Philadelphia Housing Development Corporation v. K. Willoughby ( 2014 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Philadelphia Housing :
Development Corporation, :
Appellant :
:
v. :
: No. 1981 C.D. 2012
Kevin Willoughby : Submitted: May 14, 2014
BEFORE: HONORABLE DAN PELLEGRINI, President Judge
HONORABLE BERNARD L. McGINLEY, Judge
HONORABLE BONNIE BRIGANCE LEADBETTER, Judge
HONORABLE RENÉE COHN JUBELIRER, Judge
HONORABLE ROBERT SIMPSON, Judge
HONORABLE MARY HANNAH LEAVITT, Judge
HONORABLE P. KEVIN BROBSON, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE McGINLEY FILED: August 28, 2014
Philadelphia Housing Development Corporation (PHDC), appeals
from the portion of an order of the Court of Common Pleas of Philadelphia County
(trial court) that entered judgment in the amount of $50,000 in favor of Kevin
Willoughby (Willoughby) on his unjust enrichment counterclaim following a non-
jury trial.
This appeal arose out of an action brought by PHDC against
Willoughby in order to quiet title on property at 1973 North 73rd Avenue in
Philadelphia (Property). PHDC originally acquired the Property in fee simple from
the U.S. Department of Housing and Urban Development in 1984. (Joint
Statement of Uncontested Facts (J.S.U.F.) ¶1, Reproduced Record (R.R.) at 107a.)
In 1986, PHDC transferred title to the Property to Daryl Ruffin and
Shirl Headen for $13,900. (Id. ¶2, R.R. at 107a.) The conveyance to Ruffin and
Headen was in fee simple determinable subject to the condition that Ruffin and
Headen “both occup[y] the premises and retain[] legal and equitable ownership
continuously for a period of ten (10) consecutive years.” (October 31, 1986
Indenture of Deed, PHDC Trial Ex. P2.) If Ruffin and Headen failed to comply
with this condition, title would automatically revert to the PHDC. (Id.)
In 1997, PHDC initiated a quiet title action in the Court of Common
Pleas of Philadelphia County against Ruffin and Headen for failure to comply with
the conditions of their purchase of the Property. Ruffin and Headen did not appear
to defend the suit, and, by an order dated May 29, 1998, title of the Property
reverted to PHDC. (May 28, 1998 Order, R.R. at 9a-10a; August 16, 2012 Trial
Court Order Findings of Fact (F.F.) ¶1.) That order was recorded at the City of
Philadelphia (City) Department of Records on August 12, 1998. (May 28, 1998
Order, R.R. at 9a.)
On November 28, 2007, Ruffin purported to convey the Property to
Willoughby by an indenture of deed. (Nov. 28, 2007 Indenture of Deed, R.R. at
13a.) Ruffin alone was identified as the grantor on that deed; Headen was not
mentioned in the instrument. (Id.) The deed listed the consideration paid for the
conveyance as $1, although the fair market value for tax purposes was listed as
$6,645.20. (Id.; Real Estate Transfer Tax Certification, R.R. at 17a.) Willoughby
recorded the deed on January 18, 2008. (Nov. 28, 2007 Indenture of Deed, R.R. at
13a; J.S.U.F. ¶4, R.R. at 108a.)
2
According to Willoughby, the Property was a dilapidated “shell” in
2007 at the time he “purchased” it from Ruffin, and Willoughby alleged he
subsequently performed a substantial rehabilitation of the Property to bring it into a
habitable condition. (Aug. 16, 2012 Order F.F. ¶¶2, 3.) In 2009, Willoughby listed
the Property for sale and entered into an agreement of sale with one prospective
buyer in August of that year for $139,900, however that sale was not
consummated. (J.S.U.F. ¶¶9-10, R.R. at 108a; Sept. 23, 2009 Agreement of Sale,
R.R. at 47a.)
Following the attempted sale, Willoughby’s attorney wrote a letter to
PHDC seeking assistance in obtaining clear title to the Property, in which the
attorney admitted that Willoughby had not performed a title search and had not
procured title insurance at the time of the purchase from Ruffin. (PHDC Trial Ex.
P5; J.S.U.F. ¶12, R.R. at 108a-109a.) Willoughby also entered into negotiations to
purchase the Property for $52,000, a price determined from a retrospective
appraisal of the Property’s value prior to Willoughby’s improvements, but he did
not follow through with PHDC. (PHDC Trial Exs. P6-P9, P11-P12; J.S.U.F. ¶¶12-
24, R.R. at 109a-110a.)
