*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
Electronically Filed Supreme Court SCCQ-XX-XXXXXXX 13-NOV-2019 08:02 AM
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---oOo--- ________________________________________________________________
WILLIAM R. HANCOCK, individually and as Trustee of the HANCOCK AND COMPANY, INC. PROFIT SHARING TRUST, under trust instrument April 3, 1983, Plaintiff-Appellee,
vs.
KULANA PARTNERS, LLC, a Hawaiʻi limited liability company; FIDELITY NATIONAL TITLE & ESCROW OF HAWAII, INC., a Hawaiʻi Corporation, Defendants-Appellants. ________________________________________________________________
SCCQ-XX-XXXXXXX
CERTIFIED QUESTION FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII (CIVIL NO. 13-00198 DKW-RLP)
NOVEMBER 13, 2019
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
OPINION OF THE COURT BY McKENNA, J.
I. Introduction
In a federal court lawsuit, a grantor asserts that an
escrow company’s alleged deletion of an easement from the *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
property description attached to a deed he executed renders the
deed a “forged deed” that is void ab initio. The escrow company
and the grantee, on the other hand, assert that the grantor’s
claim sounds in fraud and is subject to, and barred by, a
statute of limitations. They assert that the statute of
limitations has run because the grantor is deemed to have had
constructive notice of the allegedly modified deed upon its
recordation.
The United States District Court for the District of Hawaiʻi
(“district court”) certified the following questions to this
court:
1. Whether a claim relating to a forged deed is subject to the statute of limitations for fraud?
2. Whether the recording of a deed provides constructive notice in an action for fraud?
As it is unclear whether, under Hawaiʻi law, the underlying
case involves a claim relating to a deed that is void ab initio
or a claim that is subject to a statute of limitations, we
reframe1 the questions as follows:
1. Under Hawaiʻi law, when is a deed void ab initio for fraud, such that a claim challenging the validity of the deed is not subject to a statute of limitations?
2. Under Hawaiʻi law, what statute of limitations applies to a claim that a deed was procured by fraud of the type that does not render it void ab initio?
1 This court may “reformulate the relevant state law questions as it perceives them to be, in light of the contentions of the parties.” Allstate Ins. Co. v. Alamo Rent-A-Car, Inc., 137 F.3d 634, 637 (9th Cir. 1998) (citations and quotation marks omitted).
2 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
3. Under Hawaiʻi law, when does the statute of limitations begin to run on a grantor’s claim that a deed was procured by fraud of the type that does not render it void ab initio: upon recordation of the deed or at some other point in time?2
To answer the first modified certified question, we hold
that, under Hawaiʻi law, a deed is void ab initio for fraud,
such that a claim challenging the validity of the deed is not
subject to a statute of limitations, when (1) a deed is forged,
meaning it has been falsely made, completed, endorsed, or
altered with intent to defraud; or (2) a deed has been procured
by “fraud in the factum,” such as when a person is fraudulently
deceived about the nature of a document that has been signed, as
when a document is surreptitiously substituted for signature.3
Gonsalves v. Ikei, 47 Haw. 145, 384 P.2d 300 (1963); Adair v.
Hustace, 64 Haw. 314, 640 P.2d 294 (1982) (abrogated on other
grounds by Ass’n of Apartment Owners of Royal Aloha v. Certified
Mgmt., 139 Hawaiʻi 229, 386 P.3d 866 (2016)).4
2 As the property at issue was not Land Court property, we also do not address the effect of Hawaiʻi Revised Statutes § 501-106. 3 Under Hawaiʻi law, a party alleging fraud must prove fraud by “clear and convincing evidence.” See, e.g., Iddings v. Mee-Lee, 82 Hawaiʻi 1, 14, 919 P.2d 263, 276 (1996) (“[T]he clear and convincing standard is typically used in civil cases involving allegations of fraud or some other quasi-criminal wrongdoing by the defendant.”) (citation omitted). 4 We note that the courts are split as to whether a void deed can be ratified. According to 26A C.J.S. Deeds § 68, “most courts hold that an instrument that is void by reason of defective execution may be ratified by the grantor, subject, however, to certain limitations as to the manner of ratification, as, for example, by a reacknowledgement, or the execution or a confirmation deed, or by a will, or by an authorization under seal to (continued. . .)
