*1 review the calendar for upcoming weeks and to address other issues the firm is facing, and a revised procedure for screening possible Also, new Respondent cases. notes that he implemented improved process for termination of represen- tation and now assigns two attorneys to each client’s file to protect against delays communication with the client and/or a court.
While we note
Respondent’s
grave,
violations are
they
do
David,
not match in severity the situation in David.
Md.
IT ORDERED; IS SO RESPONDENT SHALL PAY ALL COURT, COSTS AS TAXED BY THIS INCLUDING THE TRANSCRIPTS, COST OF PURSUANT TO MARY- LAND RULE 16-761 FOR WHICH SUM JUDGMENT IS ENTERED IN FAVOR OF THE ATTORNEY GRIEV- ANCE COMMISSION AGAINST EPHRAIM UGWUONYE.
Court Maryland. July *3 George LLC, E. Meng (Meng Marlboro), & Alpert, Upper brief, on for Petitioner. (Anne Pillsbury, E. Win- Langford
Matthew J. MacLean Pittman, DC), brief, Shaw, LLP, Washington, throp, Respondents. BELL, *RAKER, HARRELL, C.J., BEFORE
ARGUED GREENE, MURPHY, DALE R. BATTAGLIA, CATHELL, (retired, specially assigned), JJ. (retired, CATHELL, Judge specially assigned).
DALE R. Hand, Property T. Successor Guardian Patrick Smith, two as fol- presents questions D. petitioner, Clifton lows:1 GUARDIAN, A DOES AGAINST
I. WHERE CLAIM IS OF TO THE DEFENSE OF LACK LEGAL CAPACITY COURSE, A DUE AS HOLDER IN THE CLAIM OF ARTICLE, § 3- LAW OUT IN COMMERCIAL SET 305(a)(l)(ii), RELATE TO AN INDIVIDUAL’S ONLY MENTAL STATE? OF ILLEGALITY TO THE DOES THE DEFENSE
II. DUE SET OUT OF A HOLDER IN COURSE AS CLAIM ARTICLE, 3-305(a)(l)(ii), § RE- IN COMMERCIAL LAW A THERE IS LATE ONLY TO SITUATIONS WHERE THAT IN- EXPRESSION AN DIRECT STATUTORY ITSELF, STRUMENT, ARISING FROM A PARTICU- IS LAR CONTRACT OR TRANSACTION VOID?
*
J.,
retired,
Raker,
hearing
participated in
and conference of this
now
Court;
being
pursu-
after
recalled
while
of this
case
an active member
Constitution,
IV,
3A,
participated
she
*4
to the
Article
Section
also
ant
adoption
opinion.
of this
the decision and
presented by
respondent
re-phrased
in its
questions,
1.
as
the
The
are as
brief
follows:
authority
sign
negotiable
guardian's
of
a
instru-
"1.
Is a
lack
Ann.,
legal capacity’
synonymous with 'lack of
under Md.Code
ment
3—305(a)( )(ii)?
§
1
Com. Law
negotiable
authority
sign
guardian’s
lack of
a
"2. Does a
'illegality of
an
the transaction’ under Md.Code
instrument create
which,
law,
Ann.,
3—305(a)(l)(ii)
§
under other
nullifies
Com. Law
obligation
Guardianship?”
the
negates any
the
the issues in this case
differences in
Our resolution of
by
parties.
questions
presented
as
the
In the circumstances of this
we
case
answer no to the first
question
question,
to the second
yes
shall affirm the
of
judgment
Special Appeals.2
the Court of
elsewhere,
petitioner,
2. The
as indicated
raised
never
at the trial level
only
issues
At
position
the
it now raises.
that level it relied
on its
that
sign
present-
Cordelia Smith was not
the
authorized
note. Petitioner
i.e.,
different,
(from
general, question
ed a
more
both the defense raised
questions
Court)
at the trial level and the
raised on certiorari to this
at
Special Appeals
appellate
the Court of
the
level. At
intermediate
court
only
determining
it asked
"Did
err
T [Manufac-
the Court
that M &
subject
Co.]
&
by
turers Traders Trust
guardian?”
was not
to the defenses raised
the
only
question
The
issue at the trial level was the
of an
signature
of
unauthorized
under District Columbia law.
i.e.,
guardians
changed,
party,
We note that while the
have
the
changed
of
at
estate
the ward had not
the times at
here.
issue
ward, through
designated
approved guardian,
of
its
estate
and court
and,
such,
party
signature
that
was
affixed the
to the documents
party might
subject
provisions
have been
of the Uniform
("UCC”)
note,
provide
Commercial Code
that
that if the maker of a
intent,
through negligence
creates
situation
where
unautho-
affixed,
signature
estopped
rized
can
he
relying
is
from
on that fact
payment
negotiable
as a defense to
instruments held
a holder
in due
tion,
We
course.
noted
the "check” case of Dominion Construc-
Maryland,
Inc. v. First National Bank
271 Md.
Ms. Smith, child, the court in the by of her Clifton property residing.4 They they where were then District Columbia of a proceeds where the settle- thereafter moved to buy a injuries to were used to them respect ment Clifton’s home. alterations, forged signatures Maryland applies and to unauthorized negligence would altogether that the same standards it is not clear event, may Maryland. signatures in apply to unauthorized negligence problems part of possible presence of on the be that the
well change position petitioner, have it to its between the trial caused Special Appeals Court and this court and the Court of and between that Court. point a promissory at issue was at one secured deed of 3. The note Maryland, assignee property of that deed trust on real situate in (also note) case, this was of trust the holder due course George’s County seeking permission for the Circuit Court Prince situate) (where property. property on that After foreclose below, property was judgment was rendered that real sold pursuant petitioner judgment authorization in this court (or it) part paid (according petitioner payment was a of was "it case coerced”) get respondent’s order consent so that the that was validity longer property could be sold. The sale is no at issue. malpractice 4. Clifton Smith had been victim medical alleged suffering paliy other left in a retarded state and from cerebral him alleged problems. arising malpractice medical His claims out of that provision purchase settled and that settlement included were Clinton, Thereafter, Maryland. he and a home for Clifton Smith in mother, designated guardian, his who was also his became domiciled in Maryland. Thereafter, Smith, Maryland, Cordelia while a resident of *6 contacted a broker for the of mortgage purpose securing bills, the financing pay using property to her of the estate in Smith, Maryland, which was titled as “Cordelia Guardian of Smith, Child,” Clifton Dominick Minor as collateral security for the the She repayment of loan. obtained loan at this $69,000, financing obligatory (prom- first of and executed a bill note) issory and a of Trust Deed as Guardian. She then in immediately almost obtained the amount refinancing of $93,500 i.e., through process, the same the execution of a bill obligatory by a of collaterally secured deed trust and the from guardianship property. proceeds refinancing this used, the part, pay were most to off the first indebtedness. financing The first not transaction is before this Court. It is the only refinancing presently that is at issue.
