Summary
In Sommerfield v. Klinkowitz, 245 Wis. 619, 15 N.W.2d 850, we held a discharge in bankruptcy will not discharge a party from liability by reason of his participation with his wife in the destruction of plaintiff's mortgage security.
Summary of this case from Estate of WeilOpinion
September 13, 1944. —
October 10, 1944.
APPEAL from an order of the circuit court for Milwaukee county: CHARLES L. AARONS, Circuit Judge. Affirmed.
For the appellant there were briefs by Churchill, Davis Churchill, of Milwaukee, and oral argument by W. H. Churchill.
Charles F. Millmann of Milwaukee, for the respondent.
Action commenced in the civil court of Milwaukee county on the 21st day of February, 1936, by plaintiff Josephine Sommerfield against Elsie M. Klinkowitz and Anthony J. Klinkowitz, defendants, for damages alleged to have resulted because of the wrongful conduct of defendants in destroying a certain mortgage security, which mortgage had been given to the plaintiff under the following circumstances:
The defendant Elsie Klinkowitz is the wife of the defendant Anthony J. Klinkowitz, and is the daughter of Roman Komorowski, with whom defendants lived. Roman Komorowski, among other businesses, built and sold houses. Among other properties he owned a building on Pennsylvania avenue in the city of Milwaukee which was under construction on July 23, 1929, which he expected to have completed and sold within a period of three months.
Mrs. Klinkowitz assisted her father with the bookkeeping and banking in carrying on his building business. She owned a vacant lot worth $7,000, located on Delaware avenue at Oklahoma avenue in the city of Milwaukee. Mr. Klinkowitz was a railroad brakeman and conductor. During his spare time he assisted his father-in-law, Roman Komorowski, in the supervision of the latter's building operations. On July 23, 1929, Mr. Komorowski needed about $3,000 to pay the building contractor on account of the construction of his building on Pennsylvania avenue.
Plaintiff and defendants had been close friends for many years prior to July 23, 1929. Mr. Klinkowitz and plaintiff's deceased husband had worked together for the Chicago North Western Railway Company. Mr. Sommerfield was killed in an accident, and his widow received a settlement in excess of $6,000. The friendship between the parties continued after Mr. Sommerfield's death. His widow, the plaintiff, sought the advice of Mr. Klinkowitz as to the investment of her moneys. He advised her to purchase paid-up stock in building and loan associations. She also purchased a lot and erected thereon a duplex flat building. Mr. Klinkowitz had the construction of the building of the plaintiff's duplex flat. He arranged for a construction mortgage loan, looked after paying all bills against the property, and for a time after the completion of the building he tried to sell same for the plaintiff. He also handled for the plaintiff the completion of a bungalow which was being constructed at the time of her husband's accidental death. Plaintiff made all her investments solely upon his advice and had implicit trust and confidence in him. This relationship continued over a period of more than fifteen years. Plaintiff was wholly inexperienced in business transactions, which fact was known to both defendants.
It appears that because of the favors Mr. Klinkowitz had done for plaintiff she at one time promised that at any time he was in need of her help and she could be of assistance she would gladly do so.
Mr. Klinkowitz testified that in July, 1929, he needed money to pay for the construction of the building on Pennsylvania avenue. He further testified:
"I figured that I would be able to sell the property in ninety days so I asked her for help to get some money to complete the building. I had done several things for her and she said to me, `Tony, if you ever want a favor done by me, ask for it;' and I did. I went over and asked her whether she would help us out; that we were in a pinch and could not get the money from the Building Loan Association and the bank would not loan money on the security of my property. I would have to give them some other kind of security. I knew her security was the kind that the bank would take for a loan of this kind at that time; so I took her up on her previous suggestion to, help me out. I knew of the note and mortgage given to Mrs. Sommerfield by my wife. They were prepared in my handwriting. I induced her to take this mortgage so that in case of an accident to her that her family would know that she loaned Mr. Komorowski $3,000 and that that would be the protection for the payment of it. I also told her that the lot would not be used in the building game and if we should happen to use it, we would keep her covered with other property that would cover her indebtedness.
"I gave her the mortgage so that the note would be secured. That, in a way, is the purpose of the mortgage, so that it was really to secure her or her rights, whoever it might be that was entitled to it, and in case of accident and her death. I had nothing to do with the renewal of the notes; that was all attended to by my wife. I was not present when my wife gave the deed to the bank, but I knew of it. Mr. Komorowski was interested in this property on Pennsylvania avenue with me and several others. He was engaged with me in the building of just about all of them.
