Shappy v. Downcity Capital Partners

• Decision Date: 16 June 2009
• Docket Number: No. 2008-175-Appeal.,2008-175-Appeal.
• Citation: 973 A.2d 40
• Parties: Robert SHAPPY v. DOWNCITY CAPITAL PARTNERS, LTD., et al.
• Court: Rhode Island Supreme Court

973 A.2d 40

Robert SHAPPY v. DOWNCITY CAPITAL PARTNERS, LTD., et al.

No. 2008-175-Appeal.

Supreme Court of Rhode Island.

June 16, 2009.

Timothy Dodd, Esq., for Plaintiff.

Patricia Buckley, Esq., Providence, Downcity Capital Partners, Ltd., Kate Moran, Esq., RESOL, LLC, for Defendant.

Present: GOLDBERG, Acting C.J., FLAHERTY, SUTTELL, ROBINSON, JJ., and WILLIAMS, C.J. (ret.).

OPINION

Justice FLAHERTY, for the Court.

The plaintiff, Robert Shappy, appeals from the Superior Court's grant of motions for summary judgment entered in favor of the defendants, Downcity Capital Partners, Ltd. and RESOL, LLC (collectively defendants).¹ Before this Court, the plaintiff contends that the issue of whether he was negligent when he signed a quitclaim deed that conveyed property to his son-in-law, Douglas P. Cataldo, is a question of fact that should have been decided by a jury. Therefore, the plaintiff argues that the hearing justice erred when he granted summary judgment in favor of the defendants. This case came before the Supreme Court for oral argument on May 13, 2009, pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not summarily be decided. After hearing the parties' arguments and after considering the memoranda submitted by counsel, we are satisfied that cause has not been shown. Accordingly, we will decide the appeal at this time. For the reasons set forth in this opinion, we affirm the judgments of the Superior Court.

Facts and Travel

On December 9, 2005, plaintiff signed a quitclaim deed that on its face conveyed real property at 87 Belfield Drive in Johnston to Cataldo. The plaintiff contends that Cataldo, who was a mortgage broker, fraudulently induced him into signing the instrument. He asserts that Cataldo accomplished that trickery by agreeing to help his father-in-law obtain pre-approval for a mortgage loan for another house that plaintiff had contracted to purchase, also on Belfield Drive. The plaintiff said that Cataldo told him that he might be required to pledge some property to secure pre-approval for the loan. Cataldo allegedly told his father-in-law that it was "only if we need it," and plaintiff insists that he relied on Cataldo's representations that the document was for this limited purpose. The plaintiff said that he did not believe that he was conveying the property to Cataldo, but instead thought that he was signing a document that merely verified that he owned it. However, he did concede that when Cataldo presented him with the document, he saw that it was entitled "Quit-Claim Deed," that it contained a notary clause, and that he did not read it in its entirety. He said that although he did not normally sign documents without first reading them, he did so on this occasion because he trusted his son-in-law.

It appears that Shappy's confidence was misplaced. On January 24, 2006, after Cataldo recorded the quitclaim deed in the Land Evidence Records, he entered into a term mortgage loan with Downcity, borrowing $110,000 and executing a promissory note that was secured by the property.² There seems to be no dispute that Downcity believed that the quitclaim deed was genuine, that it had been properly executed, and that Cataldo owned the property. On February 1, 2007, Cataldo defaulted on the terms of the promissory note with Downcity. Just over a month later, Cataldo granted a second mortgage on the property to RESOL to secure a loan in the amount of $50,000. RESOL also relied on the validity of the deed, properly recorded in the Land Evidence Records, and, like Downcity, it did not have any knowledge of Cataldo's purported fraud against his father-in-law. As a consequence of Cataldo's default on the loan, Downcity scheduled a foreclosure sale for June 20, 2007.

The plaintiff learned of the foreclosure sale when he saw the notice of it in the newspaper. On June 15, 2007, he commenced an action in the Superior Court against Downcity and Cataldo. In his verified complaint, plaintiff asserted that Cataldo fraudulently induced him into signing the quitclaim deed and he requested punitive damages for this malicious conduct. The plaintiff also sought to enjoin Downcity's pending foreclosure sale and he requested that the court vacate and declare both the quitclaim deed and the mortgage deed to be void. Downcity answered the verified complaint, and it also filed a cross-claim against Cataldo for the amount owed under the loan.³

