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BUCHANAN ET AL. v. BRENTWOOD FEDERAL SAVINGS & LOAN ASSOC. (04/23/74)

SUPREME COURT OF PENNSYLVANIA


decided: April 23, 1974.

BUCHANAN ET AL., APPELLANTS,
v.
BRENTWOOD FEDERAL SAVINGS & LOAN ASSOC.

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.

COUNSEL

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.

I.

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 satisfying tax and other obligations.*fn10

Recently, the Supreme Judicial Court of Massachusetts was confronted with a similar issue and held, as we do, that appellants' complaint sufficiently put in issue the creation of a trust. Carpenter v. Suffolk Franklin Savings Bank, 291 N.E.2d 609 (Mass. 1973).*fn11 There, plaintiffs likewise challenged the practice of

[ 457 Pa. Page 146]

    mortgagees investing for their own account the monthly tax payments of mortgagors. The Massachusetts Supreme

[ 457 Pa. Page 147]

Judicial Court reversed the trial judge's dismissal of plaintiffs' complaint for failure to state a cause of action, because it believed that from the facts pleaded plaintiffs could establish the creation of a trust. It is true that the Massachusetts court did not have before it the written instruments but depended on what the parties pleaded as the legal effect of the documents. Nevertheless, the Massachusetts court chose a standard identical to ours for the trial court to apply on remand.

"Where the mortgagor pays funds to a bank with an expressed purpose that the funds shall be used for a particular purpose, then the funds may be deemed to be held in trust." 291 N.E.2d at 614. The court had no difficulty in deciding the legal effect of mortgagors' paying installments to the bank in order for the bank to be certain the mortgagors were fulfilling their obligation to pay all taxes on the real estate. "We think it is clear from the bill that the tax payments were designated by the mortgagors for a specific purpose, namely to pay the real estate taxes." 291 N.E.2d at 614.

[ 457 Pa. Page 148]

Here, the trial court improperly denied appellants the opportunity to prove their claim. Appellants have pleaded facts sufficient to put in issue the creation of a trust, since they have alleged that they made monthly payments for the satisfaction of tax and other assessments pursuant to a contractual provision.

Reversal of this portion of the trial court's decree also is required because this Court cannot say with assurance that the trial court considered each mortgage and bond agreement individually*fn12 when it concluded that appellants could not establish in any circumstance the existence of a trust relationship.*fn13 Our review of

[ 457 Pa. Page 149]

    the record discloses substantial differences in the language used in the mortgage and bond agreements. Each class or type of agreement must be considered separately because these variations may be crucial to the correct assessment of what relationship the parties contemplated.

The trial court also found that the parties' agreements manifested a debtor-creditor relation. Although again it is unclear whether the trial court focused on any particular agreement, its conclusion was based on a mistaken view of the agreements. In the ordinary situation of a bank deposit, a debtor-creditor relation is established, with the depositor being the creditor and the bank, the debtor. Here, the trial court believed that the payments of the monthly sums were in satisfaction of a debt owed by the mortgagor to his mortgage lending institution. However, none of the mortgage and bond agreements in the record speak of a debt in respect to the monthly payments. Moreover, the mortgagees assumed no obligation to be responsible for the payment of the mortgagors' taxes. Rather, according to the contracts, the liability for the payment of all taxes and assessments was at all times the mortgagors'.

In support of the trial court's conclusion, appellees urge that the sole interpretation that can be given to the use of the word "pay" in the agreements is that the parties intended a debtor-creditor relationship. First, not all of the contracts in the record obligate the mortgagor to "pay." Second, we are not bound at the demurrer stage to accept such a hypertechnical reading

[ 457 Pa. Page 150]

    of a particular word in some of the agreements. When an agreement is read as a whole, it may become apparent that the word "pay" was used generically to mean tender, hand over, or deliver. Finally, the legal effect of the parties' undertaking must be determined by viewing an agreement in its entirety.*fn14

An alternative argument is advanced to justify the contention that the profits earned on the monthly tax payments should rightfully be returned to appellants. If an express trust was not created, then the earnings should be impressed with a constructive trust. The trial court sustained appellees' demurrer to this allegation on the ground that appellants failed to allege fraud in the transaction. We hold that appellants' allegations were sufficient to withstand the demurrer.*fn15

This Court has many times adopted Professor Scott's definition of a constructive trust.