"I knew my wife gave a deed to the bank of this property on which Mrs. Sommerfield had the mortgage and the purpose of giving of this deed to the bank. I also know that the bank would not take a deed to the property which purported to be free and clear if this mortgage of Mrs. Sommerfield was recorded against it."
On July 23, 1929, plaintiff, at the request of defendants and for their accommodation, gave her note to the Bay View bank in the sum of $3,000, and pledged as security $4,300 worth of paid-up stock of building and loan associations. The proceeds of this loan were used to finance the construction of the duplex flat on Pennsylvania avenue. As part of the arrangement and to secure the plaintiff, Mrs. Klinkowitz executed a note of $3,000 to the plaintiff, secured by a first mortgage on her lot on Delaware avenue. This note and mortgage were prepared by Mr. Klinkowitz and delivered to plaintiff. The mortgage was never recorded.
It was understood that when the flat on Pennsylvania avenue was completed, it would be offered for sale, and the parties expected that it could be sold within ninety days, and that defendants would then pay plaintiff's note which she had given the Bay View bank. The flat was not sold and plaintiff, at the request of defendants, renewed her note to the bank several times.
In October, 1934, Elsie Klinkowitz, with the knowledge of her husband, but without the plaintiff's knowledge, conveyed to the Bay View bank or its successors the real estate which had been mortgaged to plaintiff. In May, 1935, the bank notified the plaintiff that it would sell the collateral in order to realize on the plaintiff's note, the last renewal of which was April 5, 1935. At this time plaintiff saw the defendants, who told her she "had nothing to worry about;" that they would take care of it. At or about this time plaintiff, seeking to prevent the sale of her stock, went to the bank and offered the note and mortgage which she had received from Mrs. Klinkowitz. It was then that plaintiff discovered that the land upon which the mortgage was placed had been conveyed by Mrs. Klinkowitz to the bank. In August, 1935, the bank sold the plaintiff's stocks which it held as collateral for plaintiff's note. The proceeds of the sale were not sufficient to fully pay plaintiff's note and accrued interest.
This action came on for trial in the civil court in January, 1937. After partial trial, the parties entered into a stipulation providing for a settlement of the action. By the terms of the settlement a new note for $3,000, dated January 18, 1937, payable in monthly instalments and due in five years, was executed by both defendants and delivered to the plaintiff. The stipulation contained provisions holding the action open until the note was fully paid, and giving plaintiff the option to proceed after notice with the trial of the pending action in the event of default in the monthly payments continuing "for a period of thirty days or more." The stipulation provided that all payments made upon the note were to be applied as payments on any judgment which plaintiff might secure in the event of the further prosecution of the action. The stipulation further provided that:
"Upon the payment in full of said note dated January 18, 1937, the said note is to be surrendered as fully paid, the above-entitled action is to be dismissed upon its merits as fully settled, and the note of Elsie Klinkowitz dated July 23, 1929, payable to the order of Josephine Sommerfield and the mortgage bearing even date therewith securing the payment of said note, are to be delivered up to said Elsie Klinkowitz."
Defendants made fifty payments on said note, the last one being made on October 19, 1940. On December 16, 1940, defendant Anthony Klinkowitz was adjudicated a bankrupt upon his voluntary petition. He scheduled the $3,000 note executed by him and his wife to the plaintiff (the note dated January 18, 1937). The plaintiff's claim for damages by reason of defendants' wrongful destruction of the mortgage, which claim was involved in the then pending action, was not scheduled. On August 19, 1941, plaintiff filed objections to the bankrupt's discharge. Her objections were not sustained and the bankrupt was discharged September 30, 1941.
On December 22, 1941, plaintiff gave notice to the defendants that the action then pending in the civil court would be placed on the calendar of that court for trial; also returned to the defendants their note of January 18, 1937. The action was brought on for trial in the civil court November 2, 1942. At the conclusion of the evidence counsel for defendants moved for a directed verdict in favor of defendant Anthony Klinkowitz; also, a separate motion for a directed verdict in favor of Elsie Klinkowitz. The trial court directed a verdict for the plaintiff against the defendant Elsie Klinkowitz, and directed a verdict in favor of the defendant Anthony Klinkowitz against the plaintiff. The trial judge, in directing a verdict for the plaintiff against the defendant Elsie Klinkowitz, stated that he did so —
"because she defrauded the plaintiff when she conveyed the mortgaged premises to the bank."
