148 A. 25 | Pa. | 1930
Argued January 7, 1930. Morris A. Sarshik, one of the defendants, by the ownership of at least four-fifths of its capital stock, controlled Morris A. Sarshik, Inc., the other defendant, hereinafter called the corporation. Each of them was in the real estate business, and, at least so far as concerns the transaction hereinafter detailed, the corporation seems to have been nothing more than a cloak behind which Sarshik endeavored to hide. In order to obtain title to an apartment house belonging to plaintiffs, Sarshik induced them to agree to sell it and the fire insurance policies on it, to one George A. Pennypacker, a straw man for Sarshik, though pretending to be so for the corporation, for the sum of $305,000, $250,000 of which was represented by two existing mortgages, $50,000 was to be a third mortgage to be given by Pennypacker to plaintiffs, and $5,000 was to be a cash payment. The agreement of sale, which was prepared by or for defendants, further provided that the taxes and *260 interest on existing mortgages, should be apportioned to the date of settlement. To induce plaintiffs to sell on these terms, the agreement also stated that, as "an independent covenant [which] shall survive the settlement and not be merged with the deed," Pennypacker would "assign irrevocably to Sarshik all leases now existing or hereafter in effect upon said premises, and irrevocably constitute Sarshik as agent for the collection of rentals therefrom, for the following purposes: To pay, from the said rentals, the taxes, water rents, repairs and interest on first, second and third mortgages, after deducting five per cent commission on the rents collected."
When settlement was made, it was found that, on apportioning the mortgage interest, taxes, etc., to that date, defendants were entitled to receive from plaintiffs the sum of $7,845.53 in order to enable the former to comply with the agreement to pay the interest on the prior encumbrances when and as they fell due. Plaintiffs thereupon gave a check to Pennypacker for the $2,845.53 in excess of the $5,000 cash payable at settlement, and he at once endorsed it to the corporation, which received its proceeds. Though the $7,845.53 was far in excess of the interest necessary to be paid on the second mortgage at the time it first became due, defendants did not pay it, and by reason of this default the mortgage was foreclosed, the property sold by the sheriff, and plaintiffs lost everything and received nothing.
Claiming that the whole transaction was a scheme to cheat and defraud them, plaintiffs filed a bill in equity against Sarshik and the Corporation, and the court below decreed that they should presently repay plaintiffs the $7,845.53 and should account for the rents they had collected; but refused to charge them with the amount of the $50,000 mortgage, or any part thereof. Without filing an account, Sarshik, forthwith prosecuted the present appeal, and seeks thereby to have us now review *261
so much of the decree as requires payment of the $7,845.53. We have no doubt as to the correctness thereof, and of the jurisdiction in equity to pass on the question. Fraud is one of the principal heads of equity jurisdiction, and the right to so proceed cannot be attacked in this case, since defendants did not seek to have the question decided in limine, as required by the Act of June 7, 1907, P. L. 440: Wright v. Barber,
Admittedly, if the finding by the court below, that defendants were guilty of fraud, has sufficient evidence to sustain it, the portion of the decree now under review is correct; but appellant contends that this conclusion is predicated entirely on the basic finding that defendants purchased and received the $7,845.53 with a present intention not to pay the interest on the existing mortgages when they fell due. If this were all there was in the case, Smith v. Smith, Murphy Co.,
In the instant case there are sufficient "additional circumstances" to justify the conclusion of the chancellor that fraud was shown, but it is not necessary to detail them, since the law is clear that defendants are legally bound to repay the $7,845.53, entirely aside from their fraud and deception at the beginning of the transaction. That sum, as already shown, was given for the specific purpose of being used, if necessary, with the rents collected (here they were not needed, in paying mortgage interest and taxes when they should become payable, in order that plaintiffs' $50,000 mortgage might be protected from discharge by foreclosure of one of the prior mortgages. This defendants must have known. It is made particularly clear by the "independent covenant" above quoted, though, in form, but a covenant by the straw man. Equity looks through forms to substance, however: (Texas v. Hardenberg,
Admittedly there would have been no foreclosure of the second mortgage if defendants had expended the money as they should have done; and admittedly the failure to so use it resulted in plaintiffs' $50,000 mortgage being discharged as a lien on the property. Equity would become iniquity, therefore, if it did not require, as the chancellor has done, that at least the $7,845.53 be repaid to plaintiffs. Equity is not subject to this reproach, however, since, as has often been decided, the facts here existing raise a constructive trust in favor of plaintiffs. Perhaps the applicable principle has never been more tersely stated than in Lyon v. Marclay, 1 Watts 271, 275, where it is said that "a person who receives money to be paid to another, or to be applied to a particular purpose, and does not pay it to the person, or apply it to the purpose intended, is a trustee and suable either in law or equity." This rule was again stated in the same language in Finney v. Cochran, 1 W.
S. 112, 118; and it is, in principle, restated in Beegle v. Wentz,
The decree of the court below is affirmed so far as concerns the questions raised on this appeal, and it is dismissed at the cost of appellant. *264