Without the consent of PHDC, Willoughby then entered into an 18-
month term lease with two tenants beginning on July 11, 2010. (J.S.U.F. ¶¶25-26,
R.R. at 110a.) The lease provided the tenants with the option to purchase the
Property within the lease period. (J.S.U.F. ¶25, R.R. at 110a.)
On April 7, 2011, PHDC posted a notice to vacate the Property, at
which point PHDC discovered that Willoughby had rented the Property. (J.S.U.F.
¶27, R.R. at 110a.) PHDC commenced an action to eject Willoughby’s “tenants.”
3
(J.S.U.F. ¶27, R.R. at 110a) Prior to the tenants leaving the Property, Willoughby
collected approximately $14,000 in rent. (Aug. 16, 2012 Order F.F. ¶3.) In the
summer of 2011, PHDC again offered to sell the property to Willoughby, who
initially expressed interest but again failed to follow through on the purchase.
(J.S.U.F. ¶¶29-30, R.R. at 110a-111a.)
PHDC filed its action to quiet title on the Property in the trial court on
July 26, 2011, and Willoughby filed a counterclaim for unjust enrichment based
upon improvements made while he was in possession. A two-day bench trial was
held in July 2012.
At trial, PHDC presented the testimony of Joan Decker, the City’s
Records Commissioner, who testified that the May 29, 1998 Order was properly
recorded on August 12, 1998, within the deed book and that the recording of the
Order was sufficient to notify the public that ownership of the Property reverted
back to PHDC. (Notes of Testimony, July 19, 2012 (N.T. 7/19/12) at 67-68.)1
Commissioner Decker further testified that the May 29, 1998 Order was recorded
and indexed in the manner of a deed. (N.T. 7/19/12 at 69-74; Notes of Testimony,
July 24, 2012 (N.T. 7/24/12) at 22-24.)
Willoughby testified that he lived in the same neighborhood as the
Property and, prior to the purchase, he initially posted letters on the front door of
the Property and requested the owner to contact him to discuss a sale. Several
months after posting the note, Ruffin contacted Willoughby and represented
himself as the owner. (N.T. 7/19/12 at 112-15.) Willoughby further testified that
1
The transcripts are not part of the reproduced record.
4
he did not perform a title search at the time of his purchase of the Property from
Ruffin. Rather, he conducted an “online search” of the City’s Department of
Revenue database, which listed Ruffin as the owner of the Property and owing
property taxes and Water Department bills. (N.T. 7/19/12 at 116-17.)
Willoughby testified that he paid $9,000 in cash for the Property and
agreed to list the sale price as $1 on the deed because Ruffin “did not want to pay
taxes on the property, on the money that I gave him.” (N.T. 7/19/12 at 115, 117,
133.)
The real estate agent who listed the Property on Willoughby’s behalf
in 2009 testified that Willoughby was unable to consummate the sale of the
Property in 2009 because the title report showed a mortgage in favor of PHDC and
the agent could not obtain a pay-off statement for that mortgage. (N.T. 7/19/12 at
155-57; N.T. 7/24/12 at 16-17.)
There was conflicting testimony regarding the improvements made by
Willoughby to the Property. Willoughby testified that before beginning the
renovations to the Property he obtained a valid building permit from the City and
took down the boards sealing the building to perform a clean out. (N.T. 7/19/12 at
118, 128.) Willoughby testified that when he unsealed the Property, he discovered
fire damage, animal remains, a caved-in roof and falling bricks. (N.T. 7/19/12 at
118-19.) Two contractors who worked on the Property also testified that the
Property was in a “condemned” state with damage from fire and exposure to the
elements. (N.T. 7/19/12 at 77-78, 95-98.)
5
The two contractors testified that Willoughby paid them each $10,000
and $21,000 for the work they performed on the Property. (N.T. 7/19/12 at 80, 85,
87, 99-100.) Willoughby also testified regarding various contractor expenses
associated with the renovations to the Property and explained that he spent $90,916
in total. (N.T. 7/19/12 at 118-24.)
Willoughby’s real estate agent testified that when he listed the
Property for sale in 2009 it was in an excellent condition and that the Property was
appraised for $140,000 at that time. (N.T. 7/19/12 at 152-53; N.T. 7/24/12 at 6-
11.)
A PHDC Inspector testified that when he first inspected the Property
in 2011 there were “plumbing issues that were unsanitary, weren’t done properly.
There were electrical hazards that were not done properly.” (N.T. 7/24/12 at 42.)
