Espinosa v. Martin

• Decision Date: 19 October 1999
• Docket Number: No. COA98-1491.,COA98-1491.
• Citation: 135 NC App. 305,520 S.E.2d 108
• Court: North Carolina Court of Appeals
• Parties: In re the Foreclosure of a Deed of Trust of Jamie ESPINOSA and Wife, Cheri Espinosa v. Hayes MARTIN, Trustee and Robert Tucker, Substitute Trustee.

520 S.E.2d 108

135 NC App. 305

In re the Foreclosure of a Deed of Trust of Jamie ESPINOSA and Wife, Cheri Espinosa v. Hayes MARTIN, Trustee and Robert Tucker, Substitute Trustee.

No. COA98-1491.

Court of Appeals of North Carolina.

October 19, 1999.

John R. Sutton, Candler, for Blue Ridge Savings Bank, Inc., petitioner appellant.

Hunter, Large & Sherrill, P.L.L.C., by Raymond D. Large, Jr. and Diane E. Sherrill, Sylva, for Jamie Espinosa and wife, Cheri Espinosa, respondent appellees.

HORTON, Judge.

An action for foreclosure under power of sale provides an alternative to "costly and ... time-consuming ... foreclosure[s] by action...." In re Watts, 38 N.C.App. 90, 94, 247 S.E.2d 427, 429 (1978). At the initial hearing before the clerk of superior court, the clerk is to "find the existence of a `(i) valid debt of which the party seeking to foreclose is the holder, (ii) default, (iii) right to foreclose under the instrument, and (iv) notice to those entitled....'" Id. at 93, 247 S.E.2d at 429. See also N.C. Gen. Stat. § 45-21.16(d) (1996). The role of the clerk is limited to making findings on those four issues. If the foreclosure action is appealed to the superior court for a de novo hearing, the inquiry before a judge of superior court is also limited to the same issues. Id. at 94, 247 S.E.2d at 429.

Here, the issue before the superior court on appeal was whether there was a "valid debt" of which the Bank, was the holder. The superior court found that Jamie Espinosa and Cheri Cagle Espinosa did not execute any of the loan documents in question, including the promissory notes. None of the parties to this appeal disagree with that finding, appellant Bank contending that Charles E. Cagle, father of Cheri Cagle Espinosa, forged the signatures of the Espinosas in order to secure the loans in question. We note that the superior court did not make a finding as to the identity of the forger of the loan documents, that question not being relevant to the limited issues before that court on appeal. Even if we assume for the purposes of argument that Cheri Espinosa's father, Charles E. Cagle, forged the instruments in question, our reasoning and decision would remain the same.

The Bank argues, however, that even if the Espinosas did not participate in the loan transactions, they ratified the loan transactions by retaining the benefits of those transactions after learning that their signatures had been forged on the loan documents. We disagree, and affirm the judgment of the superior court.

We have defined ratification as

"the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him." Restatement (Second) of Agency § 82 (1958). "Ratification requires intent to ratify plus full knowledge of all the material facts." Contracting Corp. v. Bank of New Jersey, 69 N.J. 352, 361, 354 A.2d 291, 296 (1976). It "may be express or implied, and intent may be inferred from failure to repudiate an unauthorized act ... or from conduct on the part of the principal which is inconsistent with any other position than intent to adopt the act." Id.

American Travel Corp. v. Central Carolina Bank, 57 N.C.App. 437, 442, 291 S.E.2d 892, 895, disc. review denied, 306 N.C. 555, 294 S.E.2d 369 (1982).

"[T]o constitute ratification as a matter of law, the conduct must be consistent with an intent to affirm the unauthorized act and inconsistent with any other purpose." Id. at 443, 291 S.E.2d at 896. The superior court found no evidence that any portion of the loan proceeds passed to the Espinosas, or that they knew of the loan transactions until the foreclosure was instituted and those findings are supported by competent evidence. Further, there was no evidence that Charles E. Cagle acted as agent of the Espinosas in obtaining the loan secured by their real property, and no evidence that any legal obligation of the Espinosas was satisfied from the loan proceeds. Further, the trial court found that none of the loan proceeds were used to purchase the real property deeded to the Espinosas, and that they did not directly or indirectly benefit from the loan transactions in any way. Those additional findings are also supported by competent evidence of record. The trial court concluded that the Bank failed to prove by the greater weight of the evidence that "Jaime [sic ] and Cheri Espinosa, or either of them, knew all of the facts material to the loans in question prior to the time of the institution of this foreclosure proceeding." Further, the trial court concluded that the Espinosas "did not ratify any of the transactions or documents associated with the loans in question."

The Bank contends that as a matter of law the Espinosas ratified the loan transactions by retaining the Jenkinson and Cagle properties after they learned that their signatures had been forged on the loan transactions. The Bank bases its contention on the decision of our Supreme Court in O'Grady v. Bank, 296 N.C. 212, 250 S.E.2d 587 (1978). In O'Grady, one Pridemore had a power of attorney given him by Stewart. Based on that power of attorney, Pridemore signed Stewart's name to a promissory note. The Supreme Court held that Pridemore's action exceeded his authority as set out in the power of attorney, thus Stewart's signature on the note was clearly unauthorized. However, the case was remanded to the trial court to determine whether Stewart ratified the unauthorized actions of Pridemore by (1) taking control of bank accounts containing a portion of the loan proceeds, (2) with knowledge of the source of funds in the bank accounts, and (3) with knowledge that his name had been signed on the promissory note by Pridemore. Id. at 235-36, 250 S.E.2d at 602. The present case is clearly...