Scotch Bonnett Realty Corp. v. Matthews

LAWRENCE F. RODOWSKY (retired, specially assigned), J. This case comes to us from the United States Bankruptcy Court for the District of Maryland via the Maryland Uniform Certification of Questions of Law Act, Maryland Code (1974, 2006 Repl.Vol.), §§ 12-601 through 12-613 of the Courts and Judicial Proceedings Article. The question certified is: “Does the use of a deed that is neither a forged document, nor signed with a forged signature, but which derives its transactional vitality from forged corporate articles of amendment, render a conveyance of land void ab initio, or, is good title transferred to bona fide purchasers for value without notice?” Facts The certified question arises out of the facts set forth below. Scotch Bonnett Realty Corporation (SBRC), designated in the certification order as appellant, is a Maryland close corporation, incorporated January 22, 2003. The articles of incorporation were signed by Richard J. Hackerman (Hackerman), a member of the Maryland Bar.

He consented to act as resident agent for the corporation. The articles of incorporation provided that SBRC elected to have no board of directors, and that Sandra Denton (Denton) would serve as director until the organizational meeting. The articles established the post office address of the principal office of SBRC to be 2129 St. Paul Street, Baltimore, MD 21218. The address of the resident agent was 116 West University Parkway, Baltimore, MD 21210.

The business of SBRC was buying and selling real estate, utilizing Denton’s capital that was earned in the entertainment industry as a member of a recording duo. SBRC at one time owned thirteen properties. SBRC has no by-laws, minutes, or resolutions designating corporate officers. ⁵⁷³ Denton had been married to Emora Horton (Horton), but the parties were divorced in December of 2003. Horton, nevertheless, continued to assist Denton, through SBRC, in buying and selling properties.

He would advise Denton of properties that he considered suitable for acquisition, and she would make the decision on behalf of SBRC. If SBRC sold a property, the net proceeds went directly into the corporate bank account on which Denton was the sole signatory. Horton also performed day-to-day management, repair, and upkeep for SBRC properties. Through Horton, Denton met Corey Johnson (Johnson), a friend of Horton’s.

At trial, she denied ever having any business dealings with Johnson and denied ever hiring him to do any work for her. On September 22, 2005, the State Department of Assessments and Taxation (SDAT) received articles of amendment in the name of SBRC. The articles were completed in longhand on a fill-in-the-blanks form. The portion of the form reading, “The charter of the corporation is hereby amended as follows:,” was completed by stating, “Corey Johnson is to be added as an officer of Company.” In the portion of the form asking by whom the amendment had been approved, there was inserted, “The Director!.] No stock has been issued.” The form next recited, “We the undersigned President and Secretary swear under penalties of perjury that the foregoing is a corporate act.” Thereunder was a signature line preprinted for “President” on which was signed, “Richard Hacker-man.” Hackerman testified that the writing was not his signature, and that he had never been president of SBRC.

The certifying court found that the articles of amendment were forged. There was no purported secretary signature on the form. Inserted as the return address for one certified copy of the articles was “2129 St. Paul Street, Balt., MD 21218.” A copy of the SDAT form entitled “CORPORATE CHARTER APPROVAL SHEET” reflects that that agency was paid an additional $90 for expedited service and that the instruction, “Mail: Name and Address,” was completed in script ⁵⁷⁴ reading “Corey S. Johnson, 2129 St. Paul St., Baltimore, MD 21218.” One of the properties owned by SBRC was 806 East 41st Street, Baltimore, MD 21218 (the Property). It had been acquired in April 2003.

On December 21, 2005, a deed to the Property was executed in the name of SBRC and signed, “Corey Johnson (Officer).” Grantee under the deed was Cateania Matthews (Matthews). Before a notary public, Johnson acknowledged himself to be an officer of the grantor, fully authorized to execute the deed. 1 SBRC never received any proceeds from the settlement. The lender at the settlement of Matthews’s purchase of the Property was Long Beach Mortgage which later merged with Washington Mutual Bank (WMB). That institution failed and was placed into receivership by the Federal Deposit Insurance Corporation which sold WMB’s assets to JP Morgan Chase Bank, National Association (Morgan).

