Estate of: Knappenberger, P., etc. ( 2014 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN RE: ESTATE OF PERCY D. IN THE SUPERIOR COURT OF
KNAPPENBERGER ALSO KNOWN AS PENNSYLVANIA
PERCY DONALD KNAPPENBERGER,
DECEASED,
APPEAL OF: JOSEPH KNAPPENBERGER,
INDIVIDUALLY AND AS EXECUTOR OF
THE ESTATE OF PERCY D.
KNAPPENBERGER A/K/A PERCY DONALD
KNAPPENBERGER,
Appellant No. 182 EDA 2014
Appeal from the Order Entered December 12, 2013
In the Court of Common Pleas of Lehigh County
Orphans' Court at No(s): 2010-1932
BEFORE: BOWES, OTT, and STRASSBURGER,* JJ.
MEMORANDUM BY BOWES, J.: FILED OCTOBER 08, 2014
Joseph Knappenberger, both individually and in his capacity as the
personal representative of the estate of his father Percy D. Knappenberger,
appeals from an order entered on December 12, 2013. In the order, the
orphans’ court imposed a constructive trust on a portion of the proceeds of a
mortgage that Appellant secured on real estate that he inherited from his
father.1 We affirm.
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*
Retired Senior Judge assigned to the Superior Court.
1
The order in question is a final one since it resolved the only outstanding
request for relief pertaining to the estate.
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Percy D. Knappenberger died testate on October 21, 2010. On
December 1, 2010, the Register of Wills of Lehigh County admitted to
probate his last will and testament dated October 1993. In the will, Gerald
Woodring, decedent’s brother-in-law, was named as the executor of the
estate, and his wife Martha Woodring, decedent’s sister, was named as the
alternative executrix. Both Gerald, who died in 2011, and Martha, who is
the Appellee in this matter, renounced their right to serve as personal
representative of Percy’s estate. Appellant, as his father’s sole heir under
the will, was appointed administrator c.t.a.2 The last advertisement of the
opening of the estate occurred on July 28, 2011. The net value of the
estate, after payment of administrative expenses and debts, was
approximately $165,000.
On May 8, 2012, Martha filed a timely notice of claim against the
estate in the amount of $30,410.37. She contended that the estate owed
her that amount based upon a loan that she and Gerald had made to Percy.
The following document evidenced the loan in question:
TO WHOM IT MAY CONCERN!
MONEY LOANED TO PERCY FROM 12/9/2002 TO PRESENT
PER PHONE CONVERSATION TODAY WITH PERCY, THIS IS
VERIFICATION THAT I, GERALD C. WOODRING, HAVE BEEN
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2
These letters are an abbreviation for the Latin term cum testament
annexo. The term is employed when the decedent leaves a will and either
neglects to name a personal representative, or the named executor or
executrix is unable or unwilling to serve.
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PAYING PERCY’S BILLS AS NEEDED, FROM MY HOME EQUITY
LOAN TO KEEP HIM FROM LOOSING [SIC] EVERYTHING THAT HE
HAS BEEN WORKING FOR THE PAST FORTY PLUS YEARS.
LISTED BELOW IS THE AMOUNT, NOW OWED ME OR MY WIFE,
NOT INCLUDING INTEREST FOR USE OF MONEY! $30,410.37
Notice of Claim, 5/8/12, at Exhibit 1. Both Percy and Gerald executed this
document, which also was notarized.
On October 26, 2012, Martha filed a petition for citation to show cause
why an accounting should not be filed. In his answer to the petition,
Appellant denied that Percy owed Martha any money since, under the
document in question, Percy never agreed to repay that amount and,
instead, merely acknowledged receipt of the funds. In his new matter,
Appellant raised the defense that the four-year statute of limitations had
expired for collection of the loan.
After the citation was issued, the matter proceeded to a hearing, and
the parties filed countervailing proposed findings of fact and conclusions of
law. Appellant argued that the April 24, 2004 document was not an
enforceable debt since it did not contain an unconditional promise by Percy
to pay back the loan to Gerald. Appellant also asserted that a four-year
statute of limitations applied to any debt collection and prevented Martha
from prevailing in her action against the estate.
Martha raised counter-arguments as to why the April 24, 2004 writing
evidenced a still-enforceable debt. She also maintained that a constructive
trust should be imposed on either Percy’s probate assets or on the proceeds
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of any probate assets then held by Appellant. Proposed Findings of Fact and
Conclusions of Law, 5/13/20, ¶ II (6). She presented argument and legal
authority on the doctrine of constructive trusts. Id. at 10. Martha also
averred:
10. Respondent/Defendant induced Martha C. Woodring and
Gerald C. Woodring to renounce their appointment as
executors of Decedent’s estate in return for a promise that
the Debt would be paid by the Respondent/Defendant
and/or the Decedent’s estate.