"A constructive trust arises where a person who holds title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it."

[ 457 Pa. Page 1515]

A. Scott, Law of Trusts § 462, at 3413 (3d ed. 1967) (footnote omitted). See Chambers v. Chambers, 406 Pa. 50, 54-55, 176 A.2d 673, 675 (1962); Mellon National Bank & Trust Co. v. Esler, 357 Pa. 528-29, 55 A.2d 327, 328 (1947); Gray v. Leibert, 357 Pa. 130, 135, 53 A.2d 132, 135 (1947).

A constructive trust, it has often been said,*fn16 is not really a trust at all but rather an equitable remedy. Like all remedies in equity, it is flexible and adaptable.*fn17 Changing times and circumstances create different problems for society and present new questions to the courts.*fn18 And equity has never been reluctant to right injustices or to correct societal ills. Justice Cardozo, while a judge on the New York Court of Appeals, recognized the flexibility and growing power of constructive trusts.

[ 457 Pa. Page 152]

"A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378, 380-81 (1919). See, e.g., Truver v. Kennedy, 425 Pa. 294, 305, 229 A.2d 468, 474 (1967); Chambers v. Chambers, 406 Pa. 50, 54-55, 176 A.2d 673, 675 (1962). The expression "converts him into a trustee" is not strictly accurate because a constructive trustee is not bound by all the duties of a trustee of an express trust. 5 A. Scott, Law of Trusts § 462, at 3413 (3d ed. 1967). Rather, the sole responsibility of a constructive trustee is to surrender the property to the one on whose behalf the constructive trust is raised. Id.; see Pierro v. Pierro, 438 Pa. 119, 127, 264 A.2d 692, 696 (1970); Peoples-Pittsburgh Trust Co. v. Saupp, 320 Pa. 138, 182 A. 376 (1936). A constructive trustee "is not compelled to convey the property because he is a constructive trustee; it is because he can be compelled to convey it that he is a constructive trustee." 5 A. Scott, Law of Trusts § 462, at 3413 (3d ed. 1967).

The question whether a constructive trust is to be imposed on the profits earned by the investment by the mortgage lending institutions of appellants' monthly tax payments can be resolved only by answering the more fundamental question whether "the conscience of equity" would conclude that the mortgagees would be unjustly enriched were they permitted to keep the funds.

It is rare that the existence or absence of justification for imposing an equitable remedy, especially a constructive trust, can be decided as a matter of law. Only after all the facts are before a court, can it in most cases properly determine the issue. To introduce the issue of constructive trust a plaintiff must allege that the

[ 457 Pa. Page 153]

    putative trustee had legal title to the property, and that were he to retain it, he would be unjustly enriched. The allegations of appellants' complaints sufficiently put in issue these questions.

To convince "the conscience of equity" that a constructive trust should be imposed on the profits earned by mortgagees' investment of the monthly tax payments, appellants advance three theories. First, it is asserted that in the particular circumstances of these contracts, the mortgagor and mortgagee stood in confidential relation with each other. The existence, if proved, of a confidential relationship is sufficient justification for imposing a constructive trust, unless the dominating party can prove "by clear and satisfactory evidence," see Kees v. Green, 365 Pa. 368, 375, 75 A.2d 602, 605 (1950) (citing cases), that the contract was not tainted by his overweening bargaining position. A confidential relation may be found as a matter of law, see Truver v. Kennedy, 425 Pa. 294, 305-07, 229 A.2d 468, 474 (1967), but more often it is a matter of fact to be established by the evidence. E.g., Drob v. Jaffe, 351 Pa. 297, 300, 41 A.2d 407, 408 (1945). See Restatement (Second) of Trusts § 2, Comment b (1959).

Standards in some of our earlier cases furnish guidelines for deciding whether a constructive trust ought to be imposed. The intent of the parties is not controlling, and in many cases in which a constructive trust is raised, it is imposed despite the parties' intent. See Gray v. Leibert, 357 Pa. 130, 135, 53 A.2d 132, 135 (1947); 5 A. Scott, Law of Trusts § 462.1 (3d ed. 1967). The evil to be avoided is unfairness and inequality in bargaining or dealings between parties.*fn19

[ 457 Pa. Page 154]

