The plaintiffs appeal from an interlocutory decree of the Superior Court sustaining the defendant’s demurrer and from a final decree "dismissing the plaintiffs’ bill in equity for declaratory relief. The bill was brought by the plaintiffs on their own behalf and for members of a class similarly situated. The essential allegations in the plaintiffs’ bill were that they own
Upon these allegations, the plaintiffs pray for an accounting of the earnings realized, an order for payment of the plaintiffs’ attorneys’ fees out of the fund owed to the class represented, and a declaration that, since the bank has no beneficial interest in the tax moneys, any profits realized on such moneys belong to the plaintiffs. Alternatively, the plaintiffs pray that the bank be ordered to pay the tax moneys to the municipality immediately upon receipt.
The bank demurred to the plaintiffs’ bill on the grounds that the bill failed to state a cause of action, and lacked both the basis for equitable relief and the substantive facts upon which the alleged right to relief depends.
The Superior Court judge entered an interlocutory decree sustaining the bank’s demurrer without leave to amend and a final decree dismissing the plaintiffs’ bill for failure to state any basis for granting the declaratory relief requested.
In their bill the plaintiffs allege that they have mort
If the relationship created between the plaintiffs and the defendant by the mortgages, loans and payment of tax instalments is such that the defendant is under a duty to account to the plaintiffs for any profits returned on investment of the tax payments, then the plaintiffs’ bill states a claim upon which the requested relief can be based and sufficient facts upon which the right to relief depends.
1. In so far as the nature of the alleged relationship between the plaintiffs and the defendant centers upon the interpretation of certain statutes, we express our views on the import of those statutes. See
South Shore Natl. Bank
v.
Board of Bank Incorporation,
The plaintiffs argue that the duty of the defendant to account for any profits on the tax payments arises from the legislative framework surrounding the transaction. We cannot agree. It is clear that since 1969, G. L. c. 168, § 35, par. 4, as appearing in St. 1969, c. 278, § 1, has required any note or mortgage issued by the bank to include “payment, at least quarterly, of a proportionate part of the estimated real estate taxes and betterment
2. The fact that the defendant had the- right to include tax payments as part of the mortgage and loan agreements does not resolve the question whether the defendant could invest the tax payments until due to the municipality.
Until 1967 the Legislature had not specifically authorized banks, such as the defendant, to invest the tax payments while awaiting payment to the municipality. The plaintiffs allege that prior to 1967 the bank had no right to invest the tax payment funds. The answer to this issue depends on the ultimate conclusion whether a trust has in fact been created and the rights and obligations incidental thereto.
In 1967 the Legislature enacted St. 1967, c. 348, amending G. L. c. 167, § 58, by adding the following
The 1967 amendment was struck later in the year and St. 1967, c. 809, was enacted to replace the above quoted language. As a result, since December 26, 1967, the second sentence of G. L. c. 167, § 58, read as follows: “Amounts collected from a mortgagor or his successors in title by a bank for the payment of taxes on the mortgaged real estate may, until such taxes are due and payable, be invested in obligations legal for such bank, and, except in the case of foreclosure of the mortgage, shall not be used for any other purpose without the written consent of the mortgagor; provided, however, that such amounts may be returned or allowed as a credit to the mortgagor or his successors in title upon payment in full of the indebtedness secured by the mortgage.”
Although the 1967 statute authorized the defendant bank to invest tax payments until due, it did not indicate which of the parties, the mortgagor or the mortgagee bank, had the right to any profit returned upon such investments.
3. The plaintiffs claim support for their view that any profits from invested tax payments should be accounted for from the preamble to St. 1967, c. 809, enacting the present second sentence of G. L. c. 167, § 58. The preamble states that the purpose of the act is: “to authorize the use of amounts collected by banks for real estate taxes in accordance with applicable laws and thereby to facilitate the discharge of mortgage obligations and the sale and refinancing of mortgaged real estate . . ..” We do not share the plaintiffs’ view.
It appears that the treatment of mortgage tax payment funds is presently the subject of considerable legislative activity. For the 1972 session several bills were filed proposing various modes of treatment for such
Taking into account this legislative activity relating to mortgage tax payments, we believe that the existing statutes regulating banks in this area do not dictate either that the defendant must return profits on tax investments to mortgagors or that it has a right to retain them.
Although the statutes do not require the payment of tax investment profits to mortgagors, we do not think that the defendant is precluded by statute 2 from making such payments. 3
4. Having concluded that the statutes neither require nor prohibit the payment of interest to mortgagors on tax deposits, we examine the question whether the plaintiffs have, nevertheless, made sufficient allegations that could provide a basis for an accounting to be made to them of profits earned on the tax payments. This requires an examination of the nature of the alleged relationship
The plaintiffs’ bill alleges that they have mortgaged their real estate to the defendant as security for loans. The relationship between a mortgagor and mortgagee in Massachusetts is initially one of agreement. See
Milton Sav. Bank
v.
United States,
The plaintiffs’ bill alleges that their mortgages “recite an obligation on the part of the mortgagors to make periodic payments of municipal real estate taxes in monthly instalments . . . estimated by the defendant.” The bill also states that “the defendant in October of each year remitted payments to the tax collector ... in satisfaction of the real estate taxes assessed upon the plaintiffs for the pertinent year.”