11. Martha C. Woodring relied upon Respondent/Defendant in
agreeing to renounce her position as executor.
Id. at ¶ I (10-11).
In a pre-hearing memorandum, Martha again raised the position that a
constructive trust should be imposed against Appellant, and amended her
petition for citation to include an allegation that she was owed the money
outlined in the notice of claim under a theory of constructive trust.
Hearings were held on September 3 and 4, 2013. The evidence
viewed in the light most favorable to Martha, as the prevailing party, is as
follows. During his lifetime, Percy was loaned $30,410.37 by his sister
Martha and Martha’s husband Gerald. June Kinek, Percy and Martha’s sister,
testified that Martha showed her the April 24, 2004 document executed by
Percy. Ms. Kinek also had discussions with Percy about his financial
situation. Percy told her, “[H]e was having a hard time at different times in
his life. He was laid off, . . . and he was out of jobs and looking for jobs
and, of course, his – his financial situation suffered.” N.T. Hearing, 9/4/13,
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at 9. Percy also admitted to June that “he had a paper signed and that he
owed Martha and Gerald $30,000.” Id. at 110. Percy acknowledged the
debt on several other occasions. Id. One time, Ms. Kinek overheard Percy
speaking with her husband, and Percy said that “he wanted to pay Martha
and Gerald the $30,000, but he just didn’t have the money to do it.” Id. at
16. Ronald Kinek, June’s husband, also verified that this conversation
occurred.
The primary asset of the estate was Percy’s home, which was valued
at $230,000. Appellant received that asset after re-financing the existing
mortgage on the house. At the hearing, it was established that Appellant
reported to his loan officer that he owed Martha $30,000. Specifically,
Appellant told the loan officer, Ronald Gildner, that his intention in obtaining
the mortgage “was to pay off any debts that his dad had, that being the
mortgage, a loan to Martha and funeral debts.” N.T. Hearing, 9/3/13, at 10.
Mr. Gildner retained a handwritten list of the liabilities that Appellant
represented to Mr. Gildner that Appellant intended to satisfy with the loan
proceeds. Mr. Gildner’s list included a notation that $30,000 was to be
distributed to Appellant’s Aunt Martha. Additionally, Appellant gave the loan
officer a printout of the debts that he planned to pay with the proceeds of
the mortgage; one of the entries on the printout was “Martha $30,000.” Id.
at 12. Mr. Gildner indicated that a mortgage was given to Appellant for
$155,000, that it was secured by the real estate that Appellant inherited
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from his father, and that a portion of the proceeds of the loan were
distributed to Appellant with the remainder sent to satisfy the outstanding
mortgage on the property.
Martha confirmed that she was told by Appellant that the mortgage
proceeds would be used to pay the debt owed by Percy to her and her
husband. She testified as to the circumstances of that discussion. As noted,
Gerald and Martha were supposed to be the personal representatives of the
estate. Gerald was ill and unable to serve in that capacity and executed a
renunciation. Although she was the alternative personal representative and
capable of performing that role, Martha also executed a renunciation.
Martha reported that, during discussions about her and her husband
renouncing, she and Appellant discussed the existing financial situation
among Percy, Martha, and Gerald. At that time, Appellant told her that he
would “redo the mortgage and pay bills; one of them would be to pay his
Aunt Martha.” N.T. Hearing, 9/4/13, at 45.
During argument at the hearing, Martha contended that Percy’s estate
was contractually obligated to repay the debt to her or, in the alternative,
that Appellant owed her the money pursuant to a constructive trust that
should be imposed on the mortgage proceeds. Id. at 52-54, 107. Appellant
took the position that the April 24, 2004 document was not a contractual
obligation since there was no promise to pay. He also raised the defense of
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the statute of limitations under 42 Pa.C.S. § 5525, which contains the four-
year statute of limitations applicable to contracts.
On December 12, 2013, the orphans’ court rendered its ruling. It
concluded that the April 24, 2004 document was unenforceable as a
promissory note since it contained no express promise to pay on the part of
Percy and was merely an acknowledgement of the debt. 13 Pa.C.S. § 3104.3
It also concluded that, even if the document contained a promise to pay a
debt, Martha’s claim was barred by the applicable four-year statute of
limitations.
The orphans’ court, however, accepted Martha’s position as to
Appellant and imposed a constructive trust for her benefit on $30,410.37 of
the proceeds of the mortgage retained by Appellant. Appellant did not file
optional exceptions to the orphans’ court’s decision, and instead, filed this
direct appeal. Appellant raises these contentions.
