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decided: April 23, 1974.


Appeals from decree of Court of Common Pleas, Civil Division, of Allegheny County, Jan. T., 1972, No. 2781, in case of Roger E. Buchanan et al. v. Brentwood Federal Savings and Loan Association et al.


W. R. Lorry and Daniel M. Berger, with them Michael P. Malakoff, James H. Joseph, Herbert G. Sheinberg, Stewart B. Barmen, Berger & Kapetan, James H. Joseph, P. C., and Raphael, Sheinberg & Barmen, P. A., for appellants.

Alexander Black and David B. Fawcett, Jr., with them David S. Watson, Judah I. Labovitz, Alexander C. Sherrard, William M. Hoffman, Harold H. Goldman, James Russell Sweeny, E. D. Hollinshead, Jr., Daniel P. Stefko, G. Harold Blaxter, Charles F. Hodel, Jr., John M. Means, J. Tomlinson Fort, James J. Restivo, Jr., Frank R. Bolte, Donald S. Hershman, William H. Markus, W. Walter Braham, Jr., Judd N. Poffinberger, Jr., Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Dickie, McCamey & Chilcote, Thorp, Reed & Armstrong, Wolf, Block, Schorr & Solis-Cohen, Campbell, Thomas & Burke, Goldman & Unatin, Hollinshead & Mendelson, Blaxter, O'Neil, Houston & Nash, Smith, Hodel & Means, Reed, Smith, Shaw & McClay, Baskin, Boreman, Wilner, Sachs, Gondelman & Craig, and Kirkpatrick, Lockhart, Johnson & Hutchison, for appellees.

Jerome H. Gerber and Handler, Gerber, Widmer and Weinstock, for Pennsylvania State AFL-CIO, amicus curiae.

Robert S. Ryan, William C. Bullitt, and Drinker, Biddle & Reath, for Pennsylvania Association of Mutual Savings Banks, amicus curiae.

William H. Markus and Markus, Riethmuller & Smith, for Pennsylvania Savings and Loan League, amicus curiae.

Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Justice Roberts. Mr. Chief Justice Jones concurs in the result. Concurring Opinion by Mr. Justice Eagen. Mr. Chief Justice Jones joins in this concurring opinion. Concurring and Dissenting Opinion by Mr. Justice Pomeroy.

Author: Roberts

[ 457 Pa. Page 138]

Appellants are twenty-nine individuals, representing a class of like-situated individuals, who have entered into mortgages with mortgage lending institutions in the Pittsburgh area. This present class action was commenced on December 7, 1971, with a complaint filed by eighteen named plaintiffs against seven banking institutions and the Federal National Mortgage Association (FNMA). All defendants except FNMA filed a preliminary objection in the nature of a demurrer. On April 4, 1972, an amended complaint adding eleven plaintiffs was filed against the original and twenty-four additional defendants and all other similarly-situated banking institutions and savings and loan associations in the Pittsburgh area. To this complaint all but six of the thirty-two defendants demurred. A second amended complaint alleging an additional cause of action was filed on May 11, 1972. Again, most of the named defendants filed a single preliminary objection demurring to appellants' complaints.

The Court of Common Pleas of Allegheny County sustained appellees' joint demurrer and dismissed appellants' complaints for failure to state a cause of action. Ten separate appeals were taken from that decree.*fn1

[ 457 Pa. Page 139]

We reverse and remand to the trial court for proceedings consistent with this opinion.

A demurrer admits as true all well-pleaded facts and all inferences reasonably deducible from them, but not any conclusions of law. Reardon v. Wilbur, 441 Pa. 551, 554, 272 A.2d 888, 890 (1971); Clevenstein v. Rizzuto, 439 Pa. 397, 400-01, 266 A.2d 623, 624-25 (1970); Hoffman v. Misericordia Hospital, 439 Pa. 501, 503-04, 267 A.2d 867, 868 (1970). Only if "upon the facts averred, the law says with certainty that no recovery is permitted," Clevenstein, supra at 401, 266 A.2d at 625, will this Court sustain the demurrer. "Where a doubt exists as to whether a demurrer should be sustained, this should be resolved in favor of overruling it." Id.; see King v. United States Steel Corp., 432 Pa. 140, 143-44, 247 A.2d 563, 565 (1968).

Appellants allege that they have borrowed money from appellees, mortgage lending institutions in the Pittsburgh area, and as security for these loans have given to appellees mortgages upon real property owned by them, and have executed personal bonds accompanying the mortgages. Each mortgage and personal bond, it is alleged, contains a provision which requires the mortgagor to pay all taxes and assessments levied on the mortgagor's real estate, and all fire and casualty insurance premiums on the property. Further, appellants assert they are required to pay each month to appellees one-twelfth of the annual taxes, assessments, and fire and casualty insurance premiums due on their property.*fn2 Appellants aver that they have made these

[ 457 Pa. Page 140]

    monthly payments according to the provisions in the mortgage and bond agreements. Appellants further allege that the monthly tax payments were paid to appellees to hold as "trustees or other fiduciary" for appellants. According to appellants' complaint, appellees have commingled these monthly tax payments with their own funds, invested them, and earned (and continue to earn) interest on their use. Appellants finally assert that appellees have failed, and continue to fail, (1) to segregate the monthly tax payments from the general funds in their possession, (2) to apply the monthly tax payments against appellants' mortgages, and (3) to account to appellants for the interest earned on the monthly payments.

