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Issue  120  Article  205
Published:  7/1/2005

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Estate of Graham v. Morrison, They're Back!
Chris Burti, Vice President and Legal Counsel

Estate of Graham v. Morrison, 156 N.C.App. 154, 576 S.E.2d 355, (2003), (Graham I), involved a remand for a determination as to whether alleged services provided to the principal supported a conveyance of the principalís property by the attorney in fact to herself. The Court of Appeals held that such allegations must go to the trier of fact and overturned the trial courtís summary judgment order. The recitation of facts by the Court in Graham I might be considered somewhat entertaining as it evokes images of a soap opera plot line. This decision was significant in that it provides a basis for a determination that conveyances by attorneys in fact to themselves are not presumptively void on their face. As a result, subsequent conveyances to a purchaser for value, without actual knowledge of a breach of fiduciary duty, would be considered valid and will not be disturbed by the courts.

Estate of Graham v. Morrison, COA 03-1673, 607 S.E.2d 295, January 18, 2005, (Graham II) may shed a bit less illumination on the effect of these conveyances. The Court of Appeals of North Carolina in this second iteration of the case seems a bit more circumspect and less favorably disposed to the Defendant in its recitation of the facts. It clearly overturned the findings of the jury in this case. We feel that the language used by the Court and the wholesale inclusion of quotes and citations in a seemingly indiscriminate fashion calls into question just how this case may be used to provide guidance to real property practitioners. It is not altogether clear, but the Court also seems to withdraw somewhat from its position in Graham I.

In Graham I the Court recited facts that seemed to question whether Ms. Taylor was actually Mr. Grahamís daughter as alleged and it seemed to find other allegations that Ms. Taylor may have made Mr. Graham unavailable prior to his death to be of particular significance. None of this appears in Graham II. In fact the Courtís etiology, following, presents little support for the defendantís actions.

"Based upon the evidence presented during the trial of this matter, the pertinent facts indicate that Kay Frances Fox Taylor is the daughter of the late Thomas Graham. Lucille Morrison was Graham's niece, and Ladd Morrison was Lucille Morrison's son and Graham's great-nephew. Graham resided in Charlotte, North Carolina, until his death on 7 August 2001. Lucille Morrison also lived in Charlotte. Taylor lived out of state."

"On 31 May 2000, Graham made Lucille Morrison his attorney-in-fact by executing a durable and general power of attorney. Lucille indicated she signed Graham's name to the power of attorney at his request. The power of attorney was notarized and filed in the Mecklenburg County Register of Deeds on 1 June 2000. The power of attorney granted Lucille broad powers and discretion in Graham's affairs. However, the power of attorney did not contain the express authority to make gifts."

"On 26 October 2000, Lucille, as attorney-in-fact for Graham, executed a deed granting a portion of Graham's property to herself as grantee. The deed was recorded on 31 October 2000. The real property consisted of 11.92 acres. Prior to execution of the deed, Graham had been negotiating with several developers to sell the property Lucille deeded to herself. Several developers had offered to purchase the property for between $400,000.00 and $700,000.00."

"On 5 June 2001, Lucille, as attorney-in-fact for Graham, executed a general warranty deed to her son, Ladd Morrison. By execution of this deed, Ladd became the owner of Graham's home on Coronet Way in Charlotte. On the same date, Lucille, as attorney-in-fact, conveyed Graham's Oakview Terrace property to John Hallman, her brother, for $3,000.00. According to Lucille, this money was used to pay an attorney to defend Graham in a competency proceeding."

"On 20 June 2001, Thomas Graham filed a complaint against Lucille Morrison, Ladd Morrison, and John Hallman seeking to have the deeds executed by Lucille voided as gifts outside the authority of the power of attorney. Graham also alleged conversion, breach of fiduciary duty, and neglect. He sought an accounting and asked that the durable power of attorney be voided. After Graham's death on 7 August 2001, an amended complaint was filed on 10 August 2001 substituting the Estate of Thomas Graham as a plaintiff."

"On 9 November 2001, plaintiffs filed a motion for partial summary judgment and defendants filed their motion for summary judgment on 7 December 2001. On 25 February 2002, partial summary judgment was granted for plaintiffs, voiding the deeds on the basis that the power of attorney did not specifically authorize gifts. Defendants' motion for summary judgment and plaintiffs' motion for summary judgment on the claim of conversion were respectively denied."

