In re Paxson Trust I

• Decision Date: 27 January 2006
• Citation: 893 A.2d 99
• Court: Pennsylvania Superior Court
• Parties: In re: PAXSON TRUST I Appeal of: P.M.P. & R.P., Appellants. In re: Paxson Trust I Appeal of: J.P., Appellant. In re: Paxson Trust I Appeal of: P.L.P., Appellant.

Page 99

893 A.2d 99

In re: PAXSON TRUST I Appeal of: P.M.P. & R.P., Appellants In re: Paxson Trust I Appeal of: J.P., Appellant In re: Paxson Trust I Appeal of: P.L.P., Appellant.

Superior Court of Pennsylvania.

Argued September 28, 2004.

Filed January 27, 2006.

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Martin J. King, Newtown, for P.M.P. & R.P., Appellants.

Tina M. Weber, Lionville, for J.P., appellant.

BEFORE: STEVENS, KLEIN, JJ., and McEWEN, P.J.E.

OPINION BY STEVENS, J.:

¶ 1 This appeal and cross appeal involve the interpretation of a trust deed.

FACTUAL HISTORY

¶ 2 John C. Paxson (Paxson) and Paula Lynn Zanni Paxson are the parents of four children: Paula Marie Paxson, Rebecca Paxson, John Justin Paxson, and Robert Paxson (the Children). The Paxsons were married in 1973, separated in August 1999, and were divorced on November 29, 2001. During the divorce action, Paula Lynn Paxson advised the Children that the family home was held in trust for their benefit. John Paxson's brief at 2. The trust was created by the Children's maternal grandfather, Dr. Anthony Zanni, now deceased. By deed dated October 14, 1987, Dr. Zanni had conveyed title to 6.06 acres of property (the Zanni Trust property) to the Paxsons as trustees for the Children.¹ The Paxsons joined in the deed and accepted the terms of the trust. Adjudication, Finding of fact 28.

¶ 3 The Paxsons had been living in a house on the Zanni Trust property since 1985. Adjudication, Finding of fact 25. The 6.06 acres was originally part of a 52 acre parcel owned by Dr. Zanni and his wife. Id. at 29. In the early 1970's, all but the 6.06 acres were condemned by the Neshaminy Water Resource Authority for the Dark Hollow Dam project. Id. at 30. The dam project was never completed. Id. at 32. Aware that the house's garage, septic system, well and shed were located on part of the condemned acreage, the Paxsons began extensive negotiations in 1987 to repurchase the portion of property on which those structures were located [the County property]. Id. at 36-38.

¶ 4 During the ongoing negotiations to purchase the County property, the Paxsons obtained a commercial loan in the amount of $100,000.00 from The First National Bank and Trust Company of Newtown ("Newtown Bank") on January 11, 1988. Id. at 55a; N.T. 12/2/02 at 57. The loan was secured by mortgages against the Paxsons' assets, and the Zanni Trust property. N.T. 12/2/02 at 57, 59. The Paxsons' assets and the Zanni Trust property were also used to secure a commercial equity credit line in the amount of $10,000.00 from Commonwealth State Bank on June 26, 1989. N.T. 12/2/02 at 58-59.

¶ 5 On August 25, 1989, the Paxsons and a business partner, Arthur Azarchi, purchased the Sumney Tavern, as well as the real estate on which the Tavern was located, for a total of $650,000.00. N.T. 12/2/02 at 33, 108. A down payment of $300,000.00 was required ($150,000.00 from the Paxsons, $150,000.00 from Azarchi). Id. at 108-109. In furtherance of this obligation, on September 7, 1989, the Paxsons obtained a commercial mortgage loan in the amount of $150,000 from Commonwealth State Bank. Id. at 60, 109. This loan was secured by the Paxsons' assets and the Zanni Trust property, as well as the by the land on which the Tavern was located. Id. at 109. The remainder of the purchase price was also financed by additional mortgages of $160,000.00, $130,000.00 and $60,000.00. Id. at 109-114, Adjudication, Finding of fact 66.

¶ 6 By May 1991, negotiations for the purchase of the County Property reached a successful conclusion and it was agreed that 5.36 acres would be purchased for $21,200.00, and titled in Mrs. Paxson's name alone. N.T. 12/2/02 at 66, 71-72; Adjudication, Findings of fact 40-41. The Children alleged that the majority of the money used to purchase the County property was directly traceable to money which had been willed to Paula Marie by her grandfather, Dr. Zanni.² Adjudication Findings of fact 150. From 1987 through 1999, the Paxsons made substantial improvements to the house and garage on the Zanni Trust and County properties. Id. at 48-53.

¶ 7 On March 13, 1995, the Paxsons agreed to sell all but .918 acres (Lot 32) of the Zanni Trust and County properties to Heritage Building Group for $350,000 ($174,230.00 for the portion of the Zanni property being sold, and $175,770.00 for the portion of the County property being sold). Adjudication, Findings of fact 70-71, 75; N.T. 10/22/02 at 68; N.T. 12/2/02 at 104. Settlement did not occur until 1998, however. Adjudication, Finding of fact 76. In the meantime, the Paxsons obtained several additional loans and purchased more real estate.