I. After denying the claim of Martha Woodring as
unenforceable and time barred, did the trial judge commit error
when he nevertheless directed Joseph Knappenberger, in order
to prevent his unjust enrichment, to pay Martha Woodring the
amount of her claim pursuant to a constructive trust that he
imposed upon a portion of the funds Joseph Knappenberger had
received in May, 2011 from the refinance of the home he
inherited from his father.
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3
With additional requirements not here relevant, that section defines a
negotiable instrument and provides that such a document consists of “an
unconditional promise or order to pay a fixed amount of money, with or
without interest or other charges described in the promise or order[.]” 13
Pa.C.S. § 3104(a).
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II. Under the facts of this case, is the imposition of a
constructive trust barred by the five year statute of limitations?
III. Under the facts of this case, is the imposition of a
constructive trust barred by the doctrine of laches?
Appellant’s brief at 7.
Initially, we outline the applicable standard of review.
When reviewing a decree entered by the Orphans' Court,
this Court must determine whether the record is free from legal
error and the court's factual findings are supported by the
evidence. Because the Orphans' Court sits as the fact-finder, it
determines the credibility of the witnesses and, on review, we
will not reverse its credibility determinations absent an abuse of
that discretion. However, we are not constrained to give the
same deference to any resulting legal conclusions. Where the
rules of law on which the court relied are palpably wrong or
clearly inapplicable, we will reverse the court's decree.
In re Estate of Fuller, 87 A.3d 330, 333 (Pa.Super. 2014) (citation
omitted).
A constructive trust is defined as “a relationship with respect to
property subjecting the person by whom the title to the property is held to
an equitable duty to convey it to another on the ground that his acquisition
or retention of the property is wrongful and that he would be unjustly
enriched if he were permitted to retain the property.” City of Philadelphia
v. Heinel Motors, 16 A.2d 761, 765 (Pa.Super. 1940) (quoting
Restatement (First) of the Law of Trusts, § 1(e)). Such a trust is imposed to
redress a wrong or prevent unjust enrichment and is remedial in nature.
Thus, “when relief through imposition of a constructive trust is prayed for, it
is not the specific intent between the parties to create a constructive trust
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but rather whether or not imposition of a constructive trust is necessary to
prevent unjust enrichment.” DePaul v. DePaul, 429 A.2d 1192, 1194
(Pa.Super. 1981). This principle is echoed in the pertinent provisions of the
Restatement of Trusts, which discusses constructive trusts in comment to
§ 1, as follows:
A constructive trust is a relationship with respect to
property usually subjecting the person by whom its title is held
to an equitable duty to convey the property to another on the
ground that the title holder’s acquisition or retention of the
property is wrongful and that unjust enrichment would occur if
the title holder were permitted to retain the property. See
Restatement of Restitution § 160 [“Where a person holding 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, a constructive trust arises.”] . . .
Both express trusts and resulting trusts are based upon an
intention of the person who creates them. . . . On the other
hand, a constructive trust is imposed, not necessarily to
effectuate an expressed or implied intention, but to redress a
wrong or to prevent unjust enrichment. A constructive trust is
thus the result of judicial intervention and is remedial in
character.
Restatement (Third) of Trusts § 1. Pennsylvania principles applicable to
constructive trusts are consistent:
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. One who seeks the imposition of
a constructive trust must do so by clear, direct, precise and
convincing evidence.
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Hercules v. Jones, 609 A.2d 837, 841 (Pa.Super. 1992) (citation omitted).
The constructive trust is the means by which a wrong is redressed.
We conclude that the orphans’ court did not abuse its discretion in
imposing a constructive trust herein. On April 24, 2004, Percy
acknowledged that he had received $30,410.37 from Martha and Gerald “to
keep him from loosing [sic] everything that he has been working for the past
forty plus years.” Notice of Claim, 5/8/12, at Exhibit 1. In other words,
Appellant would not have had a house to inherit if his aunt and uncle had not
given Percy the money in question. Thus, Appellant obtained a house, in the
first instance, only through the generosity of Martha and Gerald. This debt
was openly acknowledged by Percy, who wanted to repay it.
Then, Appellant verbally and in writing admitted that the money was
owed. Appellant told his loan officer and Martha that he would repay the
debt from the proceeds of the mortgage. Martha renounced her right to
serve as executrix after discussions with Appellant wherein he represented,
as administrator c.t.a., that he would mortgage the house and repay her the
money that Percy owed. Then, after acknowledging and promising to pay
the debt from the mortgage proceeds, Appellant retained the money that he
was entitled to receive only due to the loan made by Martha and Gerald.
A clear wrong was committed that must be redressed through equity.