The bill designates the instalments paid to the bank as “real estate taxes.” We think that it is clear from the bill that the tax payments were designated by the mortgagors for a specific purpose, namely to pay the real estate taxes. When money is deposited with a bank, absent an expressed intention to establish a special deposit, the bank becomes a simple debtor to the depositor.
Laighton
v.
Brookline Trust Co. 225
Mass. 458, 459-460. From such a relationship no trust arises because “[a] debt is not a trust.” Restatement 2d: Trusts, § 12. Such funds become a part of the bank’s assets and may be commingled with other general assets. The plaintiffs, however, allege that the tax payments were held by the defendant “as escrowee.” In the circumstances of this case an escrow account would tend to negate the notion of a debtor-creditor relationship. See
Childs
v.
Harbor
Where the mortgagor pays funds to a bank with an expressed purpose that the funds shall be used for a particular purpose, then the funds may be deemed to be held in trust, Scott, Trusts (3d ed.) § 24, at 192.
Andrew
v.
Union Sav. Bank & Trust Co.
Whether a trust was created depends upon the intention of the parties “manifested by their words and conduct and the end to be accomplished.”
Povey
v.
Colonial Beacon Oil Co.
It has been said that “[w]here the owner of property transfers it to another with a direction to transfer it to ... a third person, this may be a sufficient manifestation of an intention to create a trust.” Scott, Trusts (3d ed.) § 24, at 192.
In
Andrew
v.
Union Sav. Bank & Trust Co.
The Court of Appeals for the Second Circuit has stated: “There are certain principles we regard as established: . . . Every person who receives money to be paid to another, or to be applied to a particular purpose, to which he does not apply it, is a trustee, and may be sued either at law for money had and received, or in equity as a
In
Hooper
v.
Mayo,
We think that the bill properly puts in issue the creation of a trust. The corpus of the alleged trust is identified. See
Howard
v.
Fay,
The brief of the Savings Banks Association of Massachusetts, submitted as amicus curiae, relies'upon
Goldman v. Worcester,
Similarly the defendant’s reliance upon
Ratner v. Hill,
The amicus brief of the Savings Banks Association of Massachusetts places a great reliance on
Sears
v.
First Fed. Sav. & Loan Assn.
The language of the promissory note securing the mortgage loan in the
Sears
case permitted the bank to choose one of three optional methods of dealing with the tax payments : “It is agreed that all such payments may, at the option of the Association (1) be held in trust by it without earnings for the payment of such items [current year’s tax obligation]; (2) be carried in a borrower’s tax and insurance account and withdrawn by the Association to pay such items; or (3) be credited to the unpaid balance of said indebtedness as received, provided that the Association advances upon this obligation sums sufficient to pay said items as the same accrue and become payable.”
In the Sears case, the court made it quite clear that its decision rested upon the specific language of the note in question: “the controversy centers about certain language in the note,” supra, at 625; “[w]e must arrive at the meaning of the second option from an examination of the language used in the document,” supra, at 627.
It is also clear that the court in the
Sears
case was “impressed with the argument . . . that since the first option, which uses the term ‘trust’, provides specifically that the payment is to be, ‘without earnings’, it should follow that, if . . . the second option were to be deemed
The defendant argues that the mere fact that it is a bank does not establish a fiduciary relationship. This is true. But it is equally true that the mere fact that the defendant is a bank does not preclude a fiduciary relationship where the facts indicate a trust relationship between the parties. More specifically, it would be difficult to argue with any degree of logic that no trust could be found to exist where money passes from A to B for the specific purpose of being turned over by B to C to pay off an obligation owed by A to C. In demurring to the bill this is essentially the position of the defendant. The fact that B is a bank and not an individual is not decisive. At a trial on the merits, however, this factor, among others, may be considered in making a judicial determination on all the evidence whether a trust was in fact established.
We conclude that the plaintiffs’ bill alleges sufficient facts to state a cause of action, which if proved, requires an accounting between the parties of profits, if any, realized by the bank on the tax payments held in trust by the bank. Our holding, limited to the present record, is simply that there are sufficient averments in the plaintiffs’ bill to state a cause of action. The interlocutory and final decrees are reversed. The case is remanded to the Superior Court for the entry of an interlocutory decree overruling the demurrer and further proceedings consistent with this opinion.
So ordered.
Notes
The amicus curiae brief of the League of Women Voters of Boston states that “the mortgage loans involved represented 50% and 60%, respectively, of the value of the mortgaged'properties.”
We think that legislation which would prohibit such payments would be open to serious constitutional question.
We note that the brief submitted by the League of Women Voters of Boston as amicus curiae states that a certain bank in Worcester, Massachusetts, “has publicly announced that it pays interest on tax escrow deposits.” There may indeed be other banks within the Commonwealth that_ return tax investment profits to mortgagors and we perceive nothing in the statutes that would prohibit such payments. Although these assertions are not part of the record, we note that the defendant’s counsel, in oral argument, conceded that some banks do make such payments.
Of significance is admission by counsel for the defendant during oral argument that such tax deposits would not be reachable by general creditors of the bank. It has been held that where moneys are paid to a bank for payment of property taxes and the bank later becomes insolvent, the tax moneys so held are given the preference of a trust in insolvency proceedings.
Winkler
v.
Veigel,