A section of pipe was missing which allowed toilet water to “dump into the
garage.” (N.T. 7/24/12 at 43.) There was no “fuse protector.” There was no
“main breaker.” (N.T. 7/24/12 at 45-46.) “A lot of items inside the house were
not working” such as “receptacles, lighting.” In some cases, there was “no device
connected to the end, it was just exposed wiring.” The Inspector testified that this
was a “potential fire hazard.” (N.T. 7/24/12 at 46-47.) The Inspector also testified
that the electricity had been wired to “bypass” the electrical meter “so it was not
actually recording any usage.” (N.T. 7/24/12 at 48-49.) The “gas meter and water
meter” were “jumped just like the electric meter.” (N.T. 7/24/12 at 48-49.) The
Inspector testified that the only reason these meters were bypassed “would be to
steal electricity.” (N.T. 7/24/12 at 57.)
6
The Inspector estimated that PHDC had spent or would need to spend
approximately $16,000 to fix the problems resulting from Willoughby’s poor
workmanship. (N.T. 7/24/12 at 44-48.) The Inspector further estimated the cost of
the improvements to bring the Property from a shell to the condition at the time
PHDC took back possession in 2011 was approximately $80,000 to $90,000. (N.T.
7/24/12 at 42.)
Following trial, the trial court entered an order finding that: (i) title of
the Property reverted to PHDC in 1998 and remained in PHDC thereafter; (ii)
PHDC had not made any improvements to the Property and that it was an
uninhabitable shell in 2007 when Ruffin purported to convey the Property to
Willoughby; (iii) Willoughby had restored the Property to a habitable condition
with the most reasonable estimate of the cost of those improvements at $80,000 to
$90,000; and (iv) Willoughby had collected approximately $14,000 in rent and that
PHDC invested approximately $16,000 in later repairs on the Property. (Aug. 16,
2012 Order ¶¶1-3.) The trial court entered judgment in favor of PHDC on the
issue of ownership of the Property and for Willoughby on the unjust enrichment
claim, with an award of $50,000 based on the amount spent by Willoughby on the
rehabilitation of the Property offset by rents collected and repairs by PHDC. (Id.
¶4.)
PHDC filed a motion for post-trial relief and challenged the unjust
enrichment award, which was denied by the trial court on October 4, 2012. PHDC
appealed and the trial court issued an opinion in support of the judgment on
February 5, 2013. In the opinion, the trial court stated that it accepted
Willoughby’s testimony as credible and that Willoughby “reasonably believed that
he was the owner of the [P]roperty” at the time of the renovations and that he had
7
“specifically researched to see that the purported owner of the [P]roperty owed
property taxes and an old water bill.” (Feb. 5, 2013 Opinion at 2.) The trial court
further stated that PHDC was on notice of Willoughby’s mistaken belief of
ownership when he inquired with PHDC about clearing the title. (Id.) The trial
court concluded that the unjust enrichment award was the “only reasonable
solution to make” both parties whole. (Id. at 3.)
PHDC presents two issues on appeal.2 First, PHDC contends that the
unjust enrichment award was improper because Willoughby was not a “bona fide
possessor” of the Property. Second, PHDC argues that the trial court improperly
entered judgment in favor of Willoughby on his unjust enrichment claim because
Willoughby acted with “unclean hands” with respect to his alleged purchase and
ownership of the Property.
I.
Unjust Enrichment
Unjust enrichment is an equitable doctrine under which the law
implies a contract when one party is unjustly enriched and requires that the
enriched party pay the value of the benefit conferred by the other party.
Commonwealth ex rel. Pappert v. TAP Pharmaceutical Products, Inc., 885 A.2d
2
This Court’s scope of review in an equity matter is limited to determining whether the
trial court’s findings of fact are supported by substantial evidence, whether an error of law has
been committed, or whether the trial court abused its discretion. City of Philadelphia v. Urban
Market Development, Inc., 48 A.3d 520, 522 n.3 (Pa. Cmwlth. 2012). An appellate court’s
standard of review of an equitable ruling of a trial court is rigorous; the appellate court should
not substitute its own views for that of the tribunal below, but instead its task is to determine
whether “a judicial mind, on due consideration of all the evidence, as a whole, could reasonably
have reached the conclusion of that tribunal.” Hess v. Gebhard & Co. Inc., 808 A.2d 912, 920
(Pa. 2002) (quoting Aiken Industries, Inc. v. Estate of Wilson, 383 A.2d 808, 810 (Pa. 1978)).
