Biros, C. v. U Lock ( 2021 )

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2021 PA Super 104CHRISTINE BIROS, AN INDIVIDUAL IN THE SUPERIOR COURT
OF PENNSYLVANIA
Appellee
v.
U LOCK INC., A PENNSYLVANIA
CORPORATION
Appellant No. 1841 WDA 2019
Appeal from the Judgment Entered January 6, 2020
In the Court of Common Pleas of Westmoreland County
Civil Division at No: 17 CJ 04886
BEFORE: SHOGAN, J., STABILE, J., and KING, J.
OPINION BY STABILE, J.: FILED: MAY 21, 2021
Appellant, U Lock Inc., appeals from the January 6, 2020 judgment
entered in favor of Appellee, Christine Biros. We affirm.
The record reflects that, in 2014, Erik Martin agreed with the Estates of
Nicholas Schur, Anne Sarris, Alex Schur, and Michael Schur (the “Estates”) for
the purchase of real property (the “Property”) for $325,000. The agreement
of sale listed the buyer as Erik Martin, incorporator of ULock, Inc. Martin failed
to appear at the scheduled closing. A subsequent closing was scheduled for
July 16, 2015. One day prior, on July 15, 2015, Appellant filed articles of
incorporation.
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At the closing, Appellee appeared with four cashier’s checks worth
approximately $309,000.00 in total.1 In a brief, handwritten note which
provided for repayment on terms to be set by August 16, 2015, Appellant
agreed to treat the funds as a loan from Appellee. Appellee testified that she
made the loan at the behest of her brother, John Biros, and that she never
intended the money to be an investment in Appellant and she did not intend
to own shares in Appellant. Kash Snyder signed the handwritten agreement
on behalf of Appellant. The parties ultimately never agreed to the terms of
repayment, though Appellant does not dispute its outstanding debt to
Appellee.
At the closing, Appellee remitted the funds directly to the Estates. The
Estates issued a settlement statement listing the buyer of the Property as
ULock, Inc. Kash Snyder signed the settlement statement as director of
Appellant. His brother George Snyder, also of Appellant, accepted delivery of
the deeds (the “2015 Deeds”). George Snyder believed Appellee and John
Biros would be partners in the business venture; he did not expect Appellee
to request a repayment agreement on the day of the closing.
On July 17, 2015, the day following the closing, the Pennsylvania
Secretary of State issued a letter rejecting Appellant’s articles of incorporation
because of an error in the docketing statement. The letter provided that
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1 The Estates had already received the remainder of the balance in hand
money.
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Appellant could retain the July 15, 2015 date of incorporation so long as it
corrected the error within thirty days. Appellant failed to make a timely
correction, but later refiled its articles of incorporation. The Secretary of State
accepted the new articles of incorporation on September 4, 2015. On
February 13, 2018, while this action was pending, the Estates issued new
deeds to Appellant (the “2018 Deeds”). Appellant filed the 2018 Deeds with
the recorder of deeds on March 1, 2018.2
On May 5, 2017, Appellee sent a letter to George Snyder designating
the outstanding balance of the loan as $385,939 and demanding, among other
things, repayment at 9% interest with a balloon payment of the outstanding
balance by June 1, 2022. On October 4, 2017, Appellee filed a complaint
against Appellant and the Estates alleging and seeking a declaratory judgment
that the July 2015 Deeds were void ab initio, and alleging equitable causes of
action to convey title, quiet title, and for an accounting. The Estates were
later dismissed from the action with the agreement to place blank deeds to
the Property in the court registry. Appellant filed an answer and new matter,
followed by several amended answers in response to Appellee’s preliminary
objections.
On April 1, 2019, Appellee filed a praecipe to schedule trial. Trial
commenced on April 29, 2019, and the trial court entered a declaration that
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2 According to Appellee’s opening argument, the 2018 Deeds were “subject
by the language of the deeds to Lis Pendens[.]” N.T. Trial, 4/29/19, at 16.
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the 2015 Deeds were void ab initio. The court also entered judgment favor of
Appellee on her action to compel conveyance of title. The court found that
Appellant would be unjustly enriched by maintaining its ownership in the
Property with no ability to repay Appellee the money she lent for its purchase.
Thus, the court found that Appellant held the property in constructive trust,
and it directed conveyance of the Property to Appellee.3
In its post-trial motions, Appellant argued that Appellant’s declaratory
judgment action as to the 2015 Deeds was moot, given the 2018 Deeds and
the lack of any challenge as to their efficacy. Appellant also argued that
indispensable parties were absent, given Appellee’s assertions: (1) that the
2015 Deeds were void ab initio, and (2) that Appellant was not the valid owner
of the Property. Also, Appellant argued that Appellee did not plead
constructive trust and unjust enrichment in her complaint and did not argue
for it until the proposed conclusions of law she submitted at the conclusion of
trial. Appellant argued that Appellee’s unsecured loan did not entitle her to
any of the remedies the trial court granted, and that she had an adequate
remedy at law.
