Fick v. Perpetual Title Co.

⁵²⁸ SALMON, Judge. This case has its provenance in a simple debt collection suit filed by the law firm of Fick & Petty against Jeanette Saint-Bell (Ms. SainL-Bell). That case led to the present one, in which the major legal issue presented is whether, under the Maryland Fraudulent Conveyance Act, the grantee of property who pays fair consideration for the property must be shown to have actual, as opposed to constructive, knowledge of the fraudulent nature of the conveyance in order for a creditor to set aside that conveyance. To understand fully the facts and legal nuances of the interplay between the two cases, it is useful to know the sequence of background events.

I. THE TIME LINE 1. Commencing in 1989, the law firm of Fick & Petty represented Ms. Saint-Bell in a successful lawsuit she brought against a third party. As a result of that lawsuit, Ms. Saint-Bell owed Fick & Petty certain legal fees. 2. Fick & Petty, on June Up, 1991, sued Ms. Saint-Bell in the Circuit Court for Baltimore County for the aforementioned legal fees (“the debt suit”). 3.

At the time the debt suit was filed, Ms. Saint-Bell, individually, owned approximately eleven acres of land improved by a home known as 16510 Cedar Grove Road, Sparks, Maryland (“the property”). On September 11, 1991, she executed a deed to the property to herself and her minor daughter, Casey Joy Saint-Bell (“Casey Joy”), as joint tenants. The deed recited as consideration: “None (The love and affection that a mother has for her child).” 4. Ms. Saint-Bell and the law firm of Fick & Petty filed, on December 18, 1991, in the debt suit, a “Stipulation,” which stated, in pertinent part: 5.

The plaintiff [Fick & Petty] agrees to accept the sum of Ten Thousand ($10,000.00) Dollars in full satisfaction if paid on or before January 22, 1992. Payment shall be made in cash, certified check, bank check or attorney’s ⁵²⁹ escrow check. Upon payment as provided for in this paragraph, plaintiff shall dismiss its claim with prejudice and tender the original Consent Order for Judgment to defendant’s counsel. 6. The defendant expressly consents to the filing of the Consent Order for Judgment on January 23, 1992 if the payment specified in paragraph 5 above is not made prior to 5:00 p.m., January 22, 1992 tendered to the office of counsel for plaintiff. 7.

Should the payment as specified in paragraph 5 above not be made as agreed, the defendant may satisfy the Consent Order for Judgment according to the following schedule: a. pay $11,000.00 until February 22,1992. b. pay $12,000.00 from February 23, 1992 until March 22.1992. c. pay $13,000.00 from March 23, 1992 until April 22, 1992. d. pay $14,000.00 from April 23, 1992 until May 22, 1992. After May 22, 1992, the plaintiff is entitled to execute its judgment and attach such property as it deems necessary, subject to lawful exemption. Post judgment interest at the legal rate shall commence to [accrue] as of May 23.1992. 5. The day after the Stipulation was signed, on December 19, 1991, the deed mentioned in paragraph 3 above, was filed in the land records of Baltimore County. 6.

Ms. Saint-Bell did not pay $10,000 as agreed in the Stipulation. Accordingly, on June 9, 1992, a consent judgment in the amount of $14,000 was entered in the Circuit Court for Baltimore County in favor of the firm of Fick & Petty against Ms. Saint-Bell. 7. On April 5, 1993, Ms. Saint-Bell, individually and on behalf of herself and her minor daughter, Casey Joy, entered into a contract to sell the property to Paul and Donna Bourquin (the “Bourquins”) for $263,000. ⁵³⁰ 8. Immediately after the signing of the contract, the Bour-quins retained Perpetual Title Company (“Perpetual”) to perform a title search on the property to ascertain, inter alia, if the property was encumbered by any lien. 9.

Based upon advice of Perpetual’s agent, Geoffrey For-man, that she would need a court order permitting her to execute a deed conveying Casey Joy’s interest in the property, Ms. Saint-Bell retained an attorney who filed a Motion for Authorization of Sale Under Affidavit. The motion was supported by Ms. Saint-Bell’s affidavit to the court in which she swore that the reason she conveyed the property to her daughter (as a joint tenant) was because in 1991 she had been “diagnosed as having a serious illness,” and she wanted to “facilitate the transfer of [the property] ... in case of [her] demise.” She further averred that she was presently “symptom free,” but due to lost earnings and medical treatment it was necessary to sell the property. The circuit court, on April 29, 1993, signed an order authorizing Ms. Saint-Bell to execute a deed to the Bourquins on behalf of Casey Joy. 10. On April 30, 1993, the firm of Fick & Petty filed (in the debt suit) a 'Writ of Execution against the property. 11.

