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Peddinghaus v. Peddinghaus

March 16, 1998

WOLF DIETRICH PEDDINGHAUS, PLAINTIFF-APPELLANT,
v.
CARL ULLRICH PEDDINGHAUS, CARL GEORG PEDDINGHAUS, CAROLINE APPOLONIA PEDDINGHAUS AND JULIA CAECILIA PEDDINGHAUS, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County Honorable Ellis S. Reid judge Presiding.

The opinion of the court was delivered by: Justice O'brien

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 non-performing 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 ...


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