Appellant would be unjustly enriched by the retention of the $30,410.37
from the mortgage proceeds. That amount enabled his father to retain
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ownership of the asset that was used to secure the loan upon which the
constructive trust was imposed. The court’s application of the doctrine in
question is unassailable.
Appellant’s first claim is that a constructive trust was improperly
imposed in this case since “imposition of a constructive trust is appropriate
only where the defendant has no right whatsoever to the property he
holds in violation of the Plaintiff’s rights.” Appellant’s brief at 17-18
(emphasis in original). Appellant notes that he legally owned the real estate
in question and that he was entitled to mortgage it as its owner. Id. at 19.
Appellant’s argument is misguided and confusing. The constructive
trust doctrine provides that property legally owned by one person can be
subject to a constructive trust. The fact that Appellant “legally owned” his
house and was “legally entitled” to the mortgage proceeds simply does not
prevent application of the constructive trust doctrine; indeed, that ownership
scenario is precisely when the doctrine applies. A constructive trust is
imposed when a person legally owns property but would be unjustly
enriched by its retention. It is employed when the person in question has a
legal but not a just right to the property.
Appellant also appears to argue that a constructive trust must be
imposed on all rather than some of the property at issue. In other words, he
claims that it was impossible to impose a constructive trust on only a portion
of the property in question. We find no support in applicable precedent for
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this principle. As noted, the entire focus of the constructive trust doctrine is
whether a person possessing certain property would be unjustly enriched by
its retention. It is clear that Appellant was unjustly enriched from the
mortgage proceeds only by the sum of $30,410.37.
Not only is Appellant’s position in this respect unsupported by
reference to legal authority, it is refuted by the equitable and remedial
nature of the doctrine itself. As we aptly stated in Kohr v. Kohr, 413 A.2d
687, 690 (Pa.Super. 1979), “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.” This precedent clearly dispels any notion that
a constructive trust cannot be imposed upon a portion of assets received by
the unjustly enriched person.
Appellant also maintains that the “evidence fails to support the trial
judge’s conclusion that without the loan Percy Knappenberger would have
lost his home in foreclosure.” Appellant’s brief at 20 (quotation marks
omitted). We disagree. The orphans’ court’s finding in this respect is firmly
premised upon the very language of the April 24, 2004 document. Therein,
Percy admitted that he would have lost everything that he owned had he not
received the loan in question. The property that Percy owned included the
house inherited by Appellant. While Appellant points to the fact that there
were never any foreclosure proceedings, this argument does nothing more
than reinforce the strength of Martha’s case. The fact that no mortgage
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foreclosure proceedings were instituted was the result of her and her
husband’s generosity to Percy when he was experiencing financial
difficulties.
Appellant’s second contention is that the imposition of the constructive
trust was barred by the five-year statute of limitation. He relies upon 42
Pa.C.S. § 5526(3), which provides, “The following actions and proceedings
must be commenced within five years . . . [a]n action to enforce any equity
of redemption or any implied or resulting trust as to real property.” The
statute in question applies to constructive trusts. Truver v. Kennedy, 229
A.2d 468 (Pa. 1967). However, Appellant did not raise § 5526 as the
applicable statute of limitations to the trial court.
Even if he had, it would not bar this action. Martha took two positions
herein. The first was against Percy’s estate in that she claimed that the loan
was still legally enforceable. The second cause of action was against
Appellant personally. She averred that a constructive trust was created as
to Appellant upon his receipt of the mortgage proceeds. Thus, the
constructive trust did not come into existence until Appellant received the
house, mortgaged it, and did not pay Martha the money that his father used
to retain ownership of the house, and that Appellant openly promised to pay
to both Mr. Gilbert and his aunt. These activities occurred in 2010 and
2012. The constructive trust in question was imposed on December 12,
2013, well within the five-year period. Thus, this action is timely as to the
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activities that formed the basis for the equitable cause of action seeking a
constructive trust against Appellant.4
Appellant’s final position is that the doctrine of laches barred the
imposition of a constructive trust. This issue is waived. The defense of
laches was not raised in the pre-trial or trial proceedings. Appellant was
fully apprised of Martha’s alternative theory of recovery under the doctrine
of constructive trusts during pre-hearing proceedings, and had ample
opportunity to present this issue to the orphans’ court. It is settled that
issues that are not raised in the trial court cannot be raised for the first time
on appeal and are considered waived. Green v. Green, 69 A.3d 282,
286 (Pa.Super. 2013); Pa.R.A.P. 302(a).
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/8/2014
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4
This Memorandum should not be read to allow the imposition of a
constructive trust whenever a legal claim would be barred by the statute of
limitations. The instant facts are sui generis.
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