A settlement on the property was held on May 7, 1993, and Ms. Saint-Bell, individually and on behalf of her daughter, conveyed the property to the Bourquins at a price of $263,000. Perpetual’s agent at the settlement was Geoffrey Forman, an attorney in the law firm of Cohen, Alpert, and Forman. At the settlement, the Bourquins executed a $236,700 note in favor of Great Western Mortgage Corporation (Great Western), secured by a mortgage on the property. 12. Three days after the settlement, on May 10, 1993, the sheriff of Baltimore County attempted to carry out the Writ of Execution filed by the law firm of Fick & Petty by posting the property. ⁵³¹ 13.

On May 13, 1993, the deed conveying the property to the Bourquins and the deed of trust securing Great Western were filed in the Baltimore County land records. 14. Nathaniel Fick, as an assignee of the law firm of Fick & Petty, filed, on August 5, 1993, a lawsuit in the Circuit Court for Baltimore County against Ms. Saint-Bell and the Bourquins requesting, inter alia, that the court order the county sheriff to issue a writ of execution against the property to be released only under payment of the amount that was owed by Ms. Saint-Bell to him. 15. Ms. Saint-Bell, on January 21, 199k, filed a suggestion of bankruptcy in which she stated that she had filed a petition for bankruptcy in a federal court in Florida. 16. On October 11, 199k, Ms. Saint-Bell received a discharge of all her debts, including the debt assigned to Fick, from the bankruptcy court.

II

THE SECOND AMENDED COMPLAINT Mr. Fick’s initial complaint and an amended complaint against the Bourquins and others were dismissed with leave to amend. On September 6, 1994, Mr. Fick filed a second amended complaint (“the Complaint”) in the Circuit Court for Baltimore County. In Count I of the Complaint, the Bourquins and Great Western were named as defendants. Fick alleged three fraudulent conveyances.

The first was from Ms. Saint-Bell to Ms. Saint-Bell and her daughter; the second was from Ms. Saint-Bell and her daughter to the Bourquins; and the third was the mortgage by the Bourquins to Great Western. Fick requested in Count I, inter alia, that the court issue a writ of execution on the property. Count II was a negligence count directed against Perpetual wherein Fick claimed, inter alia, that Perpetual owed him (Fick) a duty to search the land records non-negligently and to give his enrolled judgment against Ms. Saint-Bell as well as his “execution and levy” against the property “full force and effect.” Count III was a negligence count against the law ⁵³² firm of Cohen, Alpert and Forman (CAF). Count IV was a negligence count directed at Forman.

Forman, CAF, and Perpetual filed Motions to Dismiss, and on February 2, 1995, after a hearing, the trial court dismissed Counts III and IV, with leave to amend within 20 days. Fick never amended those counts. In the meantime, on November 17, 1994, Fick voluntarily dismissed the action against Ms. Saint-Bell, although technically she was not named a defendant in the Second Amended Complaint. Summary judgment motions were filed on behalf of Great Western and the Bourquins, and on August 8, 1995, after a hearing, the court granted summary judgment in favor of the movants.

This case went to trial on April 11, 1996, against Perpetual, the only remaining defendant. At the conclusion of Fick’s case, the trial judge (Bollinger, J.) determined that Fick had failed to prove negligence and granted Perpetual’s motion for judgment. QUESTIONS PRESENTED Appellant presents us with three questions, which we have rephrased: 1. Did the trial judge err in granting summary judgment in favor of the Bourquins and Great Western? 2.

Did the trial court err in dismissing Counts III and IV, with leave to amend, against the firm of Cohen, Alpert and Forman (Count III) and Forman (Count IV)? 3. Did the trial court err in granting Perpetual’s motion for judgment at the conclusion of plaintiffs case? STANDARD OF REVIEW AS TO QUESTION 1 A trial court shall grant a motion for summary judgment “if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law.” Md. Rule 2-501(e). Thus, in considering a ⁵³³ motion for summary judgment, the trial court determines issues of law and resolves no disputed issues of fact.

Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 737 , 625 A.2d 1005 (1993) (citing Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 591 , 578 A.2d 1202 (1990)). In determining whether a party is entitled to judgment under this rule, the court must view the facts, including all reasonable inferences, in the light most favorable to the opposing party. Baltimore Gas & Elec. Co. v. Lane, 338 Md. 34, 43 , 656 A.2d 307 (1995); Warner v. German, 100 Md.App. 512, 516 , 642 A.2d 239 (1994).

The existence of a question of fact, however, will not necessarily preclude summary judgment unless the resolution of that question will affect the outcome of the case. King v. Bankerd, 303 Md. 98, 111 , 492 A.2d 608 (1985); Warner, 100 Md.App. at 516-17 , 642 A.2d 239 . In order for the opposing party to defeat a motion for summary judgment, the party must show that there is a genuine dispute as to a material fact and support his or her opposition by an affidavit or other sworn pleadings or admissions that set forth facts that would be admissible as evidence. Md. Rule 2-501 (b) & (c); Beatty, 330 Md. at 737 , 625 A.2d 1005 .

