Buchanan v. Brentwood Federal Savings & Loan Assoc.

320 A.2d 117, 457 Pa. 135, 1974 Pa. LEXIS 826

• Court: Supreme Court of Pennsylvania
• Decided: April 23, 1974
• Docket: Appeals, Nos. 123 to 132
• Status: Published

Opinions

Opinion by

Mr. Justice Roberts,

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.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. 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.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 “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.³ In the 1930’s 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. §§ 1601-65 (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 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,⁹ must be afforded the opportunity to prove that money was paid to a mortgage lending institution for the specific purpose of satisfying tax and other obligations.¹⁰

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).¹¹ There, plaintiffs likewise challenged the practice of mortgagees investing for their own account the monthly tax payments of mortgagors. The Massachusetts Supreme Judicial Court reversed the trial judge’s dismissal of plaintiffs’ complaint for failure to state a cause of action, because it believed that from tbe 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.

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 individually¹² when it concluded that appellants could not establish in any circumstance the existence of a trust relationship.¹³ Our review of 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 of a particular word in gome 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.¹⁴

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.¹⁵

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.” 5 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,¹⁶ is not really a trust at all but rather an equitable remedy. Like all remedies in equity, it is flexible and adaptable.¹⁷ Changing times and circumstances create different problems for society and present new questions to the courts.¹⁸ 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.

“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 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.¹⁹ 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).²⁰

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.²¹ An agent, unless authorized, may not use his principal’s money for Ms own advantage. Restatement (Second) of Agency §§ 13, 387 (1958). If lie 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 Ms 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 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 agreement²² is capable of tbe 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,²³ we must remand for a determination whether a contract to capitalize can be implied from the language of the written instruments.²⁴

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. § 226.1 (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.²⁵ Id. § 226.8(e). Appellees have 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.²⁶ 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 proceed as a plaintiff class action? Pa. RC.P. 2230.²⁷ 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 clauses²⁸ 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 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.

Mr. Chief Justice Jones concurs in the result.

1 This Court has jurisdiction by reason of the Appellate Court Jurisdiction Act of 1970, Act of July 31, 1970, P.L. 673, art. II. § 202(4), 17 P.S. § 211.202(4) (Supp. 1973).

2 Hereinafter, references to monthly tax payments, monthly payments, or tax payments are to be considered shorthand expressions of monthly payments for taxes, real estate and other assessments, and fire and casualty insurance premiums.

3 Department of Research & Economics, United States Savings & Loan League, Factors Governing the Economics of Escrow Accounts (Jan. 1973) (hereinafter cited as Escrow Study). The Escrow Study used the following methodology.

“The initial questionnaire was mailed to all members of the United States Savings and Loan League. Replies were received from 1,141 savings and loans or 20.8% of the 5,490 operating associations in the nation at mid-year 1972. These associations had $90.3 billion in assets, representing 40.2% of the total assets of the business. . . .

“The group was weighted in favor of associations with assets of $50 million or more. New replies were received from the very small associations with assets of under $5 million. In the $5 million to $10 million asset range 269 associations reported, representing 18.4% of the total in that asset range. In the $25 million to $50 million group, 33.0% of the associations responded. In the $50 million to $100 miUion range, the percentage of replies rose to 48.5%. The peak of 64.1% occurred in the $150 million to $200 group.

“There was a good geographic distribution of respondents, with a number of states being represented by 33% to 50% of the associations within their borders. ... In 21 of the states, respondents held 50% or more of the assets of the business. In another 16, the holdings ranged between 40% and 50% of the assets. Four states were represented by 30% to 40%. Forty-one states, thus, liad a level of returned questionnaires in excess of 30%.

“There is one caveat regarding coverage. Not all responding institutions were able to answer all questions. . . . The survey was developed with the view of finding as many facts and as much data as possible about escrow accounts.”

Id. 2-3. See generally Comment, Payment of Interest on Mortgage Escrow Accounts: Judicial and Legislative Developments, 23 Syracuse L. Rev. 845 (1972).

4 “In 1933, 26.3% of property taxes in America’s 200 largest cities were delinquent.” Escrow Study 4. Delinquent taxes either caused foreclosures or reduced the marketability of houses.

5 Appellees here do not dispute that they in fact invest the monthly tax payments for their own account. They do strenuously argue that nothing, either in law or in contract, prevents them from doing so. See Escrow Study 7.

