Buchanan v. Brentwood Federal Sav. and Loan Ass'n
| Citation | 457 Pa. 135,320 A.2d 117 |
| Decision Date | 23 April 1974 |
| Docket Number | No. 127,No. 130,No. 128,No. 123,No. 131,No. 129,No. 124,No. 125,No. 132,No. 126,123,124,125,126,127,128,129,130,131,132 |
| Parties | Roger E. BUCHANAN et al., Appellant in, v. BRENTWOOD FEDERAL SAVINGS AND LOAN ASSOCIATION et al. (ten cases). Meyer GISSER et ux., Appellant in, v. FRIENDSHIP FEDERAL, etc. E. Joseph CHARNY et ux., Appellant in, v. WEST PENN FEDERAL, etc. Iris S. NEHEMOW, Appellant in, v. HOME FEDERAL, etc. David M. BURSTIN et ux., et al., Appellant in, v. FRANKLIN FEDERAL, etc., et al. Leonard S. CAHEN, Appellant in, v. CHARTIERS VALLEY, etc., et al. Stanley J. ADELSHEIMER et ux., Appellant in, v. PARKVALE SAVINGS, etc. Leonard S. KISSLINGER et ux., et al., Appellant in, v. MELLON NATIONAL BANK, etc., et al. Walter ELLMAN et ux., et al., Appellant in, v. DOLLAR SAVINGS BANK et al. Robert B. GAYLOR, Jr., et al., Appellant in, v. CENTURY FEDERAL, etc. |
| Court | United States State Supreme Court of Pennsylvania |
For Appellant: Daniel M. Berger, Berger & Kapetan, Michael P. Malakoff, Herbert G. Sheinberg, Sheinberg, Raphael & Sheinberg, James H. Joseph, James H. Joseph, P.C., Pittsburgh, W. R. Lorry, Philadelphia, for appellants.
Frank R. Bolte, Baskin, Boreman, Wilner, Sachs, Gondelman & Craig, Pittsburgh, Judah I. Labovitz, Philadelphia, David S. Watson, Thorp, Reed & Armstrong, E. D. Hollinshead, Jr., Hollinshead & Mendelson, Harold H. Goldman, Goldman & Unatin, P.A., Pittsburgh, for Brentwood Federal Sav. & Loan and others.
Frank R. Bolte, Baskin, Boreman, Wilner, Sachs, Gondelman & Craig, Pittsburgh, for Friendship Federal and Parkvale Savings, etc.
Judd N. Poffinberger, Jr., W. Walter Braham, Jr., Kirkpatrick, Lockhart, Johnson & Hutchison, Pittsburgh, for West Penn Federal, etc.
William H. Markus, Frank R. Bolte, Baskin, Boreman, Wilner, Sachs, Gondelman & Craig, Pittsburgh, for Home Federal, etc.
Harold H. Goldman, Goldman & Unatin, P.A., Pittsburgh, for Franklin Federal, etc., and others.
William H. Markus, Frank R. Bolte, Baskin, Boreman, Wilner, Sachs, Gondelman & Craig, Judd N. Poffinberger, Jr., W. Walter Braham, Jr., Kirkpatrick, Lockhart, Johnson & Hutchison, Pittsburgh, for Chartiers Valley, etc., and others.
Frank R. Bolte, Baskin, Boreman, Wilner, Sachs, Gondelman & Craig, Paul A. Manion, James J. Restivo, Jr., Reed, Smith Shaw & McClay, Alexander Black, James R. Sweeny, Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Alexander C. Sherrard, William M. Hoffman, Campbell, Thomas & Burke, Pittsburgh, for MellonNat. Bank, etc., and others.
David B. Fawcett, Jr., Daniel P. Stefko, Dickie, McCamey & Chilcote, G. Harold Blaxter, Blaxter, O'Neill, Houston & Nash, Pittsburgh, for Dollar Sav. Bank and others.
Judd N. Poffinberger, Jr., W. Walter Braham, Jr., Kirkpatrick, Lockhart, Johnson & Hutchison, Pittsburgh, for Century Federal, etc.
Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.
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 MA. 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. 1 1 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. Rizzutto, 439 Pa. 397, 400--401, 266 A.2d 623, 624--625 (1970); Hoffman v. Misericordia Hospital, 439 Pa. 501, 503--504, 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--144, 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. 2 Appellants aver that they have made these 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 'trustee 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. 3 In the 1930s substantial numbers of foreclosures were caused by inability to pay annual assessments. 4 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. 5 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.' 6 The overwhelming majority of mortgage lending institutions employ the escrow account system. 7
Appellants present three claims to this Court. 8 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 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--1665 (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--401, 266 A.2d at 624--625.
It is well settled that no particular form of words or conduct is necessary to create a trust. Provident Trust Co....
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