Furthermore, even if the facts are undisputed, if the facts can be interpreted as having more than one permissible inference, the case should be submitted to the trier of fact. The “standard for appellate review of a trial court’s grant of a motion for summary judgment is whether the trial court was legally correct.” Heat & Power Corp., 320 Md. at 591-92 , 578 A.2d 1202 . RESOLUTION OF QUESTION 1 The law as to fraudulent conveyances is largely founded on the English statute of 13 Elizabeth, enacted in 1570, which provided in substance that all conveyances or dispositions of property, real or personal, made with the intention to defraud creditors, should be null and void as against the creditors. This statute has, in practically all the states, been either recognized as a part of the common law ... or ⁵³⁴ expressly adopted or reenacted in more or less similar terms. 37 C.J.S. Fraudulent Conveyances § 2, at 852 (1943) (footnote omitted).

The English statute was adopted in Maryland, 1 Alexander’s British Statutes 499 (Coe’s ed. 1912) and remained in effect until 1920, when the Maryland Uniform Fraudulent Conveyance Act (the “Act”) was adopted. The Act was derived from the Uniform Fraudulent Conveyance Act, which was approved by the National Conference of Commissioners of Uniform State Laws and the American Bar Association in 1918. Unif. Fraudulent Conveyance Act, 7A U.L.A. 427 (1985 & Supp. 1996).

Between 1918 and 1985, the Act was adopted by twenty-five states and the Virgin Islands. Id. Although eighteen states have since repealed the Act, a substantial body of case law has developed interpreting its provisions. 1 In Count I, as against the Bourquins and the mortgagor, Great Western, Fick did not ask for money damages. Instead, Count I is based on the Act as set forth in sections 15-201 to 15-212 of the Commercial Law Article of the Maryland Code (1975, 1990 RephVol.).

In Count I, Fick asked: 1) that the deed, dated September 11, 1991, from Ms. Saint-Bell to Casey Joy and Ms. Saint-Bell be set aside; 2) that the deed, dated May 7,1993, from Ms. Saint-Bell and her daughter to the Bourquins be set aside; 3) that the mortgage to Great Western be declared to be subservient to the judgment against Ms. Saint-Bell, which had been assigned to Fick; 4) that the court direct the sheriff to issue a writ of execution against the property and to release it only upon satisfaction of the judgment against Ms. Saint-Bell; and 5) that the court order the sale of the property if the amount owing from Ms. Saint-Bell to plaintiff was not paid within thirty days. Under Maryland law, once a conveyance is proven to be fraudulent, a creditor has the option of either having the conveyance set ⁵³⁵ aside or attaching the property conveyed. Frain v. Perry, 92 Md.App. 605 , 620 n. 7, 609 A.2d 379 , cert. denied, 328 Md. 237 , 614 A.2d 83 (1992). Sections 15-206 and 15-207 of the Act provide: § 15-206.

Conveyance by a person about to incur debts. Every conveyance made and obligation incurred without fair consideration when the person who makes the conveyance or who enters into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors. § 15-207. Conveyance made with intent to defraud. Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud present or future creditors, is fraudulent as to both present and future creditors.

In their motions for summary judgment, the Bourquins and Great Western contended that they were protected by the provisions of section 15-209 of the Act, which say, in pertinent part: § 15-209. Rights of creditor whose claim has matured. (a) Setting aside conveyance; levy on or garnishment of property conveyed. — If a conveyance or obligation is fraudulent as to a creditor whose claim has matured, the creditor, as against any person except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase or one who has derived title immediately or immediately [sic] from such a purchaser, may: (1) Have the conveyance set aside or obligation annulled to the extent necessary to satisfy the claim; or (2) Levy on or garnish the property conveyed as if the conveyance were not made. (b) Prior judgment not required. — In an action to have a conveyance set side or . an obligation annulled, it is not ⁵³⁶ necessary as a condition to the granting of relief that the creditor first obtain judgment on the claim.

