Appeal from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of Cook County,
the Hon. F. Emmett Morrissey, Judge, presiding.
MR. JUSTICE MORAN DELIVERED THE OPINION OF THE COURT:
Rehearing denied November 23, 1977.
The plaintiffs, Ernest and Mary La Throp, sought to represent a class of mortgagors whose mortgages from the defendant, Bell Federal Savings and Loan, are insured by the Federal Housing Authority (FHA) or the Veterans Administration (VA) and whose contracts, on FHA- or VA-prescribed forms, provide that the mortgagee will hold certain tax and insurance funds "in trust to pay" tax and insurance obligations of the mortgagor. They claim that, under the terms of their mortgage contract, an express trust for the benefit of the mortgagors was created as to such funds, in violation of which the defendant has commingled the funds with its general funds, has earned large profits from investment thereof, and has never paid the plaintiffs or made an accounting to them for their pro rata share of these earnings. Instead, plaintiffs assert, defendant has wrongfully appropriated these earnings for its own use. Plaintiffs ask an accounting for these earnings. Alternatively, the plaintiffs seek imposition of a constructive trust upon the funds, on the theory that defendant unlawfully converted the earnings and was unjustly enriched thereby. The defendant denied that it is a trustee, as claimed by the plaintiffs, admits that it commingles the funds, and asserts by way of affidavit that it has a legal right to treat the funds as its own, and that in so doing it follows the long-standing practice in Illinois and elsewhere with regard to such funds.
Without reaching the question of the propriety of a class action herein, the circuit court of Cook County sustained defendant's "motion for judgment on the pleadings or in the alternative for summary judgment or in the alternative to dismiss." The appellate court affirmed (42 Ill. App.3d 183), and we here affirm.
It is worth noting that many cases involving similar questions have been presented to the courts> of this State and country in the last decade. Because of differences in the specific language of the mortgage contracts and because of the different posture of the cases on the pleadings and on appeal, we deem none of them dispositive of the issues herein. Most of the significant cases have been collected in Brooks v. Valley National Bank (1976), 113 Ariz. 169, 171, 548 P.2d 1166, 1168.
The plaintiffs assert that certain FHA regulations and interpretations make erroneous the appellate court's finding that the mortgagee's language, "in trust to pay," did not create an express trust between mortgagor and mortgagee, and further that the appellate court erred in holding that the plaintiffs' complaint fails to state a cause of action for the imposition of a constructive trust. In this regard, it is urged that the complaint adequately alleges that defendant has been unjustly enriched by the breach of a fiduciary duty it owed plaintiffs, which breach warrants the imposition of a constructive trust upon the advance funds in the hands of the defendant. On cross-appeal the defendant urges that this suit cannot be maintained as a class action, and that the Federal Home Loan Bank Board has primary jurisdiction of the subject matter of plaintiffs' complaint.
To determine if an express trust has been created, a court must look beyond the mere use, or absence of, the word "trust." (Oglesby v. Springfield Marine Bank (1946), 395 Ill. 37, 49; Restatement (Second) of Trusts sec. 24(2) (1959).) Critical to the creation of a trust is the expressed intention to create a relationship constituting a trust. (Restatement (Second) of Trusts sec. 23, comment a (1959).) The intent of the parties to a contract must be determined with reference to the contract as a whole, not merely by reference to particular words or isolated phrases, but by viewing each part in light of the others. Martindell v. Lake Shore National Bank (1958), 15 Ill.2d 272, 283.
Having viewed the mortgage contract as a whole, we deem the following to be the relevant provisions. The plaintiffs promise:
"That, together with, and in addition to, the monthly payment of principal and interest payable under the terms of the note secured hereby, the Mortgagor will pay to the Mortgagee, on the first day of each month until the said note is fully paid, the following sums:
(a) An amount sufficient to provide the holder hereof with funds to pay the next mortgage insurance premium if this instrument and the note secured hereby are insured, or a monthly charge (in lieu of a mortgage insurance premium) if they are held by the Secretary of Housing and Urban Development, as follows:
(I) If and so long as said note of even date and this instrument are insured or are reinsured under the provisions of the National Housing Act, an amount sufficient to accumulate in the hands of the holder one (1) month prior to its due date the annual mortgage insurance premium, in order to provide such holder with funds to pay such premium to the Secretary of Housing and Urban Development pursuant to the National Housing Act, as amended, and applicable Regulations thereunder, or
(II) If and so long as said note of even date and this instrument are held by the Secretary of Housing and Urban Development, a monthly charge (in lieu of a mortgage insurance premium) which shall be in the amount equal to one-twelfth (1/12) of one-half (1/2) per centum of the average outstanding balance due on the note computed without taking into account delinquencies or prepayment;
(b) A sum equal to the ground rents, if any, next due, plus the premium that will next become due and payable on policies of fire and other hazard insurance covering the mortgaged property, plus taxes and assessments next due on the mortgaged property (all as estimated by the Mortgagee) less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, taxes and assessments will become delinquent, such sums to be held by Mortgagee in trust to pay said ground rents, premiums, taxes and special assessments; and
(c) All payments mentioned in the two preceding sub-sections of this paragraph and all payments to be made under the note secured hereby shall be added together and the aggregate amount thereof shall be paid by the Mortgagor each month in a single payment to be applied by the Mortgagee to the following items in the order set forth:
(I) Premium charges under the contract of insurance with the Secretary of Housing and Urban Development, or monthly charge (in lieu of mortgage insurance premium), as the case may be;
(II) Ground rents, if any, taxes, special assessments, fire and other hazard insurance premiums;
(III) Interest on the note secured hereby; and
(IV) Amortization of the principal of the said note.
Any deficiency in the amount of any such aggregate monthly payment shall, unless made good by the Mortgagor prior to the due date of the next such payment, constitute an event of default under this mortgage. The Mortgagee may collect a `late charge' not to exceed two cents (2¢ ) for each dollar ($1) for each payment more than fifteen (15) days in arrears, to cover the extra expense involved in handling delinquent payments." (Emphasis added.)
Paragraphs (a) and (b) above dealt with the advance funds in question here, and paragraph (b) specifically uses the term "trust." However, there is no express provision in the contract indicating that the plaintiffs intended that the defendant should segregate the advance funds from its general account, nor is there any provision requiring defendant to pay plaintiffs earnings on such funds. (Likewise, there is no language manifesting agreement that defendant would pay plaintiffs interest on such funds. This is not determinative, however, as the presence of such language would tend to negate the intention to create a trust and is more in keeping with the creation of a debtor-creditor relationship. Restatement (Second) of Trusts sec. 12, comment g (1959).)
Counterbalancing the use of the word "trust," section (c) requires plaintiffs to make the monthly advance payments stated in paragraphs (a) and (b) in an aggregate sum with the principal and interest due on the note. The second sentence of (c)(IV) makes any deficiency in the payment of the above aggregate sum (absent timely cure) an act of default under the mortgage. The final sentence of that section provides for the assessment of a late charge for failure to make the aggregate payment on time. These provisions are indicative of the creation of a debtor-creditor relationship with respect to the advance funds, and that relationship is inconsistent with the existence of a trust as to the same funds. (See Restatement (Second) of Trusts sec. 12 ...