Procedural History SBRC instituted this adversary proceeding in the Circuit Court for Baltimore City in June 2006. In November 2007, Matthews filed for relief under Chapter 13. In the Bankruptcy Court, SBRC filed a third amended complaint for declaratory and other relief. Included among the defendants were Johnson and Horton, each of whom failed to answer.

A fourth amended complaint was filed by SBRC seeking declaratory and other relief against Matthews, Horton, the trustee in bankruptcy, Johnson, a second mortgage lender on the Property, a tax lien, and the holder of the Long Beach mortgage. The settlement officer who processed the closing on the Property testified in the Bankruptcy Court. She had obtained a copy of the SBRC articles of amendment from the SDAT because, whenever a corporation sells a property, “we need ⁵⁷⁵ proof of who the owners are and who are signing for the property.” She had no reason to think that the articles of amendment were a forgery, and she did not telephone anyone to check behind the articles, inasmuch as they had been obtained off of the public record from the State of Maryland. She testified that it was customary to rely on records of the SDAT when conducting a settlement.

It was stipulated in the Bankruptcy Court that WMB was a bona fide purchaser for value. Only Morgan, which claims through WMB, has filed a brief in this Court as an appellee. Because the certified question is directed to the effect of the forgery on the deed, we assume that Matthews is to be considered a bona fide purchaser for value. Nor are we to consider SBRC or Denton estopped from denying the forgery. 2 Legal Background The premise of the certified question is the Bankruptcy Court’s recognition that the deed to the Property is not a forgery, because Johnson signed his true name to the deed, whereas the articles of amendment are a forgery, because someone, other than Hackerman, signed his name to the articles, without Denton’s authority.

The Bankruptcy Court also recognized that, in Harding v. Ja Laur Corp., 20 Md.App. 209 , 315 A.2d 132 (1974), the Court of Special Appeals concluded that Maryland law distinguishes between a forged deed and a deed obtained by false pretenses. “The title of a bona fide purchaser, without notice, is not vitiated even though a fraud was perpetrated by his vendor upon a prior title holder. A deed obtained through fraud, deceit or trickery is voidable as between the parties thereto, ⁵⁷⁶ but not as to a bona fide purchaser. A forged deed, on the other hand, is void ab initio.” Id. at 213-14 , 315 A.2d at 135 (citations omitted). The Harding court further said: “A forger, having no title can pass none to his vendee.

James [Janes ] v. Stratton, 203 S.W. 386 (Tex.Ct.Civ.App. 1918). Consequently, there can be no bona fide holder of title under a forged deed. A forged deed, unlike one procured by fraud, deceit or trickery[,] is void from its inception. The distinction between a deed obtained by fraud and one that has been forged is readily apparent.

In a fraudulent deed an innocent purchaser is protected because the fraud practiced upon the signatory to such a deed is brought into play, at least in part, by some act or omission on the part of the person upon whom the fraud is perpetrated. He has helped in some degree to set into motion the very fraud about which he later complains. A forged deed, on the other hand, does not necessarily involve any action on the part of the person against whom the forgery is committed. So that if a person has two deeds presented to him, and he thinks he is signing one but in actuality, because of fraud, deceit or trickeryt,] he signs the other, a bona fide purchaser, without notice, is protected.

On the other hand, if a person is presented with a deed, and he signs that deed but the deed is thereafter altered e.g. through a change in the description or affixing the signature page to another deed, that is forgery and a subsequent purchaser takes no title.” Id. at 214-15, 315 A.2d at 136 . 3 See also Maskell v. Hill, 189 Md. 327 , 55 A.2d 842 (1947). The certified question is prompted by the Bankruptcy Court’s concern over the legal implications of the role of the ⁵⁷⁷ forged articles of amendment in the transaction with Matthews. That Court’s concern was that “the title company’s conclusion that the sale was bow,a fide was based upon the corrupt public record; corruption that was caused by the forged Amended Articles. The Court can only infer from [the settlement officer’s] testimony that had Mr. Johnson not elevated himself to the position of officer of SBRC through the use of the forged document then the sale of the Real Property to [Matthews] would not have occurred.