In explaining his direction of a verdict in favor of the defendant Anthony Klinkowitz, he said that he did so —
"because he (the husband) wasn't a party to the note and mortgage which his wife had given the plaintiff in July, 1929, and she alone is responsible for perpetrating that fraud. No conspiracy between them was alleged or proved. . . . He did not deed the property to the bank. He did not own it and had not mortgaged it. . . . There was a moral obligation on the part of Anthony Klinkowitz but no legal obligation."
From the judgment accordingly entered, an appeal was taken by the plaintiff to the circuit court. Defendant Elsie Klinkowitz did not appeal. On the plaintiff's appeal to the circuit court the judgment rendered in the civil court in favor defendant Anthony Klinkowitz was reversed and case ordered remitted for a new trial. Defendant Anthony Klinkowitz appeals.
Appellant contends: (1) That there is no evidence from which it may reasonably be inferred that he aided Elsie in conveying the mortgaged property to the bank; (2) that the undisputed evidence shows that, as a matter of law, the plaintiff waived her right to proceed with the trial of this action; and (3) that appellant was discharged in the bankruptcy proceedings from all liability to the plaintiff. If either the second or third contention be sustained, we need not consider the first.
Appellant argues that plaintiff elected to pursue her rights against the defendants on the promissory note given by them at the time of the settlement stipulation on January 18, 1937, and that she thereby waived any right of action which she may have had to reopen the trial of this action, then pending in the civil court. The settlement stipulation provides that in the event of default in any of the monthly payments (on the note of January 18, 1937) for thirty days or more, the plaintiff may, at her option, surrender the note of January 18, 1937, and have the action placed upon the calendar for immediate trial.
It is argued that plaintiff did not promptly exercise said option and that she thus waived her right to do so. In this connection, the parties, by an instrument in writing, signed by them and their respective attorneys, agreed that this action, then pending in the civil court, be held open until defendants' note of January 18, 1937, was paid in full. The note was payable on or before five years from date, in monthly instalments of $20 per month for the first three years, and $25 per month during the last two years, the first payment to be made as of March 5, 1937, and upon the fifth day of each month thereafter. Default in making any of the monthly payments for more than thirty days after it became due was to mature the entire note. The stipulation further provides:
"Until said note dated January 18, 1937, is paid in full, the plaintiff's attorney herein shall retain the note of Elsie Klinkowitz dated July 23, 1929, payable to the order of Josephine Sommerfield. . . ."
The stipulation further provides that in the event of defaults in payments on the note of January 18, 1937, and by reason thereof the further prosecution of the action in the civil court, any payments made by defendants on their note of January 18th should then be applied as payments upon any judgment plaintiff might secure as a result of the trial of the action. The stipulation further provides:
"Upon the payment in full of said note dated January 18, 1937, the said note is to be surrendered as fully paid, the above-entitled action is to be dismissed upon its merits as fully settled, and the note of Elsie Klinkowitz dated July 23, 1929, payable to the order of Josephine Sommerfield and the mortgage bearing even date therewith securing the payment of said note, are to be delivered up to said Elsie Klinkowitz."
We fail to find any fact or circumstance by reason of which it can be said that plaintiff took an inconsistent position with the terms of the settlement stipulation. It was not inconsistent for her to attempt to collect on the defendants' note of January 18, 1937.
Appellant, in support of his contention that plaintiff waived her right to proceed with the trial of this action and elected to rely on the defendants' liability on their note of January 18, 1937, cites Chas. A. Krause M. Co. v. Chris. Schroeder Son Co. 219 Wis. 639, 263 N.W. 193, and Farmers Merchants State Bank v. Perry, 186 Wis. 93, 202 N.W. 179. Neither case is applicable to the facts in the instant case on which appellant's theory of waiver is based. We are here dealing with the rights of the parties under a settlement agreement as to pending litigation, whereby the litigation was held open, and in default of conditions plaintiff reserved the right, upon returning to the defendants their note of January 18, 1937, and upon ten days' notice, to bring this action on for trial. The action was to be dismissed only in the event that defendants paid their note of January 18th in full.