3 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
To answer the second modified certified question, we hold
that, under Hawaiʻi law, the six-year “catch-all” statute of
limitations under Hawaiʻi Revised Statutes (“HRS”) § 657-1(4)
(2016) applies to a claim that a deed was procured by fraud of
the type that does not render it void ab initio, e.g., fraud in
the inducement and constructive fraud.
To answer the third modified certified question, we hold
that the statute of limitations begins to run on a grantor’s
claim that a deed was procured by fraud of the type that does
not render it void ab initio when the grantor discovers, or
reasonably should have discovered, the existence of the claim
or the identity of the person who is liable for the claim.
(continued. . .) complete and deliver the instrument, where such as is performed.” (footnotes omitted). Another possible manner of ratifying an unauthorized modification of the deed is the acceptance of benefits under the deed with full knowledge of the unauthorized act. See, e.g., Brock v. Yale Mortg. Corp., 287 Ga. 849, 855 (2010) (explaining that a person whose name is forged on a deed may later ratify the unauthorized act where the person, with full knowledge of all the material facts, accepts the benefits of the unauthorized act; a person seeking to cancel a forged deed in equity must tender to the grantee any consideration received under the forged deed); Erler v. Creative Finance, 203 P.3d 744 (Mont. 2009) (collecting cases from Florida, Georgia, and the United States Court of Appeals for the Eighth Circuit permitting ratification of void deeds and holding that “ratification of a forged deed may properly be considered in equity”). In this case, we need not and do not address whether, under Hawaiʻi law, a void deed could be ratified. 26A C.J.S. Deeds § 68 goes on to state, however, “Some courts have held that a void deed, such as one that has been forged, cannot be ratified.” See, e.g., Beazley v. Turgeon, 772 S.W.2d 53 (Tenn. Ct. App. 1988) (affirming trial court’s decision voiding a deed procured by forgery and a falsified notary acknowledgement and holding there could be no ratification of the void deed because the grantor had not agreed to the exact terms set forth in the transaction involving the forged deed); Bellaire Kirkpatrick Joint Venture v. Loots, 826 S.W.2d 205, 210 (Tex. App. 1992) (“Because a forged deed is void ab initio, it is not subject to being revived by mere ratification.”). Again, we need not and do not address this issue.
4 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
II. Factual Background
A. District Court Proceedings
This case involves a 2002 sale of real property from
William R. Hancock (“Hancock”) to Kulana Partners, LLC (“KPL”).
Hancock had allegedly agreed to include in the conveyance
documents an easement in favor of his neighbors, Robert and
Esther Grinpas (the “Grinpases”). The recorded conveyance
documents, however, did not include the easement.
In 2007, the Grinpases sued Hancock and KPL in the Circuit
Court of the Fifth Circuit (“circuit court”). The circuit court
rendered judgment in favor of the Grinpases and against Hancock,
and the appeal has been before the ICA twice. Grinpas v. Kapaa
382, CAAP-XX-XXXXXXX.
In 2013, in the United States District Court for the
District of Hawaiʻi (“district court”), Hancock, individually and
as trustee of the Hancock and Company, Inc. Profit Sharing
Trust, sued KPL and the escrow company for the sale, Fidelity
National Title & Escrow of Hawaiʻi, Inc. (“Fidelity”). He
alleged that, after he executed the deed, Fidelity fraudulently
modified it to delete the Grinpases’ easement, then recorded the
deed.
Hancock elaborated that, in August 2002, he reviewed two
deeds at Fidelity’s Kapaʻa office: a warranty deed conveying the
property from Hancock, individually, to Hancock as trustee, and
5 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
a trustee’s deed conveying the property from Hancock as trustee
to KPL (“Trustee Deed”). Hancock alleged that he “identified a
limitation in the ‘Subject To’ section of the Trustee Deed in
Paragraph 12 that made the conveyance subject to ‘Any rights of
the parties in possession of a portion of, or all of, said land,
which rights are not disclosed by the public record.’” He
alleged, “But for the existence of this in the ‘Subject To’
section,” he “would not have executed the deed.” Hancock went
on to allege that Paragraph 16 of the Trustee Deed described an
easement in the north corner of the property “at or near the
location of the Grinpas Easement.” Hancock further alleged that
days later, the two deeds were transmitted from Fidelity to its
attorney.
About a week later, on August 26, 2002, an internal
memorandum between Fidelity’s “Loretta” and “Jeannette” advised,
“WE NEED TO REPLACE THE SUBJECT TO PAGE ON BOTH OF THE DEEDS . .
