Jimenez v. Brown

We receive frequent questions concerning instruments found in a chain of title conveying real estate held as custodian under the Uniform Gifts to Minors Act (UTMA). Jimenez v. Brown, 131 N.C.App. 818, 509 S.E.2d 241 (1998), is not very recent but seems to give a great deal of reassurance to practitioners discovering these conveyances during a title examination. Most attorneys understand the provisions of the Act, but many have reservations about the validity of conveyances from custodians when required to certify title containing them.

On 15 January 1974, a personal injury judgment was entered against the defendant in Florida for $1,418,350.16, plus six-percent interest. The defendant paid no part of the original judgment and left the state of Florida after the judgment was entered. The original plaintiff, Gutierrez, was advised by defendant's attorney that, after diligent efforts to locate defendant, it appeared that defendant had left the country and would not return. The plaintiff died in 1981 and his assets, including the unpaid judgment, were distributed one-half to plaintiff Sonia Jimenez and one-half to plaintiff Nancy Serra as beneficiaries of the estate. In 1994, plaintiffs brought suit on the original judgment in Florida. Attorneys for plaintiffs located the defendant in the State of North Carolina. Service of process was attempted by sending suit papers by certified mail and regular mail to defendant's Rocky Mount address. All attempts at serving defendant by mail failed and a private service agent personally served defendant with a copy of the summons and complaint on 16 September 1994. The Florida court found that defendant was avoiding service of process and had actual knowledge of the suit. The court entered a judgment of default against defendant and final judgment was rendered in the sum of $3,215,977. In 1997, plaintiffs filed an action on the Florida judgment in North Carolina and sought an order attaching the assets of defendant.

The plaintiffs alleged in their affidavit that defendant was "[a] resident of the state who, with intent to defraud his creditors, or to avoid service of summons . . . keeps himself concealed therein." as grounds for attachment. The assistant Clerk of Superior Court for Wilson County entered orders of attachment for various bank accounts and safety deposit boxes. The defendant filed a Motion to Vacate Order of Attachment. After hearing arguments of counsel and reviewing the record and affidavits, the Superior Court denied defendant's motion and ordered the attachment of assets of the defendant held by the a bank in the name of the defendant as depositor or custodian for Sean E. Brown. The judge made conclusions of law in accordance therewith. The defendant appealed this order, arguing, among other issues, that the trial court erred in attaching two bank accounts that "are titled in Defendant's name, as custodian for his son, Sean E. Brown, under the North Carolina Uniform Transfers to Minors Act."

The Court of Appeals cited NCGS Sec. § 33A-9 and held as follows,

"(a) Custodial property is created and a transfer is made whenever:

. . .

(2) Money is paid or delivered, or a security held in the name of a broker, financial institution, or its nominee is transferred, to a broker or financial institution for credit to an account in the name of the transferor, an adult other than the transferor, or a trust company, followed in substance by the words: "as custodian for _________ (name of minor) under the North Carolina Uniform Transfers to Minors Act."

Furthermore, an account set up under this section "is irrevocable, and the custodial property is indefeasibly vested in the minor." NCGS Sec. 33A-11(b) (1987). This section further provides that the custodian has all the rights and authority provided for by the Act. See id. Such rights and authority include the authority to take control of the custodial property and to collect, manage, or invest it in the best interests of the minor. NCGS Sec. 33A-12(a) (1987). The custodian is required to keep custodial property "separate and distinct from all other property" and to keep sufficient records of all transactions with respect to the property. NCGS Sec. 33A-12(d)-(e) (1987)."

The Court points out that the Act limits when an outside party may make a claim against the custodial property. NCGS Sec. 33A- 17(a) limits claims to those based on, "(i) a contract entered into by a custodian acting in a custodial capacity, (ii) an obligation arising from the ownership or control of custodial property, or (iii) a tort committed during the custodianship." This is an exclusive list of when such a claimant may recover against custodial property. The Court states that a "tort committed prior to the custodianship is not enumerated within this list; therefore, if the accounts are set up under UTMA, they are not subject to attachment."