See Hamberg v. Barsky, 355 Pa. 462, 465, 50 A.2d 345, 346-47 (1947). However, "[n]o precise language can define the limits of the relation or fetter the power of the court to control these conditions." Leedom v. Palmer, 274 Pa. 22, 25, 117 A. 410, 411-12 (1922).*fn20

Next, appellants urge that a constructive trust is a proper remedy because appellees agreed to act as their agents, and in contravention of an agent's duties, used appellants' monies to generate profits for their own account. If appellants prove on remand that the agreement contemplated an agency relation, then they may prevail on this theory.*fn21 An agent, unless authorized, may not use his principal's money for his own advantage. Restatement (Second) of Agency §§ 13, 387

[ 457 Pa. Page 155]

(1958). If he does, a court may appropriately decree the equitable remedy of a constructive trust and command that the mortgagee-agent return the profits wrongfully earned to the mortgagors. Kribbs v. Jackson, 387 Pa. 611, 618-19, 129 A.2d 490, 494 (1957). See Restatement (Second) of Agency § 388 (1958). On remand appellants will have the opportunity to prove that there was a "manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." Id. § 1(1). See Chalupiak v. Stahlman, 368 Pa. 83, 88, 81 A.2d 577, 580 (1951).

Third, appellants assert that appellees will be unjustly enriched if they are permitted to retain the earnings from the monthly tax payments. See Truver v. Kennedy, 425 Pa. 294, 229 A.2d 468 (1967); Gray v. Leibert, 357 Pa. 130, 53 A.2d 132 (1947). This is in effect a general assertion that the ends of public policy and substantial justice demand that a constructive trust be impressed on the earnings. It is well settled that a constructive trust will arise whenever justice or the need for fair dealing warrants it. See Peoples-Pittsburgh Trust Co. v. Saupp, 320 Pa. 138, 182 A. 376 (1936); Philadelphia v. K.C. Construction Co., 11 Bucks County L.J. 285 (Pa. C.P. 1961). Appellants are to be given the chance to offer evidence that would convince "the conscience of equity" that the retention by the mortgage lending institutions of the profits earned on the monthly payments would result in unjust enrichment.

II.

Appellants next seek to recover the increased interest they have allegedly been forced to pay as a result of appellees' breach of an implied contract. Appellants claim that at the time some of them entered into mortgage agreements, some of the appellees capitalized the

[ 457 Pa. Page 156]

    monthly tax payments. The capitalization of the monthly tax payments by the mortgage lending institutions at the time the contracts were consummated together with the language in the written instruments give rise to an implied contract to continue the practice. When appellees subsequently and unilaterally abandoned capitalization in favor of the currently-employed system of maintaining escrow accounts, they breached the implied contract. Appellants claim they were injured because under the newer escrow system their total monthly payments (for principal, interest, and taxes) are greater than they were when appellees capitalized the tax payments.

The trial court held that appellants failed to state a cause of action because there was no language in any of the contracts from which a contract to capitalize could be implied. Our review of the mortgage and loan agreements reveals that in some the parties have referred without clarity to the manner in which the mortgage lending institutions would deal with the monthly tax payments. For example, one mortgage agreement*fn22 is

[ 457 Pa. Page 157]

    capable of the interpretation that all payments, whether for principal, interest, or taxes, are to be treated identically and as a unit. Appellants must not by the sustaining of the demurrer be denied the opportunity of proving that the monthly tax payments were intended by the parties to be capitalized. Because this Court cannot conclude with certainty that the trial court considered each mortgage and loan agreement separately,*fn23 we must remand for a determination whether a contract to capitalize can be implied from the language of the written instruments.*fn24

[ 457 Pa. Page 158]

III.

Appellants' final claim is that the mortgage lending institutions are violating the Truth in Lending Act, 15 U.S.C.A. §§ 1601-65 (Supp. 1973). The violation, it is alleged, occurs by reason of appellees' failure to accurately compute the statutorily-mandated annual percentage rate. Id. § 1606. Being a disclosure mechanism, the Truth in Lending Act sought to compel lending institutions to disclose to their borrowers the effective rate of interest on a loan. Id. § 1601. To this end, Congress devised the annual percentage rate which is computed, in simplest form, by dividing the amount financed into the finance charge, id. § 1605; 12 C.F.R. § 226.4 (1973), and multiplying the quotient obtained by 100.