All of financing the instruments for the and refinancing signed by were capacity Cordelia Smith in her as Guardian of Smith, the of Property Clifton Dominick a Minor Child. Smith, Guardian, Cordelia neglected as obtain permission to in from the court the District of Columbia respect the execution of the deed trust. The law the District of Columbia required get approval jurisdic that she from that tion’s court for such involving transactions the real property of (the her ward. Petitioner guardian), brief, successor in his (2001),5 on § relies D.C.Code 21-157 the parts relevant which are petitioner’s brief, reiterated in as follows: appears
“Where it by proof court that it would be for advantage of the infant raise money by mortgage ... may, court application conveyance decree6 a property, by mortgage deed trust____” Rely Law, 5. Upon Foreign He had filed a Intent identifying Notice of that section of District Columbia Code. The date of the refinanc- 10, 1997, ing July at issue in the case bar applicable at was section code, quoted by petitioner, changed has not since 1997. (1981, § D.C.Code Repl.VoL). 21-157 altogether It not a foreign jurisdiction clear how a court property Maryland "decrees” sale of or enforces its decree issue, however, Maryland, where at is situate in The property required Mary- under the generally, are not approvals, such statutes, land infra. of trust involved here were obligatory
The bill and deed Contimortgage Corpora- creditor to assigned by original T subsequently Contimortgage’s & succeeded to tion and M stated, previously parties As it is conceded all interest. obligatory M T is a holder in due course of the bill that & in the case at bar. issue Smith, meantime, her own upon petition, Cordelia the District of Columbia guardian by as Clifton’s
was removed Patrick T. Clifton’s Successor appointed court and Hand *7 guardianship the proceeding same court.7 No Guardian Maryland, in albeit the at property the State of then existed age this Clifton’s the Upon in State. issue was reaching minor, longer guardianship proceed- he no a new when was Maryland in he was was initiated the State of where ing then been) (and resident, Patrick was ap- had and Hand then proper- Maryland the court the Guardian pointed by under new guardianship. of Clifton Smith ty litigation at came in arrears and Ultimately, the note issue Hand, & against in M T Cordelia Maryland by instituted was Smith, the in and a payment and Clifton default Smith a court seeking count was included Declaratory Judgment on the Deed of right that M & T had the to foreclose order to, fact, T in authorizing was M & sought Trust and an order proceedings. initiate foreclosure proceeding. Maryland, Maryland it absent a court Nor is clear how a examining subsequent land title examiner the records the county or property is know of the existence of where is situate Columbia, or "decrees” of the Courts the District of examine Hawaii, Oregon, or in other state as the case or in Alaska be. guardianship replaced, proceeding While the Guardian was no new 7. time, guardianship action remained the was initiated and same. A judgment against default was entered Cordelia Smith. A Guardianship trial was held. The the grounds defended on money that Ms. Smith had no to borrow on behalf authority and to guardianship property encumber be- guardianship cause of her failure to obtain approval of the District of Columbia encumbering court before even property, though the real property Maryland.8 situate trial court did not rule on whether M T had authority & to institute proceedings foreclosure under the Deed of Trust.9 took, takes, M T position & that because it is a holder it due course would take the bill free obligatory clear of (including the asserted defenses proffered defense that Cordelia Smith had not permission obtained from the documents) court in the District of Columbia execute the (if defect). that M T & no actual had notice the defect it is a M & T prevailed at the trial level on the issue main but was not awarded the attorney’s fees it had sought under the provisions of note.10 Both parties appealed to Court of Special Appeals—the Guardianship alleging for the first time that Cordelia Smith lacked legal capacity to the note sign that the transaction was illegal approval for failure of court the court of the District of T appealed Columbia. M & failure of the legal trial court to award fees. alleges approval required by Petitioner that such court the law of *8 the although, according District of petitioner, compara- Columbia no Maryland. ble statute exists in elsewhere, parties As apparently
9. indicated the type into entered some agreement permitted Guardianship property the the to sell pursuant permission, signing upon court with M & T off on the sale record) receipt (unspecified of a money. certain in the sum of Petition- alleges payoff er that the to M & T was made under duress or coercion (even though order). sale pursuant was made to a court The issue of the existence or non-existence of coercion or is duress not contested by parties case, directly thus is not before the in this Court questions presented albeit our decision on the resolves that issue as well. $130,098.31 M money 10. & T judgment received in its favor of against Guardianship capacity. Ms. Smith in her individual court, Barbera, the Court of Judge In trial for affirming the issues, in rele- saying, Special correctly resolved Appeals, as follows: part, vant & T Bank purchased court found that M
“The [trial] faith, notice that value, in and without good Note for finding sup- That signature. an unauthorized contained T The & evidence by offered M Bank. ported by evidence Note purchased M T Bank had that & showed due appropriate Trust conducted an for value and Deed investiga- purchase. to the investigation prior diligence commitment, which re- of the title tion included a review Smith, A. that the was vested ‘Cordelia Property flected Smith, T Minor Child.’ M & of Clifton Dominick Guardian Fur- Deed Trust— agents also reviewed the Bank’s had a of the order ther, they they copy confirmed that Ms. as Smith Guardian---- appointing moreover, to appel- that there is no merit agree
We have loan documents should raised lant’s claim that various documents raises concern questions.... None of these ----” sign authority Ms. Smith’s as Guardian about A the Guardian- Petition of Certiorari filed Writ Hand Court, granted this which we ship with Manufac- Trust, (2007). No cross- turer’s A.2d Md. was filed M & T. petition
Discussion brief,11 asserts in its as follows: Respondent brief, Promissory Mr. Hand refers to “Throughout his Note,’ Promissory attempting Trust as a ‘Deed of Note onto relating conveyances to real estate laws superimpose Code, Commercial which does not Uniform fact, of trust on the involve real estate.... deed instru Promissory separate and the Note are property case, longer The deed of trust is no at issue this ments. deed of trust Hand has sold and the property, Mr. by petitioner. reply no brief filed There was *9 stage, has At this the case involves the only been released. Note, enforceability Promissory of the the and not enforce- ability of the deed of trust.” Generally, obligatory which agree. by
We bills are secured mortgages separate or deeds of trust are instruments and can Co., proceeded noted in separately. on We Katz v. Simcha Inc., 251 Md. A.2d 555 a case in which it was in argued irregularities that there were District Columbia in respect securing foreclosure sales to deeds of trust the case, in promissory notes at issue the as follows: “The the appellants argument appellee advanced the sued in wrong the cause of action and not sustain a could deficiency suit for a because deed of trust did not pay contain a covenant to the debt. This was action a brought judgment to obtain unpaid balance on promissory by two notes which were two secured deeds of trust.... The action not on the deeds trust but obligation rather on the contained the two notes which were secured the deeds of trust. Appellants have not any authority afforded us with which would us persuade notes, that the appellee, holder of the could not properly proceed separate on the *10 interest, in the notes, with Circuit together on the
owing (Citation omitted.) County.” Montgomery Court Katz, 237-38, A.2d at at 246 251 Md. Bank in American National opined had earlier
We of (1967), 15 that: v. 231 A.2d Maryland Mackey, 247 Md. “ in the itself for the mortgage is one provision ‘There fees, provi- and another and different attorney’s of payment in the notes which were secured subject the same sion on * * * provisions separate two are and The mortgage. the distinct, one to the other. without reference the of for each of them. independent operation field There is an by the debtor’s is evidenced A creditor whose demand upon by mortgage is secured obligation, which personal upon the land, foreclosing mortgage the has the choice thereof, or of the proceeding against the condition breach security. If either to the regard mortgage debtor without satisfying without may be exhausted of the two resources demand, other. Until the may be had resort time, satisfied, the creditor seek at same demand both the independent by separate proceedings, but and debtor, and liability of the of the personal enforcement ” security.’ mortgage foreclosure Bank, 247 324-25, at National 231 A.2d 19 American Md. Drennan, 463, 10 v. 95 Ala. Tompkins favorably from (quoting (1892)). So. Michael, Town Sav. Inst. 81 Md. A. Frederick of a wife’s involving a case the issue primarily relating insolvency questions and the effect rights
dower
transfers, we noted as follows:
of the note of
inquire
legal
as to the
status
“But let us
wife,
declared an
mortgage
and
had been
Wilcoxon
after
necessary
It was not a
preference.
and fraudulent
illegal
a note
mortgage,
of a valid
incident to
execution
given.
mortgage
The
would
any kind should have been
it,
only
if
it was
equally
given,
valid without
have been
note,
was in no sense a
to the
wife
collateral
practice
the note.
almost universal
necessary party to
with her husband
join
in this State has been for the wife to
for the sole
mortgage,
purpose
in the execution of the
dower;
right
her
but
releasing
conveying
potential
in no respect
of this
it was
accomplishment
purpose
of the note.
join
making
that she should
essential
consideration,
are,
unable to lend our
“We
after careful
advanced,
striking
theory
to the
down
sanction
insolvent
preference
as a fraudulent
under our
mortgage
secure,
laws,
note,
mortgage
given
which the
think, upon
the same result. We do not
must also abide
*11
such conclusion follows from
principle
authority,
or
original.)
premises
(Emphasis
stated.”
