrument, and it appears from facts disclosed at the hearing, but not known to the plaintiff when he brought his suit, that the special relief prayed for has become impracticable, and the plaintiff is entitled to the only alternative relief possible,- — of damages, — the court may, and generally will, instead of compelling the plaintiff, to incur the double expense and trouble of an action at law, retain the cause, decide' all the issues involved, and decree the payment of mere compensatory damages (Pom. Eq. Jur. § 237); especially since,, by the Oode, the distinction between courts of law and courts of equity has been abolished." Hall v. Delaplaine, 5 Wis. 206; Hopkins v. Gilman, 22 Wis. 476; Combs v. Scott, 76 Wis. 662, 45 N. W. 532; Stevens v. Coates, 101 Wis. 569, 78 N. W. 180; Gates v. Paul, 117 Wis. 170, 94 N. W. 55.
It is urged that compensatory damages cannot be awarded because they are not ascertainable under the facts found, and that plaintiffs must wait until they have made actual payment of the notes. This contention cannot be sustained. The court properly held that these notes in the hands of bona fide purchasers for value established a liability according to their terms against these plaintiffs, and that such liability was-measured by the amount they call for on their face, with interest. We deem this the correct measure of damages, in the-case, and within the principle of the case of Lyle v. McCormick H. M. Co. 108 Wis. 81, 84 N. W. 18.
These considerations are decisive of the questions presented. We find no error in the record.
By the Court. — Judgment affirmed.