Appellants assert that the monthly tax payments are a "deposit balance . . . which the creditor requires the customer to . . . maintain . . . in a specified amount . . . as a condition to the extension of credit . . . ." 12 C.F.R. § 226.8(e)(2) (1973). Required deposit balances must be deducted from the amount financed and disclosed separately.*fn25 Id. § 226.8(e). Appellees have

[ 457 Pa. Page 159]

    not deducted the monthly payments from their computation of the amount financed. They support their practice by arguing that the monthly payments fall within a specific exception from the definition of required deposit balances. The claimed exception is for "[a]mounts required to be placed or paid into an escrow or trustee account for future payment of taxes, insurance, and water, sewer, and land rents." Id. §§ 226.8(e)(2)(i), 226.4(e)(3). See 15 U.S.C.A. § 1605(e)(3) (Supp. 1973).

The dispute, in short, is whether the monthly tax payments are "escrows" as that term is used in the Truth in Lending Act.*fn26 The issue, however, has already been disposed of adversely to appellants. Stavrides v. Mellon National Bank & Trust Co., 353 F. Supp. 1072 (W.D. Pa.), aff'd, 487 F.2d 953 (3d Cir. 1973) (per curiam). See Graybeal v. American Savings & Loan Ass'n, 59 F.R.D. 7, 18-20 (D.D.C. 1973); Kinee v. Abraham Lincoln Federal Savings & Loan Ass'n, 365 F. Supp. 975 (E.D. Pa. 1973); Munn v. American General Investment Corp., 364 F. Supp. 110 (S.D. Tex. 1973). See also Williams v. American Savings Ass'n, No. CA-3-6350-D (N.D. Tex., March 26, 1973); Umdenstock v. American Mortgage & Investment Co., 363 F. Supp. 1375 (W.D. Okla. 1973).

IV.

Remaining for consideration are significant procedural questions. First, may the present action appropriately

[ 457 Pa. Page 160]

    proceed as a plaintiff class action? Pa. R.C.P. 2230.*fn27 Second, may it proceed as a defendant class action?

If the present action is to continue as a plaintiff class action, the court on remand must limit each class of plaintiffs to those holding mortgage and personal bond agreements having monthly tax payment clauses*fn28 that do not differ materially. As to this limited group, two further questions must be answered. It must be determined whether the group of mortgagees who hold such instruments "are so numerous as to make it impracticable to join all as parties." And the trial court must be satisfied that the named plaintiffs "will adequately represent the interest of all." These questions are called to the attention of the trial court so that a record adequate for determination there as well as for appellate review may be established. We recognize that the resolution of these issues by the trial court may possibly result in a number of separate class actions, each appropriately confined.

Appellants named in their complaints thirty-two defendants and "other unknown banking institutions and savings and loan associations doing business in Allegheny County, Pennsylvania." Appellants' treatment as a class of these named and "other unknown" defendants seems improper. The existence of independent contracts with substantially different provisions regarding

[ 457 Pa. Page 161]

    monthly tax payments precludes the finding of a permissible defendant class under rule 2230.

Nothing in our opinion is to suggest that when the several class actions are ready for trial, the parties and the court may not devise procedural methods for the prompt, efficient, and equitable disposition of appellants' claims.

That portion of the trial court's decree that dismissed appellants' complaints for failure to state a cause of action under the Truth in Lending Act is affirmed. In all other respects the decree of the Court of Common Pleas of Allegheny County is reversed, and the case remanded for proceedings consistent with this opinion. Each party pay own costs.

Disposition

Decree reversed and case remanded.

Concurring Opinion by Mr. Justice Eagen:

I join in the order remanding this case for further proceedings because, and only because, the facts alleged in the complaint, if proven, may be sufficient to establish a constructive trust.

Concurring and Dissenting Opinion by Mr. Justice Pomeroy:

This case presents a procedural tangle which should be straightened out before the Court decides the difficult substantive questions as to whether a cause (or causes) of action has been stated.

The case is brought by 29 plaintiffs (13 sets of husbands and wives and three individuals) on behalf of themselves and others similarly situated against 31 lending institutions "and other unknown banking institutions and savings and loan associations doing business in Allegheny County, Pennsylvania". Some, but not all, of the named defendants filed preliminary objections to

[ 457 Pa. Page 162]

    the amended complaint and, also, to a second amended complaint by which a fourth count was added.