Town,
499-501,
Guardianship of the of Superior The order of the Court District Colum- Division, Ms. Smith as of appointing bia-Probate Smith, provided part, Clifton Dominick relevant as follows: THE GUARDIAN OF PROP- “ORDER APPOINTING ERTY of the Petition for of
“Upon Appointment consideration Property filed herein Cordelia Smith Guardian 7, 1994, to the satisfaction of the April appearing entitled to of the Guardianship Court that said Petitioner is Smith, Child, of Clifton Dominick Minor born property 19, 1987, and said Cordelia Smith February having person- ally Register for an interview in the Office of the appeared April, Wills; day it is the Court this 14th
“ORDERED, be and she hereby Cordelia Smith of the appointed property Guardian Clifton Dominick Smith, Child, subject to the filing undertaking, Minor $30,000.00, in the sum of surety approved by with Court upon performance conditioned the faithful of her trust. Margaret Hayward] [Signature Judge” A. clear, the it any expressed
As is order did not contain within Guardian, limitations on the nor did it direct powers that, attention to the District of alleged Columbia statute *12 according petitioner, requires prior approval of the court can guardian property before encumber real of a (1974, § Maryland RepLVol.), ward. Code 2001 13-215 of the Article, “If provides Estates and that: the court limits Trusts § on the any power guardian by conferred 15-102 of this article, upon the limitation shall be endorsed his letters 15-102, appointment.” provides, relevant as part, Section follows: fiduciary.
Ҥ 15-102. Powers of (a) Definitions____
(3)(i) means ... a ... ‘Fiduciary’ guardian proper- ty a minor or a person.... disabled func- (b) fiduciary may perform A general.—(1) applica- in this without enumerated section tions and duties of, to, ratification a court.... approval tion (b) in, sell, ex- mortgage, may invest Property.—He any property, personal. real or change, or lease (d) pur- for the may money borrow money.—He Borrow security property pledge property pose protecting loan.... for the
(x) powers.—A inter vivos by guardian Exercise which the power inter vivos may any exercise guardian under an disabled could have exercised person minor or instrument, sell, or lease.” mortgage, including power (1974, § 15-102 of the Repl.Vol., Supp.), Md.Code Estates and Trusts Article. § (1974, 13-219 of the Repl.Vol.), Code Article, provides,
Estates and Trusts as follows: person dealing guardian. with “Protection cause knowledge In the of actual or of reasonable absence exercising his inquire guardian improperly whether the is inquire need not power, person dealing guardian with it and is exercising properly, pro- whether the is power, as if the exercised the guardian properly tected the actual knowl- except every person charged with guardian- limitations endorsed on the letters edge of person A need not see to the ship. proper application of paid guardian.” (Emphasis estate assets or delivered to a added.) (the apparent guardianship
As is from the letters of order of court), the District of Columbia there were no limitations guardianship.12 endorsed on the letters of Moreover, brought the District of Columbia statute that is to our brief, quotation petitioner’s extent to attention which guard- applicable jurisdiction, only power in that addresses the of a *13 Therefore, mortgages applica- ian to execute or deeds of trust. even if (1974, § Repl.Vol.), Code 13-216 of the Article, provides, Estates and Trusts as follows: duties; Liability fiduciary “§ 13-216. for breach rights purchasers.
(a) of a Liability guardian—If power exercise fiduciary is liable for of his improper, guardian breach the minor duty person or disabled or to interested persons resulting damage for or loss to the same extent as a of an express trustee trust.
(b) Rights rights of purchasers—The purchasers with a shall dealing guardian others be determined as necessarily by §in 13-219 and are not affected provided fiduciary duty fact that the breached his in the transaction.” in Due
Holder Course underlying basis for the holder in due doctrine is course succinctly jurisdiction stated in a case from another involving Contractors, Inc., In Georg checks. v. Metro Fixtures (Colo.2008), P.3d the Supreme sitting Court of Colorado Banc, En stated: designed encourage
“The holder due course doctrine is usage the transfer and of checks and facilitate the flow of entity may An as a holder in due capital. qualify course even if the instrument at may passed through issue have (‘The hands of a thief. holder course due is one few who purchasers Anglo-Saxon jurisprudence derive a title from a chain of title good that includes thief links.’) in its (1)
“A holder due course must meet five conditions: (2) holder; it; (3) of a negotiable instrument who took ble, only apply it would to the execution of the deed of trust. In that event, document, nullify were even if it the results would be that property longer securing would no be collateral the note. The obligation ultimate effect would be that evidenced the note would not be secured the collateral—not the note is void or voidable.
391
(5)
(4)
faith;
prob-
of certain
value;
in
without notice
good
omitted.)
(Footnotes
(Citations
lems with the instrument.”
omitted.)
Whittington
Patriot
Georg, Homes, Inc., 06-1068, 06-2129, 2008 Slip Copy, U.S. Dist. Nos. (“[I]f (W.D.La. 11, 2008), 1736820, Vanderbilt April at *6 WL status, to it will be entitled achieves holder in due course note____ undisputed on the It is Vanderbilt payment value, undis # 2 for and it is likewise took Finance Contract note, of any time took the it had no notice that at the it puted alteration, claim, default, or defense signature, unauthorized Swanson, fact.”); In re might have in Whittingtons that the 0708912, (Bkrtcy. 895666 Bkrtcy. Slip Copy, No. WL (“Holder 31, 2008), in status gives March due course N.D.Ill. right negotiable the transferee the to enforce a instrument (i) (ii) duress, lack subject following infancy; to the defenses: (iv) (iii) fraud; legal capacity, illegality; discharge or or in obligor bankruptcy.”). Code, of the Instru- Negotiable Title Subtitle Instruments, ments, in provides part, Enforcement of relevant follows: as
“ in due course’ means the holder of the instru- ‘[HJolder ment if:
(1) to the negotiated The instrument when issued or holder forgery does such evidence of or altera- apparent not bear irregular incomplete tion or is not otherwise so or as to call question authenticity; into its
(2) (i) (ii) value, good took the holder instrument (iv) ... faith without notice that the instrument contains an (vi) signature unauthorized ... without notice that 3-305(a).” § party (Empha- has a defense described added.) sis (1975, § RepLVol.),
Md.Code 3-302 of the Commercial 3-305(a)(l) provides part, Law Article. Section relevant follows: recoupment.
“§ 3-305. Defenses claims (a) ... right obligation party to enforce the of a [T]he subject pay following: instrument (i) (1) A obligor infancy defense of the based on of the (ii) contract, obligor simple to the extent is a defense to a duress, legal lack of or of the capacity, illegality transaction which, law, other nullifies the of the obligation under obli- (iii) gor, obligor sign fraud that induced the the instru- knowledge opportunity ment with neither nor reasonable (iv) terms, character or essential discharge of its its learn ” .... obligor insolvency proceedings (1975, § RepLVol.), Md.Code 3-305 of the Commercial *15 Law Article.
Legal Capacity i.e., Maryland We have not found a case on point, in involving guardian and ward which the facts are suffi to those in the The in ciently present parties similar case. But, their have any briefs not directed us to such cases.13 stated, legal relates whether properly capacity any issue (as guardian legal has the to act acted in capacity guardian case) issue, this of a ward. behalf Related that is the was, fact, whether Ms. question guardian Smith allegation ward this case. There is no that Ms. Smith’s appointment guardian any way as was defective. Accord ingly, proper guardian she was the at all times relevant to this case. however, cases,
There are several
which
of “legal capacity”
explained, involving persons
issue
is
with
different
than that of guardian,
legal
statuses
but whose
capacity
challenged.
early
Several of the
cases involve
persons
incompetent
who were
via lack of
capacity, age
mental
Boehm,
parties disagree
importance
13. The
on the
of Katski v.
249 Md.
(1968).
that him he that was so unfavorable transaction particular incapacity” and having “equitable should be treated as transaction, voided. Court reason should be saying: disagreed, appear---- does not imbecility
“In consisted what this *16 very high no of the witnesses entertained some [T]hat abilities, clearly shown ‘financiering’ it is also opinion of his mentis.... compos was not non that he proof bond, no fraud a if there be gives a weak man ‘[WJhere obtention, not set equity will nor breach of trust its alone, if bond, he obligor for the weakness of the aside the of measure compos mentis. equity Nor will a court be being there understanding capacity, and the size of men’s there is incapacity where thing equitable no such as legal capacity....’