RESOL filed a motion to intervene in the case, and that motion was granted. RESOL then filed an answer and a cross-claim against Cataldo for the amount owed under the second loan secured by the property. On January 15, 2008, pursuant to Rule 56 of the Superior Court Rules of Civil Procedure, Downcity filed a motion for summary judgment with respect to plaintiff's claims against it as well as its cross-claim against Cataldo. Subsequently, RESOL joined in Downcity's motion. The plaintiff filed an objection to Downcity's motion for summary judgment. In an accompanying affidavit, plaintiff said that he had not intended to convey the property to Cataldo and that he believed that his signature on the quitclaim deed was merely part of the process to secure a loan for the property that he had agreed to purchase. The plaintiff also asserted, for the first time, that the language of conveyance was not present in the document when he signed it.⁴

The Superior Court held a hearing on Downcity's motion for summary judgment on March 3, 2008. The plaintiff did not dispute that Downcity and RESOL lacked any knowledge of Cataldo's allegedly fraudulent behavior. Instead, he relied on this Court's opinion in Dante State Bank v. Calenda, 56 R.I. 68, 183 A. 873 (1936), contending that even a bona fide purchaser may not enforce its rights under an instrument if the signer, who was fraudulently induced into signing the instrument, was free of negligence. The plaintiff contended that summary judgment did not lie because any negligence on his part in signing the quitclaim deed was a question of fact that must be decided by a jury. The defendants conceded that Cataldo fraudulently secured Shappy's signature on the quitclaim deed; however, they argued that plaintiff was negligent by signing the deed without completely reading it or, alternatively, by signing a blank deed. The defendants contended that such conduct demonstrated that plaintiff was negligent as a matter of law, thus making summary judgment appropriate.

The hearing justice first granted Downcity's motion on its cross-claim against Cataldo for the amount owed under the loan. Turning to the motion against plaintiff, the hearing justice ruled that Downcity and RESOL were bona fide purchasers who were unaware of any impropriety surrounding Cataldo's ownership of the property. The hearing justice said that plaintiff's actions "set in motion the instrumentality that ultimately here caused the bona fide purchasers to extend the financial accommodations they did to Mr. Cataldo in exchange for the promissory notes and the security received by them; that is to say, the first and second mortgages [on the property]." Therefore, the hearing justice granted summary judgment in favor of Downcity and RESOL. Final judgment was entered for Downcity on March 4, 2008. The plaintiff timely appealed. Final judgment was entered for RESOL on March 11, 2008.⁵

Standard of Review

"This Court reviews the granting of summary judgment de novo and applies the same standards as the motion justice." Carrozza v. Voccola, 962 A.2d 73, 76 (R.I. 2009) (quoting McAdam v. Grzelczyk, 911 A.2d 255, 259 (R.I.2006)). Summary judgment is appropriate when, after viewing the admissible evidence in the light most favorable to the nonmoving party, "no genuine issue of material fact is evident from `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' and the motion justice finds that the moving party is entitled to prevail as a matter of law." Smiler v. Napolitano, 911 A.2d 1035, 1038 (R.I.2006) (quoting Rule 56(c)).

Analysis

Based on our de novo review, we conclude that plaintiff has failed to establish a genuine issue of material fact and that defendants are entitled to judgment as a matter of law. The hearing justice said that defendants were "essentially bona fide purchasers without knowledge or any information * * * that Mr. Cataldo was anything other than the full fee owner of the real estate situated at 87 Belfield Drive." The defendants were entitled to rely on the validity of the deed as recorded in the Land Evidence Records. See 27 Williston on Contracts § 70:47 at 343 (Richard A. Lord 4th ed. 2003) (purchasers of real property "have a right to rely on recorded public records"). The purpose of recording statutes is to provide protection to those diligent enough to conduct a search of the title records. See Domarad v. Fisher & Burke, Inc., 270 Cal.App.2d 543, 76 Cal.Rptr. 529, 536 (1969) (describing purpose of recording statutes as giving "notice to prospective purchasers or mortgagees of land of all existing and outstanding estates, titles or interest, whether valid or invalid, that may affect their rights as bona fide purchasers"). Rhode Island has long recognized the defense of bona fide purchaser for value and the protections to which such a purchaser is entitled. See, e.g., Coombs v. Aborn, 29 R.I. 40, 68 A. 817 (1908); Babcock v. Wells, 25 R.I. 23, 54 A. 596 (1903); Arnold v. Carpenter, 16 R.I. 560, 18 A. 174 (1889). A bona fide purchaser is a purchaser for value, in good faith, and without any knowledge of adverse claims.⁶ See Fleckhamer v. Fleckhamer, 50 R.I. 363, 366-67, 147 A. 886, 888 (1929). "The theory behind the rule is to protect innocent purchasers and to allow them to obtain and convey unsullied interests." Sun Valley Land and Minerals, Inc. v. Burt, 123 Idaho 862, 853 P.2d 607, 611 (Ct.App.1993).

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