Case Name: Heckendorn, Appellant, v. Romadka, imp., Respondent
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1909-03-09
Citations: 138 Wis. 416
Docket Number: 
Parties: Heckendorn, Appellant, v. Romadka, imp., Respondent.
Judges: 
Reporter: Wisconsin Reports
Volume: 138
Pages: 416–425

Head Matter:
Heckendorn, Appellant, v. Romadka, imp., Respondent.
February 18
March 9, 1909.
Discovery: Examination to enable plaintiff to plead,: Sufficiency of affidavit: Cause of action: Corporations: Fraud, inducing subscription to stock: Acts of officers: Liability, joint and several: Parties: Election of remedies: Trusts and trustees.
1. Under sec. 409?, Stats. (Supp. 1906), authorizing examination of' an adverse party to enable plaintiff to frame Ms complaint upon an affidavit stating “the general nature and object of the-action,” etc., the affidavit need not state facts constituting a cause of action, but is sufficient if the facts stated show that plaintiff may be entitled to recover.
2. An affidavit stating that plaintiff subscribed and paid cash to the defendant corporation for certain shares of its stock; that defendant R. was an officer of the company and owned a controlling interest therein; that he and the officers and representatives of the company managed its affairs, and as such fraudulently misrepresented its financial condition and the value and productiveness of its property, and thereby induced plaintiff to subscribe for and purchase said shares; and that R. finally, through fraud, secured title and possession of all the company’s property and assets, — is Tield to show that plaintiff has a cause of action against the defendants for fraud committed by them jointly.
3. Plaintiff, in such case, need not pursue the joint wrongdoers separately or seek relief against those only into whose hands he can trace the funds. The benefit secured by any one, of the participants is deemed a benefit to all, and each is individually liable for the whole injury.
4. Plaintiff has in such a ease the right to pursue any one of several courses to remedy the wrong; and a statement in his affidavit under sec. 4096, Stats. (Supp. 1906), that the general nature and object of the action is for a rescission of the subscription contract and for the recovery of the money paid, does not constitute an election of remedy so as to limit him in the framing of the complaint after he has learned the details of the transactions through the proposed examination.
5. The statement in plaintiff’s affidavit that the defendant R., as stockholder and director, and through his sons, who were also directors, controlled the corporate property and affairs and so manipulated them as to secure possession of all the property and assets of the company, justifies a claim that he as well as the company may be found to have received plaintiff’s property through their joint wrong and may therefore be chargeable as-a trustee for the plaintiff.
Appeal from an order of tbe circuit court for Milwaukee county: J. C. Ludwig, Circuit Judge.
Reversed.
Tbis is an action for tbe rescission and cancellation of tbe subscription for and tbe purchase of certain shares of stock in tbe defendant corporation (El Globo Mining and Milling Company) issued November 30, 1'906, and for tbe recovery of tbe money paid therefor, with interest, on tbe ground that tbe subscription and purchase of tbe stock were induced by tbe false and fraudulent representations of tbe defendants. Th<? discovery of facts alleged to be witbin tbe knowledge of the secretary of the defendant company and the defendant Ro-madka is sought in order to enable the plaintiff to frame his complaint. Discovery is sought as to the ownership, title, time when acquired and from whom, and the consideration for the El Globo mine; as to the organization, when, where, and how, of the defendant company; the facts regarding the issuance of stock, the subscriptions to and ownership of the stock, the officers elected, their acts and their management of the affairs of the defendant company; the amount of money expended by the company, when, where, how, and by what authority; like facts as to the El Globo Mining and Milling Company of Mexico; as to the authority under which a certain circular to induce subscriptions was issued by the agents of the defendants; as to the reports made to the defendant company by Charles A. Romadka, president of the company and son of the defendant Romadka; and as to the report made by the directors to the stockholders; and as to the financial transactions between the defendants and by them or either of them with the El Globo Mining and Milling Company of Mexico. Discovery is also sought as to the development and work done on the El Globo mine and as to the amount of money expended by the defendant Romadka and his sons upon this mine prior to the incorporation of the defendant company; as to the production of ore and the shipments from the mine from August 25, 1902, to January 1, 1905, and the smelter returns therefrom; and as to the statements made or authorized to be made by the defendant Romadka to the plaintiff and other stockholders in relation to the defendant company prior to the time when plaintiff subscribed for and purchased his stock.
