Baskerville v. State

Moylan, J., delivered the opinion of the Court. As in a “shell game” at a country carnival, a “check kiting” scheme has the elements of the crime of false pretenses moving back and forth from one transaction to the next so rapidly under the hands of a skilled manipulator that the ultimate resting place of a particular element is exceedingly difficult to locate. Webster’s Third New International Dictionary (Unabridged) gives the following definition of the verb “kite”: “To get money or credit by a kite: specif: to create a false bank balance by manipulating deposited accounts.” 51 Corpus Juris Secundum, at 532, defines “kiting” as: “Originally a business term meaning the lending of credit by one commercial firm to another, but it is more commonly employed to denote a species of fraud or fraudulent practice consisting in the exchange of drafts or checks of approximately the same dates and amounts.” An example may serve better than a formal definition. Assume that a defendant, or his confederate, has an account at Bank A with only a nominal balance.

On Monday, a check is written to the defendant in the amount of $100. The defendant immediately walks to Bank B, where he has an account and is known as a reliable customer, and cashes the check for $100. The check now in the hands of Bank B does not, of course, clear on that particular day and the defendant has created for himself $100 out of nothing. To keep the scheme afloat, a second check is drawn on Bank A on Tuesday.

It then is cashed at Bank B and the cash is, in turn, ⁴⁴¹ redeposited at Bank A. The deposit covers the check written on Monday, which is just now clearing. Tuesday’s check has not yet been covered. The scheme is repeated on Wednesday, Thursday and Friday. At the end of the week, five $100 checks, totaling $500, have been written on Bank A. The five checks have been cashed at Bank B for $500.

Four hundred dollars has been redeposited at Bank A to keep the scheme afloat. The remaining $100 is the profit of the “kiting’ operation. Like a juggler with three balls aloft but only two hands, the “kiting” operation, once begun, cannot stop, lest the uncovered ball “bounce.” Theoretically, the operation could go on indefinitely. In fact, the music always stops for one reason or another: Bank A spots the telltale signs of “kiting” and cancels the account upon which the checks are drawn; Bank B becomes suspicious and withdraws credit, refusing to cash any checks until they are cleared; the “kiter” is hit by a truck or leaves for Brazil.

In our simplified model, the “music stops” on Friday. Bank B has already cashed its fifth $100 check. It will learn on Monday or Tuesday that Bank A has returned the check marked “insufficient funds.” Bank B will then be the victim of a false pretense as to that $100. The crime of False Pretenses is simply stated in Art. 27, § 140: Any person who shall by any false pretense ⁴⁴² obtain from any other person any chattel, money or valuable security, with intent to defraud any person of the same, shall be guilty of a misdemeanor As Chief Judge Orth pointed out for this Court in Polisher v. State, 11 Md. App. 555, 560 , 276 A. 2d 102 : “The false pretense is the crux of the crime.

So the crime is committed when a person: 1) by making a false representation of a past or existing fact; 2) with intent to defraud; and 3) knowledge of its falsity; 4) obtains any chattel, money or valuable security from another; 5) who relies on the false representation; 6) to his detriment.” See also Smith v. State, 237 Md. 573 , 207 A. 2d 493 ; Tumminello v. State, 10 Md. App. 612 , 272 A. 2d 77 ; Lockhard v. State, 3 Md. App. 580 , 240 A. 2d 312 . In the example given, five false representations are in fact made by the “kiter” to Bank B, one on each day of the week. The false representation is as to an existing fact, to wit, that “there are funds in the account at the drawee bank to cover the check being presented for cashing” (Element 1). In each, case, the “kiter” knows of the falsity of his representation (Element 3).

In each case, Bank B relies upon the false representation (Element 5) and thereby parts with $100 (Element 4). These elements of the crime of false pretenses classically present no problem when applied to a “kiting” operation. The sixth element — detriment to the victim— is more troublesome. In the example given, it is clear that Bank B relied upon Friday’s false representation to its ultimate detriment — the loss of the $100 (which had been paid out in cash) when the check relied upon was returned marked “insufficient funds.” The defendant-“kiter” typically makes ⁴⁴³ the claim — on its surface deceptively attractive — that there was no ultimate detriment on the other four days and, therefore, no crime of false pretenses.