“ ‘If,
observed,
hardship
general
there is a
as has been
cases,
a
class of
it is a consideration
affecting general
If there
justice.
is
Legislature,
not for a court
particular
from
hardship
particular
circumstances of
case,
can
nothing
dangerous
be more
or mischievous
than,
circumstances,
upon
particular
those
to deviate from
”
a general rule of law.’
Wilson,
See,
One of the other earlier cases was
insolvency
case of
Poe,
(1913).
United States v.
120 Md.
“The order now from in proposes terms the like therein, cancellation an absolute upon date named of all existing obligations of the company. These obligations, from the nature and character of the business conducted corporation, respects are some peculiar corpora- tions conducting surety business. For purposes of illus- tration take a guardian’s object bond. The purpose it is to protect the interest of a minor with respect to funds in the the guardian; hands of the ward course not of age may not age, come of so as to be able to maintain an action for a default upon that bond for a number of years. A default may actually have occurred and yet the fact, ward be in ignorance of the not merely at the time of default, 13th, actual but may have been on January continue to be so for still a considerable period of time. No authority any has been cited nor is believed to which go exist will the extent declaring that a Equity Court of has the power, the exercise of an equitable jurisdiction, obligation declare such to be ... void because the ward who designed protected, and who is legal without the capacity to take proceed- *17 ing, has not filed a claim.... out Growing of such condi- tions there a practice, has arisen ... requiring the compa-
395 ” or reserve.... premium ... a reserve ... to maintain nies added.) (Last emphasis
Poe, 94-95, A. at 934. 87 Md. case, Poe present with the certainly point not on
While ability legal relates to the legal capacity illustrates that lack also, incidental to the It legal proceedings. maintain action, upon case, out that the ward’s cause points present upon having subsequent reaching maturity guardian, prior of the malefaction of because appointed bond. guardian’s against prior primarily 255 A.2d Clapp, in Iseli v. Md. One of the issues of a constructive trust. Ms. related to the issue (Mr. litigation) was deceased at the time Iseli Iseli sold at foreclosure had been property being that the claimed (M Associates, A), that M A Inc. & fraudulently obtained & Associa- Building to Laurel mortgaged property had then objected Iseli to the ratifica- George’s County. of Prince tion alleged upon sale based mortgage of a foreclosure tion that her continued attempted argue M & A. She fraud have been notice of a subject property in the should residence noted, A. There we as follows: lack of title M & complete to the ‘supplementary objections’ 1968 she filed “On 19 June ‘Laurel did not have title or claiming ratification of the sale (a) A because M & right bring proceedings foreclosure’ mortgage’ to execute a since legal capacity ‘did not have (b) her, ‘as constructive trustee’ for property it held the in’ M & title was infirmity ‘Laurel had notice of A’s Laurel, went on to purchaser. not therefore a bona fide she property knew or should have known that the allege, person grantor of a other than the and that possession A ‘it was for a given grossly inadequate deed to M & shows consideration.’ 1968 Judge
“On November Shearin overruled Mrs. sale____ objections opinion, Iseli’s to the Filed also was his from which follow: excerpts
‘The as a result of our petitioner, holding Equity 33385, may be able to obtain some against redress (and husband). perpetrator of the fraud her upon her late She will also be entitled to surplus derived from the foreclosure sale involved herein. neither of complete
‘While these avenues lead to relief, must, nevertheless, we for the reasons set forth above, ratify objected the sale to herein.’ Kidd, “In conclusion we think what we said in Wicklein v. ]25[, 780, (1926)[,] 149 Md. 131 A. singular- 424-[ 785] ly apposite here: placed properly
‘[S]he
executed deeds for certain of her
properties
possession
persons
who later bor-
properties
rowed on these
substantial
money
sums of
from apparently
parties.
innocent third
The
we
questions
are concerned with are the rights
parties,
of these third
rights
not the
of the appellant against
person
who
deeds,
induced her to execute these
and as between the
appellant and
parties,
these third
the familiar principle
that, ‘when one
persons
of two
must suffer
loss
action
person,
of a third
the loss should
on him
fall
who has
enabled the third
person
occasion such loss’ must
case,
apply.
In this
the action
appellant
of the
in execut-
ing and delivering the deeds enabled Weissenborn to
and,
mortgage
properties
appellees,
to the
think
as we
value,
these last named are bona
holders for
their
fide
”
claims must prevail
against
those of the appellant.’
Iseli,
667-72,
We also Funger, and the Hills v. Friendship Heights case of the later 339, 341, challenging a case 289 A.2d Md. judicial proceed- district to maintain legal capacity of a tax There, ... i.e., we “Each of the defendants to sue. said ings, legal capaci- ‘lack of objection under [the rule] [raised an] ’ affirm ... because the Committee to sue.... We shall ty Special bring the action.” Court capacity lacked *19 there is a difference between Appeals has also noted Parks, in 60 Kirgan standing legal capacity and lack of 1, 5, 713, (1984), “The appellees 478 A.2d 715 Md.App. testamentary beneficiary that as a Mrs. [alleged by motion] to legal capacity standing [We lacked sue.... Kirgan Kirgan’s out to Mrs. status related pointed] challenge that the her to the action ... rather than to her standing to maintain ” legal capacity to sue.... examine the cases of other states. attempted
We have to will, therefore, also, discuss point. There we find little We different, in fiduciary’s cases which the character is somewhat In but in which some of the relevant factors are the same. Co., 212, Ohlstein v. Hillcrest 24 195 N.Y.S.2d Paper Misc.2d (1959), the issue concerned whether a former stockholder stated, legal capacity had to maintain suit. The court as follows: understood,
“Legal incapacity,
properly
generally
as
envi-
not lack of a cause of action
status,
in
in
sages
legal
defect
juris.
succinctly
one who is sui
The distinction was
and—in
in
the law—
light
progress
development
social
quaintly
upon by Judge
touched
Bank of
Hiram Denio
(1859)]:
355,
objection
Havana v.
20 N.Y.
‘The
Magee,
359[
not, conceive,
sue,
I
is
that the
not a
plaintiff
capacity
has
artificial,
person,
plain-
but
no
natural or
is named as
infants, idiots,
tiff.
mar-
persons,
Certain
as
lunatics and
women,
friends,
ried
cannot
next
except
guardians,
sue
committees,
women,
by joining
or
the case of married
their husbands
certain cases.’...
‘There is a difference
sue, which
into
capacity
right
between
come
action,
court,
right
and a cause of
which is the
to relief
legal
to sue exists when there is some
Incapacity
court.
disability,
infancy
lunacy
such as
or want
title
plaintiff
to the character in which he sues. The
plaintiff
duly appointed
legal
receiver and has a
to sue
capacity
such____
as
to sue
is not the
Incapacity
[and
sued]
(Citations
insufficiency
same
of facts to sue upon.’”
as
added.)
omitted.)
(Emphasis
Ohlstein,
character of Patrick T. successor nor was there want of title to the character of Guardian when of the Cordelia Smith was Guardian ward. None parties challenged appointment have of Ms. Smith as appropriate Guardian courts of the District of Colum- is, argument properly appointed, bia. The that once she acted authorization, required without certain but there is no chal- lenge during to her status Guardian the relevant times. See, Corp., Clark v. Bilt-Rite Land 82 Misc.2d (“[W]hether N.Y.S.2d minor who Clark [the had age during proceedings] guard- come or the named *20 ian ad litem is as the one regarded party plaintiff, neither action.”). to In legal capacity bring lacks the Klak v. Skellion, 1092, 694, 317 251 741 Ill.App.3d Ill.Dec. N.E.2d 288 (2000), a minor child had filed an action to have her seeking parentage determined. There the Illinois court opined:
“initially, legal we note that a minor does not have the initiate, capacity pursue legal or maintain action in her may own name. A action a legal maintained behalf of or parent legal guardian.... minor child her “Instead, appear by guardian, guardian a minor child must litem, (Citations parent, ad next friend or custodian.” omitted.)