The trial court conducted a hearing on the post-trial motions on
November 8, 2019. The trial court denied Appellant’s post-trial motions by
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3 The trial court also held that the quiet title action was moot, and that entry
of an accounting was not appropriate in an action at equity.
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order of December 9, 2019. The verdict was reduced to judgment on January
6, 2020. We now turn to the issues Appellant raises in this timely 4 appeal.
On appeal from a non-jury trial, we are mindful of the following:
Our appellate role in cases arising from non-jury trial verdicts is
to determine whether the findings of the trial court are supported
by competent evidence and whether the trial court committed
error in any application of the law. The findings of fact of the trial
judge must be given the same weight and effect on appeal as the
verdict of a jury. We consider the evidence in a light most
favorable to the verdict winner. We will reverse the trial court
only if its findings of fact are not supported by competent evidence
in the record or if its findings are premised on an error of law.
However, [where] the issue ... concerns a question of law, our
scope of review is plenary.
The trial court’s conclusions of law on appeal originating from a
non-jury trial are not binding on an appellate court because it is
the appellate court’s duty to determine if the trial court correctly
applied the law to the facts of the case.
Stephan v. Waldron Elec. Heating & Cooling LLC, 100 A.3d 660, 664–65
(Pa. Super. 2014)
The first three of Appellant’s six assertions of error are related, and we
consider them together.
I. Whether the court lacked jurisdiction to grant declaratory
and equitable relief as to the moot issue regarding the [2015
Deeds] considering the new [2018 Deeds]?
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4 Appellant filed its notice of appeal prematurely before the entry of judgment.
We will treat Appellant’s premature appeal as one from the January 6, 2020
judgment and entertain jurisdiction. See Johnston the Florist v. TEDCO
Constr. Corp., 657 A.2d 511, 514-15 (Pa. Super. 1995) (holding that this
Court will entertain an appeal where the notice of appeal predates the entry
of judgment).
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II. Whether the court lacked jurisdiction as a result of the
failure to join indispensable parties?
III. Whether the court erred by finding that filing mistake as to
[Appellant’s] corporation papers warranted finding deeds
void ab initio and transferring property to an unsecured
creditor? ‘
Appellant’s Brief at 5.
As set forth above, Appellant filed its articles of incorporation the day
before the 2015 closing, but the Commonwealth Secretary of State rejected
them. Appellant failed to cure the defect in time, and so its official date of
incorporation, September 4, 2015, postdates the transaction in which the
Estates transferred the Property to Appellant. On that basis, Appellee asked
the trial court to declare the 2015 Deeds void ab initio, and the court did so.
Appellant argues that any defect in the 2015 Deeds was cured and rendered
moot when the Estates issued the 2018 Deeds. Appellant also argues that
either 1) it was a de facto corporation pursuant to 15 Pa.C.S.A. § 5045 on July
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5 That section provides:
Where heretofore or hereafter any act has been or may be done
or any transfer or conveyance of any property has been or may
be made to or by any corporation created or intended to be
created under any statute supplied or repealed by this part, in
good faith, after the approval of the articles or application for a
charter or issuance of letters patent but without the actual
recording of the original papers with the endorsements thereon,
or a certified copy thereof, in the office of any recorder of deeds,
as provided in such statutes then in force, the acts, transfers and
conveyances shall nevertheless be deemed and taken to be valid
and effectual for all purposes, regardless of the omission to record
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15, 2015, the date of transfer of the 2015 Deeds, or 2) Appellee failed to join
indispensable parties—namely the officers, directors, and/or shareholders of
the corporation to be.
“An issue before a court is rendered moot when a determination is
sought in a matter which, when rendered, cannot have any practical effect on
the existing controversy.” Printed Image of York, Inc. v. Mifflin Press,
Ltd., 133 A.3d 55, 59 (Pa. Super. 2016). On consideration of the facts before
us, we conclude that the efficacy of the 2015 Deeds can have no effect on the
ultimate outcome of this case. Appellant has not challenged the efficacy of
the 2018 Deeds. Appellant cites no legal authority preventing the Estates from
issuing the 2018 Deeds subject to Lis Pendens. Furthermore, the trial court
accepted the legitimacy of the 2018 Deeds: “Even accounting for the void ab
initio status of the [2015 Deeds], the corrective [2018 Deeds], show legal title
in the [Property] belonging to U Lock, Inc. Certainly, U Lock has had full
possession and control of the [Property] since July 16, 2015 […].” Trial Court
Opinion, 8/23/19, at 5. The 2018 Deeds did not prejudice Appellant’s cause
of action. In some ways, they facilitated it. Because of the 2018 Deeds, there
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the original papers with the endorsements thereon, or a certified
copy thereof, as heretofore required by such statutes. Every such
corporation shall be deemed and taken to have been incorporated
on the date of approval of its articles or application for a charter
or on the date of issuance of its letters patent, whichever event
shall have last occurred.
