Peddinghaus v. Peddinghaus

FIRST DIVISION
March 16, 1998

No. 1-97-1929

WOLF DIETRICH PEDDINGHAUS, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County
)
v. )
)
CARL ULLRICH PEDDINGHAUS, CARL GEORG )
PEDDINGHAUS, CAROLINE APPOLONIA )
PEDDINGHAUS and JULIA CAECILIA )
PEDDINGHAUS, ) Honorable
) Ellis S. Reid
Defendants-Appellees. ) Judge Presiding.

JUSTICE O'BRIEN delivered the opinion of the court:
Plaintiff, Wolf Peddinghaus, filed a four-count amended
complaint alleging that defendant Carl Peddinghaus (Carl) had
fraudulently induced him to enter into a purchase agreement
pursuant to which he sold his interest in a family trust to
Carl's children. In counts I and II, plaintiff sought damages
against Carl under theories of fraud and breach of fiduciary
duty. Plaintiff also asserted in count I a fraud-by-agency claim
against Carl's children (hereinafter defendants), on the basis
that Carl had acted as defendants' agent when he fraudulently
induced plaintiff to sell his shares in the family trust. Count
III sought rescission of the purchase agreement. Count IV
alleged a claim of unjust enrichment against defendants.
The trial court entered an order dismissing plaintiff's
claims against defendants pursuant to section 2-615 of the Code
of Civil Procedure (735 ILCS 5/2-615 (West 1992)). The court
also made a finding that no just reason existed for delay of
enforcement or appeal of the order. 134 Ill. 2d R. 304(a).
Plaintiff appeals. We reverse and remand.
Plaintiff alleged that brothers Paul and Werner Peddinghaus
created the Peddinghaus Corporation (the corporation), which is
in the business of designing, manufacturing, and selling machine
tools. Paul Peddinghaus subsequently transferred his shares in
the corporation to his five children, which included plaintiff
and Carl Peddinghaus.
In May 1977, the five children executed a revocable inter-
vivos trust named the Carl Ullrich Peddinghaus Trust (CUP trust).
At its formation, the CUP trust had as its corpus 50% of the
shares of the corporation. The trust document provided Carl with
the express authority to act on behalf of his siblings, including
plaintiff, in "all matters concerning" the CUP trust.
In the spring of 1991, Carl asked plaintiff to sell his
shares in the CUP trust to him. In discussions beginning in May
1991, Carl made the following representations to plaintiff
regarding the proposed transaction: the performance of the
corporation, of which Carl was a member of the board of
directors, was "not great" due to labor and other problems; the
corporation could not then and would not in the foreseeable
future pay dividends to shareholders; plaintiff could not
withdraw any dividends paid by the corporation from the CUP
trust; the corporation constituted a nonperforming asset; and the
best way to value the corporation was based upon its paid-in
capital.
During the summer of 1991, Carl informed plaintiff that, for
tax purposes, he preferred that plaintiff sell his shares in the
CUP trust to Carl's children, defendants Georg, Caroline, and
Caecilia. In September 1991, Carl provided plaintiff with a
purchase agreement. The agreement stated that plaintiff would
sell his share in the CUP trust at an agreed-upon price of
$370,762 and that defendants would purchase said shares by
transferring their interest in another partnership to plaintiff,
along with 95,000 shares in additional bonds. Plaintiff executed
the purchase agreement and transferred his shares in the CUP
trust to defendants.
In February 1996, plaintiff obtained the 1991 tax return for
Peddinghaus corporation. The tax return showed the corporation
had annual sales of $12.05 million and retained earnings of
$5.643 million in 1991. The value of the corporation was at
least $8.6 million in 1991, and thus plaintiff's interest in the
corporation, at the time he transferred his shares in the CUP
trust to defendants for $370,762, was about $973,200.
Plaintiff alleged that Carl's representations to him in May
1991 regarding the corporation's poor performance, limited value,
and inability to pay dividends were material in his decision to
execute the purchase agreement and transfer his shares in the CUP
trust to defendants for $370,762. Each of those representations
was false, in that the corporation was operating profitably, the
fair value of the corporation far exceeded the corporation's
paid-in capital, and dividends could have been paid to the
shareholders.
In count I (fraudulent inducement against defendants),
plaintiff alleged Carl was acting as defendants' agent during the
negotiations with plaintiff when he fraudulently induced
plaintiff to sell his interest in the CUP trust to defendants.
Alternatively, plaintiff alleged that even if defendants did not
expressly authorize Carl to negotiate the purchase of plaintiff's
CUP trust shares on their behalf, they later ratified his efforts
and thus are liable for damages.
Count II, a breach of fiduciary duty count against Carl, is
not an issue in this appeal.