6 Escrow Study 3.

7 “Of the responding institutions, 83.6% used the escrow method, and they held 92.0% of the total assets. The capitalization method was employed by a much smaller 16.4% of the respondents holding 8.0% of the assets of the responding group. Thus, the escrow approach is by far the most commonly used method by savings and loan associations.” Id.

8 Count II of appellants’ amended complaint alleged that the contractual provision requiring that they pay each month one-twelfth of the annual taxes was a contract of adhesion and contrary to public policy. The trial court disagreed with appellants’ argument. On appeal, appellants have abandoned their general attack on the propriety of the requirement, and instead concentrated on the illegality of the manner in which the mortgage lending institutions have been handling the monthly payments.

9 One personal bond agreement provides that “the monthly payments made by Obligor shall be applied first to interest and premium on the unpaid balance of the principal sum and the remainder thereof shall be credited on account of said sum, and (except when taxes are paid to the Obligee in monthly installments) shall also well and truly pay all taxes . . . which are now and also all those which may hereafter be assessed . . . .” Bond from E. Joseph & Margaret K. Oharny to Wilkinsburg Federal Savings & Loan Ass’n (now West Penn Federal Savings & Loan Ass’n), July 30, 1968.

10 On remand, appellants must prove all elements of a trust. See Thompson Will, 416 Pa. 249, 254-55, 206 A.2d 21, 25 (1965); Restatement (Second) of Trusts § 2 (1959).

The trial court concluded that “[n]owhere ... do the documents contain any language defining the res of such a trust.” This conclusion was reached without reference to the specific language of any agreement and without citation to any authority. Preliminarily, it appears that the court did not consider each agreement individually; this alone requires reversal. On remand, the trial court should be aware when determining whether there is a trust subject matter, that “[i]t is the identity of the fund, not of the pieces of coin or bank note that, controls . . . .” Vosburgh’s Estate, 279 Pa. 329, 333, 123 A. 813, 815 (3924). To establish a trust subject matter, appellants must only prove the amount of monthly payments tendered to their mortgage lending institution. See Mehler’s Appeal, 310 Pa. 25, 29, 164 A. 619, 620 (1932); Trestrail v. Johnson, 298 Pa. 388, 396-97, 148 A. 493, 495 (1929); Webb v. Newhall, 274 Pa. 135, 136-37, 117 A. 793, 793 (1922); Farmers' & Mechanics' Nat’l Bank v. King, 57 Pa. 202 (1868). See generally Restatement (Second) of Trusts §§ 74, 76 (1959); 1 A. Scott, Law of Trusts § 76 (3d ed. 1967).

11 Appellees have cited several cases which they claim reject the argument that mortgagees are liable to their mortgagors for profits earned on monthly tax payments. Where the issue was squarely presented, the cases are distinguishable because of differences in the language used in the mortgage agreements. E.g., Sears v. First Federal Savings & Loan Ass’n, 1 Ill. App. 3d 621, 275 N.E.2d 300 (1971); Richman v. Security Savings & Loan Ass’n, 57 Wis. 2d 358, 204 N.W.2d 511 (1973). Other cases cited by appellees are inapposite either because the court’s discussion of whether the mortgagor was entitled to interest was not necessary to its decision, Tucker v. Pulaski Federal Savings & Loan Ass’n, 252 Ark. 849, 481 S.W.2d 725 (1972), or because the court did not even consider the question. Schechtman v. Grobbel, 226 So. 2d 1 (Fla. Ct. App. 1969).

The Illinois intermediate appellate court in Sears sustained the dismissal of the complaint. Initially, the court noted that “the controversy centers about certain language in the note . . . .” Id. at 625, 275 N.E.2d at 302. The mortgage agreement expressly granted the mortgagee the right to choose from three options how it would hold the monthly tax payments. The mortgagee chose to use the second option. Mortgagors alleged that the parties’ agreement intended that the tax payments held by the mortgagees under the second option were held in trust. However, the first option specifically provided that the monthly payments were to be held in trust without earnings. The Sears court reasoned that the second option could not reasonably restrict the mortgagee to any greater extent than the first option. Therefore, if the second option was considered a trust, it would be identical in effect to the first, and accordingly deprive the mortgagee of any meaningful contractual choice. Id. at 629, 275 N.E.2d at 305. The record in the instant case fails to show any mortgage or personal bond agreement that specifically allows, as did the Sears mortgage, a mortgage lending institution the option of choosing how to “hold” the monthly tax payments.