15 Pa.C.S.A. § 504.
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can be no dispute that Appellant is the proper party in interest, and therefore
the trial court had jurisdiction over Appellant’s action for conveyance of title.
Likewise, we have no need to determine whether Appellant, as of the July 15,
2015 closing, met the definition of a de facto corporation. In short, the
efficacy—or lack thereof—of the 2015 Deeds has no bearing on the relief the
trial court ultimately ordered—imposing a constructive trust on the Property
and ordering its conveyance to Appellee. Thus, we come to Appellant’s fourth
assertion of error, and the heart of the matter:
IV. Whether the court erred in granting judgment and
transferring ownership of the [P]roperty through a
constructive trust when: (a) No allegations, facts, or
theories or demand for for [sic] establishing a constructive
trust were contained in the complaint or at trial; (b) No
setting of the terms and conditions of the loan occurred by
the trial court; (c) Transferring the [P]roperty under a
constructive trust created an unjust enrichment and
windfall; (d) Ordinary causes of action and a money
judgment would have resolved the controversy?
Appellant’s Brief at 5.
The following law governs the imposition of a constructive trust:
A constructive trust arises when a person holding title to
property is subject to an equitable duty to convey it to another on
the ground he would be unjustly enriched if he were permitted to
retain it. The necessity for such a trust may arise from
circumstances evidencing fraud, duress, undue influence or
mistake. The controlling factor in determining whether a
constructive trust should be imposed is whether it is necessary to
prevent unjust enrichment.
Nagle v. Nagle, 799 A.2d 812, 819 (Pa. Super. 2002) (citations omitted),
appeal denied, 820 A.2d 162 (Pa. 2003).
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“There is thus no rigid standard for determining whether the facts of a
particular case require a court of equity to impose a constructive trust; the
test is whether or not unjust enrichment can thereby be avoided.” Stauffer
v. Stauffer, 351 A.2d 236, 241 (Pa. 1976). “This Court has repeatedly cited
with approval the oft-quoted language of Justice (then Judge) Cardozo in
Beatty v. Guggenheim Exploration Co., 122 N.E. 378, 380-81 (N.Y. 1919):
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 … A court of equity in decreeing a constructive trust
is bound by no unyielding formula. The equity of the transaction
must shape the measure of relief.
Id. “To introduce the issue of a 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.” Buchanan v. Brentwood Fed. Sav. and
Loan Ass’n, 320 A.2d 117, 127 (Pa. 1974).
Appellant argues that the trial court’s imposition of a constructive trust
must fail because Appellee did not specifically request the imposition of a
constructive trust in her complaint. We disagree. In her complaint, Appellee
alleges that she paid for the Property and that deeds were delivered to
Appellant. Complaint, 10/4/17, at ¶¶ 10-11. In her cause of action for
declaratory judgment, Appellee asked for a declaration that she was the
equitable owner of the property. Id. at ¶ 21(v). Further, in her cause of
action for equitable conveyance of title, Appellee alleged that she paid the
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Estates for the Property, that Appellant paid no money toward the purchase
of the Property, that Appellant never reimbursed Appellee for the payment,
and that Appellee, therefore, was entitled to own the Property in fee simple.
Id. at ¶¶ 22-29. Thus, while the words “unjust enrichment” and “constructive
trust” are absent from Appellee’s complaint, she very clearly pled the elements
of a constructive trust in accord with Buchanan, and the parties litigated
those elements at trial.6 Indeed, Appellant concedes that Appellee paid for
the Property; that she deserves to be repaid; and that Appellant has not repaid
her.
Further, the record supports the trial court’s finding that Appellant lacks
the financial wherewithal to repay Appellee, as evidenced in this exchange
between Appellant’s counsel and George Snyder:
Q. Do you agree that you still owe this money, or U Lock, or
someone, owes this money to [Appellee]?
A. Yes, I do.
Q. Are you attempting to try and make arrangements to pay
that back?
A. Well, yes. We could at any time that the Lis Pendens – the
deed makes it difficult.
Q. Okay. Are you willing to attempt to get that money together
to pay her?
A. Absolutely.
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6 See also, Marion v. Bryn Mawr Tr. Co., ___ A.3d ___ (Pa. Super. 2021)
(looking at the substance of a cause of action, rather than its title, to
determine whether the plaintiff alleged a valid cause of action).
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Q. Do you have people that want to become involved in your
corporation, after this lawsuit is over, that would give you
money to be able to pay her off?