The signature card for the account listed the depositor as "Bruce E. Brown custodian for Sean E. Brown Under the N.C.U.T.M.A." and the section entitled "Ownership Type," the card was marked "X" in the blank next to" Custodian Under N.C.U.T.M.A." The Court came to the conclusion that the account was properly created pursuant to UTMA, not subject to attachment because it was the minor's property and the judgment of the trial court was reversed on this issue.

The Court clearly honored the express provisions of the act that provide that property is indefeasibly vested in the minor when so titled. It would appear that as long as the statutory provisions of Chapter 33A are closely followed, that title examiners and real property attorneys may also rely on NCGS Sec. 33A-13(a) which empowers the custodian as follows:

"A custodian, acting in a custodial capacity, has all the rights, powers, and authority over custodial property that unmarried adult owners have over their own property, but a custodian may exercise those rights, powers, and authority in the capacity of a custodian only."

This provision clearly means that the custodian has the legal authority to convey real property held as custodian, and that any spouse of the custodian will not be required to join in the conveyance. The custodian is always liable to the minor for any actions taken with respect to the minor’s property that are in breach of the fiduciary responsibility. As a result, it can be assumed that any such conveyance may be voided if made without sufficient consideration and to a party with actual knowledge of the defect.

Goodson v. Goodson

Another area of common inquiry involves the effect of improper notice in special proceedings. Goodson v. Goodson, NO. COA00-1042, ___ N.C. App. ___, is a recent case filed in the Court of Appeals on August 7, 2001. It involves the effect on title in the hands of an innocent purchaser for value as a result of a failure of commissioners to serve an amended notice of sale on two of the parties.

Chester M. Goodson petitioned the Wake County Superior Court for a partition of five parcels of land, including a certain parcel labeled "Tract C," which he and his relatives owned as tenants in common. The trial court ordered the property sold and appointed the attorneys representing the parties, as commissioners of the court, to sell the tracts of land and to report the sales to the Clerk of Court for confirmation. The commissioners offered Tract C for private sale through several realtors. A real estate development company submitted an offer to purchase Tract C for $172,335.00. The offer was expressly contingent upon the property's suitability for residential development. A notice of sale was served upon all parties. The notice stated that the commissioners would report the sale of Tract C to the court, at which time there would be a ten-day period for upset bids. The developer discovered that a substantial portion of the land would not percolate, was unsuitable for residential development, and therefore, terminated the offer pursuant to the contingency. Third party respondent, John T. Freeman, immediately offered $128,310.00 for Tract C with no contingencies. The commissioners accepted this offer and testified that they sent all parties an amended notice of sale, reporting the lower purchase price. Respondents Mildred Goodson and Marion Goodson testified they never received such notice.

After the ten-day period had elapsed with no upset bids, the trial court confirmed the sale of Tract C. The sale closed, a final report of sale was filed, and the commissioner's deed to Tract C was recorded with the Register of Deeds. John Freeman conveyed the property to his parents, third party respondents Wade Freeman, Sr. and Mary Freeman, who subdivided the tract and conveyed five lots to another son, Wade Freeman, Jr. and his wife Carol. Carol and Wade Freeman, Jr., Freeman, who were not made parties to this action, constructed houses on each of the five lots.

Marion Goodson filed a motion to set aside the commissioner's deed on Tract C. In the motion, he alleged that he had not received the amended notice of sale, and that the sale price was inadequate. The trial court denied the motion to set aside the deed, concluding that, although Marion and Mildred Goodson had not received notice of the sale, respondents Freeman were innocent purchasers for value and entitled to rely upon the public record. The trial court further ruled that Mr. Goodson had failed to join Carol and Wade Freeman, Jr. as necessary parties. The trial court also made other findings and rulings that were raised on appeal, but will not be discussed in this article.

The Goodsons argued that the trial court erred in refusing to set aside the commissioner's deed. The Court of Appeals disagreed in very succinct language. This portion of the opinion is set out in its entirety.

