Petherbridge v. Prudential Sav. & Loan Assn.

• Decision Date: 05 April 1978
• Citation: 145 Cal.Rptr. 87,79 Cal.App.3d 509
• Court: California Court of Appeals Court of Appeals
• Parties: Marjorie A. PETHERBRIDGE, Plaintiff and Appellant, v. ALTADENA FEDERAL SAVINGS & LOAN ASSOCIATION et al., Defendants, and Prudential Savings & Loan Association, Defendant and Respondent. Civ. 17860.

Page 87

145 Cal.Rptr. 87

79 Cal.App.3d 509

Marjorie A. PETHERBRIDGE, Plaintiff and Appellant, v. ALTADENA FEDERAL SAVINGS & LOAN ASSOCIATION et al., Defendants, and Prudential Savings & Loan Association, Defendant and Respondent.

Civ. 17860.

Court of Appeal, Fourth District, Division 2, California.

April 5, 1978.

Hearing Denied June 1, 1978.

Byhower & Petherbridge and Richard W. Petherbridge, Santa Ana, for plaintiff and appellant

Gibson, Dunn & Crutcher, G. Edward Fitzgerald and Martin C. Washton, Los Angeles, for defendant and respondent.

OPINION

KAUFMAN, Associate Justice.

Plaintiff, Marjorie A. Petherbridge, initiated this suit as a class action against Prudential Savings and Loan Association and 37 other savings and loan associations to recover earnings realized by defendants from use of moneys paid to them as impounds (i. e., monthly payments to cover real property taxes and hazard insurance premiums). A judgment dismissing the action as to all of the defendant savings and loan associations except Prudential Home and American was affirmed by this court in Petherbridge v. Altadena Federal Savings and Loan Association, 37 Cal.App.3d 193, 112 Cal.Rptr. 144. Thereafter plaintiff voluntarily dismissed the action against Home and American and proceeded solely against Prudential Savings and Loan Association (hereafter defendant). On cross-motions of the parties the court determined the suit could not be properly maintained as a class action and entered its order accordingly. Thereafter the case proceeded to court trial on plaintiff's individual claim. The court determined that plaintiff's impound payments to defendant created a debtor-creditor relationship, not a trust, and that defendant was, therefore, not obliged to account to plaintiff for earnings. Accordingly, judgment was rendered in favor of defendant. Plaintiff purports to appeal both from the judgment and the order of March 3, 1975 determining the suit could not properly be prosecuted as a class action. The order is not appealable (cf. Vasquez v. Superior Court, 4 Cal.3d 800, 806, 94 Cal.Rptr. 796, 484 P.2d 964) but is reviewable on appeal from the judgment.

Facts

In May 1967 plaintiff and her husband purchased a house from defendant. Defendant had acquired the house together with some 40 others in the area as a result of foreclosure sales. While they remained unsold, these houses were not only not producing income, they were accruing taxes and maintenance costs. The area was overbuilt, and there were many unsold homes and relatively few buyers. Anxious to dispose of these houses, defendant was offering them for sale with almost no down payment, financing the balance of the purchase price with a "loan to facilitate." The price of the house purchased by the Petherbridges was $23,250. Their down payment was $450. The balance of the purchase price was represented by a promissory note to defendant in the amount of $22,800 secured by a first deed of trust. Annual taxes on the property were then $376, and the amount of the monthly impound payments was initially set at $35.

Plaintiff and her husband executed a deposit receipt and escrow instructions in addition to the promissory note and deed of trust. The language of the written instruments is pertinent to the case and will be set forth at some length in our discussion of the issues. Suffice it to say at this point the documents contained provisions obligating plaintiff and her husband to make impound payments to defendant, and this fact was known and understood by plaintiff and her husband.

The Petherbridges had purchased a home on three previous occasions, this being their fourth. In connection with at least one of the previous purchases, the loan transaction included a provision for payment of impounds substantially similar to that included in the deed of trust here involved. The Petherbridges did not receive interest on the impound payments made in connection with that loan and demanded none. Mr. Petherbridge, who negotiated this transaction with defendant, is an attorney. At the time of the transaction he had been in practice some 17 years. He was generally familiar with real estate transactions and had advised purchasers of real estate in the course of his law practice. Although evidence introduced at trial indicated the loan agreement, including the impound provision, was negotiable as far as defendant was concerned, ¹ plaintiff and her husband made no attempt to negotiate with respect to the impound provision, although they did negotiate for certain repairs to the house prior to its transfer.