Because this dispute is over how mortgage lending institutions deal with the monthly tax payments, a brief description of the industry practice would be helpful.*fn3

[ 457 Pa. Page 141]

In the 1930's substantial numbers of foreclosures were caused by inability to pay annual assessments.*fn4 As a result of this, banks began requiring the monthly tax payments. The theory was that individual homeowners, especially small borrowers, would find it easier to make monthly payments of one-twelfth the yearly taxes, than to meet in a single payment the annual bill. The practice has continued ever since.

There are basically two methods used to handle the monthly tax payments. Payments are either held in what are known as real estate and insurance escrow accounts or they are capitalized. The escrow system envisions that the bank establish individual records, credit an account upon receipt of the monthly payment, and debit it when the bank pays taxes to the appropriate authority. The outstanding balance is carried as a liability on the bank's balance sheet under the caption "Advance Payment by Borrowers for Taxes and Insurance." The funds deposited by mortgagors are freely commingled with the mortgagee's general funds and used to earn income.*fn5

[ 457 Pa. Page 142]

Other mortgage lending institutions capitalize the monthly tax payments. Under this system, all payments, when received, are applied to decrease the principal of the loan. When payments (whether for tax, other assessments, or insurance premiums) are paid by the bank, the outstanding balance is accordingly increased. "The borrower receives an advantage by this monthly reduction and, in a real sense, receives a return on his monthly payments."*fn6 The overwhelming majority of mortgage lending institutions employ the escrow account system.*fn7

Appellants present three claims to this Court.*fn8 First, the agreement between the parties manifests a clear intent to create a trust, with the mortgage lending institutions holding appellants' monthly tax payments in trust solely for the specific purpose of paying appellants' taxes, assessments, fire and casualty insurance. The relief sought is to require the mortgage lending institutions to account to appellants for any profits derived from their investment of the monthly payments. Alternatively, a constructive trust should be imposed

[ 457 Pa. Page 143]

    on the earnings produced by the use of appellants' monies. Second, the mortgage lending institutions, it is contended, breached an implied contract to continue to capitalize the monthly tax payments. This breach proximately caused appellants damage by forcing them to pay, in effect, a higher interest rate on their loans. Appellants seek a refund of all "interest" improperly collected. Third, appellants claim that appellees have violated and are violating the Truth in Lending Act, 15 U.S.C.A. §§ 1601-65 (Supp. 1973), by failing to include the monthly tax payments in their computation of the required "finance charge." Id. § 1605. For these violations, appellants ask for the statutorily-provided penalty. Id. § 1640.


Appellants first contend that they alleged sufficient facts to properly put in issue the creation of a trust, and therefore, the trial court erred in sustaining appellees' demurrer and in dismissing appellants' complaint. We agree. We believe that the trial court failed to apply the correct standard in concluding that appellants' complaint did not state a cause of action. Clevenstein, supra at 400-01, 266 A.2d at 624-25.

It is well settled that no particular form of words or conduct is necessary to create a trust. Provident Trust Co. v. Lukens Steel Co., 359 Pa. 1, 58 A.2d 23 (1948); Bair v. Snyder County State Bank, 314 Pa. 85, 171 A. 274 (1934); Restatement (Second) of Trusts § 24 (1959). Neither the presence nor the absence of the words "trust," "trustee," or "beneficiary" is determinative of an intention to create a trust. Thompson Will, 416 Pa. 249, 254-55, 206 A.2d 21, 25 (1965); 1 A. Scott, Law of Trusts § 24 (3d ed. 1967). The question is whether the agreements taken as a whole evidence an intent by appellants "to impose . . . upon a

[ 457 Pa. Page 144]

    transferee of the property equitable duties to deal with the property for the benefit of another person." 1 A. Scott, Law of Trusts § 24, at 192 (3d ed. 1967); see Restatement (Second) of Trusts § 2 (1959). "To determine whether there is a trust we are to look, not at the title given, but at the powers and duties conferred." Sheets' Estate, 52 Pa. 257, 266 (1866). See McClain Estate, 435 Pa. 408, 411, 257 A.2d 245, 246-47 (1969); Schuldt v. Reading Trust Co., 270 Pa. 360, 363-64, 113 A. 545, 547 (1921).

This Court in Vosburgh's Estate, 279 Pa. 329, 123 A. 813 (1924), provided specific guidance for the resolution of the question whether the parties intended to create a trust. There we held that "[a] trust is a relation between two persons, by virtue of which one of them as trustee holds property for the benefit of the other. The term 'trust' is a very broad and comprehensive one. Every deposit is a trust, except possibly general bank deposits; every person who receives money to be paid to another or to be applied to a particular purpose is a trustee . . . ." Id. at 332, 123 A. at 815. Accord, In re Interborough Consol. Corp., 288 F. 334, 347 (2d Cir.), cert. denied, 262 U.S. 752, 43 S. Ct. 700 (1923); Andrew v. Union Savings Bank & Trust Co., 220 Iowa 712, 715, 263 N.W. 495, 497 (1935); Carpenter v. Suffolk Franklin Savings Bank, 291 N.E.2d 609 (Mass. 1973). See 1 A. Scott, Law of Trusts § 24, at 192 (3d ed. 1967). Appellants, having sufficiently alleged the creation of a trust,*fn9 must be afforded

[ 457 Pa. Page 145]

    the opportunity to prove that money was paid to a mortgage lending institution for the specific purpose of ...

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