¶ 8 On May 12, 1995, the previous $10,000 equity credit line with Commonwealth State Bank was replaced by a $30,000 equity credit line in the amount of $30,000 also from Commonwealth State Bank. Adjudication, Finding of fact 55d. As with the previous loans, this commercial line of credit was secured by mortgages against the Paxsons' assets, including the County property, as well as the Zanni Trust property. Id. at 55; N.T. 12/2/02 at 59.

¶ 9 On February 21, 1996, the Paxsons obtained a mortgage loan in the amount of $200,000 from Commonwealth State Bank, which was used to refinance and pay off the 1988 $100,000.00 mortgage from Newtown Bank, and part of the 1989 $150,000.00 mortgage and 1995 $30,000.00 equity credit line from Commonwealth State Bank. Adjudication, Finding of fact 60; N.T. 12/12/02 at 104. As with prior loans, the February 21, 1996 commercial loan was secured by mortgages against the Paxsons' assets, including the County property, and the Zanni Trust property. Adjudication. Finding of fact 61.

¶ 10 Five days later, on February 26, 1996, the Sumney Tavern business was sold for $635,000.00. Adjudication, Finding of fact 67; N.T. 12/2/02 at 116.³ The buyers made a down payment of $210,000.00, of which Paxson received one half ($105,000.00). N.T. 12/2/02 at 116-117. Paxson deposited $57,461.78 of that amount into a Janney Montgomery Scott account. N.T. 12/12/02 at 5-6. The remaining $425,000.00 due (one half to Paxson, one half to Azarchi) was paid by the buyers in monthly installments of approximately $4,000.00 per month, concluding in June of 1999. Adjudication, Finding of fact 68; N.T. 12/2/02 at 117-118. As a result of this arrangement, Paxson received a return of principal in the amount of $212,500.00, plus $56,671.08 in interest. N.T. 12/2/02 at 119.

¶ 11 On July 14, 1997, the Paxsons purchased the Farmhouse restaurant for approximately $500,000.00. N.T. 12/2/02 at 128. To do so, they negotiated a $350,000.00 purchase money mortgage loan from the sellers, and obtained a $150,000 loan and a $50,000 line of credit from Commonwealth State Bank, secured by mortgages against the Zanni Trust property, the County property, and the Farmhouse restaurant itself. Adjudication, Finding of fact 88; N.T. 12/2/02 at 128-130; N.T. 12/12/02 at 52-53. The Paxsons leased the Farmhouse property to the Paxson Corp., a company owned by Mr. Paxson, which operates the Farmhouse business. Adjudication, Findings of fact 86-87.

¶ 12 In April of 1998, Paxson sold his share of the Sumney Tavern real estate to Azarchi for $125,632.00. Adjudication, Finding of fact 69; N.T. 12/2/02 at 119.

¶ 13 Settlement on the sale of the majority of the Zanni and County properties to Heritage finally occurred on May 7, 1998. Adjudication, Finding of fact 76; N.T. 12/2/02 at 104. The Paxsons used a portion of the proceeds from the sale of to pay off the 1996 mortgage loan from Commonwealth State Bank, and retained the balance. Adjudication, Finding of fact 77. Of the remaining .918 acres retained by the Paxsons (designated Lot 32), one half was originally part of the Zanni Trust property, and the other half was part of the County property. Id. at 78-79. At the time of the 1998 settlement, the portion of Lot 32 which was originally part of the Zanni Trust property was titled in the name of the Paxsons as trustees for the Children, while the portion which had been County property was titled in Mrs. Paxson's name individually. Id. at 80.

¶ 14 In early April 1999, the Paxsons applied for a $202,500.00 loan from Sovereign Bank. Adjudication, Findings of fact 92, 94. On June 1, 1999, six days before closing on the loan, the Paxsons, as trustees for the Children, and Mrs. Paxson individually, executed a deed conveying title to Lot 32 to themselves as individuals (the 1999 deed). Id. at 112. The deed had the effect of combining the Zanni Trust property and County property portions of Lot 32 into a single parcel, and allowed the Paxsons to qualify for residential as opposed to commercial loans. Id. at 122.⁴

¶ 15 On June 7, 1999, settlement on the Sovereign loan occurred. Id. at 100; N.T. 12/12/02 at 56. To secure the loan, the Paxsons executed a mortgage in favor of Sovereign Bank against Lot 32. Adjudication, Finding of fact 109. The proceeds of the loan were used as follows: $55,039.56 and $50,007.27, respectively, paid off the 1997 Commonwealth State Bank loan and credit line; $2,000 was used to pay off a judgment in favor of U.S. Food Service; $27,957.39 paid off credit card and other debt; and the remaining $58,018.11 was paid to the Paxsons. Id. at 102-106. Sovereign has since sold the loan to Provident Bank. Id. at 111. Two months after closing on the loan, the Paxsons separated. Id. at 137.

PROCEDURAL HISTORY

¶ 16 The legal proceedings which are the subject of the appeal currently before us began on March 7, 2000, when the Children filed a "Petition for Removal of Trustees, Accountings, Disgorgement, Injunctive Relief, Surcharges and Damages" (Petition for Removal). Count I of the Petition for Removal contended that the Paxsons had breached the terms of the express trust established for the Children's benefit by the October 14, 1987 deed. Specifically, the Children argued in Count...