Count III sought rescission of the purchase agreement based
upon defendants' alleged fraud.
Count IV alleged that defendants were unjustly enriched
through their continued possession of plaintiff's interest in the
CUP trust.
The trial court dismissed plaintiff's claims against
defendants pursuant to section 2-615 of the Code of Civil
Procedure. Plaintiff appeals.
When ruling on a section 2-615 motion to dismiss, the trial
court accepts as true all well-pleaded facts and all reasonable
inferences that can be drawn therefrom. Green v. Chicago Tribune
Co., 286 Ill. App. 3d 1, 4 (1996). The trial court should not
dismiss a complaint unless it clearly appears no set of facts
could be proved under the pleadings entitling plaintiff to
relief. Green, 286 Ill. App. 3d at 4-5. In making such a
determination, the trial court interprets the allegations of the
complaint in the light most favorable to plaintiff. Green, 286
Ill. App. 3d at 5.
For purposes of this appeal only, defendants do not dispute
plaintiff's allegations that Carl fraudulently induced him to
sell his shares in the CUP trust to defendants. The question on
this appeal is whether plaintiff pleaded sufficient facts to
assert that Carl was acting as defendants' agent when he
committed fraud against plaintiff. If that question is answered
affirmatively, then plaintiff stated a cause of action for fraud
against defendants. See Letsos v. Century 21 - New West Realty,
285 Ill. App. 3d 1056, 1069 (1996) (principal is liable for
deceit of his agent, if committed in the very business the agent
was appointed to carry out).
Plaintiff pleaded defendants "gave Carl authorization to
complete the negotiations with [plaintiff], to prepare the
Purchase Agreement, to obtain the signature of [plaintiff] on the
Purchase Agreement, and to transmit the final agreement for their
execution, all on their behalf. Such authorization was given
prior to the date upon which [plaintiff] executed the Purchase
Agreement." Plaintiff further pleaded "[d]uring his negotiations
with [plaintiff], Carl held himself out as the fully authorized
agent of Defendants Georg, Caroline, and Caecilia Peddinghaus.
Carl assured [plaintiff] that his principals, Georg, Caroline,
and Caecilia, would have the requisite resources to consummate
his proposed transaction and that Georg, Caroline, and Caecilia
would sign the Purchase Agreement Carl had negotiated on their
behalf."
Said pleadings, coupled with the further allegations by
plaintiff that defendants completed the deal according to the
terms negotiated by Carl, are sufficient to allege that Carl was
acting as defendants' agent.
Defendants contend, though, that plaintiff's amended
complaint does not sufficiently allege the agency relationship
existed in May 1991, when Carl allegedly made the fraudulent
misrepresentations to plaintiff regarding the poor performance of
the corporation. We disagree. The amended complaint asserts an
agency relationship existed between defendants and Carl "prior to
the date upon which [plaintiff] executed the Purchase Agreement."
Construing that allegation in the light most favorable to
plaintiff, we conclude plaintiff has sufficiently pleaded that
Carl was acting as defendants' agent at all times prior to the
execution of the agreement, including in May 1991.
Thus, plaintiff has pleaded that Carl was acting as
defendants' agent when he allegedly committed fraud against
plaintiff. Such facts, if proven at trial, would enable
plaintiff to recover damages against defendants, even if
defendants were unaware of the fraud committed by Carl. See
Letsos, 285 Ill. App. 3d at 1069. Accordingly, count I of
plaintiff's amended complaint states a cause of action for fraud
in the inducement against defendants.
Count I of the amended complaint also asserts in the
alternative that, even if Carl was not acting as defendants'
agent at the time he committed fraud against plaintiff,
defendants later ratified his efforts and thus are liable for
damages.
The act of ratification must be of the same nature as that
which would be required to confer authority in the first place.
Prodromos v. Poulos, 202 Ill. App. 3d 1024, 1030 (1990).
Further, the ratifying party must have full knowledge of all
material facts of the unauthorized transaction. Athanas v. City
of Lake Forest, 276 Ill. App. 3d 48, 56 (1995). In other words,
to plead ratification of Carl's unauthorized transaction,
plaintiff must allege defendants were aware of the fraudulent
misrepresentations made by Carl during that transaction.