8
1127, 1137 (Pa. Cmwlth. 2005). A plaintiff alleging unjust enrichment must show:
(i) the plaintiff conferred a benefit on the defendant; (ii) the defendant appreciated
the benefit; and (iii) acceptance and retention of the benefit by the defendant
would, under the circumstances, make it inequitable for the defendant to retain the
benefit without paying for the value of the benefit. Id.; Wilson Area School
District v. Skepton, 860 A.2d 625, 631 (Pa. Cmwlth. 2004), aff’d, 895 A.2d 1250
(Pa. 2006).
Critically, the doctrine of unjust enrichment does not apply simply
because the defendant may have benefited as a result of the actions of the plaintiff.
Commerce Bank v. First Union Nat'l Bank, 911 A.2d 133, 143–144 (Pa. Super.
2006). The most significant element of the doctrine is whether the enrichment of
the defendant was unjust. Id. The defendant is “unjustly” enriched where he or
she receives the benefits wrongfully or passively. Wilson Area School District.
Here, there was no evidence whatsoever that PHDC received the
benefits of Willoughby’s improvements “wrongfully or passively” or “unfairly.”
On the contrary, the record establishes that PHDC was completely unaware of
Willoughby’s incursion onto the Property until after he unsuccessfully attempted to
sell it to a third party. When PHDC finally became aware of Willoughby’s
“renovations” the PHDC was forced to: (1) initiate an action to eject two innocent
and unsuspecting tenants; (2) expend time and thousands of dollars to correct and
bring into code the major plumbing and electrical problems created by
Willoughby; and (3) resolve issues with utilities that supplied the property with gas
and electrical services which were not metered. By all accounts, much of the work
performed by Willoughby was substandard which rendered the property
9
uninhabitable. According to an unfortunate “tenant” who lived there, her
belongings were damaged from flooding due to leaking and broken pipes.
This is not a situation where the PHDC passively observed
Willoughby mistakenly make improvements to its property only to reap the
benefits. Looking at the big picture, the PHDC was thoroughly inconvenienced
and burdened by the whole affair. PHDC had no idea of the fraudulent transfer
from Ruffin to Willoughby until long after it took place and after Willoughby had
performed work on the building.
At that point, the PHDC was forced to adjust its budget and timetable
to rectify the problems created by Willoughby. It was also required to institute the
civil action to quiet title. Any enrichment PHDC may have received in the end
was not “unjust.” On the contrary, it was unjust to permit Willoughby, who could
have easily ascertained the identity of the Property’s owner, to recover any amount
he irresponsibly and imprudently expended to renovate a property which he was
not 100% sure he rightfully owned. Any loss he suffered was his own doing.3
This Court also disagrees on a more basic level with the trial court’s
conclusion that Willoughby was entitled to equitable relief in the first place. It is
generally accepted that equitable relief is available to those who help themselves.
3
This Court rejects, as did the trial court, Willoughby’s argument that recording of the
May 29, 1998, Order was “defective notice.” This Court concurs with the trial court, based on
the testimony of the Commissioner, that anyone who researched the title records would have
seen the May 29, 1998 Order and discovered that PHDC owned the Property. (Notes of
Testimony, July 24, 2012, at 31)
10
See Home Owners’ Loan Corp. v. Crouse, 30 A.2d 330 (Pa. Super. 1943). See also
Garcia v. Bd. of Educ. of Albuquerque Pub. Sch., 520 F.3d 1116, 1129 (10th Cir.
2008) (citation omitted) (“equity will not help those who do not help themselves”);
Metro Motors v. Nissan Motor Corp. in U.S.A., 339 F.3d 746, 750 (8th Cir. 2003)
(citation omitted) (no abuse of discretion where court refused to help party that
“could have helped itself and did not”); Picker Fin. Group L.L.C. v. Horizon Bank,
293 B.R. 253, 263 (M.D. Fla. 2003) (declining to grant equitable relief where party
made no attempt to review available title search, thus failing to discover an
intervening lien); Bear Stearns Mortg. Capital Corp. v. Am. Home Mortg. Inv.
Corp. (In re Am. Home Mortg. Holdings, Inc.), 409 B.R. 284, 288 (D. Del. 2009)
(party who failed to take timely actions to protect interests was not entitled to
equitable relief) (citations omitted).
The facts of this case do not support a finding that Willoughby was an
unknowing, unsophisticated purchaser. To the contrary, the record shows that
Willoughby was experienced in dealing in real estate and owned four investment
properties. When asked what he did to find out who owned the Property,
Willoughby testified:
A. Went on line on the computer, to the bureau, typed
the address and his [Ruffin] name came up.