Although the court in Richman affirmed the dismissal of the complaint, the case is distinguishable. The mortgage agreement in that case provided “that payments for taxes and insurance may be held by the defendant, commingled with other funds or its own, and that the defendant as the mortgagee is not obligated to pay interest to the mortgagors on the funds.” Id. at 362, 204 N.W.2d at 513. There is nothing in the pleadings of any of the parties to indicate that any mortgage agreement in the present case expressly allowed a mortgagee to commingle the monthly tax payments with its own funds.

In Schechtman v. Grobbel, the court was not confronted with the question whether the mortgagor was entitled to an accounting. There, although the mortgagees required the mortgagor to make monthly tax payments to them, the mortgagee refused and instead deposited the tax money in a special account. The court denied the mortgagees’ action for a foreclosure on the ground that the security under the mortgage was not at any time jeopardized. By denying foreclosure, the court permitted the mortgagor the interest earned on his monthly tax payments.

The court in Tucker reversed the trial court's judgment permitting the bank to accelerate and foreclose. The bank had brought a foreclosure action against its mortgagor for conveying the property without its consent. Defendants were both the mortgagor-vendor and the vendee. They filed a class action seeking a counterclaim for the interest earned on monthly tax payments held by the bank. The court first disagreed sharply with the procedure employed by appellants; a class action was entirely beyond the scope of Arkansas’s counterclaim statute. In fact, the vendee did not even make monthly tax payments. Although the court concluded without citation to authority and without explanation that it disagreed with defendants’ claim, the remark was gratuitous and dictum. Id. at 858-59, 481 S.W.2d at 731.

12 The trial court in a note to its opinion stated that “[t]o facilitate discussion, we will treat, where possible, the case as though only one Plaintiff and one Defendant were involved.” Although this approach might be possible in some circumstances, it is not desirable where the resolution of questions of law that are advanced by the parties depends upon the precise language used in the parties’ agreements.

13 For example, the trial court concluded that a debtor-creditor relation was envisioned by the parties, because the agreements used the word “pay” to describe the mortgagors’ obligation to deliver the monthly tax payments to appellees. However, not all mortgage and bond agreements in the record use the word “pay”; some require the mortgagor to “deposit” the tax payments, others direct him to “advance” the sums.

For the use of the word “deposit,” see Mortgage Note from Martin W. & Evelyn G. Sapper to The Dollar Savings Bank, May 9, 1962; Mortgage Note from Walter E. & Irene S. Ellman to The Dollar Savings Bank, September 21, 1962. For agreements requiring the mortgagor to “advance,” see Bond from Joseph P. & Susan V. Meyers to Franklin Federal Savings & Loan Ass’n of Pittsburgh, January 13, 1969; Bond from Roger E. & Dorothy S. Buchanan to Franklin Federal Savings & Loan Ass'n of Pittsburgh, October 16, 1968; Bond from David M. & Laurel Burstin to Franklin Federal Savings & Loan Ass’n of Pittsburgh, February 2, 1968. But see Bond from Meyer & Helen Gisser to Friendship Federal Savings & Loan Ass’n of Pittsburgh, October 29, 1963 (“pay”).

Although it was alleged that the following persons executed mortgage and personal bond agreements with the following mortgage lending institutions, the record does not contain the agreements between these parties: Richard & Marcia Raphael with Franklin Federal Savings & Loan Ass’n of Pittsburgh; Alexander & Marvia M. Stavrides with Mellon Nat’l Bank & Trust Oo.; Max R. & Marjorie Stone with Century Federal Savings & Loan Ass’n of Pittsburgh; Leonard S. & Margaret Kisslinger with Mellon Nat’l Bank & Trust Co.; Alan & Marion Reznick with The Dollar Savings Bank.