The defendant Romadka made an affidavit that he had never, directly or indirectly, made or caused to be made to the plaintiff or any other person any false or fraudulent representation, and that he was not, and for a long time prior to tbe commencement of tbis action bad not been, an officer of tbe defendant corporation. He made tbis affidavit for tbe purpose of obtaining an order, from tbe court requiring tbe plaintiff to show cause wby tbe order requiring tbe defendant Bomadha to submit to an examination under sec. 4096, Stats. (Supp. 1906), should not be vacated, or, if tbe court should not grant an order absolutely prohibiting tbe examination, wby defendant’s examination should not be limited strictly to tbe matters which would enable plaintiff to obtain information from tbe defendant Bomadha which would tend to establish bis personal liability.
Tbe court issued an order for tbe plaintiff to show cause wby tbe proceedings requiring tbe defendant Bomadha to submit to an examination should not be vacated or limited. At tbe bearing on tbis order to show cause plaintiff submitted a supplementary affidavit stating that plaintiff was informed and believed that tbe defendant Bomadha bad been in direct or indirect control of tbe affairs of tbe defendant company through bis ownership or control of a majority of tbe stock of tbe defendant company; that a large portion of tbe money derived from tbe sale of tbe balance of tbe stock bad been wasted, misappropriated, and misapplied by tbe board of directors of tbe defendant company under tbe control and direction of tbe defendant Bomadha; that tbis defendant, through tbe assignee of a fraudulent claim in favor of tbe defendant Bomadha, bad fraudulently procured a judicial sale of tbe property of tbe defendant company; and that tbis assignee was bolding tbe property of tbe defendant company so acquired for tbe use and benefit of tbe defendant Bomadha. Tbe affidavit enumerates specific misrepresentations which are alleged to have induced plaintiff to subscribe for and purchase bis shares of stock and which are alleged to have been directly or indirectly procured by the defendant Bomadha. The court made an order absolutely vacating and setting aside tbe proceedings for the examination of the defendant Bo- toadlca and enjoining the proposed examination. This is an appeal from snch order.
For the appellant there were briefs by Frank M. Hoyt, and oral argument by L. A. Olwell.
For the respondent there were briefs by Kronshage, McGovern, Goff, Fritz & Hannan, attorneys, and Thos. H. Gill, of counsel, and oral argument by Theodore Kronshage.
They contended, inter alia, that no cause of action for rescission exists against the defendant Bomadka. Franey v. Warner, 96 Wis. 222; Limited Inv. Asso. v. Glendale Inv. Asso. 99 Wis. 54; Glendale Inv. Asso. v. Harvey L. Co. 114 Wis. 408; J. V. LeOlair Go. v. Bogers-Buger Co. 124 Wis. 44. Plaintiff, having elected to rescind, has waived and cannot assert the remedial rights predicated upon the opposite and inconsistent theory of a subsisting contract. Grant v. Law, 29 Wis. 99, 104; Franey v. Warner, 96 Wis. 222; Limited Inv. Asso. v. Glendale Inv. Asso. 99 Wis. 54; Smeesters v. Bchroeder, 123 Wis. 116; Davis v. Schmidt, 126 Wis. 461; Fox v. Wilkinson, 133 Wis. 337, 340; Smith v. Burns B. & Mfg. Go. 132 Wis. 177, 186; Pfeiffer v. Marshall, 136 Wis. 51, 116 N. W. 871; Wilson v. New U. S. C. B. Go. 73 Fed. 994, 20 O. O. A. 244; Westerfield v. New York L. Ins. Co. 129 Oal. 68; Fagan v. Newson, 12 N. O. 20.