****
Q. What else did you do?
A. That was it.
(N.T. 7/24/12 at 116-117.)
11
By any standard, merely conducting an online search of the City’s
Department of Revenue in an attempt to identify the title owner is so utterly
contrary to Pennsylvania’s real estate law and recording statutes that it is
inexcusable. Finley v. Glenn, 154 A. 299 (Pa. 1931). Condoning or rewarding
such a lackadaisical standard to assure proper title, as the trial court did, would set
a dangerous precedent.
Willoughby could have easily avoided the entire situation by doing
what is customary in a real estate transaction, namely, having a title search
performed or retaining counsel. Willoughby alone was responsible for his losses
because he did not take measures to protect his interests. Equitable relief was not
appropriate here.
II.
Unclean Hands
This Court also agrees with PHDC’s assertion that Willoughby was
not entitled to equitable relief because of unclean hands.
The doctrine of unclean hands requires that one seeking equity must
act fairly and without fraud or deceit as to the controversy at issue. Terraciano v.
Department of Transportation, 753 A.2d 233 (Pa. 2000).
The record reveals numerous instances of palpable bad faith which
directly related to the PHDC’s action to quiet title and Willoughby’s claim for
unjust enrichment. For instance, even though Willoughby was fully aware that
PHDC was the record owner of the property, he entered into an 18-month lease
with two tenants in July of 2010. Willoughby deceivingly held himself out to be
12
the owner and gave the tenants an illusory option to purchase the property. He
illegally collected $14,000 in rent. In addition, Willoughby admitted that he
misrepresented the purchase price on the Deed from Ruffin in an attempt to avoid
realty taxes on the transaction. Even the trial court recognized that there was the
potential for “criminal liability.” (N.T. 7/19/12 at 133) That alone was fraudulent
and barred his right to equitable relief.
The Order of the trial court, to the extent that it awarded Willoughby
an award based on “unjust enrichment,” is reversed.
____________________________
BERNARD L. McGINLEY, Judge
13
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Philadelphia Housing :
Development Corporation, :
Appellant :
:
v. :
: No. 1981 C.D. 2012
Kevin Willoughby :
ORDER
AND NOW, this 28th day of August, 2014, the Order of the Court of
Common Pleas of Philadelphia County in the above-captioned case is hereby
REVERSED.
____________________________
BERNARD L. McGINLEY, Judge
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Philadelphia Housing :
Development Corporation, :
Appellant :
:
v. : No. 1981 C.D. 2012
: Submitted: May 14, 2014
Kevin Willoughby :
BEFORE: HONORABLE DAN PELLEGRINI, President Judge
HONORABLE BERNARD L. McGINLEY, Judge
HONORABLE BONNIE BRIGANCE LEADBETTER, Judge
HONORABLE RENÉE COHN JUBELIRER, Judge
HONORABLE ROBERT SIMPSON, Judge
HONORABLE MARY HANNAH LEAVITT, Judge
HONORABLE P. KEVIN BROBSON, Judge
OPINION NOT REPORTED
DISSENTING OPINION
BY JUDGE LEAVITT FILED: August 28, 2014
Respectfully, I dissent. The trial court held that the Property, which
was rehabilitated by Kevin Willoughby at a cost of $90,000, belonged to the
Philadelphia Housing Development Corporation (PHDC), but it also ordered
PHDC to pay a reasonable amount for the Property’s rehabilitation. But for
Willoughby’s efforts, PHDC’s quiet title action would have resulted in its
acquisition of a “shell” building marked by fire damage, animal remains, a caved-
in roof and falling bricks, what one witness called a “condemned” condition.
Appellate review of equitable orders is limited and deferential, and it does not
permit the appellate court to substitute its judgment for that of the trial court. The
trial court fashioned an order to make both parties whole and in no way abused its
discretion. I would affirm.
The trial court’s findings of fact, critical to its unjust enrichment
award, are not in dispute. In 2007, when Daryl Ruffin conveyed the Property to
Willoughby, its fair market value was listed at $6,645 in the tax records although
Willoughby paid $9,000. Thereafter, Willoughby unsealed the Property and
discovered its “condemned” condition according to the testimony of all who
viewed the Property at that time. Willoughby testified that his rehabilitation effort
cost $90,000, and this cost was confirmed by PHDC’s own witness, a PHDC
employee.1 The real estate agent who listed the Property for sale in 2009 testified
that it was in excellent condition and had an appraised value of $140,000. In
August of 2009, Willoughby entered into an agreement of sale for $139,000. The
sale was not consummated because a title search revealed that PHDC had an
outstanding mortgage lien on the Property.