His theory is that there was neither financial loss nor mental anguish to Bank B since money was on deposit at Bank A in time for the first four checks to clear. He reasons that Tuesday’s successful false representation erases the detrimental effect of Monday’s false representation, and so on through the weeks and months ad infinitum. The law, however, recognizes “detriment” of a more subtle variety. On each of the days in question, Bank B, by relying upon the false representation, exposed itself to a hazard which it would not have assumed but for that reliance.

On each day, it ran the risk that the “kiter’s” scheme would go awry. That, according to the common law of false pretenses, is detriment enough. In 32 Am.Jur.2d, False Pretenses, § 38 “Injury or prejudice resulting from transfer,” it is said, at p. 200: “[T]he gravamen of the olfense is in the making of the false pretense with intent to defraud and thereby obtaining another’s property. So it is not essential that the victim suffer a permanent loss or that he sustain a pecuniary loss.

The offense is complete when money or property has been obtained by false representations, and it cannot be purged by subsequent restoration or repayment. Accordingly, where a person induces another, by means of false pretenses, to part with his property, he cannot defend against a charge of obtaining property by false pretenses by showing that the person who parted with his property had recovered in a civil action the value of the property, or by showing that the victim had recovered by other means or from other sources. Nor will the actual repayment of a loan obtained by false pretenses constitute a defense against a criminal prosecution for obtaining money by false pretenses.” See People v. Jones, 36 Cal. 2d 373 , 224 P. 2d 353 ; State v. ⁴⁴⁴ Mills, 96 Ariz. 377, 396 P. 2d 5 ; Pepper v. People, 75 Colo. 348 , 225 P. 846 . Of similar import is Perkins, Criminal Law (2d Edition, 1969), at 313-314: “[T]here is no requirement of actual pecuniary loss on the part of the intended victim.

If the false representation was with reference to the security given for money borrowed, or property purchased on credit, it is no defense to a charge of false pretenses that the debt has since been paid.” Equally troublesome, at first glance, is the second element — the “intent to defraud.” Two problems here raise their heads. A defendant-“kiter” will typically claim that, although he may have derived $100 in unearned profit from Monday’s false representation, he derived no profit whatsoever from the four succeeding false representations. The $100 in each instance, according to his claim, went for the benevolent purpose of reimbursing his victim (via making a deposit in the drawee bank) for an earlier false representation. That sort of reasoning is specious in two regards.

Initially, he does derive a benefit from each of the later false representations. He gets the benefit of Friday’s $100 both when he satisfies Thursday’s debt with that $100 and when he, thereby, covers the tracks of Thursday’s criminality. It is, furthermore, no requirement of the law of false pretenses that the money received from another be applied to the taker’s benefit. Chief Judge Orth made that very clear in Polisher v. State, supra, at 11 Md. App. 580 -581: “The argument fails because ‘[t]here is no doctrine of lucri causa in the field of false pretenses.

It is accordingly immaterial that the defendant did not gain or intend to gain any personal benefit or advantage from obtaining the property from the victim.’ Id. [2 Wharton’s Criminal Law (Anderson Edition)] § 583, p. 309. ‘[T]he defendant is responsible for his false pretense even though he did not personally gain any bene ⁴⁴⁵ fit from the goods which had been obtained thereby.’ Id., § 585, p. 316. It is stated in Hochheimer, Criminal Law (2nd Ed. 1904), § 323, p. 356: ‘It is sufficient that the thing has been confided to the offender, it being immaterial that he did not obtain it on his own account, nor for his own gain or benefit.’ ” The defendant-“kiter” typically attempts to gainsay the “intent to defraud” in a second fashion. He claims (as does the appellant here) that the entire “kiting” scheme was simply a means by which he managed to “borrow” the money. He utterly disavows any intent to steal, that is, to keep the money permanently.

He claims self-righteously that he is an honorable man and that he fully intends to pay back every cent, once his fortunes are in better repair. Despite its surface charm, the defense is unavailing. Instructive in this regard is Clark and Marshall’s Law of Crimes (Wingersky Edition, 1958), at 823: “If a person, however, obtains money or goods by false pretenses, he is none the less guilty because he intends to repay the money or pay for the goods, for ‘an intent to defraud is consistent with an intent to undo the effect of the fraud if the offender should be able to do so.’ That there is ability as well as intent to repay is no defense. Even an offer to repay or actual repayment is no defense.” See Commonwealth v. Schwartz, 92 Ky. 510 , 18 S. W. 775 ; People v. Oscar, 105 Mich. 704 , 63 N. W. 971 .