Opinion:
Siebecker, J.
The purpose of respondent's examination under sec. 4096, Stats. (Supp. 1906), is to enable plaintiff to frame his complaint. To entitle plaintiff to such an examination before issue joined, the notice thereof must be "accompanied by an affidavit of the party, his agent or attorney, stating the general nature and object of the action" and "the points upon which such discovery is desired." The plaintiff attempted to fulfil these demands of the statute by the service of an affidavit stating that plaintiff seeks reimbursement for the damages he claims to have suffered through the alleged fraudulent scheme of the defendant El Globo Mining and Milling Company and tbe defendant Charles P. Romadka, by wbicb he was induced to purchase and pay for stock of the corporation, and that plaintiff seeks a rescission and cancellation of such stock subscription and purchase. This remedial statute has repeatedly been declared to be a highly beneficial one, and one to be liberally construed. See Schmidt v. Menasha W. W. Co. 92 Wis. 529, 66 N. W. 695, and cases cited. If the facts stated in the affidavit charge that plaintiff may be entitled to recover against the defendants, then he has a right to a discovery, whether or not the imputations of fraud are well founded. Id. The requirements of the affidavit upon which such application is based were considered in the recent case of Gratz v. Parker, 137 Wis. 104, 118 N. W. 637, and it was there declared:
"It does not require that facts sufficient to constitute a. cause of action shall be set forth therein. . It is not even necessary that the plaintiff should know that a cause of action existed."
This it seems must necessarily be the interpretation of this statute, for its very purpose is to enable a plaintiff to secure information that he may properly state his cause of action. As stated in the Schmidt Case:
"It may be that upon examination of the defendants the plaintiff will find that there is no ground for charging the defendants with fault, and expensive litigation may thus be avoided."
It is however contended by the defendant Romadka that the plaintiff's statement in the affidavit for discovery, namely, "that the general nature and object of. the action is for the rescission and cancellation of the subscription and purchase by the plaintiff of five (5) shares'of capital stock of the defendant company, . . . issued by such company to the plaintiff on the 30th day of November, 1906, and for the recovery of the money paid therefor by the plaintiff," is an election that his cause of action shall be for a rescission and cancellation, and that since, under the facts and circumstances stated, no cause of action does or can exist against the defendant Ro-madha because it appears be is not in possession of any of the proceeds, bis examination should not be permitted. Madison v. Madison G. & E. Co. 129 Wis. 249, 108 N. W. 65; State v. Milwaukee E. R. & L. Co. 136 Wis. 179, 116 N. W. 900. Tbis contention challenges the plaintiff's right to proceed upon the ground that be has chosen to remedy bis wrong by a rescission of bis subscription to the stock of the defendant corporation and the recovery as damages of an amount equal to the money paid therefor. The argument is that the statement in b\s affidavit amounts to an election of remedy and restricts him to an action based upon impliéd assumpsit as for money bad and received. The correctness of tbis claim must be ascertained from the facts now before the court and the-remedies afforded by the law under such circumstances.
