Scotch Bonnett Realty Corp. v. Matthews

• Decision Date: 21 January 2011
• Docket Number: Misc. No. 4, Sept. Term, 2010.
• Parties: SCOTCH BONNETT REALTY CORPORATION v. Cateania MATTHEWS et al.
• Court: Maryland Court of Appeals

11 A.3d 801
417 Md. 570

SCOTCH BONNETT REALTY CORPORATION
v.
Cateania MATTHEWS et al.

Misc. No. 4, Sept. Term, 2010.

Court of Appeals of Maryland.

Jan. 21, 2011.

11 A.3d 801

J. Michael Broumas (Broumas Law Group LLC, Ellicott City, MD), on brief, for appellant.

Susan Zuhowski (F. Robert Troll, Jr. of O'Malley, Miles, Nylen & Gilmore, P.A., Calverton, MD), on brief, for appellee.

Argued before BELL, C.J., BATTAGLIA, GREENE, MURPHY, BARBERA, JOHN C. ELDRIDGE (retired, specially assigned), and LAWRENCE F. RODOWSKY (retired, specially assigned), JJ.

11 A.3d 802

LAWRENCE F. RODOWSKY (retired, specially assigned), J.

417 Md. 572

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.

417 Md. 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 Hackerman." 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.

11 A.3d 803

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

417 Md. 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

417 Md. 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

11 A.3d 804

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,

417 Md. 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 trickery[,] 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

417 Md. 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 bona 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

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