The same point is made in 32 Am.Jur.2d False Pretenses, § 33, “Intent to defraud,” at p. 197: “If the accused had the requisite intent, he may be guilty of the crime of obtaining money or property by false pretenses even though he may have intended to repay the money or restore the property.” ⁴⁴⁶ See also Perkins, Criminal Law (2d Edition, 1969), at 312-313: “It is now necessary to emphasize that an intent to repay will not necessarily prevent guilt of this crime. . . . One who is asked to lend money or to sell goods on credit has a right to determine for himself whether he chooses to be a secured creditor or an unsecured creditor, and if he chooses to be the former he has a right to know about the security. One who has extended credit in reliance upon a mortgage on real estate which is falsely represented to be a first mortgage when in fact it is subject to a prior recorded mortgage for more than the land is worth, or is a mortgage upon property which the mortgagor does not own, has been defrauded even if the debtor has an intent to pay the debt. The lender intended to be a secured creditor but by reason of the false representation his position is for all practical purposes that of an unsecured creditor.

There is an obvious and unreasonable risk of loss which has been forced upon him, without his knowledge or consent, by reason of the deceit. This risk which the creditor did not intend to assume was imposed upon him by the intentional act of the debtor, and this amounts to an intent to defraud.” ... If by reason of the false representation of the debtor, the creditor has assumed a substantially greater risk then would have been his if the debtor’s statements had been true, this requirement of the crime is satisfied even if the security is not entirely worthless, or even if it may turn out to be adequate.” In the face of this law, the typical defendant-“kiter’s” claim that his demonstrated pattern of regular repayments evidences his good faith and belies any “intent to defraud” becomes irrelevant. Also irrelevant becomes the claim that ⁴⁴⁷ he would have “made good” upon the last false representation, if some unforeseen circumstance beyond his control — the closing of an account by one bank or the withdrawal of credit by the other — had not frustrated his efforts to do so.

The pattern, indeed, rather than demonstrating good faith is laid bare for what it is: the frantic necessity for the “kiter” to run faster and faster and “kite” larger and larger sums in a desperate effort to keep his artificial financial empire from collapsing and to derive, in the process, some continuing proceeds therefrom. The claim that “some day it will all be made good” is legally meaningless. As well might an embezzler claim that he had “no intent to defraud” the victimized bank, on the theory that the embezzler was only “borrowing” the money and had every honorable intention of returning it just as soon as his ship came in or his horse finished in the money. The Facts in this Case Upon this legal framework, the guilt of the appellant, elusive enough while still in the briar patch of tangled and undifferentiated facts, becomes all too clear.

The appellant, Drury R. Baskerville, was a 53-year-old teacher in the public schools of Baltimore. He was convicted by Judge Shirley B. Jones, sitting without a jury, in the Criminal Court of Baltimore, upon three indictments, each charging false pretenses generally (as well as a violation of Section 142, the “bad check statute” specifically). Although the appellant’s house of cards did not crash down until the end of July, 1971, its cornerstone was laid at least as early as a year before. Delores Brenda Miller, a girlfriend of five years’ standing, and Robert Allen Gantt, a substitute teacher at the appellant’s school, were either willing pawns or intellectually inert putty in the hands of the appellant.

Mrs. Miller had a personal checking account at the Maryland National Bank in which she normally kept a small balance in order to pay her household expenses. Mrs. Miller testified that “maybe a year, year and a half” before July, ⁴⁴⁸ 1971, she began writing checks on this account to the appellant and in excess of the balance maintained by her in the account. She continued to use the account for her own personal purposes and would make deposits to cover such amounts. She relied exclusively on the appellant, however, to make appropriate deposits to cover the checks made payable to him.

Incredibly, Mrs. Miller wrote the checks to the appellant because “He asked me to”: “Q. And would you tell the Court how you came about to write some checks for Mr. Baskerville? A. He asked me to. Q. All right. And would you tell us the circumstances under which he would ask you to write the checks?

What would he tell you when you were writing the checks as to amount and number and everything of that sort? A. When he first asked me to write the checks for him there was no specific amount