It is in effect stated in the affidavit that the plaintiff made-the purchase of the stock of the defendant company; that be paid and the defendant company received cash in payment of' the transfer; that the defendant Romadka was an officer of the company and-owned a controlling interest therein; that be and the officers and representatives of the company managed the corporate affairs and property, .and as such fraudulently misrepresented its actual financial condition, the value of its property and its productiveness, and that be finally through fraud secured the title and possession of all the company's property and assets. These statements are ample to-show the general nature of the wrong of which the plaintiff complains, namely, a fraudulent scheme and purpose, wherein the respondent and the defendant company joined and whereby the plaintiff was injured and damaged. It is apparent from these facts that the defendant Romadka, as a stockholder of the defendant company and as an officer in charge and management of its affairs, secured a benefit through the corporation, which had obtained money for the-stock sold to the plaintiff, and by ultimately gaining posses sion of its property, thus through fraudulent manipulation obtaining the title to the company's property and retaining it against the right of the plaintiff and others similarly situated. Milbrath v. State, ante, p. 354, 120 N. W. 252. The facts and circumstances stated fully sustain plaintiff's contention to the effect that he' has a cause of action against the defendants for fraud committed by them jointly. That the plaintiff, under such circumstances, has the right to seek relief for the fraud so perpetrated upon him by the defendant company and by Bomadka as its officer and agent, we deem well sustained by the following cases: Pittsburg M. Co. v. Spooner, 74 Wis. 307, 42 N. W. 259; Zinc C. Co. v. First Nat. Bank, 103 Wis. 125, 79 N. W. 229; Hebgen v. Koeffler, 97 Wis. 313, 72 N. W. 745; Franey v. Warner, 96 Wis. 222, 71 N. W. 81. The doctrine of these cases is that the injured party may demand that he be made good by those who have united in the wrong resulting in his injury; and in seeking this relief he is not necessarily compelled to pursue the joint wrongdoers separately or to seek relief against those into whose hands he can trace the funds. Liability attaches upon the-ground that when such a fraud is committed by several acting-in concert and they reap a benefit therefrom, then they are-all jointly and severally liable, and no participant can escape-liability because he did not share in a pecuniary benefit of the wrong. The benefit so secured by any one of the parties is deemed to have been for the benefit of all, and each is individually liable for the whole injury. Harrigan v. Gilchrist, 121 Wis. 127, 280, 281, 99 N. W. 909; Mack v. Latta, 178 N. Y. 525, 71 N. E. 97.
The corporation is properly included as a party under the charge made in the affidavit. The allegations that defendants made fraudulent representations by which plaintiff was induced to purchase the stock and part with his money reasonably permit of the inference-that'its officers and agents acted authoritatively in the matter complained of, and, if sus- taincd by proof, subjects it to liability. Zinc C. Co. v. First Nat. Bank, supra. Tbe situation thus presented invests plaintiff with tbe right to pursue one of several courses to remedy tbe wrong. He bad tbe right to restore the original situation, rescind tbe contract, and recover back bis money. Tie may offer to restore, and, by keeping such offer good, sue in equity for a rescission of tbe contract and for a recovery of bis money. Without restoring, be or all similarly interested joining may sue in equity to charge such person as a trustee of tbe profits fraudulently retained by him and for an .accounting. Or be may sue such person at law for tbe damages resulting from tbe fraud. True, plaintiff states tbe general nature and object of bis action to be for tbe rescission of tbe subscription contract and for tbe recovery of tbe money paid thereon. This, however, cannot be held to be an election of remedies so as to limit him in framing bis complaint to an action upon implied assumpsit as for money bad and received ¡after be shall learn tbe details of tbe transactions from respondent's examination. It may well transpire that facts will be elicited according with tbe purpose so declared and upon which an action in equity either for a rescission of tbe contract and tbe recovery of tbe money, or, without a restoration of tbe stock, an action to charge defendants as trustees of tbe profits fraudulently retained by them and for an accounting may be framed as affording tbe most complete and efficient remedy. Tbe charge that tbe respondent, as stockholder ,and director, and through bis sons, who were also directors, controlled tbe corporate property and its affairs and so manipulated tbe same as to secure possession of tbe property and assets of tbe company, amply justifies tbe claim that be as well as tbe company may be found to have received tbe property of tbe plaintiff through their joint wrong, and may, under tbe doctrine of tbe foregoing cases, establish tbe relationship of a trustee as between him and tbe plaintiff.
We are of opinion that tbe court erred in vacating and set ting aside the proceeding to examine the respondent before issue joined under sec. 4096, Stats. (Supp. 1906), in enjoining plaintiff from proceeding further therein, and in dismissing the action as to the respondent.
By the Oourt. — The order appealed from is reversed, and the cause remanded to the trial court for further proceedings according to law.