Defendants argue plaintiff failed to plead such awareness on
their part. We disagree, as a careful consideration of
plaintiff's pleadings, construed in the light most favorable to
plaintiff, indicates he did plead defendants' awareness of Carl's
fraud. Plaintiff pleaded "[p]rior to execution of the Purchase
Agreement, Carl consulted with one or more of his children
regarding the proposed transaction and outlined the terms of the
transaction including the purchase price to be paid by
[plaintiff] and the method for calculating the same." By
alleging that Carl told defendants his "method" for determining
how to pay plaintiff $600,000 less than the actual value of his
shares in the CUP trust, plaintiff sufficiently asserted that
Carl made defendants aware of his fraud. Plaintiff also pleaded
that defendants told Carl to continue negotiations with
plaintiff, and defendants later completed the deal according to
the terms negotiated by Carl. Accordingly, plaintiff has
sufficiently pleaded that defendants ratified Carl's actions.
Having determined count I of plaintiff's amended complaint
states a cause of action for fraud against defendants, we next
address whether count III states a cause of action against
defendants for rescission of the purchase agreement. The
elements of an equitable claim for rescission on the basis of
fraud and misrepresentation are: a statement of material fact,
made to induce the other party to act; the statement is false and
known by the party making it to be false; and the party to whom
the statement is made must reasonably believe it to be true and
rely thereon to his damage. Douglass v. Wones, 120 Ill. App. 3d
36, 47-48 (1983).
Plaintiff has pleaded that defendants, through their agent
Carl, made knowingly false representations regarding the
corporation that plaintiff reasonably relied upon when signing
the purchase agreement and selling his shares in the CUP trust
for less than their true market value. Accordingly, count II of
plaintiff's amended complaint states a cause of action for
rescission of the purchase agreement.
Next, we address whether count IV of plaintiff's amended
complaint states a cause of action for unjust enrichment against
defendants. Defendants contend Illinois does not recognize an
independent cause of action for unjust enrichment. We disagree.
Our supreme court has expressly held that to "state a cause of
action based on a theory of unjust enrichment, a plaintiff must
allege that the defendant has unjustly retained a benefit to the
plaintiff's detriment, and that defendant's retention of the
benefit violates the fundamental principles of justice, equity,
and good conscience." HPI Health Care Services, Inc. v. Mt.
Vernon Hospital, Inc., 131 Ill. 2d 145, 160 (1989).
Plaintiff here has pleaded that defendants, through their
agent Carl, defrauded him out of his shares in the CUP trust and
paid him about one-third of the shares' market value. Such
allegations are sufficient to assert that defendants unjustly
retain the shares to plaintiff's detriment and that defendants'
retention of the shares violates justice, equity, and good
conscience.
Defendants argue the doctrine of unjust enrichment is based
on an implied or quasi-contract and, therefore, the doctrine has
no application when, as here, a specific contract (the purchase
agreement) exists which governs the relationship of the parties.
People ex rel. Hartigan v. E&E Hauling, Inc., 153 Ill. 2d 473,
497 (1992); F.H. Prince & Co. v. Towers Financial Corp., 275
Ill. App. 3d 792, 804 (1995). However, as discussed in Wolff v.
Ampacet Corp., 284 Ill. App. 3d 824, 829 (1996), unjust
enrichment may be predicated on either quasi-contract or tort.
In the present case, plaintiff bases his unjust enrichment claim
on a tort theory, specifically, that defendants, through their
agent Carl, fraudulently induced him to sell his shares in the
CUP trust. Since plaintiff's unjust enrichment claim is based on
tort, instead of quasi-contract, the existence of a specific
contract does not defeat his cause of action.
Defendants also argue we should uphold the dismissal of
plaintiff's unjust enrichment claim because the relief sought
under that theory--the imposition of a constructive trust and an
equitable accounting-is unavailable since plaintiff failed to
plead any wrongdoing by defendants. See Suttles v. Vogel, 126 Ill. 2d 186, 194 (1988) (holding that a "constructive trust will
not be imposed unless the complaint makes specific allegations of
wrongdoing [citations], such as fraud, breach of fiduciary duty,
duress, coercion, or mistake"); Mann v. Kemper Financial Cos.,
247 Ill. App. 3d 966, 980 (1992), quoting People ex rel. Hartigan
v. Candy Club, 149 Ill. App. 3d 498, 500-01 (1986) ("[t]o sustain
an action for an accounting in equity, the complaint must allege
the absence of an adequate remedy at law and one of the
following: (1) a breach of a fiduciary relationship between the
parties; (2) a need for discovery; (3) fraud; or (4) the
existence of mutual accounts which are of a complex nature").
As discussed above, plaintiff's amended complaint makes
sufficient, specific allegations of fraud on the part of
defendants. Accordingly, we reject defendants' claim that an
equitable accounting or a constructive trust is unavailable here.
For the foregoing reasons, we reverse the trial court's
order dismissing counts I, III, and IV of plaintiff's amended
complaint and remand for further proceedings.
Reversed and remanded.
BUCKLEY, P.J., and O'MARA FROSSARD, J. concur.