14 That no interest was paid on the monthly payments is a circumstance to be considered by the trial court on remand. This Court has stated that the “imposition [of interest on money held by a banhj implies a debtor-creditor and not a trustee-beneficiary relation.” Bair v. Snyder County State Bank, 314 Pa. 85, 90, 171 A. 274, 275 (1934). The absence of interest being paid on the escrow monies held by mortgage lending institutions may evidence a trustee-beneficiary relationship. See Barr v. Luckenbill, 351 Pa. 508, 511, 41 A.2d 627, 628-29 (1945); Restatement (Second) of Trusts § 12, Comment g, at 37-38 (1959); 1 A. Scott, Law of Trusts § 12.2 (3d ed. 1967); Wilbur Trust Co. v. Knadler, 322 Pa. 17, 20, 185 A. 319, 321 (1936); Pittsburgh Nat’l Bank of Commerce v. McMurray, 98 Pa. 538 (1881).

15 Although the existence of fraud may be sufficient justification for finding a constructive trust, it is by no means necessary. 5 A. Scott, Law of Trusts §§ 462, 465-73 (3d ed. 1967); Restatement of Restitution §§ 160, 163-71 (1937); Dubin Paper Co. v. Insurance Co. of North America, 361 Pa. 68, 85-88, 63 A.2d 85, 94-95 (1949).

16 E.g., Restatement (Seeond) of Trusts § 1, Comment e (1959) ; Restatement of Restitution § 160 (1937) ; 5 A. Scott, Law of Trusts § 462.1 (3d ed. 1967).

17 See 1 J. Pomeroy, A Treatise on Equity Jurisprudence § 111, at 143-44 (5th ed. S. Symons 1941) (footnote omitted).

“Equity has followed the true principle of contriving its remedies so that they shall correspond both to the primary right of the injured party, and to the wrong by which that right has been violated. It has, therefore, never placed any limits to the remedies which it can grant, either with respect to their substance, their form, or their extent; but has always preserved the elements of flexibility and expansiveness, so that new ones may be invented, or old ones modified, in order to meet the requirements of every case, and to satisfy the needs of a progressive social condition, in which new primary rights and duties are constantly arising, and new kinds of wrongs are constantly committed.” See Peoples-Pittsburgh Trust Co. v. Saupp, 320 Pa. 138, 146, 182 A. 376, 379-80 (1936).

18 It has long been recognized that equity’s task is to provide remedies where none exist but are needed.

“It must not be forgotten that in the increasing complexities of modern business relations equitable remedies have necessarily and steadily been expanded, and no inflexible rule has been permitted to circumscribe them.” Union Pacific Ry. v. Chicago, R.I. & P. Ry., 163 U.S. 564, 601, 16 S. Ct. 1173, 1187 (1896).

19 Appellees claim that inequality of bargaining power is insufficient to establish a confidential or fiduciary relation. To support this assertion, they cite a single case, Spens v. Citizens Federal Saving & Loan Ass’n, 364 F. Supp. 1161 (N.D. Ill. 1973), which is inapposite. The plaintiffs in Spens alleged several federal claims for relief and some state pendent claims. Appellees rely on the court’s language in Spens discussing the claim that mortgagee’s failure to disclose to the mortgagor that it received a 10% rebate for prompt payment of fees to the title insurance companies constituted a breach of trust. The mortgagee required its mortgagors to purchase title insurance through its own operation. More importantly, the federal court’s reflections on Illinois law were dictum since it expressly dismissed the state claims for failure to meet the requirements of pendent jurisdiction.

As evidence of unequal bargaining position, lack of competition is probative. A party’s bargaining hand is strengthened if all those who sell (or buy) substantially the same product or goods do so on substantially identical terms.

20 That equity has expansive power to control unfairness and inequality cannot be gainsaid. See Kees v. Green, 365 Pa. 368, 374-75, 75 A.2d 602, 605 (1950); Shook v. Bergstrasser, 356 Pa. 167, 170, 51 A.2d 681, 682 (1947); Hamberg v. Barsky, 355 Pa. 462, 465-66, 50 A.2d 345, 346-47 (1947); Drob v. Jaffe, 351 Pa. 297, 300, 41 A.2d 407, 408 (1945).

21 Of course, since agency is a contractual relation, the parties may offer evidence to prove that their agreement did (or did not) contemplate the exercise of certain powers. “The existence and extent of the duties of the agent to the principal are determined by the terms of the agreement between the parties, interpreted in light of circumstances under which it is made . . . .” Restatement (Second) of Agency § 376 (1958).

