Smith v. Merritt Savings & Loan, Inc.

Barnes, J., delivered the opinion of the Court. Although many of the facts in this appeal are bizarre, there is a single question presented for our decision, i.e., whether the Circuit Court for Cecil County, in Equity (Rasin, C. J.), erred in finding that the appellant, Robert Lee Smith, was bound by ratification on a mortgage for $8,500.00 to the appellee, Merritt Savings and Loan, Inc. (Merritt), executed by Mary E. Smith, the appellant’s wife, in their joint names, acting, so far as Mr. Smith was concerned, upon a purported power of attorney upon which Mr. Smith’s name was forged. Mr. and Mrs. Smith were married in 1952. They purchased, as tenants by the entireties, the “home place” near North East, Maryland in 1954 for approximately $4,000.00, which was finally paid for in 1959.

They have three children, aged 18, 10 and 9 years, respectively. Mr. Smith was employed by the Thiokol Corporation in Elk-ton. He was 39 years old at the time of trial on November 29, 1971. His formal education ceased at the end of the eleventh grade.

He indicated that he could read and write “a little.” In 1965, they purchased, also as tenants by the entireties, a restaurant property, also near North East. Mrs. Smith became actively engaged in its operation between March, 1966 and June, 1967. Mr. and Mrs. Smith ⁵²⁸ had two joint bank checking accounts, subject to withdrawal by either, one in the Elkton Banking and Trust Company, the other in The First National Bank of North East. Prior to the purchase of the restaurant property, Mr. Smith had been generally responsible for the family finances and managed them in a frugal manner.

An accountant was employed to keep track of the finances of the restaurant venture. Mrs. Smith was not gainfully employed during the marriage except for a six-month period when she worked for RMR Corporation which had a plant near Elkton. The Smiths invested approximately $10,000.00 in the restaurant business of which $6,000.00 was borrowed from the Elkton Banking and Trust Company. In'April, 1967, an additional $2,000.00 was borrowed from the same bank to purchase an ice cream machine.

This $2,-000.00 was spent but Mr. Smith testified that he did not know that it had been spent or for what; but he never received the ice cream machine. Mr. Smith gave several explanations in regard to why the restaurant closed in July, 1967: (1) the building needed to be repaired; (2) Mrs. Smith was going into the catering business for the Thiokol Corporation because she had become friendly with Mr. Crosby, the Chairman of the Board of that corporation; and, (3) Mrs. Smith told him that Mr. Crosby had been kidnapped and this put an end to the catering portion of the restaurant business. Mr. Smith, however, stated that he had never checked to ascertain whether his wife’s story about the Crosby kidnapping was true, even though, as we have stated, Mr. Smith was employed by the Thiokol Corporation. In November, 1967, Mrs. Smith effected a fraudulent scheme to obtain money from Merritt.

She applied to Merritt for an $8,500.00 mortgage loan on both the home property and the restaurant property, signing the loan application in her own name. When she appeared at the settlement without her husband, the settlement attorney, ascertaining that Mr. Smith was then living, post ⁵²⁹ poned the settlement and prepared a power of attorney, in conventional form, from Mr. Smith to his wife. He gave this form to Mrs. Smith for execution by her husband after being told by her that Mr. Smith was very ill and could not be present at settlement. On the second date set for settlement, November 14, 1967, Mrs. Smith either forged or procured the forgery of her husband’s name to the power of attorney, which specifically included a power to borrow money on real property owned by the Smiths as tenants by the entireties and to execute promissory notes, as well as to execute, acknowledge and deliver mortgages upon the real estate with the usual power of sale, assent to decree and any other provisions and covenants Mrs. Smith might deem to be proper.

Mr. Smith’s purported signature to the power of attorney was supposed to have been witnessed; but the signature of the alleged witness is illegible. The blank for the date of execution in November, 1967 was left blank. The power of attorney, however, appears to have been notarized on November 14, 1967, by a notary public of New Castle, Delaware, the acknowledgement reciting the personal appearance of Mr. Smith before the notary. The chancellor found — and it is not disputed— that Mr. Smith never signed or acknowledged the power of attorney.

On November 14, after the “execution” of the power of attorney, Mrs. Smith appeared at the office of the settlement attorney to complete the mortgage loan. She delivered the power of attorney, signed her name to the mortgage as attorney in fact and also, signed her husband’s name. The following day, November 15, the power of attorney and mortgage were duly recorded among the Land Records of Cecil County. The mortgage was for $8,500.00, for which credit was given on the settlement sheet, dated November 14, 1967.

The expenses deducted aggregated $955.35 and included a “Loan commitment fee” of $340.00 and an “Initial service charge & entrance fee” of $255.00. Both of these items were disallowed by the chancellor. Merritt not ⁵³⁰ having filed a cross-appeal, the propriety of the disallowance of these two items is not before us and we do not decide this matter. Under the heading, “LOAN DISBURSEMENTS MADE OR TO BE MADE,” appear three items, two of which are “Open taxes 347.74” and “Barnes Real Estate Co. 510.00,” the latter being a “finder’s fee” for the placement of the mortgage.

This item was allowed by the chancellor and apparently is not in dispute before us as an allowable item. The net amount payable to the mortgagors was $6,242.65 for which a check was issued payable to “Robert L. Smith and Mary E. Smith.” The settlement sheet stated that the “undersigned acknowledged the receipt of a copy of this loan settlement statement, agrees to the correctness thereof . . . and authorizes and ratifies the disbursements of the funds as stated therein.” It was signed “Robert Lee Smith by Mary Elizabeth Smith” and “Mary Elizabeth Smith.” The $6,242.65 check was certified on November 16, 1967, and deposited in the joint account of the Smiths in The First National Bank of North East on the following day, November 17. The endorsement of Mr. Smith’s name is obviously in the handwriting of Mrs. Smith, whose endorsement appears immediately below the purported endorsement of Mr. Smith. After the deposit of the mortgage proceeds on November 17, strange things began to happen.