Klak,
1094-96,
Ill.App.3d
317
The New York intermediate Evans, Bank v. Nat. 31 A.D.3d 820 N.Y.S.2d Pacific (2006), was with the issue of the difference between presented (in standing legal capacity involving and a case the existence corporation). of a It stated: standing
“The doctrine of
is an element of the larger
question of
and is
justiciability
designed
ensure that a
party seeking
sufficiently cognizable
relief has a
stake in the
present
dispute
outcome so as to
a court with a
that is
capable
judicial
require-
resolution.
most critical
ment of
standing
presence
‘injury
fact-an
legal
actual
stake in the
being adjudicated.’
matter
“The similar but
legal
not identical doctrine of
capacity,
contrast,
litigant’s power
concerns a
to appear
bring
its grievance
sue,
before the court. Legal capacity to
thereof,
status,
lack
often depends purely on the litigant’s
infant,
such as that
adjudicated
of an
incompetent, a
(Citations omitted.)
trustee----”
Security Pacific,
Accordingly, ward, we hold that a of a generally, legal action, moreover, has capacity maintain an based upon the statutes we reference and supra, duly appoint- infra ed guardians this State specifically legal have the capacity Moreover, to do what was done here. we hold that Corelia Smith was the duly constituted proper guardian to conduct the here, occurring transactions in any neither was she way incompetent time, or incapacitated at the albeit she may have been a wrongdoer.
As is clear from the Maryland statutory provisions above cited, guardian, bar, such in the case at capacity, has the *21 (albeit in in Maryland the District of Columbia the case of loans collaterally secured property guardian- ship estate they required are to seek approval court in the property), in order to encumber the of Columbia
District
transactions,
the one at issue.
It cannot be
into
such as
enter
any
legal capacity,
there is
lack
reasonably argued
transactions
to enter
into such
generally,
guardians
not).
(whether
capacity and
Legal
authorized or
specifically
entirely. Creating
concepts
are different
legal authorization
is,
fact,
reasons for the
primary
one of
legal capacity
in the first instance. Nor is there
appointment
guardians
suffered, herself,
any
from
that Ms. Smith
any allegation
exactly
doing
knew
what she was
infirmity.
mental
Ms. Smith
legal capacity.
she did it. She had
when
Illegality
Defense of
respect
case law
paucity
There is also a
in due course context.
illegality
a holder
defense
issue is our
general
A
recent treatment of the
comparatively
(1984).
Arnold,
540,
“However Ruth’s provision [Md.Code] course status rests on the ‘shelter’ [, in relevant part: § That section reads supra]. 3-201 ‘(1) an instrument vests the transferee Transfer of therein, except has that a rights such as the transferor fraud or party transferee who has himself been part, provides: § 3-203 in relevant now instrument, “(b) transfer is a whether or not the Transfer of any right negotiation, the transferee of the transferor vests in course, instrument, any right including in due a holder enforce the acquire rights cannot of a holder in due course but the transferee transfer, indirectly, directly from a holder in due course if the illegality affecting engaged in fraud or the instrument.” transferee (1975, § Repl.Vol.), 3-203 of the Commercial Law Md.Code Article. absolutely respondent is no assertion that the In the case at bar there illegality” affecting "engaged the instrument. in fraud or *22 illegality affecting instrument or who as a prior holder had notice of a defense or claim against it cannot improve his position by taking from a later in holder due course.
(2) A a security transfer of in interest an instrument vests the foregoing rights in the transferee to the extent of the interest transferred.’
Ruth is prior not a holder of the Arnold notes. Nor has it been suggested that she was a party fraud or illegality affecting Thus, those § instruments. under 3- 201(1) SNB, course, as a holder in due rights transferred its as such a holder to Ruth. This result is in explained Official § Comment 3 to 3-201:
‘A holder in due course may transfer rights his as such. provision ‘shelter’ of the last sentence of the original Section merely 58 is one illustration of the rule that anyone may transfer what he has. Its is to policy assure holder due course a free market for the paper, and that policy is continued this section.’ The comment is followed by illustrations of which example (a) is particularly pertinent here.
‘A induces M fraud to make an instrument payable A, to A negotiates B, it to who takes as a holder in due
course. After the instrument
is
C,
overdue B gives it to
who has notice of the fraud. C
rights
succeeds to B’s
as a
course,
holder in due
cutting off the defense.’
“In
case,
the instant
even though the Arnold notes were
overdue, and even if Ruth knew when SNB indorsed to her
the Arnolds asserted a breach
defense,
of contract
Ruth nevertheless succeeded to SNB’s status as a holder in
(‘It
due course....
is immaterial that the transferee of a
note from a holder in due course took it after
...
maturity
or
payment
without
value
or with notice of existing
equities,
defenses____’)” (
omitted.)
infirmities or
Citations
Weast,
550-51,
We similarly discussed the issue of
illegality
the same
context in our much earlier
Kelso,
case of Wilson v.
115 Md.
(1911).
“
originally
‘Where
instrument
infected
negotiable
fraud,
illegality
original
with
the title of the
invalidity,
title of
holder
being destroyed,
every subsequent
holder
other,
foundation,
no
reposes
which
on that
and on
falls
it. But
holder
the instrument
any subsequent
with
takes
if
value,
he is
good faith,
maturity,
entitled
before
constitute
an infirmity
to recover
it....’
notice
‘[T]o
negoti-
in the
person
in an instrument or
title
defect
*23
same,
the
to whom
ating
person
negotiated
the
it is
must
defect,
the
or
knowledge
infirmity
have had actual
or
taking
such
that his action in
knowledge of
facts
”
instrument amounted to bad faith.’
Wilson,
In an earlier we were concerned whether certain case void, voidable, made or gambling merely statutes debts terms many of cases use when foreign distinguish which a subject makes a voidable and not statute transaction subject the defense of illegality, defense or void Pratt, v. 9 illegality. Gough We said in Md. 526 that: said, by appellee, “It has been the Circuit Court States, to, wrong in were in United the case referred for a void in holding security given gambling debt to be He upon this State. contends the decision was based Anne, lb, ch. in idea that the statute of 9th was then force when, here, fact, in it was not.... law, this, which,
“But in nothing we see or previous express repeals either in terms or necessary implication, statute Anne.... Boteter, [(1793)], v. “In Hook 3 H. & McH. 348 lb, Anne, recognized of 9th was in being statute ch. as force in Maryland____ show,
“These authorities that the statute of Anne has among considered included the English been statutes Maryland. have in section of adopted which been The first notes, bills, bonds, ‘all provides, judgments, which whatsoever,’ or mortgages, conveyances other securities consideration, given gambling for in whole or ‘shall be part, void, utterly frustrate and of none effect.’ “The note for won at v. money play, Thomas Watson[ 302], declared, terms, Taney, explicit most to be [] ’ true, Believing ‘void law. this to be course we cannot case, if adopt appellee, single view of that the bill this cards, void, money claimed to be won was not given but only voidable. mentioned, just “The two cases as likewise v. Woodson (Va.1808)], 2 Hen Va. &
Barrett[
Munf.
Strother,
Skipwith
214(Va.1825)],
[2A
[3
Va.
Rand.
proceed upon
principle,
security
upon
sued
creation,
each case
absolutely
was
void
its
and could not
it,
by subsequent
party
made valid
transfer of
even to a
having
knowledge
no
of the defective consideration.”