Since purchasing the house in May 1967, plaintiff and her husband have paid the required impounds monthly as part of a lump sum payment of principal, interest and impounds. Impound payments were not designated as such or in any way differentiated from payments of principal or interest. Defendant sent monthly statements of account to the Petherbridges. Principal, interest and impound transactions were itemized separately. The detail on the impound transactions consisted basically of showing the previous month's payment, any disbursements for the payment of taxes or insurance premiums, and the amount of impound payments unexpended.

Consistent with stipulated custom and usage in the savings and loan industry, the amounts collected by defendant from the Petherbridges as impounds were at all times commingled with defendant's general assets and were used for ordinary business purposes, thereby producing income. Defendant did not pay any interest or any other monetary compensation to plaintiff on account of the impound payments, nor has it accounted to plaintiff for any of the income realized from the use thereof. There was no substantial period of time between defendant's receipt of money paid as impounds and its payment of taxes or insurance on account of which the payments were received. The aggregate unexpended balance of impound payments received from all borrowers was carried on the books of defendant under an account representing a claim against its general assets.

Although plaintiff learned in late 1970 defendant was commingling the impound payments, at no time prior to instituting suit did she or her husband ever demand an accounting for earnings or payment of compensation. On the contrary, even after she was fully advised of defendant's handling and use of the impound payments, plaintiff requested defendant to increase the amount of her impound payments to include her hazard insurance premiums.

Three days prior to institution of this action, plaintiff's husband quitclaimed to her his interest in the house purchased from defendant.

The trial court found as facts most of the foregoing. It further both found and concluded that the primary purpose of the impound arrangement was to increase the security of defendant, that the parties did not intend to create a trust and that plaintiff retained no beneficial interest in the impound payments. It further concluded that plaintiff's payment of the required impounds contractually obligated defendant to make necessary tax and insurance payments but that defendant's use of the money paid as impounds was unrestricted. Discussion of Contentions and Issues

A. Scope of Review

Both parties recognize that the crucial question confronting the trial court was whether the parties intended to create a trust or a debtor-creditor relationship. (See, e. g., Abrams v. Crocker-Citizens Nat. Bank, 41 Cal.App.3d 55, 59, 114 Cal.Rptr. 913; Rest.2d Trusts, § 12, com. g, p. 37.) However, the parties do not agree on the evidence the court could and did consider in ascertaining their intent. This problem must be resolved at the outset because it is related to the scope of review.

Plaintiff contends the intention of the parties is to be ascertained exclusively from the provision in the deed of trust relating to the payment of impounds which provides in part that money paid to defendant as impounds shall, at its option, "be held . . . in trust". She asserts that although during trial the court denied her motion to strike testimony of the witnesses regarding their understanding of the trust deed provisions, ultimately the court gave no consideration to extrinsic evidence of the parties' intent. Plaintiff is mistaken on both counts. In its conclusions of law the trial court stated: "Since it is the objective manifestation of intent by the parties which controls . . . , no weight has been given to evidence received concerning the subjective intent of the parties. Such evidence is deemed stricken from the record." (Emphasis added.) It is clear the court disregarded only evidence of subjective intent. ² It is equally clear both from its statement and other findings and conclusions that the court fully considered all evidence of the parties' objective manifestations of intent, including several provisions of the deed of trust, provisions in the deposit receipt and escrow instructions, the circumstances surrounding the transaction and the subsequent conduct of the parties. Its consideration of this evidence was entirely proper. The use by the parties of the word "trust" or the words "in trust" does not necessarily manifest an intent to create a trust relationship. (Abrams v. Crocker-Citizens Nat. Bank, supra, 41 Cal.App.3d at p. 60, 114 Cal.Rptr. 913; Anderson v. Hagen, 19 Cal.App.2d 714, 719-720, 66 P.2d 168; Rest.2d Trusts, § 24, com. b, p. 68.) The language employed by the parties is only one of the factors to be considered. (Abrams v. Crocker-Citizens Nat. Bank, supra.) "The intention of the parties is to be ascertained from their words and conduct in light of the circumstances surrounding the transaction." (Abrams v. Crocker-Citizens Nat. Bank, supra, 41 Cal.App.3d at p. 59, 114 Cal.Rptr. at p. 915; accord: Rest.2d Trusts, § 12, com. g, p. 37.)

We are called upon to review, therefore, not so much the trial court's interpretation of the language of written instruments...