(Emphasis supplied.) The Bourquins assert that they purchased the property for fair value and that the purchase was made without knowledge of the fraud that Ms. SainWBell is alleged to have perpetrated and therefore, under section 15-209(a) of the Act, Fick was not entitled to set aside the conveyance or to levy against the property. Great Western, as the holder of a mortgage that conveyed an interest in the property from the Bourquins, claims that section 15-209 also protects it because it is “one who has derived title immediately ... from such a purchaser” as that phrase is used in section 15-209(a). Substantively, section 15-209 is quite similar to the proviso in the Statute of Elizabeth, 13 Eliz., ch. 5 (1570) (Eng.), which reads: Provided also ... that this act or anything therein contained, shall not extend to any estate or interest ... which estate or interest is or shall be upon good consideration and bona fide lawfully conveyed or assured to any person or persons, or bodies politic or corporate, not having at the time of such conveyance ... any matter of notice or knowledge of such covin,[ 2 ] fraud, or collusion as is aforesaid. In Garrard Glenn, 1 Fraudulent Conveyances and Preferences § 236, at 497 (rev. ed. 1940), an example is given as to how the British statute operated in a case like the one at hand: An insolvent debtor (whom we shall call X) sells to A under such circumstances as to make a fraudulent grantee of A In such a case, the creditors of X may set aside the transaction and recapture the property from A so long as he still has it.

But suppose that before the creditors move against him, A sells the property to B, who has no knowl ⁵³⁷ edge or notice of the circumstances that attended A’s original acquisition, and regarded X as merely a predecessor in title. The question is whether the creditors of X may set aside both transfers, from X to A, and from A to B, and thus subject to their debts the property while in the hands of B. ... On the other hand, we are dealing with a rule which is drawn from a statute supplemented by equitable ideas. Of course, if the statute had affirmatively stated that the ultimate grantee, though he took in good faith and for value, got nothing better than the rights possessed by his transfer- or, there would be no room for argument.

But the original statute, the 13th Elizabeth, never said that. On the contrary, the proviso cuts off the application of the Act to any property which “is upon good consideration and bona fide lawfully conveyed or assured to any person or persons,” etc., who shall not have “at the time of such conveyance ... any manner of notice or knowledge,” etc. By not limiting its protection to the debtor’s immediate grantee, the statute leaves room for protection of an ultimate purchaser in good faith. In order for Fick to prevent the entry of summary judgment against him, he was required to put forth evidence from which a trier of fact could find 1) that the Bourquins did not give fair consideration to the grantors of the property or 2) that at the time the Bourquins bought the property they had knowledge that the grantors were making a fraudulent conveyance of the type mentioned in his Complaint. Mr. Fick never contended that the Bourquins did not give the grantors fair consideration when they purchased the property for $263,-000.

A. KNOWLEDGE OF THE FRAUDULENT NATURE OF THE TRANSACTION Must the grantees have actual, as opposed to constructive, knowledge of the fraudulent nature of the conveyance in order to set aside a conveyance as fraudulent under section 15-209? ⁵³⁸ Most courts that have considered the question have held that constructive notice is sufficient. While there is authority to the contrary in some jurisdictions, the general rule is that if a purchaser had knowledge of facts and circumstances naturally and justly calculated to excite suspicion in the mind of a person of ordinary pru- - dence, and which would naturally prompt him to pause and inquire before consummating the transaction, and such inquiry would have necessarily led to a discovery of the fact with notice of which he is sought to be charged, he will be considered to be affected with such notice, whether or not he made the inquiry. Under these - circumstances it is immaterial that the purchaser did not have actual knowledge of the fraudulent intent of the seller or did not participate therein. 37 C.J.S. Fraudulent Conveyances § 126, at 957-58 (1943) (footnotes omitted). To the same effect, see 37 Am.Jur.2d Fraudulent Conveyances § 9, at 699-700 (1968).

In Columbia Int’l Corp. v. Perry, 54 Wash.2d 876 , 344 P.2d 509 (1959), the court held that constructive knowledge, not actual knowledge, was all the creditor needed to prove. In that case, one Perry was the majority stockholder in a corporation. Perry was indebted to plaintiff. He sold his corporate stock to one Trosper for $57,000.

Thereafter, Perry squandered the sales proceeds. Id., 344 P.2d at 511 . Trosper indisputably had no actual knowledge that Perry intended to defraud his creditor, but he was nevertheless sued by plaintiff in an effort to set aside the stock transfer as a fraudulent conveyance. In this context, the Perry court set forth the rule: But the actual knowledge is not always needed.

A transferee may be charged with knowledge where he is aware of facts and circumstances which are calculated to put him on inquiry, and such inquiry would have led him to discover the intent of the transferor. O’Leary v. Duvall, 10 Wash. 666 , 39 P. 163 [ (1895) ]; Armstrong v. Armstrong, 100 Wash. 270 , 170 P. 587 [ (1918) ]. However, there must be more than mere suspicion to charge the buyer with inquiry and ⁵³⁹ knowledge of the seller’s fraud. There must be discovery of evidential facts leading to a belief in the fraud.

Davison v. Hewitt, 6 Wash.2d 131 , 106 P.2d 733 [ (1940) ]. Id.