22 Mortgage from Joseph P. & Susau V. Meyers to Franklin Federal Savings & Loan Ass’n of Pittsburgh, January 13, 1969. That mortgage provides, inter alia, that “[t]he amount of said monthly payment for taxes shall become part of the amount required to be paid monthly by said Mortgagor(s) under the terms and conditions of this obligation.” The mortgage instrument continues and states:

“The aggregate of all such monthly payments hereinbefore provided for all [sic] be paid by the Mortgagor each month in a single payment to be allocated by the Mortgagee to the following items in the order set forth:

“I. Taxes, governmental levies, assessments, sewer and water rents, fire and other hazard insurance;

“II. Interest on said Bond; and

“III. Amortization of the principal secured thereby.”

Other mortgages contain the same conditions. E.g., Mortgage and Bond from Roger E. & Dorothy S. Buchanan to Franklin Federal Savings & Loan Ass’n of Pittsburgh, October 16, 1968; Mortgage and Bond from David M. & Laurel Burstin to Franklin Federal Savings & Loan Ass’n of Pittsburgh, February 2, 1968.

23 See text accompanying notes 12-13 supra.

24 On remand, the trial court will be confronted with the task of interpreting the agreement between the parties. “In order to determine the meaning of the agreement, [the trial court] must examine the entire contract since it is well settled that in construing a contract the intention of the parties governs and that intention must be ascertained from the entire instrument taking into consideration the surrounding circumstances, the situation of the parties when the contract was made and the objects they apparently had in view and the nature of the subject matter.” Mather Estate, 410 Pa. 361, 366-67, 189 A.2d 586, 589 (1963) (interpretation of written stock option agreement). See Silverstein v. Hornick, 376 Pa. 536, 540, 103 A.2d 734, 737 (1954) ; Betterman v. American Stores Co., 367 Pa. 193, 203-04, 80 A.2d 66, 73 (1951); Percy A. Brown & Co. v. Raub, 357 Pa. 271, 287, 54 A.2d 35, 43 (1947); Slonaker v. P.G. Publishing Co., 338 Pa. 292, 296, 13 A.2d 48, 50-51 (1940).

As long ago as 1830 this Court recognized what inquiry was necessary for proper interpretation of a contract.

“In expounding an agreement we must consider the subject-matter ; the object of making it; the sense in which the parties mutually understood it at the time it was made; the place where it was entered into; . . . and finally, the practical exposition and the general understanding, custom, and usage amongst those who enter into similar contracts, in the execution and performance thereof. The construction must be reasonable; and the intention of the parties, if it can be collected from the instrument, and an attentive consideration of the circumstances always adverted to, with such others as may be incident to the nature and character of the particular contract, must control every other construction inconsistent with it, unless repugnant with some settled principle of law.” Roberts v. Beatty, 2 Pen. & W. 63, 65-66 (Pa. 1830). See also 1 A. Corbin, Contracts §§ 538-39, 542 (1960); Restatement (Second) of Contracts §§ 239, 240(b), (c), 242(2) (b) (Tentative Draft No. 6, 1971).

25 The rationale of excluding required deposit balances from the amount financed is that they are in effect a pro tanto reduction of the amount financed. The borrowers do not have the use of the required deposit balances for the term of the loan. Correspondingly, the amount of money actually loaned (borrowed) is decreased.

Were the monthly tax payments deemed to be required deposit balances, their exclusion from the amount financed would increase the annual percentage rate. As the dividend (amount financed) is decreased while the divisor (finance charge) remains constant, the quotient (annual percentage rate) will naturally be greater. Hence, the alleged violation.

26 Congress expressly delegated to the Board of Governors of the Federal Reserve System the authority to prescribe regulations to fulfill the Truth in Lending Act’s purposes. 15 U.S.C.A. § 1604 (Supp. 1973).

27 Rule 2230 of the Pennsylvania Rules of Civil Procedure provides :

“(a) If persons constituting a class are so numerous as to make it impracticable to join all as parties, any one or more of them who will adequately represent the interest of all may sue or be sued on behalf of all, but the judgment entered in such action shall not impose personal liability upon anyone not a party thereto.

“(b) An action brought on behalf of a class shall not be dismissed, discontinued, or compromised nor shall a voluntary nonsuit be entered therein without the approval of the court in which the action is pending.”

28 See note 2 supra.