A recent North Carolina Court of Appeals decision gives further guidance for title examiners with regard to the question of the consequences of deeds by an attorney in fact that are not clearly at arm’s length and for full value. The case of Estate of Graham, v. Morrison, NCApp, COA02-610, filed 18 February 2003, is a well reasoned opinion and does not come to any surprising conclusions. It does provide substantial implications for title attorneys searching the public records.
At issue in this appeal was the status of certain deeds that were granted by an attorney in fact to herself and her son. This decision arises from the defendants’ appeal from a grant of partial summary judgment in favor of the plaintiffs. The facts as reported, provide background that is important in recognizing that the title record may seem to indicate a situation that is far more benign than exists in reality. Therefore they are set out unedited from the opinion.
In May 2000, Thomas Graham, a diabetic amputee, was in poor health. Mr. Graham's niece, Lucille Morrison ("Lucille"), helped care for Mr. Graham and often stayed with him during the night. Lucille also cared for Mr. Graham's wife, Melinda, prior to her death in 1991.
On 31 May 2000, Mr. Graham granted Lucille a durable and general power of attorney. Lucille signed Mr. Graham's name to the power of attorney at his request. The power of attorney grants Lucille broad powers and discretion in Mr. Graham's affairs but does not expressly contain the authority to make gifts of real property. The power of attorney was notarized and recorded in the Mecklenburg County Register of Deeds on 1 June 2000.
On 26 October 2000, Lucille, as attorney-in-fact for Mr. Graham, executed a general warranty deed of a portion of Mr. Graham's real property to herself as Grantee. This deed was recorded on 31 October 2000. After 26 October 2000, Lucille continued to provide care and assistance to Mr. Graham.
Around 1 June 2001, Plaintiff Kay Frances Taylor, ("Kay"), moved into Mr. Graham's house, known as "Coronet Way", in Charlotte. Kay was assumed to be the illegitimate daughter of Mr. Graham, but their relationship had not been close. Kay found Mr. Graham through the help of a relative. After moving into the house, Kay limited Mr. Graham's visitors. Within the next week, Kay admitted Mr. Graham to the hospital under an assumed name.
On 5 June 2001, Lucille, as attorney-in-fact for Mr. Graham executed a general warranty deed on Coronet Way to her son, Ladd Morrison, ("Ladd"). On that date, Lucille, as attorney-in-fact, also conveyed other property of Mr. Graham to John Hallman for $3,000.00. According to Lucille, this money was used to pay her attorney to defend this action. Lucille contends that Mr. Graham asked her to make the conveyances.
On 15 June 2001, an application and order extending time to file a complaint was filed in the name of "Thomas Graham versus Lucille Morrison, John Hallman, and Ladd Morrison" alleging fraud in creating a power of attorney and making gifts with such fraudulent power. The complaint in this action was filed and verified by Kay, based upon a power of attorney naming Kay as attorney in fact for Mr. Graham. A power of attorney executed on 20 June 2001 named Kay as attorney in fact. It was marked by a crudely formed "X" on the signature line. The power of attorney to Kay did not revoke the power of attorney previously granted to Lucille. Defendants attempted but were unable to take the deposition of Mr. Graham on 18 July 2001 and 19 July 2001 due to Mr. Graham's illness and his attorney's schedule. Mr. Graham died on 7 August 2001. Kay entered his will into probate that day. Plaintiff amended its complaint on 10 August 2001 to substitute the estate of Thomas Graham and herself as party plaintiffs. Plaintiff filed a motion for partial summary judgment on 9 November 2001. Defendants filed notice of intent to offer hearsay evidence on 30 November 2001, and filed a motion for summary judgment on 7 December 2001. Partial summary judgment was granted for plaintiff voiding the deeds on the basis that the power of attorney did not specifically authorize gifts. Plaintiff's motion to strike the hearsay evidence was granted. Defendants' summary judgment motion was denied, and plaintiff's motion for summary judgment on her claim of conversion was denied. Defendants appeal, and plaintiff asserts a cross-assignment of error.
We are limiting our discussion of the opinion to the Court’s treatment of the issues of whether the deeds are void for lack of authority to make a gift and whether the alleged actions of the defendants in caring for the decedents constitute adequate consideration to support the transfers.
The trial court, in voiding the deeds, based its decision on N.C.G.S. § 32A-14.1(b) which prohibits self-dealing unless gift are expressly authorized by the appointment. The Court of Appeals reviewed Honeycutt v. Farmers & Merchants Bank, 126 N.C. App. 816, 487 S.E.2d 166 (1997). In summary, the rule in North Carolina is that an attorney in fact has no authority to make gifts unless the power is expressly set out in the appointment. The Court notes that the deeds in question "are void if the conveyances are determined to be gifts. Lucille's broad power of attorney did not expressly grant her the right to make gifts of real property on behalf of Mr. Graham." Therefore, if there were no valid consideration for the conveyance, this Court ruled that the deeds would be void.