"On appeal, this Court in Estate of Graham v. Morrison, 156 N.C.App. 154, 576 S.E.2d 355 (2003), reversed the trial court's order voiding the deeds as gifts. We remanded this case for a factual determination of whether the deeds were gifts, or conveyances supported by valuable consideration. Id. at 160, 576 S.E.2d at 359."

The facts presented in Graham I are significantly different to warrant inclusion and follow for comparison.

"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."

This comparison of the facts represented in both appeals seems significant in light of the lengths the Graham II goes to justify its substitution of its determination of the facts for that of the juryís.

As noted, the Court in Graham I remanded to the trial court for a jury determination of whether the conveyances at issue were supported by valuable consideration. On remand, the jury determined valuable consideration supported the conveyances, that Ms. Morrison did not breach her fiduciary duty to Graham by using money of Thomas Graham for her own benefit, and that Ms. Morrison did not convert Graham's money for her own benefit.

Plaintiffs were denied judgment notwithstanding the verdict. In considering a motion for judgment notwithstanding the verdict, all the evidence must be considered in the light most favorable to the nonmoving party. If there is any evidence supporting the non-movant's case, the motion should be denied.

What may constitute valuable consideration will depend upon the context of the case. The Court discusses the case law on this issue, with citations. In a contract dispute, mere inadequacy of price is not sufficient to set aside a contract where the parties have negotiated a bargained-for exchange and there are no allegations of any improprieties. In cases where fraud is at issue, the inadequacy of the price received is a factor considered. Full consideration may defeat an action to void a deed alleged to have been granted in defraud of creditors. The Court notes that our appellate courts have not determined what constitutes valuable consideration where attorneys in fact conveys the principal's property to themselves contending that the conveyance was supported by consideration.

The Court of Appeals then engages in an extensive cut and paste exegesis of the law with respect to an agentís self dealing. To illustrate what we mean, the Court says that " 'in the case of an agent with a power to manage all the principal's property it is sufficient to raise a presumption of fraud when the principal transfers property to the agent. Self dealing by the agent is prohibited.' " Hutchins v. Dowell, 138 N.C.App. 673, 677, 531 S.E.2d 900, 903 (2000) (citation omitted); see also 3 Am. Jur. 2d Agency ß 205 (2002) (footnote omitted) (stating "[i]n a transaction between principal and agent in which an agent obtains a benefit, such as a gift, a presumption arises against its validity which the agent must overcome"). "An agent 'can neither purchase from nor sell to the principal' unless the agent, in good faith, fully discloses to the principal all material facts surrounding the transaction, and the principal consents to the transaction." Sara Lee Corp. v. Carter, 129 N.C.App. 464, 470, 500 S.E.2d 732, 736 (1998) (citation omitted), rev'd in part on other grounds by, 351 N.C. 27, 519 S.E.2d 308 (1999)."

"This general rule applies although no positive fraud or unfairness may have been practiced by the agent and although he purchases the property 'at a fair market price, or at the price set by the principal, and even though he was unable to sell to anyone else at the price fixed.' " Real Estate Exchange & Investors v. Tongue, 17 N.C.App. 575, 576, 194 S.E.2d 873, 874 (1973)."

"Thus, we hold that in situations where an attorney-in-fact conveys the principal's property to herself based upon a consideration of alleged services rendered to the principal, the valuable consideration must reflect a fair and reasonable price when compared to the fair market value of the property. See Morehead v. Harris, 262 N.C. 330, 338, 137 S.E.2d 174, 182 (1964) (stating "[v]aluable consideration or 'value' is a fair consideration, not necessarily up to full value, but a price paid which would not cause surprise"), and Hodges v. Wilson, 165 N.C. 323, 332, 81 S.E. 340, 345 (1914) (citation omitted) (indicating valuable consideration is " 'a fair consideration, not up to the full price, but a price paid which would not cause surprise or make any one exclaim, "He got the property for nothing; there must have been some fraud or contrivance about it" ' ")."

"Indeed, unlike the situation in which two parties enter a contract after negotiating the terms, the attorney-in-fact has the authority under the statutory durable power of attorney to convey the principal's real property without the input of the principal. Thus, our appellate courts have held the agent can not convey to himself or purchase the principal's property without full disclosure to the principal and the principal's consent. Sara Lee Corp., 129 N.C.App. at 470, 500 S.E.2d at 736. Similarly, our appellate courts have held that a presumption of fraud arises when the principal transfers property to the agent. See Hutchins, 138 N.C.App. at 677, 531 S.E.2d at 902-03. It necessarily follows that when the agent transfers the principal's property to herself, a presumption of fraud arises."