For its part, PHDC did nothing to the Property after it sold it to Ruffin
and Headen in 1986 for $13,900. When the two did not comply with the terms of
their agreement with PHDC to live in the Property for ten years, title to the
Property could revert to PHDC.2 In a May 29, 1998, court order, PHDC secured
1
PHDC’s inspector testified that PHDC would need to spend approximately $16,000 to address
the plumbing and electrical issues that it had with Willoughby’s construction. However, the
inspector estimated that Willoughby’s improvements, which took the Property from a shell to the
condition at the time PHDC took possession in 2011, cost between $80,000 and $90,000.
Willoughby testified about payments he made to a variety of contractors and his associated
expenses, such as building permits, which totaled $90,916 in addition to the $9,000 he paid for
the Property. His testimony was credited by the trial court.
2
Notably, PHDC filed its action more than 10 years after the 1986 conveyance to Ruffin and
Headen, who did not defend against PHDC’s claim to a reversion of title.
MHL-2
its reversionary interest in a default judgment. PHDC recorded its judgment but
did not note its judgment on the deed to the Property, as is required by law.3
Thereafter, PHDC took no steps to return the Property to a habitable condition, by
sale or otherwise, in furtherance of its mission to revitalize Philadelphia
neighborhoods.
The trial court entered judgment in favor of PHDC on the issue of the
Property’s title and for Willoughby on his unjust enrichment counterclaim. It
awarded Willoughby $50,000 because “it would be inequitable for [PHDC] to
enjoy the fruits of another’s labor.” Trial court op. at 3. In establishing this award,
the trial court used PHDC’s own valuation of Willoughby’s repairs at $90,000; it
then reduced that number by the rental income received by Willoughby and by the
cost of electrical and plumbing repairs that PHDC intended to do. Again, the trial
court used PHDC’s own estimate of these repairs, i.e., $16,000.
The majority concludes that Willoughby was not a “bona fide
possessor” of the Property and acted with “unclean hands” with respect to his
purchase and ownership of the Property. Essentially, the majority holds that the
trial court abused its discretion. I believe the majority has strayed beyond the
narrow bounds of appellate review in reaching these conclusions.
In reviewing an equitable order, the appellate court’s standard of
review is deferential. The appellate court should not substitute its own views for
that of the tribunal below but, instead, determine whether “a judicial mind, on due
consideration of all the evidence, as a whole, could reasonably have reached the
conclusion of that tribunal.” Hess v. Gebhard & Co. Inc., 808 A.2d 912, 920 (Pa.
3
See n.5, infra.
MHL-3
2002) (quoting Aiken Industries, Inc. v. Estate of Wilson, 383 A.2d 808, 810 (Pa.
1978)); see also Lilly v. Markvan, 763 A.2d 370, 372 (Pa. 2000).
The standards for an unjust enrichment are well settled. As our
Supreme Court has explained,
[i]t is a well settled doctrine of equity that when a bona fide
possessor of property makes improvements upon it, in good
faith and under an honest belief of ownership, and the real
owner for any reason seeks equitable relief, the court, applying
the familiar principle that he who seeks equity must do equity,
will compel him to pay for the improvements to the extent that
they have enhanced the value of the land.
Stanko v. Males, 135 A.2d 392, 395 (Pa. 1957). Stated otherwise, a party “who
improves the real or personal property of another, acting by mistake, has a claim in
restitution as necessary to prevent unjust enrichment.” RESTATEMENT (THIRD) OF
RESTITUTION AND UNJUST ENRICHMENT §10. See also St. Sava Home v.
Christopher, 537 A.2d 69, 72 (Pa. Cmwlth. 1988) (indicating that courts should
balance the equities of mistaken improver’s right to compensation against
unfairness of making true owner pay for improvements).
The majority acknowledges that the most significant element of the
doctrine of unjust enrichment is whether the enrichment of the defendant was
unjust. Majority op. at 9. This happens where the defendant receives the benefit
“wrongfully or passively.” Wilson Area School District v. Skepton, 860 A.2d 625,
631 (Pa. Cmwlth. 2004). I disagree with the majority’s application of this standard
as well as its conclusion that Willoughby was not a bona fide purchaser.