The preliminary objections included, inter alia, (1) a demurrer and (2) an assertion that the complaint failed to state a proper class action because (among other reasons) "the questions of law or fact involved are not common to all the plaintiffs or proposed members of the class".

The court en banc below sustained the demurrers and dismissed the complaint. From that decree, ten separate appeals have been brought to this Court. Motions to quash have been filed, which the Court has denied. I must disagree.

Not all of the named plaintiffs are included among the appellants, and not all the named defendants are among the appellees. In each appeal, the appellants are different persons, and this is true also of the appellees, although one appellee is named as such in two appeals. While there is discernible a pattern in these appeals of grouping plaintiffs who are mortgage borrowers from a particular lending institution as appellants from the "orders" in favor of their respective lending institutions, this is not consistently the case.*fn1 Whatever rationale may have lain behind the manner in which these appeals were taken, it seems clear that they do not comport with proper appellate practice. Where more than one judgment or appealable order is entered below, we have held that the aggrieved parties may not file only a single appeal; they should appeal from each

[ 457 Pa. Page 163]

    judgment or order which binds them. See Stewart v. Chernicky, 439 Pa. 43, 58 n. 15; General Electric Credit Corp. v. The Aetna Casualty and Surety Co., 437 Pa. 463, 469, 470, 263 A.2d 448 (1970). By the same token, it would seem that where, as here, a single order or decree has been entered dismissing a complaint because it does not state a cause of action, there should be but a single appeal.*fn2 Without passing on the class action challenge, this case was treated by the court below as a class action for purposes of the demurrer, and for procedural purposes, the plaintiff class is to be treated as a single party.*fn3

I am unable to find authority for the appeal procedure here followed, i.e., groups of selected plaintiffs as appellants, adverse to groups of selected defendants as appellees; this is neither fish nor fowl nor good red herring. In the interest of orderly and intelligent appellate review, therefore, I would grant the motion to quash the appeals.*fn4

[ 457 Pa. Page 164]

Since the Court has not seen fit to quash, I feel it desirable to address briefly the merits of the appeals. One reason which the majority opinion gives for reversal is "because this Court cannot say with assurance that the trial court considered each mortgage and bond agreement individually when it concluded that appellants could not establish in any circumstance the existence of a trust relationship". (Opinion of the Court, supra, p. 148; see also notes 12 and 13, and note 10, second paragraph.) The opinion then states that there are substantial differences in the language of the instruments (which the Court apparently considers as properly part of the record),*fn5 and that "these variations may be crucial to the correct assessment of what relationship the parties contemplated". (Opinion, p. 149.) In light of these statements, I cannot understand how the Court can nevertheless hold, in sweeping and

[ 457 Pa. Page 165]

    all-inclusive fashion, that appellants "sufficiently alleged the creation of a trust". (Opinion, p. 144.)

On the other hand, I cannot, looking only at the complaint, conclude that there is not enough alleged to make out a cause of action on the theory of a constructive trust. The plaintiffs have alleged the payment of so-called escrow funds to defendants, calculated in terms of amounts necessary to pay taxes, assessments and fire insurance premiums applicable to their respective real estate holdings; a commingling of these escrow payments with general funds of the defendants; the receipt by defendants of earnings on those funds; a failure to pay or account to plaintiffs for those earnings; and an appropriation by the defendants of the earnings to their own use, as a result of which they have been unjustly enriched. While the propriety or impropriety of this conduct, like the existence of express trusts, may be in large measure dependent on the terms of the agreements, oral or written, between the parties, the complaint as it stands states a cause of action.*fn6

In Schott v. Westinghouse Electric Corp., 436 Pa. 279, 259 A.2d 443 (1969), where we held that the plaintiff had stated a cause of action in quasi-contract sufficiently well to get by a demurrer, we stated the familiar rule that preliminary objections should be sustained and a complaint dismissed only in cases which are clear

[ 457 Pa. Page 166]

    and free from doubt. As we there put it, "[t]o sustain preliminary objections in the nature of a demurrer, it must appear with certainty that, upon the facts averred, the law will not permit recovery by the plaintiff. Where any doubt exists as to whether or not the preliminary objections should be sustained, that doubt should be resolved by refusing to sustain the objections [citations omitted]". 436 Pa. at 291. In its present status, the case at bar presents, as I see it, serious doubt as to whether the demurrer should have been sustained. I accordingly concur in the reversal of the decree below and the remand for further proceedings.*fn7


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