Over when infirmity that is based upon prohibi- statute, tions in a illegality the doctrine of has assumed (primarily in the foreign jurisdictions) cases of the position statute, itself, in specific language must declare actions contrary done to its in provisions, absolutely void order in for a holder due course to subject to the defense of That, course, illegality. is not the situation in the case sub judice. cases, Gough English gambling discusses some of the earlier includ- above, ing quote being Gough those named in the as consistent with the holding. Inc., Currency Exchange, Hodge, 103rd
Kedzie and 31, 112, perhaps most Ill.2d 189 Ill.Dec. 619 N.E.2d in the holder clearly concept applicability and its explains with a Hodge There had contracted concept. due course Fentress, him apparently paid work and plumber, perform negotiated the check and plumber in advance check. The a holder due ultimately Currency Exchange became work, Hodge perform failed to plumber course. When claiming on the check attempted stop payment it violated an Illinois statute. illegal transaction was because Illinois, opined, Court of Litigation Supreme ensued. length, some that: the Uniform provided by a defense
“Hodge asserted claim of a Under that section the Commercial Code.... ‘illegality be barred base on holder due course contended Fentress was not a licensed Hodge transaction.’ that, Hodge asserted because Fentress was plumber____ Law, Plumbing prom- the Illinois License his violation of gave requi- under the contract rise to the performance ised Currency Exchange’s to bar the claim for ‘illegality’ site payment. with noncompliance by
“The concern is whether Fentress ‘illegality Plumbing gives the Illinois License Law rise respect plumbing the transaction’ with contract for Currency Exchange, services so as to bar claim holder due course of the check.... variety arises ‘under a of stat- ‘illegality’
“The issue of so, only ... Even when an is made obligation utes.’ ‘illegality’ null and void’ under ‘local law’ that exists ‘entirely the ‘real defenses’ under section 3-305 [of one of (Ill.Rev.Stat. 3-305),] ch. to defeat a par. UCC *25 effect, obligation in due course. claim of a holder If at the obligation ‘merely must be no at all. it is voidable’ obligor, election of the the defense is unavailable. “That existence or of legislative absence declaration controls the issue was our court in recognized appellate v. Lamont McGregor Ill.App. a case involv similar here.... ing circumstances to those appellate “The court noted that the Illinois Securities did, indeed, Law make transaction for the sale of shares of stock void based on with the Law’s noncompliance require- ments. But the court only noted that the ‘sale and contract void, of sale’ of expressly shares of stock were made not exchanged upon instruments such contracts. Absent legis- void, lative declaration making such instruments the court declined to recognize McGregor’s a defense to action for payment the note.
“The same applies Jersey.... rule New jurisdictions “Several other also find reason to draw a distinction between the of a negotiable voidness instrument underlying contract or transaction upon which exchanged.... Although recognition of that distinction is not universal. [Citing California and Ohio intermediate appellate decisions.] plaintiff
“A is precluded recovering from on a suit involv- ing illegal contract plaintiff because the is a wrong- doer. ...
“But a holder due course is an innocent party. third Such a holder is without knowledge circumstances of upon contract which the instrument was initially ex- changed.16 ...
“The holder in due course concept is intended to facilitate commercial transactions eliminating the need for ‘elabo- rate investigation’ of the nature of the circumstances for which an exchanged instrument is initially or of its drafting. course, respondent, In the instant case a holder due was without knowledge statutory provision of a in the District of Columbia in guardian’s authority, reference to the permit- and the statute guardians just ted to do executing what did in delivering obligatory. the bill
406 obligation the initial negation of simply
If means ‘illegality’ enjoys protection in course no more a holder due p ay, or transaction. original to the contract party than a one. ‘personal’ to a is reduce ‘illegality’ ‘real’ defense of therefore, to conclude that is, enough simply “It not a void contract arising from pay obligation initial as between obligation of that Negation transaction is void. a on whether bearing has little contracting parties arising from the an instrument in due course of holder permitted should nevertheless contract or transaction payment. make a claim for reaffirm, view this court has today, the therefore
“We the UCC. Unless predating in cases consistently recognized is, transaction from a contract or arising the instrument under statute, defense itself, ‘illegality’ by made void claim a holder to bar the 3-305 is not available section omitted.) (Citations due course.” 114-21, 31, at Kedzie, Ill.Dec. 619 N.E.2d at 189 156 Ill.2d 734-37. Service, N.J.Super. 190 Financial Gateway v. Westervelt (1983), similarly, as opined that court
615,
“This in an instrument is rooted negotiable fact that a ity. The by to enforcement normally no defense transaction is illegal However, rooted an instrument holder in due course. to be be declared statute transaction illegal an therefore void and unenforceable.... takes free and holder in due course Jersey,
‘In New the statute which illegality, unless clear of the defense there- payment also indicates illegal declares the act ” under is void.’ Westervelt, 622, at 1207. See 464 A.2d N.J.Super. 190 Corp. Rig- Economic Protection Depositors Island Rhode (R.I.1998); 1190, v. Bank nanese, Colby 1198 714 A.2d (“The (1962), 88-89, 56, 85, 370 P.2d 58-59 91 Ariz. Douglas, negotiable rule is well that a given established instrument illegal transaction nevertheless enforceable in the hands of a holder in due course void expressly unless made statute.... making Where there is no statute checks issued void, in payment illegality of such withdrawals defense course.”); against is not a holder due available Solomon Birch, Nat. Bank v. Kan. P. *27 finding that jury’s plaintiff purchase
C‘[T]he the did not the notes in to a it bad faith amounts decision that was a holder in illegality due course therefore neither fraud nor it.”). in the of the notes a inception against constituted defense Summary In the instant case there no the original is evidence that creditor, certainly here, no evidence that the respondent negotiated instrument knowledge the with that the District of Columbia Court had not original authorized the transaction. appointment letters of contained no on restrictions the powers of guardian. the
Moreover, Maryland law not require does person the deal- ing with to the proper see to application of proceeds may belong that to the guardianship estate nor does normally impose law rights limitations on the of persons dealing with a guardianship that fiduciary would affect rights their because of a of breach a fiduciary’s duties to the estate. guardianship
In the judice, case sub whether the guardian had the authority sign to the deed of trust under the of provision the District here,17 of Columbia upon statute it relies no longer is relevant. *28 evidence and
Note the Deed of Trust value conducted and pur- to the investigation prior due appropriate diligence title included a review the investigation chase. The commitment, Property which that the was vested reflected Smith, Smith, in A. Dominick Guardian Clifton ‘Cordelia reviewed the Deed agents Minor M & T Bank’s also Child.’ manner, Trust, was in an and signed which identical Further, they Note, way. was that signed which also Ms. they copy appointing of the order confirmed that had a testified to Appellees’ Smith as Guardian. witness was agents T Bank’s that loan conclusion of M & requirements with title originated in accordance not to give that the documentation reviewed did rise of the integrity [original] about quality concerns .and transaction.” T court M & agree appellate with the intermediate that
We pursuant We that performed diligence. Bank due also note statutes, law, Maryland common Guardian supra, checks, normally authority sign would have the execute notes on promissory guardianship, deposit behalf proceeds Guardianship the benefit estate. What Smith, was guardian, occurred here that Ms. the then used the that, It proceeds step to benefit herself. is this final under law, supra, But, law, Maryland was unauthorized.18 circumstances, not in require such does holder due course to the application to see the loaned funds. proper Bank Maryland Maryland Citizens
We noted
Inc.,
Co.,
Industrial Finishing
338 Md.
“A
few courts
other states
held
have
indorsements to
be unauthorized
agent
because the
later misappropriated
check,
but we
not persuaded by
are
reasoning.
their
assume,
courts
both
cases
these
seemed to
without
discussion, that an indorsement and the later deposit are
inseparably linked together, such that both are authorized
(Citations omitted.)
or both are unauthorized.”
Bank,
Citizens
459-60,
Similarly, 876 P.2d 1260 Supreme Court Colorado concluded: reflects, 18. As far as record at the time the note was and executed at occurred, money parties, the time the misuse of the all and the collater- notes, of, in, security al for the Maryland. were or residents situate 410 in- negotiable signature
“‘An authorized on otherwise forgery converted into an unauthorized strument is not negotiable instruments agent, sign an authorized to when name, authority by negotiating abuses principal’s his agent’s for the own to a holder due course the instrument agent was question benefit. The of whether personal security for a pledge person- an instrument authorized agent separate question al from the whether loan is the instru- his name to sign principal’s was authorized to ” ment in the first instance.’ also, Corp. P.2d 1265. Diamond Services at See Willey, Cir.1999) (“As such, if Benoit, (La.App. 757 So.2d course, a holder in due the defense Diamond Services is would be without Mortgage error as to the MC note mutual Co., merit.”); Inc. v. Lawyers Mortgage, Title Ins. Novastar Inc., (Fla.Dist.Ct.App.2003), 862 So.2d and the note to Aurora assigned mortgage
“BNC of the note to physical possession and value transferred faith and without good Aurora took note Aurora. overdue, dishonored, that it had been contained notice altered, any or of claim had been signature, unauthorized such, As part party. the note defense note.” was the holder due course Aurora Title, 862 So.2d 799. Lawyers
Conclusion note, stated, have we hold that the the reasons we For note, for the are security of Trust that collateral Deed provision of the District separate instruments in petitioner’s to this quoted Code cited Court Columbia of Trust does the execution of Deed prohibiting brief as not to the note.19 promissory apply that, capacity guardians, legal have generally,
We hold capacity have to execute notes and legal sue and be sued and applicable provision if such District of Columbia existed Even obligatory, in this case would the same. bills our conclusions
4H wards; hold, encumber the and property specifically, we guardians this legal case had the to capacity execute the bill obligatory at issue here. We further hold that alleged illegality upon based the violation of a statute not does make a holder in due course of bill obligatory subject to itself, of illegality defense unless the statute in express lan- guage, voids the specific transaction. are aware no We statutory such express language applicable here. above,
For the reasons stated we shall affirm. AFFIRMED. BE JUDGMENT COSTS PAID BY TO PETITIONER.