First, the record shows that with respect to the Property, PHDC was
passive to the point of militant indolence. It did not post the Property with a
friendly, “If you lived here, you’d be home by now. Call PHDC for more
MHL-4
information.” It did not warn off trespassers with a less friendly sign. Willoughby,
who lived in the neighborhood, had no idea who owned the Property and, thus,
posted a notice on the Property asking the owner to contact him. Had PHDC done
even an occasional drive-by, it might have seen and responded to Willoughby’s
notice. Instead, Ruffin responded to Willoughby’s notice. PHDC may or may not
have reached a deal with Willoughby in 2007, but in either case Willoughby would
not have spent many tens of thousands of dollars on the Property and its
restoration.
Second, the majority’s stated reasons for rejecting the trial court’s
conclusion that Willoughby was a bona fide purchaser relate to the balancing of
equities, not to the question of whether Willoughby was a bona fide purchaser.
The majority notes that PHDC had to file a quiet title action, eject Willoughby’s
tenants and do more repairs.4 The majority is dismissive of what it calls
Willoughby’s “renovations” and asserts that the work was “substandard” with
respect to the electrical and plumbing work. Majority op. at 9. This is balancing
of the equities, which is the job of the trial court, not the appellate court. Here, the
trial court took all of the above-listed evidence into account as well as all the
countervailing evidence to reach its conclusion that it would be “unjust” to reward
PHDC for its decades of indolence. Accordingly, it fashioned an order to make
both parties whole.
The real question is whether the trial court’s finding of fact that
Willoughby reasonably believed he owned the Property and, thus, was a bona fide
4
This litany fails to consider the fact that PHDC’s quiet title action was preceded by its demand
that Willoughby pay $52,000 for the Property; that ejecting the tenants was its choice; and that
the repairs, in total, cost $16,000.
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purchaser is supported by substantial evidence. The trial court credited
Willoughby’s testimony on this point. Further, Willoughby received a deed from
Ruffin, whose ownership of the Property was confirmed by tax and utility records,
and Willoughby recorded that deed. There is no requirement that one must do a
title search to qualify as a bona fide purchaser, as suggested by PHDC. More
importantly, there is no evidence that a title search would have disclosed PHDC as
the title owner of the Property. The title search done by Willoughby’s buyer in
2009 disclosed only a mortgage in favor of PHDC, for which Willoughby’s agent
was unable to obtain a pay-off statement. Willoughby may have been careless, but
this does not mean he was not genuinely mistaken, as found by the trial court.
Indeed, Willoughby’s payment of $9,000 for the Property followed by another
$90,000 on repairs supports the genuineness of his belief. Courts have refused to
allow equitable compensation where the mistaken improver has actual notice that
the title to the property is in dispute. St. Sava Home, 537 A.2d at 72. Not even
PHDC argues that Willoughby had actual notice that his title was defective.
Further, Willoughby did not have constructive notice of PHDC’s
interest. PHDC did not introduce any evidence about what a title search for the
Property would have revealed had Willoughby done one. Instead, PHDC relied on
Commissioner Decker’s testimony that the May 29, 1998, Order was recorded.5
5
PHDC cites Sections 1 and 2 of the Act of April 24, 1931, P.L. 48, 21 P.S. §§356, 357, to argue
its recording gave all subsequent purchasers constructive notice of PHDC’s interest in the
Property. The provisions cited by PHDC, however, relate to the recording of “agreements in
writing relating to real property situate in this Commonwealth by the terms whereof the parties
executing the same do grant, bargain, sell, or convey any rights or privileges of a permanent
nature pertaining to such real property.” 21 P.S. §356 (emphasis added). The Order of May 29,
1998, did not purport to convey the Property, and there were no “parties” to any agreement. As
explained on the tax disclosure attached to the Order: “This is a Court Order Confirming
Reversion of Title. No Interest Is Being Conveyed.” Reproduced Record at 11a.
(Footnote continued on the next page . . . )
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However, the only testimony about a title search came from Willoughby’s real
estate agent, who testified that the title search performed when Willoughby
attempted to sell the Property in 2009 revealed a mortgage in favor of PHDC. The
deed produced by PHDC at trial did not contain a notice of its May 29, 1998,
judgment, which is necessary to satisfy Section 1 of the Act of May 17, 1921, 21
P.S. §402, if PHDC wanted the world to have constructive notice of the fact that
title had reverted to it.
In sum, PHDC did not prove that Willoughby had constructive notice
of PHDC’s interest in the Property. Further, there is ample evidence in the record
to support the trial court’s holding that Willoughby acted “in good faith and under
an honest belief of ownership,” i.e., a bona fide purchaser. Stanko, 135 A.2d at
395.