“Because the Freemans purchased Tract C with no notice of any dispute regarding the legitimacy of the sale, they are innocent purchasers and as such, are protected in their purchase. A person is an innocent purchaser for value and without notice when he purchases without notice, actual or constructive, of any infirmity, pays valuable consideration, and acts in good faith. Morehead v. Harris, 262 N.C. 330, 338, 137 S.E.2d 174, 182 (1964). In Morehead, our Supreme Court held that, when there has been a bona fide purchase for valuable consideration, the deficiencies in the conveyance must be expressly or by reference set out in the muniments of record title, or brought to the notice of the purchaser so as to put him on inquiry. See id. at 340-41, 137 S.E.2d at 184. In short, an innocent purchaser takes title free of equities of which he had no actual or constructive notice. In the instant case, both John Freeman and Wade Freeman, Sr., testified they had no notice of any problems regarding the judicial sale before they purchased Tract C. John Freeman stated: "When I sold Tract C to my father, I had no idea Mr.Goodson was going to petition anybody. In other words, I was under the impression that I had bought a farm with a clear title with commissioner's deed." "It is well settled in North Carolina that, in the absence of fraud or the knowledge of fraud, one who purchases at a judicial sale, or who purchased from one who purchased at such sale, is required only to look to the proceeding to see if the court had jurisdiction of the parties and of the subject matter of the proceeding, and that the judgment on its face authorized the sale." Cherry v. Woolard, 244 N.C. 603, 610, 94 S.E.2d 562, 566 (1956) (holding the purchaser at a judicial sale acquired good title, despite contentions of defective service to minor defendants). It is undisputed that the Freemans are innocent purchasers without notice. Moreover, there is no evidence that the Freemans engaged in any sort of fraud or collusion. Thus, the sale should be upheld as long as the trial court had proper jurisdiction over the parties and the subject matter, and the judgment on its face authorized the sale. See id. There is no suggestion from any of the parties that the trial court lacked jurisdiction, or that the judgment did not authorize the sale. Furthermore, the Goodsons neglected to join as necessary parties to the action Wade Freeman, Jr., and Carol Freeman, the present owners of five lots on Tract C. "A 'necessary' party is one whose presence is required for a complete determination of the claim, and is one whose interest is such that no decree can be rendered without affecting the party." Begley v. Employment Security Comm., 50 N.C. App. 432, 438, 274 S.E.2d 370, 375 (1981)(citation omitted). In order to declare the deed to Tract C null and void, the trial court needed jurisdiction over all of the current owners of the property, see Brown v. Miller, 63 N.C. App. 694, 699, 306 S.E.2d 502, 505 (1983), disc. review denied, 310 N.C. 476, 312 S.E.2d 882 (1984), which it did not have. Thus, because the Freemans were innocent purchasers, and because the Goodsons failed to join all of the necessary parties to the action, the trial court correctly denied Mr. Goodson's petition to set aside the deed. We overrule this assignment of error.”

It is very important to note that this case is discussing the failure to serve notice of sale. The failure to serve a co-tenant with summons for the proceeding will not divest title although the deed may serve as color of title for constructive adverse possession, see Amis v. Stephens, 111 N.C. 172, 16 S.E. 17 (1892) and Scott Poultry Co. v. Bryan Oil Co., 272 N.C. 16, 157 S.E.2d 693 (1963).

Part of this opinion may be of interest to practitioners more for what it says about judicial attitudes regarding the credibility of attorneys than it does concerning real property practice. On appeal, one of the respondent commissioners argued there was insufficient evidence that the Goodsons did not receive the amended notice, and that the trial court erred in finding such. In this case, the trial court was the finder of fact. The Court of Appeals pointed out that where there is any competent evidence to support the trial court's findings, such findings are conclusive and binding upon the Court of Appeals even though there is contradictory evidence sufficient to sustain other findings. “Whether or not the Goodsons received proper notice of the sale of Tract C was a central issue in direct conflict before the trial court. The Goodsons testified they did not receive the amended notice. Marion Goodson testified that he would have submitted an upset bid, as he had already done with the sale of another piece of the land partitioned by the court. The attorney commissioner testified that he personally sent the amended notice to the Goodsons. The trial judge remarked, "There's probably not a lawyer in this courthouse who's practiced law as long as most of us have who hasn't certified mailing something and there was a page missing out of it. There's no question about that." The Court of Appeals stated “The trial court obviously determined that, under the circumstances, it was more likely for Mr. Wallace to have neglected to include the amended notice in one of the mailings than for the Goodsons to have overlooked such notice.”

Most practitioners would find that it is more likely that one of their clients did not read what would appear to be a duplicate notice than for an attorney to fail to send the notice and not know it.