When a minor (under the age of 18) or disabled person comes into property, a guardian of that property is appointed. It is typically a family member, and it is important that such a guardian be familiar with the rules regarding what can be done with the estate (the property over which the guardian has control). Those rules are not always clear, as is evident from a recent case in Maryland’s highest Court, Patrick Hand, Successor Guardian v. Manufacturer’s & Traders Trust Co.
According to the majority opinion in this 4-3 decision, Cordelia Smith was appointed by a District of Columbia court the guardian of property of her minor child, who had allegedly been the victim of medical malpractice. The was a cash settlement, and Ms. Smith then moved with the child to Maryland. She then used proceeds from the settlement to by a home for herself and the child, and took out a mortgage which was quickly refinanced.
As part of the loan, a promissory note promising to repay the money was executed by the guardian, along with a deed of trust authorizing sale of the property if there was a default in the loan payments. As often occurs, the promissory note was sold to another note holder (M&T). The guardian defaulted on payment, and apart from sale of the property (M&T also held the deed of trust) the note holder sought to get the rest of the money owed by suing on the promissory note.
The guardian defended the suit, but arguing that she did not have legal authority under D.C. law to have signed it in the first place. That is because D.C. law required (unlike in Maryland) that the guardian get specific permission from the court before mortgaging property in the estate. M&T said it had no knowledge of any such illegality, and under commercial law statutes it was a holder in due course of the note and not subject to this defense anyway. The trial court agreed with M&T, and the case ended up in the Court of Appeals.
The majority upheld the judgment in favor of the note holder. It held that Maryland law does not require the person dealing with a guardian to see that there is proper application of assets of the estate. Whether the guardian had authority under the law to sign the deed of trust or the note was not relevant. M&T had acted properly and with due diligence, and despite the fact that the guardian had herself benefited from use of her ward’s assets, the defense of illegality of her own actions could not prevail.
Three of the judges of the Court dissented. They held that illegality was a proper defense, since D.C. law required in their view court approval for all the instruments executed as part of the refinancing of the mortgage. This illustrates how complex the rules can be for the guardian of a minor’s property, and how important it is to how competent legal advice to make sure the guardian complies with the rules.