The quoted language might lead one to the conclusion that such instruments were void on their face. However the Court of Appeals goes on to say: "Furthermore, we have indicated that self-dealing by an agent is prohibited. Id. Given these restrictions upon an agent's conduct, we conclude a higher standard for what constitutes valuable consideration must be applied. Accordingly, to withstand the plaintiffs' motion for judgment notwithstanding the verdict, Lucille had to demonstrate that her services rendered to Graham were equal to a fair and reasonable price for the real property conveyed." Clearly such conveyances are voidable rather than void.

Lest we be accused of nitpicking the opinion, it is important to note that the distinction between conveyances that are voidable as opposed to void is of great significance to the title examiner. Deeds that are void on their face have absolutely no legal effect, do not benefit from the Marketable Title Act and do not even constitute color of title. On the other hand, voidable conveyances effect a valid transfer of title to a purchaser for value who does not have actual knowledge of the lack of authority. Beam v. Almond, 271 N.C. 509, 520, 157 S.E.2d 215, 224 (1967) and Swan Quarter Farms, Inc. v. Spencer, 133 N.C. App. 106, (1999). We do not take issue so much with the result in this decision as with the impreciseness of the Courtís reasoning.

We think it would have been much better to articulate reasoning analogous to the line of cases dealing with a Corporate officerís conveyance to self. In those cases there is a presumption of bad faith and lack of authority. "The determination of the validity of a deed made by a corporation to its officers or directors is governed by the following principles: (1) the conveyance must be authorized by the corporation or ratified by it; (2) the law presumes that such conveyances are invalid and imposes upon the purchaser the burden of establishing that the purchase is fair, open, and free from imposition, undue advantage, actual or constructive fraud; and (3) such conveyance will not be declared void as a matter of law, but it is a question for the jury to determine upon all the evidence as to whether the vitiating elements enter into the particular transaction." Mountain Top Youth Camp, Inc. v. Lyon, 20 N.C. App. 694, (1974) As such, the burden of proof rests upon the grantee (or those claiming thereunder) to demonstrate actual authority. From a title perspective, you can not have a purchaser without notice of the lack of authority, so title isnít marketable without some further cure or ratification.

We think the same principles apply and should be so articulated in the case of an attorney in fact. Self-dealing, in the absence of express authority, creates a presumption that must be rebutted when challenged. We think that the Court would have served the practicing Bar better to have, at least, acknowledged the issue of void versus voidable in passing. This would have mitigated some of the strong language quoted in the opinion.

A prudent examining attorney will presume a lack of authority when title is vested in the purchaser. We do not think it unreasonable for the attorney to require some recordable form or other satisfactory evidence of ratification from the principal. Otherwise, the conveyance should be treated as having been made without due authority. If the property has been subsequently conveyed in a manner that would clearly indicate that subsequent purchasers for value without knowledge have held title, one should be able to proceed without the necessity of an extensive investigation.

Of a more truly nitpicking nature in criticism of the opinion, we note that at issue in the matter was a deed of trust for $250,000.00 on land that Lucille executed against the land that she deeded to herself to cover the expenses of this action. The grantee under the deed of trust was her attorney in this action. The Court noted that as "we have already concluded the trial court should have granted plaintiffs' motion for judgment notwithstanding the verdict on plaintiffs' claim to set aside the deed conveying the 11.92 acres to Lucille, Lucille did not have any power to execute a deed of trust on this property. Accordingly, we remand to the trial court for further proceedings to determine the proper remedy regarding the deed of trust." This is appropriate if there is a question as to the beneficiariesí lack of actual knowledge of the lack of authority. In the case of a litigantís attorney, we suspect that there may be some underlying presumptions as to that issue. Be that as it may, the Court ordered a conflicting result at the end of the opinion where it ruled that "the deed of trust on the 11.92 acres must be set aside." This is a bit at odds with the finding of remand since the Court does not discuss the whether the facts in the record support what seems to be a remand ordering the trial court to set the deed of trust aside. We find ourselves inclined to speculate as to whether the size of the sum secured by the deed of trust or the testimony as to the value of the larger tract of land may have had something to do with the Courtís apparent change of heart in this case.

What does the title examiner take from this opinion? Be very careful whenever a recent conveyance in your chain of title reveals fiduciaries conveying property to themselves.

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