Stated another way, it was the forged document that provided the legal authority for his signature on the Deed. And that allowed the Deed to be ostensibly insulated from a claim of forgery and thus protect subsequent transferees without notice at least insofar as the Maryland cases seem to hold.” Undercutting the “ostensible]” insulation of the deed from a forgery claim were, in the Bankruptcy Court’s opinion, two decisions applying out-of-state law, Unity Banking & Saving Co. v. Bettman, 217 U.S. 127 , 30 S.Ct. 488 , 54 L.Ed. 695 (1910), and McNairy v. Baxter (In re Baxter), 320 B.R. 30 (Bankr.D.D.C.2004). Bettman arose out of a bankruptcy proceeding in which the Court was applying Ohio law. A corporation had issued a certificate for fifty shares of its stock to Fritz Brothers which, in turn, endorsed the certificate to Richard Fritz.

Fritz placed the certificate in the hands of his stockbrokers, solely for the purpose of enabling them to exhibit it to evidence Fritz’s creditworthiness. The brokers used the certificate to substitute for other security that they had pledged with their bank. When doing so, the brokers affixed to the certificate a blank power of attorney, bearing the forged signature of Fritz. In the subsequent bankruptcy of the brokers, Fritz sought the return of the certificate, free of any claims, including those of the bank.

The Court held that the bank acquired no interest in the stock represented by the certificate, saying, in part, “As against the true owner, a right of property cannot be acquired by means of a forged written instrument relating to such property.” 217 U.S. at 135 , 30 S.Ct. at 490 , 54 L.Ed. at 698 . ⁵⁷⁸ In re Baxter relied exclusively upon Bettman in holding that a deed of trust, executed pursuant to a forged power of attorney, was a nullity. The owner of the subject District of Columbia property was not competent to handle her affairs and had given her son a general power of attorney. In order to convey realty, pursuant to a power of attorney, a statute required that the power be executed in the same manner as a deed. The son forged his mother’s signature to a limited power of attorney that specifically applied to the subject property, both by legal description and street address.

A notary public certified that the mother had acknowledged the limited power of attorney. Using the power, the son borrowed on the security of the subject property. In an adversary proceeding in the mother’s bankruptcy, the holder of the deed of trust note claimed, by a summary judgment motion, that its lien was valid. The court found no negligence on the lender’s part, but summary judgment was denied based on the forgery rule.

Citing only Bettman on the forgery issue, the court said that “[a] deed cannot be deemed valid based on a power of attorney that itself is a nullity.” 320 B.R. at 39 . Thus, the certified question, in essence, asks whether this Court will extend the forgery rule. For the reasons set forth below, we shall not. Forgery or False Pretenses?

SBRC challenges the premise of the certified question, contending that the deed to Matthews was not the act of SBRC because Johnson had no authorization to act for it, and that such an unauthorized act constitutes forgery. Morgan correctly points out that the certified question does not ask if the deed was a forged document, and, indeed, the question states that the signature on the deed was not a forgery. Consequently, Morgan contends that we should not address whether Johnson’s lack of authority produces a forged deed. Nevertheless, we shall address SBRC’s argument because analysis of it is fundamental to answering the question as asked. ⁵⁷⁹ In Harding , the Court of Special Appeals looked to the common law of crimes to determine whether the alteration in that civil case constituted forgery, and cited Smith v. State, 7 Md.App. 457, 460-61 , 256 A.2d 357, 360 (1969), and Perkins, Criminal Law, ch. 4, § 8 (2d ed.1969).