I also disagree with the majority’s conclusion that Willoughby acted
with “unclean hands.” The unclean hands requirement is
far more than a mere banality. It is a self-imposed ordinance
that closes the doors of a court of equity to one tainted with
(continued . . . )
The May 29, 1998, Order should have been recorded in accordance with Section 1 of the
Act of May 17, 1921, P.L. 860, 21 P.S. §402, which puts a subsequent purchaser on record
notice of
any final judgment or decree … entered in any court in this Commonwealth [that]
affects any deed or other instrument of record in the office of the recorder of
deeds of any county.
Id. Two conditions must be satisfied: (i) the judgment must be recorded in the appropriate office
of the recorder of deeds, and (ii) the judgment must be noted on the margin of the recorded copy
of the deed affected by the judgment. Although Commissioner Decker’s testimony established
that the May 29, 1998, Order was recorded, that is not enough. The copy of the deed produced at
trial by PHDC had no notation of the judgment. Further, the Act of May 17, 1921, requires
indexing, in addition to recording, to establish constructive notice. Mid-State Bank and Trust
Co. v. Globalnet International, Inc., 735 A.2d 79, 85 (Pa. 1999).
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iniquity or bad faith relative to the matter in which he seeks
relief. This doctrine is rooted in the historical concept of a
court of equity as a vehicle for affirmatively enforcing the
requirement of conscience and good faith. Thus, while equity
does not demand that its suitors shall have led blameless lives
as to other matters, it does require that they shall have acted
fairly and without fraud or deceit as to the controversy in issue.
Lucey v. Workmen’s Compensation Appeal Board (Vy-Cal Plastics PMA Group),
732 A.2d 1201, 1204 (Pa. 1999). Unclean hands is established “only where the
wrongdoing of the plaintiff directly affects the equitable relationship subsisting
between the parties and is directly connected with the matter in controversy.”
Stauffer v. Stauffer, 351 A.2d 236, 244 (Pa. 1976); see also In re Estate of Pedrick,
482 A.2d 215, 222-23 (Pa. 1984). Further, a court in equity may decline to apply
the unclean hands defense where it determines from a review of the whole record
that an inequitable result will be reached by its application. Shapiro v. Shapiro,
204 A.2d 266, 268 (Pa. 1964).
PHDC did not identify any acts by Willoughby that constituted
“wrongdoing … directly affect[ing] the equitable relationship subsisting between
the parties and … directly connected with the matter in controversy.” Stauffer, 351
A.2d at 244. Several of the acts cited by PHDC – namely Willoughby’s lease of
the Property without the consent of PHDC and Willoughby’s failure to
consummate a settlement with PHDC – occurred long after Willoughby had
purchased and made improvements to the Property. The lease was done before
PHDC proved that its title was superior to Willoughby’s. Other acts cited by
PHDC, such as the misstated purchase price on the tax form associated with the
purchase from Ruffin, involved tax collectors, not PHDC. They did not in any way
affect the equitable relationship between PHDC and Willoughby.
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Willoughby’s actions with respect to the purchase and repairs to the
Property demonstrate carelessness rather than the type of dishonest and fraudulent
behavior that will act as a bar to an equitable remedy. Jacobs v. Halloran, 710
A.2d 1098, 1103-04 (Pa. 1998) (holding that personal injury defendant who falsely
testified in deposition that she was not driver of automobile involved in accident
was not entitled to benefit from judgment of non pros where false testimony
caused delay); see also Mazzitti and Sullivan Counseling Services, Inc. v.
Department of Public Welfare, 7 A.3d 875, 885-86 (Pa. Cmwlth. 2010) (holding
that drug and alcohol addiction treatment provider had unclean hands and was not
entitled to equitable relief against Commonwealth agency where provider had
directly participated in a billing scheme to defraud that agency).
In any case, the unclean hands defense should not be invoked where
the result will be unjust. Shapiro, 204 A.2d at 268. PHDC made no efforts to
move the Property into appropriate hands or to put it into a habitable condition
from 1998, when it exercised its right of reversion, until 2009, when it learned of
Willoughby’s improvements. The trial court concluded that it would be unjust for
PHDC to reap the benefit of improvements to the Property without some payment
for them. The court order was devised to “make [both parties] whole.” Trial court
op. at 3.
I cannot say that the trial court’s order was not “reasonable” or the
product of an abuse of discretion. I would affirm the order of the trial court.
______________________________
MARY HANNAH LEAVITT, Judge
Judge Simpson joins in this dissent.
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