Appeal from the Circuit Court of Cook County. No. 95 CH 4223 Honorable Ellis Reid, Judge Presiding.
The opinion of the court was delivered by: Justice O'brien
Plaintiff, Wolf Peddinghaus, appeals the circuit court's order granting summary judgment for defendants, Carl Georg Peddinghaus, Caroline Peddinghaus, and Julia Peddinghaus, on plaintiff's fraud action in connection with defendants' purchase of plaintiff's shares of a family trust. On appeal, plaintiff contends that genuine issues of material fact exist precluding the imposition of summary judgment. We reverse and remand for further proceedings.
The following facts are undisputed for purposes of this appeal. Paul and Werner Peddinghaus created the Peddinghaus Corporation (the corporation), which is in the business of designing, manufacturing, and selling machine tools. Paul Peddinghaus later 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 intervivos 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 him his shares in the CUP trust. In discussions beginning in May, 1991, Carl told plaintiff that a variety of serious problems negatively affected the performance of the corporation and that the corporation would not pay dividends in the near future because of a risk of double taxation of those dividends in the United States and Germany. Carl also told plaintiff that the corporation constituted a non-performing asset and that the best way to value the corporation was based upon its paid-in capital; Carl failed to disclose to plaintiff that in addition to its paid-in capital, the corporation had about six million dollars in retained earnings.
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. 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 signed the purchase agreement, effective September 3, 1991, and transferred his shares in the CUP trust to defendants. In December 1991, plaintiff also assigned defendants his interest in Structural Steel Systems, Ltd., a limited partnership established by the corporation
In February 1996, plaintiff obtained the 1991 tax return for Peddinghaus corporation. The tax return showed the corporation had retained earnings of about $6 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 filed a fraud action against defendants. 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 on 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 circuit court granted defendants' motion under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1992)) to dismiss counts I, III, and IV for failure to state a cause of action. Plaintiff appealed, and on March 16, 1998, we reversed and remanded, holding that plaintiff's complaint was sufficient to state a cause of action for fraudulent inducement, ratification, rescission and unjust enrichment. Peddinghaus v. Peddinghaus, 295 Ill. App. 3d 943 (1998). On remand, plaintiff filed a second amended complaint, which realleged counts I through IV and added counts V and VI. Counts V and VI alleged that defendants had failed to provide adequate consideration for plaintiff's assignment of his interest in Structural Steel. Following the completion of discovery, defendants filed a motion for summary judgment on plaintiff's second amended complaint, arguing that there were no genuine issues of material fact and that as a matter of law they could not be held liable for Carl's alleged fraud. The circuit court granted defendants' motion for summary judgment on counts I, III, IV, V, and VI. Plaintiff filed this timely appeal.
First, we address the circuit court's order granting summary judgment on counts I and IV of plaintiff's second amended complaint, which sought recovery against defendants based on respondeat superior for Carl's fraud in negotiating the purchase of plaintiff's shares in the CUP trust. Summary judgment is appropriate when, viewed in the light most favorable to the nonmoving party, the pleadings, depositions, and admissions on file reveal that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. Ragan v. Columbia ...