HARRELL, J., BELL, dissents files opinion which C.J., RAKER, J., retired, join.
Dissenting HARRELL, Opinion by BELL, which Judge, C.J., J., RAKER, join.
I dissent. Cordelia Smith lacked legal to capacity bind guardianship of Clifton Dominick Smith with regard to the deed of trust and deed of trust note at case. issue this Accordingly, the guardianship possessed a valid defense M & T Bank’s collection efforts concerning the note. It of no is material consequence my analysis & T that M Bank con- cededly is a holder due course of the instrument.
I. A holder due an course takes instrument subject defenses, several “real” including lack of legal capacity of the maker, if it took with notice a party had such a defense. (1975, Maryland Code 3-302, §§ 2002 Repl.VoL), Re- 3-305. garding instrument, validity an instrument is “[i]f value, fiduciary taken from a for ... knowledge taker has fiduciary status the fiduciary, and the represented person makes a claim to the proceeds instrument or its on the basis that the transaction of the fiduciary is a breach of [njotice fiduciary duty ... of fiduciary duty breach is fiduciary notice of the claim of the represented person.” Law, Code, Maryland § 3-307. law Commercial person if the protects represented guardian an individual knowledge “actual rea- dealing guardian with the has inquire improperly whether a sonable cause (1974, Maryland Code exercising power.” [or his her] *31 Article, § 13-219.1 Estates & Trusts Repl.Vol.), is Majority opinion, beyond cavil that As noted the refi- both of the instruments for signed Cordelia Smith guardian fiduciary in her as and nancing capacity at issue here Bank, law, T of and M & as successor under District Columbia of original payee/secured party the instru- interest ments, 381-82, Majority of fact. at op. had notice this are did questions remaining at 243-44. The whether she A.2d and, so, fiduciary if so in of her duties whether the breach “legal a on the gave incapacity” breach rise to valid defense Bank, a M & T as part guardianship against of Clifton Smith’s holder due course.
II. legal argues capacity Petitioner that Smith lacked the of law note under District Columbia and sign promissory Guardianship of Clifton Smith thus a defense has Bank, though efforts of M & T even against the collection opinion in due course. Majority latter was holder argument. According Majority, “[l]egal this to the dismisses are legal concepts authorization different entire- capacity ly” only to whether Smith’s legal capacity relates “Ms. Maj. any way Op. defective.” appointment 392, 400, view, my at 254. In too Majority A.2d narrowly meaning “legal limits the of the term capacity” status. The Comment to the Uniform Commercial Code legal (UCC) expansive. According more (adopted Maryland) is Comment, may capacity to the one a lack of legal advance Maryland, every person charged additionally is with actual knowl- edge guardianship. Mary- limitations endorsed on the letters of Article, (1974, § Repl.Vol.), & land Code Estates Trusts 13-219. case, present equivalent the District In the of Columbia letters guardianship explicit included no limitations. (1975, where act taken was ultra vires. Code 3-305(a)(l)(ii), § 2002 RepLVol.), Official Comment. Its incapacity largely statutory.
Such is existence and left to of each If effect is the law state. under the state law the effect is to obligation render the instrument void, null entirely the defense against asserted holder in due course.
Id.-, see also Samuel A. A Lord, & Wxlliston Richard Treatise (4th 2000) § 60:44 ed. that an (noting Law Contracts may lack legal capacity and have a to the entity defense enforcement of an instrument because its actions ultra were vires and whether the the obligation defense voids law).2 entity depends on state “
We have ‘denoting] defined “ultra vires” as act or some which, transaction on the of a part corporation not although unlawful contrary if or public policy done executed individual, yet legitimate beyond corpora- powers *32 they tion as by are defined the statutes under which it is it, formed or which applicable are its charter by incorpo- or ” Pickett, 411, ration paper.’ City Frederick v. 392 Md. 420 of 4, (2006) 228, n. 4 897 A.2d n. 233 Penn. (quoting R. Co. v. Minis, 461, 488, (1913)). 120 1062, Md. 87 A. 1072 Although the term is most employed often regard with to private corporations, we have held that other artificial entities similar- ly may fairly take actions described as “ultra vires.” Id. (noting that the of doctrine ultra applies vires to municipal Specifically, *33 guardian may the of a be limited Specifically, powers
Article. creating pertinent the other law. within document and/or (1974, Code 2001 Estates & Trusts Maryland RephVoI.), See Article, § (“Any powers guardian 13-215 limitation on the of a ward, guardian like the relation between 3. “The relation between and (Second) beneficiary, fiduciary is a Restatement trustee and relation.” Trusts, (1987). § 7
415
contained
a will
other instrument which nominated a
the
ordinarily
imposed by
should
court on the
15—102(b)(2)
§
Id.
guardian.”);
(“Except
expressly
limited
instrument,
powers
the
of a
under
governing
fiduciary
law,
are in
from
this section
addition to those derived
common
instrument.”).
statute, or
governing
above,
depends
As noted
whether an act is ultra vires
on
jurisdiction in
the subject entity
laws of the
which
was formed
entity
because those laws
and establish the limita
govern
Pickett,
4,
its powers.
tions on
The trust agreement according should be construed to the Illinois, law of not because law of Illinois own its operative force is but Maryland, by that part because the common Maryland law of known as the conflict of laws the construction of the agreement depends trust upon the law of Illinois. The only law in force in own is its States). law (including the laws of the United Within limitations, constitutional the State of Maryland ‘theoretical- ly could draw a line of fire around its boundaries’ recognize nothing concerning its property within boundaries happened prefers outside. ‘But it to consider itself civilized to act accordingly.’ Direction Der Disconto- v. United States Corporation, Steel 267 U.S. Gesellschaft *34 Restatement, 207, 495; of 208, 69 Conflict L.Ed. S.Ct. Laws, § 1. 447, 454, Balt., Md.