A. A whole list of people are very interested.
N.T. Trial, 4/29/19, at 49 (emphasis added). The trial court could reasonably
find from the bolded portion of this passage that Appellant could not, without
alienating the Property, repay Appellee. At other times during trial, the trial
court heard evidence that Appellant had limited resources, that it was not run
in accordance with applicable corporate law, and that it had never filed a
corporate tax return.7 From this, the trial court could reasonably reject
George Snyder’s self-serving testimony about his “whole list” of wiling
investors waiting for this litigation to go away.
In summary, the record supports the following conclusions: 1) Appellee
paid for the Property on behalf of Appellant; 2) Appellee expected repayment
from Appellant; 3) Appellant never repaid Appellee; 4) Appellee had no
adequate remedy at law because Appellant lacked resources, other than the
Property, with which to compensate Appellee. There was no dispute that
Appellee was entitled to repayment. Thus, the trial court faced a choice
between imposing a constructive trust and awarding the Property to Appellee
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7 George Snyder testified that Appellant never filed tax returns. N.T. Trial,
8/29/19, at 52. He was unsure whether Appellant ever issued stock
certificates to its 800 shareholders, and Appellant never sent an Internal
Revenue Service Form 1099 to any shareholder. Id. at 51-52. Appellant
maintained no insurance on the Property. Id. at 52. George Snyder believed
Appellant had corporate bylaws and minutes, but Appellant was unable to
produce them in discovery. Id. at 54.
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or entering judgment for Appellant and trusting that the conclusion of this
litigation would result in an influx of cash to Appellant with which it would,
finally, repay its debt. The trial court chose the former, and we conclude that
it acted well within the appropriate bounds for a court sitting as fact finder.
That Appellant alleged causes of action for a declaratory judgment
(including a declaration that she is the owner of the Property) and equitable
conveyance of title, rather than for a constructive trust, does not alter our
result. As we have explained, the relief the court imposed is in accord with
the facts alleged in the complaint, the relief sought in the complaint, and the
issues litigated at trial.
For all the foregoing reasons, we discern no error in the trial court’s
imposition of a constructive trust on the Property and its direction that
ownership thereof be transferred to Appellee.
In its fifth assertion of error, Appellant claims the trial court erred in
scheduling a “snap trial” before the completion of discovery, and in denying
Appellant’s motion to continue the trial. Appellant’s Brief at 5. The trial court
acknowledges that its decision to schedule the trial was not in accord with the
Westmoreland County Rules of Civil Procedure. The court reasoned, however,
that Appellant suffered no prejudice from its action. The trial court cited Rule
126 of the Pennsylvania Rules of Civil Procedure, which permits it to “disregard
any error or defect of procedure which does not affect the substantial rights
of the parties.” Pa.R.C.P. No. 126. In its brief, Appellant complains that it
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was deprived of the opportunity to test Appellee’s claims through discovery,
but Appellant fails to specify any additional discovery it would have sought.
Likewise, Appellant does not explain precisely how the scheduled order
hampered its ability to defend itself in this case. For these reasons, Appellant
is not entitled to relief on this issue.
In its sixth and final assertion of error, Appellant claims the trial court
erred in sustaining Appellee’s preliminary objection to scandalous and
impertinent material set forth in Appellant’s answer and new matter to
Appellee’s complaint. Appellant alleged that the funds Appellee used to pay
for the property were derived from illicit gambling activity. Rule 1028(a)(2)
permits a preliminary objection for “failure of a pleading to conform to law or
rule of court or inclusion of scandalous or impertinent matter[.]” Pa.R.C.P.
No. 1028(a)(2). “In order to be scandalous or impertinent, ‘the allegation
must be immaterial and inappropriate to the proof of the cause of action.’”
Breslin v. Mountain View Nursing Home, Inc., 171 A.3d 818, 822 (Pa.
Super. 2017) (quoting Common Cause/Pennsylvania v. Commonwealth
of Pennsylvania, 710 A.2d 108 (Pa. Commw. 1998)). We will reverse an
order sustaining a preliminary objection only if the trial court committed an
error of law or abuse of discretion. Id. at 822.
The trial struck the allegation as immaterial and inappropriate to this
case of action. We agree. Whatever the source of Appellee’s funds, she pled
and proved that she paid for the Property expecting repayment, and that
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Appellant has remained in possession and enjoyment of the Property ever
since, without any apparent ability to make repayment. Thus, the source of
Appellee’s funds has no obvious bearing on the equities between the parties
to this case. We discern no error of law or abuse of discretion in the trial
court’s decision.
For all the foregoing reasons, we affirm the trial court’s judgment in
favor of Appellee.
Judgment affirmed.
Judge King joins the opinion.
Judge Shogan concurs in the result.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 5/21/2021
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