The Court of Appeals determined that summary judgment was inappropriate because "genuine issues of material fact exist whether the conveyances were gifts or were transferred for ‘valuable consideration’ as recited in the deeds." "The court apparently presumed the deeds to be gifts because no excise tax appeared on either deed. Omission of excise tax does not per se transform a deed given for valuable consideration into a deed of gift. Recitation of valuable consideration within the deed and recording create a rebuttable presumption that the conveyance was valid. Chicago Title Ins. Co. v. Wetherington, 127 N.C. App. 457, 463, 490 S.E.2d 593, 598 (1997), disc. review denied, 347 N.C. 574, 498 S.E.2d 380 (1998) (quoting Pelaez v. Pelaez, 16 N.C. App. 604, 606 192 S.E.2d 651, 652 (1972))(stating "'[o]rdinarily, the consideration recited in a deed is presumed to be correct.'"); Lance v. Cogdill, 236 N.C. 134, 136, 71 S.E.2d 918, 920 (1952) (recordation of a deed raises a presumption that the deed was duly executed)." It would appear that the recitation of consideration in a deed with the expected affidavits in response to a summary judgment motion would be sufficient to withstand the motion. The Court found the testimony sufficient in this case and distinguished the consideration required to support a contract from that needed to support a deed. "The deeds do not purport to be deeds of gift but recite the property was conveyed in exchange for ‘valuable consideration.’ Past consideration or moral obligation is not adequate consideration to support a contract. See Jones v. Winstead, 186 N.C. 536, 540, 120 S.E. 89, 90-91 (1923). Services performed by one family member for another, within the unity of the family, are presumptively ‘rendered in obedience to a moral obligation and without expectation of compensation.’ Jones v. Saunders, 254 N.C. 644, 649, 119 S.E.2d 789, 793 (citing Allen v. Seay, 248 N.C. 321, 323, 103 S.E.2d 332, 333). ‘[T]his principle of law does not prevent a parent from compensating a child for such services, and does not render consideration for a compensating conveyance inadequate.’ Id. A genuine issue of material fact remains to determine whether Lucille's services rendered after the conveyance of real property to her on 26 October 2000 constitutes ‘valuable consideration’ bargained for by Mr. Graham which supports a purchased conveyance and not a gift. A similar issue exists concerning Ladd's services to Mr. Graham. These questions of fact are not appropriate for determination upon a motion for summary judgment." The Court remanded the case to the trial court for further hearing. It should be noted that consideration adequate to support the conveyance of land by deed is not equated with fair market value. The courts will consider whether the consideration is sufficient as opposed to token or nominal value. But adequacy is not measured by the market value other than in the context of what might be characterized as a "shock the conscience" measure. Again we are really talking about nominal or token consideration.
In Whitford the North Carolina Supreme Court upheld the Court of Appeals’ determination that "an attorney-in-fact acting pursuant to a broad general power of attorney lacks the authority to make a gift of the principal's real property unless that power is expressly conferred . . ." It is important to note that the Supreme Court overturned the Court of Appeals decision finding that the inclusion of the word "transfer" in the authority provisions was an express authorization to make gifts. It is also notable that both Court of Appeals opinions the Court stated that where there is no express authority, a purported deed is void. While our Supreme Court has not addressed this issue, the Court of Appeals should be considered correct on this. Where there is no actual or apparent authority, a conveyance is void. The problem for title examiners lies in the innumerable conveyances of this character that abound in the public records stemming from attempts to implement Elder Law planning. Many of these recite that they are gift deeds. When they do, they should be considered void. The title must be dealt with accordingly and the cloud on title created by the instrument in the chain of title must be cured. Where consideration is recited as in this case and in Fulcher v. Golden, 144 N.C.App. ___, (2001) (a discussion of which appears in our December 2001 article), the deed should be considered voidable. If the original grantee is still in title, the grantee can not be considered a purchaser for value without knowledge of the voidable character of the conveyance. Therefore the grantee does not have good title. Because of the specialized knowledge of an attorney examining title, the lack of stamps raises the obvious question. This situation will require due inquiry and the attorney must be satisfied that adequate consideration was exchanged. If, in fact, there was no consideration or clearly inadequate consideration, the deed must be treated as void and the title issue cured.
If there have been subsequent conveyances with recited consideration, paid excise taxes or other evidence such as deeds of trust apparently securing the balance of the purchase price, the attorney may rely on the recording Acts to certify title. The Court of Appeals notes that the lack of stamps does not create a presumption that there is no consideration and it does not negate the presumptions arising from a recitation of consideration and recording. A purchaser for value without actual knowledge of a defect that would make the conveyance voidable, has good title to the property.