Almost immediately — November 17 or 18 — the Conowingo Power Company delivered at the Smith home a new refrigerator paid from the mortgage proceeds by a check drawn by Mrs. Smith on the joint account. Mr. Smith observed the refrigerator and conceded that “It looked like it was on the new side.” He testified that he inquired of Mrs. Smith where it came from and that she replied that it came from Mr. Crosby, Chairman of the Board of Thiokol, who had stated to her that his wife had died leaving him with a large home and personal property he did not need and inasmuch as it was unbecoming for a man in his position to try to sell the property “to get $10 out of ⁵³¹ a refrigerator or something like that, so he told her she could have this.” A few days later on November 20, Miller’s Furniture Store of Newark, Delaware, delivered at the Smith home some $1,358.00 worth of furniture, including a sofa, a chair, a rocking chair, a dresser, a mirror and a maple chest. Shortly thereafter, the Elkton Furniture Mart delivered a $200.00 Coleman Space Heater and a $150 gun cabinet to the Smith home. Mr. Smith stated in his testimony that Mrs. Smith told him that these items came from Mr. Crosby’s place.

He also stated that all of these things were “junk,” but later qualified this statement by saying, “Well, it might not have been junk at the time but it wasn’t up to my standards, if I was going to pick stuff myself.” When it was suggested to him on cross-examination that it appeared that “this wealthy man’s wife, Mr. Crosby’s wife, had cheap furniture, if he was chairman of the board of Thiokol,” Mr. Smith replied : “Might have been. Maybe he had it in rooms that he never used.” On November 22, the Elkton Supply Company delivered a pool table to the Smith home. Mr. Smith helped to unload it and must have known where it came from. Nevertheless, he testified that as far as he knew, “it came from the same place,” namely, Mr. Crosby’s.

There is nothing in the record to indicate that Mr. Smith ever thanked Mr. Crosby for his supposed gifts or, indeed, sought to get in touch with Mr. Crosby for any purpose. Mrs. Smith, on November 23, returned home in a new Ford automobile which replaced the new Ford she had rented in September, 1967. She paid for the rental of this second new Ford automobile from the mortgage proceeds until December 29, 1967. According to Mr. Smith, she had this automobile because it “was an FBI car, it was bullet proof, and because my kids were in so much danger, and this, that and the other, that they would be safe riding in it, and this, that and the other, rather than they would in my Volkswagen.” Mr. Smith testified that he believed this, but admitted that “some ⁵³² body holding up a large plane, or something, or taking over a whole plane, is just as far out as far as I am concerned as this is.

But that is something else.” Mr. Smith stated in his deposition that he believed his wife’s statement that she was working for the FBI and testified at trial that he personally checked with the FBI in March, 1967 and had verified that Mrs. Smith had worked for the FBI. There is, however, no corroboration of this in the record and the FBI, in fact, had nothing to do with the automobile. $857.97 was paid from the mortgage proceeds for the automobile rental. During a three-month period, the automobiles were driven almost 6,000 miles by either Mr. or Mrs. Smith, Mr. Smith stating that he doubted that he was “in them a hundred or a hundred fifty or two hundred miles.” During the November period, Mickey Mouse watches and pendant watches for Mrs. Smith and the children were delivered at the Smith home by Colonial Jewelers. Mr. Smith was uncertain in regard to/whether they came from Mr. Crosby or were presents from the FBI.

A set of new dishes arrived allegedly from Mr. Crosby and a home movie outfit from Colonial Jewelers and a color TV set from Ritter Finance Company were also delivered at the Smith home. In January, 1968, Mr. Smith was behind in the payments on his Volkswagen. Although notices were sent by the bank that his payments were overdue, Mr. Smith claimed that he never received them. The Volkswagen was repossessed in February, 1968 but Mr. Smith stated that he knew nothing of the repossession in spite of the fact that he was behind in his payments; he knew he was behind in them and one day he found that he did not have the automobile.

Mrs. Smith, however, had an explanation for the absence of the car, i.e., “. . . these people that was working as FBI was supposed to have used the car, they was going to catch somebody, or was going to help catch somebody with this car, with my Volkswagen, that is the way I understood it.” Mrs. Smith, in fact, arranged to have the Volkswagen refinanced in ⁵³³ the total amount of $927.00 with the Elkton Banking and Trust Company and, to accomplish this, used the purported power of attorney on which the forged signature of Mr. Smith appeared. Mrs. Smith nevertheless denied in her testimony that she had any part in the refinancing and stated that she “wouldn’t even know how to go about it.” In response to a question from the chancellor, Mrs. Smith stated that although she did not know who refinanced the Volkswagen, she thought she had the reason why it was done, as follows: “Because I say they had to do it because they knew that Bob wouldn’t let go very long having his car taken away and not brought back without going and investigating it. I say that they had to cover that up to not be found out. Because if that had been brought out in the open everything else would have been brought out in the open, way before it did, before we decided that we had just had enough, and we were going to the police in town.

But when you think that you are talking to an FBI man, or talking to quite a few of them, and they have identification there, you do not go to a town officer or a sheriff when you think that you are talking to somebody that might be superior to them. You just don’t do it. That is why we didn’t go to one before.” In the meantime, the payments on the $8,500.00 mortgage, beginning on December 1, 1967, had not been made. The mortgagee, Merritt, mailed