Staley Deposit & Trust Co. of Safe 144, 147(1947). 56 A.2d
III. act the and capacity If to under rules legal Smith lacked Columbia, it be determined of of still must laws the District by Ms. may be bound Smith’s guardianship whether the that, the this Court should apply act. To answer unauthorized Majority The of the District of Columbia. rules and laws everything required T Bank of concludes that M & did diligence obligation fulfill with Maryland under law to its due Ac- authority guardianship. for the regard to Smith’ act the case is opinion, instant there Majority “[i]n to the cording creditor, certainly evi- and no original no that the evidence here, the instrument negotiated the respondent dence that not Court had knowledge with that the District of Columbia letters con- original appointment the act. The authorized Maj. the of the powers guardian.” tained no restrictions on implication Majority’s 952 A.2d at Op. may statement, however, guardianship that not papers con- guardianship actions had the bound Smith’s indicating approval of court necessity tained restrictions In at issue could be taken. that circum- before the actions stance, have guardianship could not authorized Smith have M & T Bank could not believed act on its behalf and authority deed that to execute the reasonably possessed Smith in her promissory capacity guardian. note trust Hand) (through properly Additionally, guardianship Mr. legal capacity that Smith lacked the defense assert preclude any defense would guardianship, bind the the acts responsibility part guardianship name, legal capacity. taken in its but without Ms. Smith case, creating guardianship In documents this the court in the name of the legal capacity did not limit Smith’s act does mean should guardianship, but that not her law that limited eye turn a to District Columbia blind guardian- capacity. special involving circumstances ship, this should recognize apply Court laws rules place of formation that affect whether had Smith *35 guardian- therefore to authority, legal capacity, and bind the A ship. guardianship entity is an of court rule and statute. Its is the fruit of recognition by approving existence a the ought protected state that its minors or disabled persons to be from those would with who seek to deal them. The statutes power of in governing guardian Maryland the a both and the of recognize District Columbia that the authority guardian of regard to act with to guardianship boundaries, the must have and of jurisdictions the courts these are charged with estab- lishing by the bounds. As Majority opinion, discussed Maryland’s District of Columbia’s vary statutes their of protection. method In Maryland, limitations on the ability of a guardian sign to a deed of trust accompanying promissory note would appear normally the letters of District, guardianship; a court must such an approve Bank, action each time is M & T proposed. as holder due course, acquired the promis- deed of trust and accompanying sory note with knowledge purported sign that Smith those in her capacity guardian documents District of under Certainly, Columbia law. there was cause to “reasonable inquire” part on the of T Bank M & as to the rules laws governing guardianship jurisdiction creation, in the of its govern because laws relationship those guardianship, to ensure that Smith “improperly was not exercising power.” Maryland (1974, 2001 Repl. [her] Code Vol.), Article, § & all, Estates Trusts 13-219. After we charge dealing one with a Maryland-formed guardianship with knowledge Maryland. the laws See Code (1974, Repl.Vol.), Article, § Estates & Trusts 13-219 (“[E]very person charged knowledge with actual of any limitations endorsed on the letters of guardianship”); Id. § (enumerating 15-102 powers a fiduciary, including guardian, may perform to, of, application without approval or court). ratification a
IV.
applying
that even
District
Majority opinion
The
reasons
issue,
obligatory
at
“bills
law to
transaction
Columbia
separate
or
of trust are
by mortgages
deeds
which are secured
According
proceeded
separately.”
and can be
instruments
statute
relevant District of Columbia
Majority, “[t]he
to the
only mortgages
relates
by petitioner apparently
referenced
Maj. Op. at
conveyance.”
other instruments of
Thus,
“no
for the action
impediment
A.2d at 247.
there is
repay
case to enforce the
present
filed
respondents
Id.
note at issue here.”
promissory
ment
however, by the
supported,
at 247. This view is not
A.2d
in the
District
regulatory
guardianships
scheme afforded
court
Columbia,
required
approval
that Smith obtain
which
or the
of trust note.
either the deed of trust
deed
sign
*36
(in
cite)
even to
the case
Majority
principally
fact fails
ignores
App.
In
30
by
Easterling
Horning,
relied on
Petitioner.
appellate
of
court
the District
Columbia
D.C. 225
a
authority
that
the
of
and rules
limit
discussed statutes
a
that
the scheme denies
explained
court
guardian.
or
real
capacity
property.
the
to sell
encumber
guardian
legal
225; see District of Columbia Code
App.
30
D.C.
Easterling,
21-155,
Further,
scheme,
noted
§§
21-157.
the
as Petitioner
of
brief,
legal
the
to
guardians
capacity
“dispose
in its
denies
it in
without order
any way
or encumber
property
the ward’s
225; see District of
Easterling,
App.
30
D.C.
of
court.”
221(f). Taken
together,
Rule of Probate Court
Columbia
and
are intended to render void
District’s rules
statutes
by
taken
Smith in this case. Easter
exactly
type
of action
(“[TJhese
rules,
as a
225
statutes and
taken
App.
D.C.
ling,
whole,
by
any attempt
guardian
pledge
void
a
render
property
says
of
title to
which
law
dispose
otherwise
therein.”).
infant,
than
way
provided
in the
other
intended
hold liable
by signing promissory
note
Certainly,
Smith, ward,
proper
encumbered Clifton’s
Clifton
Cordelia
by
As
the District of
order of the court.
noted
ty without
of
duty
preserve
“it
Columbia court
estate,
it for her use and
protect
saving
and
[the ward’s]
it,
maintenance,
[according
dispose
any portion
and not to
scheme,]
guardianship
unless
to the District
Columbia
App.
D.C.
by
Easterling,
authorized to do so
the court.”
embodied
the laws and
According
principles,
to these
in the District of
guardianship
created
controlling
rules
Columbia,
of the note and deed of
Cordelia Smith’s execution
should be
guardianship
trust documents
the name
nullity
guardianship.
declared a
as to the
sum,
capacity
to bind the
legal
Cordelia Smith lacked
promissory
as to the
note later
guardianship of Clifton Smith
course M T Bank. This lack of
acquired and held
due
&
guardianship
out of the
legal capacity, arising
principles
law,
of Columbia
embraced under
District
to bind
any attempt
should render void
made Ms. Smith
T
M & Bank.4
constitution-
guardianship
re-pay
“Within
limitations,
Maryland theoretically
could draw a
al
the State
con-
recognize nothing
line of fire around its boundaries and
within its boundaries
outside.
cerning property
happened
according-
itself civilized
to act
prefers
But
to consider
(internal
Staley,
quotation
Notes
This is action on notes the not an action foreclos- ing on the collateral security. Most the pertaining cases to signatures unauthorized relate to the negotiation of bills oblig- indicated, As we have there be other District Columbia statutory provisions might or rule that be relevant to the execution of notes, promissory but our attention has not been directed to those nor, provisions, discern, as far as we have been able to was the trial petitioner rely court advised provisions. that intended such other person to a who Many of them relate atory, as checks. such checks, author- authority to but exceeds that sign has outward In some deposited. the checks are endorsed or ity way the checks, i.e., maker, cases, drawing party if the of those signer aids unauthorized way that it acts such check, can held to the maker be causing pay the bank and, so, if not generally required the bank negligent, Here, is the check. Guardian the maker of the reimburse approval the District Columbia Court’s that failed to obtain signed, allegedly It was Guardian transaction. trust. It was the deed of required approval, without the act, wrongful that created situation. neglect, Guardian’s ward, nullify seeks to party, Now the estate the same own its action. it to required T establish everything M & did (the name of property) real title the collateral As in the and that the notes were valid. noted the Guardian Special Appeals’ opinion, Court of T purchased M & Bank had “The showed that
notes
legal capacity
Comment
that the
"cov
defense
incompetence,
ers
guardianship,
mental
ultra vires acts or lack of
business,
corporate
capacity to
any
incapacity
do
or
apart
other
from
(1975,
infancy.” Maryland
3-305(a)(l)(ii),
§
Repl.Vol.),
Code
2002
indicate,
finds,
Official Comment.
two
The first
of
Majority
these
as the
legal capacity implicates
that
legal
Majority
one’s
status. The
misses
implication
the clear
incapacity
of the latter
may
situations
that
mean
vires,
authority
also a
of
lack
to act whether such
act is ultra
outside
corporate capacity,
of
incapacity.
or
other
some
These latter situations
guardian, although
appointed,
further
indicate that a
properly
may lack
legal capacity to act
authority,
if an action taken is outside his or her
regardless of
regarded
whether
that action is to be
as "ultra vires.” As
I
may
conclude
that a
commit an act
is describable
vires,”
properly
analysis
relegated
as "ultra
this
to "footnote land.”
414
Balt.,
226,
v.
356 Md.
(citing
Mayor
Boitnott
corporations
of
(1999);
House Con
Assateague
A.2d
Inlet Assocs. v.
738
881
413,
(1988)));
Ass’n,
City
A.2d
v.
Respess
Md.
545
1296
do.
313
(1990)
252,
Frederick,
253, 263, 571 A.2d
257
Md.App.
82
act by
committed an ultra vires
(noting
city
that a trustee
trust);
a charitable
Carroll Park
violating the limitations on
Ass’n.,
Cmty.
County
Inc. v. Bd.
Comm’rs
Manor
denied,
319,
689,
50
437 A.2d
cert.
County, Md.App.
Frederick
(1981) (same
Bd.
county);
for trustee