A waiver is the intentional surrender of a known right. There is no evidence to indicate that plaintiff intended to surrender any right she had under the settlement stipulation. Defendants continued to make payments on their note of January 18, 1937, until October 19, 1940. On December 16, 1940, defendant Anthony Klinkowitz filed a voluntary petition in bankruptcy. He was discharged in bankruptcy proceedings on September 30, 1941. On December 22, 1941, plaintiff returned to the defendants their note of January 18, 1937, and at that time gave notice that the action pending in the civil court would be placed on the calendar for trial. It cannot be said, as a matter of law, that there was any unreasonable delay on the part of plaintiff in pursuing her rights under the settlement agreement. Defendants were in nowise prejudiced by reason of any delay in the returning of their note or in bringing the action to trial. All payments made by defendants on their note will be credited on any judgment plaintiff may finally recover against them. Defendants' contention that the evidence shows, as a matter of law, that plaintiff has waived her right to proceed with the trial of this action cannot be sustained.
Appellant's third contention, that he was discharged in the bankruptcy proceedings from all liability to the plaintiff, is based on the fact that in his bankruptcy schedules he listed the note given by him and his wife to the plaintiff in accord with the terms of the settlement agreement. He did not schedule any liability on the present cause of action. His discharge in bankruptcy does not affect plaintiff's cause of action, which is based upon the charge of a wrongful destruction of plaintiff's mortgage. The discharge in bankruptcy excepts such debts as are by the Bankruptcy Act excepted from the operation of a discharge in bankruptcy. Sec. 17, ch. III, of the Bankruptcy Act of 1938, 11 USCA, sec. 35, includes, among "debts not affected by a discharge," "liabilities . . . for wilful and malicious injuries to the person or property of another."
The wrongful sale of land which was subject to unrecorded deed given as a mortgage was held to be "malicious injury to property" of mortgagee, liability for which was unaffected by discharge in bankruptcy. See Probst v. Jones, 262 Mich. 678, 247 N.W. 779, and cases there cited. The unauthorized sale of certificates of stock held by brokers as collateral constitutes a "wilful and malicious injury to property" within the meaning of the Bankruptcy Act, and their liability is not released by a discharge in bankruptcy. McIntyre v. Kavanaugh, 242 U.S. 138, 37 Sup. Ct. 38, 61 L.Ed. 205, 207. If it be held that appellant participated with his wife in the destruction of plaintiff's mortgage, then his discharge in bankruptcy would not discharge him from liability in this action.
We now come to appellant's first contention, that there is no evidence from which it may reasonably be inferred that appellant aided his wife in conveying the mortgaged property to the bank. The civil court, in directing a verdict in favor of appellant, said that he did so "because he (the husband) wasn't a party to the note and mortgage which his wife had given the plaintiff in July, 1929, and she alone is responsible for perpetrating that fraud. No conspiracy between them was alleged or proved. . . . He did not deed the property to the bank. He did not own it and had not mortgaged it. . . . There was a moral obligation on the part of Anthony Klinkowitz but no legal obligation."
True, the husband did not own the property mortgaged to the plaintiff, but he was interested in the building under construction on Pennsylvania avenue and he did approach the plaintiff to get the $3,000 to pay the contractor for the construction of that building. He induced plaintiff to loan her credit at the bank. He promised the mortgage security and drafted the note and mortgage. Plaintiff loaned her credit to accommodate defendants, not for the accommodation of Roman Komorowski. Anthony testified that he asked plaintiff "whether she would help us out; that we were in a pinch and could not get the money from the Building Loan Association." The circumstances under which defendants induced plaintiff to give her collateral note to the bank and the execution of the note and mortgage as security therefor are set out at length in the statement preceding this opinion. We shall not repeat them. It appears without dispute that both defendants knew plaintiff was inexperienced in business affairs. Over a long period of years plaintiff frequently sought the advice of Mr. Klinkowitz as to business matters including the investment of moneys. Anthony Klinkowitz testified:
"I also told her that the lot [covered by the mortgage] would not be used in the building game and if we should happen to use it, we would keep her covered with other property that would cover her indebtedness. I gave her the mortgage so that the note would be secured."
He further testified:
"I was not present when my wife gave the deed to the bank, but I knew of it."
For a period of many years there was a close relationship of trust and confidence between plaintiff and Mr. Klinkowitz. For a period of nearly fifteen years he acted as her business adviser. He personally attended to many of her business affairs. From a careful study of all the evidence, we think it might be reasonably inferred that Anthony Klinkowitz aided his wife in conveying the mortgaged property to the bank, whereby plaintiff's mortgage was effectually destroyed. On the evidence, that issue could not be disposed of as a matter of law. It should have been submitted to a jury.
By the Court. — Order affirmed. Cause remanded for further proceedings according to law.