Harding, 20 Md.App. at 212 , 315 A.2d at 134 . Pertinent here is Reese v. State, 37 Md.App. 450 , 378 A.2d 4 (1977), aff'd, 283 Md. 86 , 388 A.2d 122 (1978), where Judge Moylan discussed for the court the forgery-false pretenses distinction. The opinion quoted favorably from Clark & Marshall, The Law of Crimes, at 845-46 (6th Wingersky ed.), as follows: “ ‘[I]t is not forgery for a person to sign his own name to an instrument, and falsely and fraudulently represent that he has authority to bind another by doing so, or for a person to sign another’s name “by” himself as attorney in fact, for in such a case the instrument is not falsely made, but is just what it purports to be, and the signer is guilty of false pretenses only.’ ” Reese, 37 Md.App. at 454 , 378 A.2d at 7 . The general rule at common law appears to be that a misrepresentation of authority to sign does not make an instrument false and, thus, not a forgery.

In Gilbert v. United States, 370 U.S. 650 , 82 S.Ct. 1399 , 8 L.Ed.2d 750 (1962), the Court considered whether the petitioner had violated 18 U.S.C. § 495 prohibiting forgery for the purpose of obtaining a sum of money from the United States. Gilbert, an accountant, had come into possession of income tax refund checks for his clients, a husband and wife. He endorsed the checks in their names, followed by his name, describing himself as “ ‘Trustee.’ ” Because the case had been tried on an agency-endorsement theory, the Court treated the endorsement as if it read “by” Gilbert, “Trustee.” The Court reviewed the common law of forgery, going back to Regina v. White, 2 Car. & K. 404, 175 Eng. Rep. 167 (1847), where it was said that “ ‘indorsing a bill of exchange under a false assumption of authority to indorse it per procuration, is ⁵⁸⁰ not forgery, there being no false making.’ ” Gilbert, 370 U.S. at 655 , 82 S.Ct. at 1402 , 8 L.Ed.2d at 754 .

The Gilbert Court said that the view of forgery, under which a false assumption of authority was not forgery, has been followed “in most of the state and federal courts in this country.” Id. at 657 , 82 S.Ct. at 1403 , 8 L.Ed.2d at 755 . The Court noted that the forgery-false pretenses distinction also had been made in cases construing “forge” in other federal statutes. In conclusion, the Court said: “Where the ‘falsity lies in the representation of facts, not in the genuineness of execution,’ it is not forgery.” Id. at 658 , 82 S.Ct. at 1404 , 8 L.Ed.2d at 756 (quoting Marteney v. United States, 216 F.2d 760, 763-64 (10th Cir. 1954), cert. denied, 348 U.S. 953 , 75 S.Ct. 442 , 99 L.Ed. 745 (1955)). 4 Gilbert was the lead citation in State v. Reese, 283 Md. at 94 , 388 A.2d at 127 , for the proposition that “[a] document is not considered false for purposes of the law of forgery merely because it contains a false statement of fact. The falsity required by the common law and the statutes refers to the genuineness of the execution of the document itself; that is, there must be a false making.” Reese also cited, for that proposition, Gaucher v. State, 113 Neb. 352, 354 , 204 N.W. 967, 968 (1925), where that court said: “The decisions are nearly unanimous that the making of a false instrument is not within a criminal statute directed against the false making of an instrument.

This is not a mere play on words.” Reese, 283 Md. at 94 , 388 A.2d at 127 . The argument that SBRC presents here was rejected by the Court of Appeals of New York in 2004. See People v. Cunningham, 2 N.Y.3d 593 , 780 N.Y.S.2d 750 , 813 N.E.2d 891 (2004). There, a consultant for Herkimer Precut, Inc. signed checks, drawn on the corporate account, for personal expenses ⁵⁸¹ and was convicted of forgery.

The court framed the issue as follows: “The People contend that Herkimer Precut is the ostensible maker because its name appears on the check as owner of the account. Further, they argue