Carpenter v. Suffolk Franklin Sav. Bank

• Decision Date: 09 January 1973
• Citation: 362 Mass. 770,291 N.E.2d 609
• Parties: John Warren CARPENTER et al. v. SUFFOLK FRANKLIN SAVINGS BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 609

291 N.E.2d 609

362 Mass. 770

John Warren CARPENTER et al. v. SUFFOLK FRANKLIN SAVINGS BANK.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Nov. 7, 1972.

Decided Jan. 9, 1973.

Herbert H. Hershfang, Boston, and Lawrence D. Shubow, Boston, for plaintiffs.

Richard H. Lovell, Boston, for defendant.

David W. Walker, Cambridge, for Savings Banks Assn. of Mass., amicus curiae.

John J. McCarthy and Charles J. Bowser, Jr., Boston, for Mass. Cooperative Bank League.

Sanford A. Kowal, Boston, for League of Women Voters of Boston, amici curiae, submitted briefs.

Before TAURO, C.J., and REARDON, HENNESSEY and KAPLAN, JJ.

TAURO, Chief Justice.

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 real property within the city of Boston which is mortgaged to the defendant (bank) as security for loans by the bank; that the mortgages require the mortgagors to make monthly payments to the bank of one-twelfth of the annual municipal real estate taxes upon the property as assessed or estimated by the bank; that the plaintiffs have complied with the requirement to remit tax payments to the bank; that the bank has paid these tax moneys to the taxing municipality when due. The plaintiffs, however, allege that during the years of 1965 through 1970, the bank has commingled the tax payments with its own assets; that during the interval between payments by the plaintiffs and the time when the taxes are due to the municipality, the bank has invested these payments for profit. The plaintiffs assert that the tax payments are held by the bank 'as escrowee' and that the investment profits on the tax payments belong to them but that the bank has refused to pay or account for profits so realized.

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 mortgaged their real property to the bank as security for loans. The mortgage and loan agreements were not specifically set forth in the pleadings. It has been held that the specific averment of a written instrument and a declaration of its alleged legal effect is sufficient to declare on the instrument. Suffolk Bank v. Lowell Bank, 8 Allen 355, 357. General Laws c. 231, § 7, Eleventh, states in part: 'Written instruments shall be declared on by setting out a copy or such part as is relied on or the legal effect thereof, with proper averments to describe the cause of action' (emphasis supplied). We believe that since the plaintiffs' pleadings make a specific averment of the mortgage and loan agreements and contain a declaration of their alleged legal effect, such averment and allegations furnish a sufficient basis for a suit in equity, provided that the underlying cause of action is viable.

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 reief 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, 351 Mass. 363, 368, 220 N.E.2d 899.

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 assessments on the mortgaged real estate if the amount of the loan exceeds seventy per cent of the value of the real estate.' Throughout the years under consideration the requirement for payment of taxes as part of mortgage and loan agreements has been tied to varying percentages of real estate values. E.g., G.L. c. 168, § 35, pars. 5 and 6, as appearing in St.1955, c. 432, § 1, deleted by St.1969, c. 278, § 1; G.L. c. 168, § 35, par. 6A, inserted by St.1964, c. 219. But since 1961, G.L. c. 167, § 58, inserted by St.1961, c. 533, has stated that 'Any note or mortgage given to a bank in connection with a real estate loan may contain conditions requiring the periodic payment of estimated betterment assessments, taxes, and premiums for fire insurance . . ..' The percentage amounts of the plaintiffs' mortgage loans as they related to the value of the mortgaged properties do not appear in the bill, ¹ but regardless of the percentage amounts here in question, the defendant bank had the statutory right to require tax payments as part of the mortgage and loan agreements.

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 sentence: 'Amount collected for real estate taxes while awaiting payment to a city or town may be invested in obligations legal for savings banks and may not be allocated for any other purpose, except with the written permission of the mortgagor given at the time of default or thereafter.'

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 funds. Some bills would require payment of interest accumulated on the funds to the mortgagor (e.g. Senate Bill No. 198, Senate Bill No. 202, House Bill No. 1083), while others call for payment to the cities and towns at more frequent intervals than yearly (e.g. House Bill No. 2045), or payment of interest to the mortgagor in lieu of more frequent payments (e.g. Senate Bill No. 206, House Bill No. 689). The Governor submitted a bill requiring banks that are obligated by statute to collect periodic tax payments to pay over the taxes twice a year (Senate Bill No. 1291), and it appears that the joint Committee on Banks and Banking has been studying the matter of the treatment of tax deposits (see House Bill No. 5998).

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...