. THE TOGETHER WITH PARAGRAPH (ON THE TOP) IS MISSING. I
BELIEVE THAT YOU ALREADY HAVE THE DEED AND I HAVE IT SET UP FOR
RECORDING ON WEDNESDAY.” To Hancock, this internal memorandum
reflected Fidelity’s “fraudulent[]” “intent to alter [Hancock’s]
executed and notarized Deeds” to “remove the easement at
paragraph 16 and paragraph 12 regarding unrecorded interests”
“without the knowledge or consent of Mr. Hancock.” According to
Hancock, the altered trustee’s deed was recorded in the Bureau
6 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
of Conveyances5 on August 28, 2002. Hancock alleged that
“Fidelity is a fiduciary with a duty to disclose its own
malfeasance.” He also asserted that, as a result of “fraudulent
concealment by Fidelity and KPL,” he “did not learn of the
forged deed until 2013.” Relevant to the certified questions
before this court, Count I of Hancock’s Complaint sought a
declaration that the Trustee Deed was void as “an altered
instrument and . . . a forgery,” and to have the order declaring
the deed void recorded in the Bureau of Conveyances.
KPL then filed a motion to dismiss pursuant to Federal
Rules of Civil Procedure (“FRCP”) 12(b)(1) and (6), and Fidelity
filed its own motion for judgment on the pleadings pursuant to
FRCP Rule 12(c). Both KPL and Fidelity characterized Hancock’s
Complaint as an end-run around the state court judgment against
Hancock in the Grinpas case. Both argued that the allegedly
modified deed was publicly recorded in the Bureau of Conveyances
in 2002; therefore, Hancock had constructive notice of any
fraudulent conduct at that time.6 Both KPL and Fidelity further
argued that the applicable statute of limitations was the six-
5 According to Hancock, the deed was recorded only in the Bureau of Conveyances and not in Land Court. 6 Fidelity also pointed out that Hancock had already testified in the Grinpas case that the omission of the easement in the deed was “a mistake.” In a later deposition (taken in 2013), Hancock testified that he realized in 2007 that there was no express mention of the easement in the Trustee’s Deed. Therefore, Fidelity argued, Hancock had actual knowledge of the facts giving rise to his claim for relief in 2007, if not earlier, or was at least on inquiry notice.
7 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
year statute of limitations found in HRS § 657-1, which began to
run in 2002 upon recordation of the deed; therefore, Hancock’s
federal complaint, filed over eleven years after the statute of
limitations had begun to run, was time-barred.
In his opposition to KPL’s and Fidelity’s motions, Hancock
appended as exhibits the 2002 Trustee’s Deed that Hancock said
he signed, which included paragraphs 12 and 16, as well as the
2002 Trustee’s Deed that was actually recorded in the Bureau of
Conveyances, which is missing paragraphs 12 and 16. He also
appended as an exhibit the internal memorandum between two
Fidelity employees referencing a missing provision in the deed.
In both of Hancock’s memoranda in opposition, he made the
same points. First, as to the statute of limitations, Hancock
argued that there is no statute of limitations on a claim that a
forged deed is void. Hancock quoted the following passage from
Palau v. Helemano Land Co., 22 Haw. 357, 361 (Haw. Terr. 1914),
to support his position: “The complainant being out of
possession is in position to, at any time, bring an action of
ejectment and therein litigate the title to the land, including
the question of the alleged forgery. A forged deed is void and
passes no title.”
Second, as to the argument that the recordation of the
Trustee’s Deed provided Hancock with constructive notice of any
fraud therein, Hancock counter-argued that “a forged instrument
8 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
and its record are utterly void, and its record is not
constructive notice,” citing to Mosley v. Magnolia Petroleum
Co., 114 P.2d 740 (N.M. 1941).
Hancock also asked the district court to look to the Hawaiʻi
Penal Code’s definitions of “[f]alsely alter,” “[f]orged
instrument,” and “utter” to determine whether forgery occurred
in this case.
KPL and Fidelity separately filed reply memoranda in
support of each’s motions. Both asserted that Hancock
misconstrued the Palau decision. Fidelity asserted that Palau
was “decided long before the rise of modern pleading standards”
(i.e., the merger of law and equity) and “dealt with the central
question of whether a plaintiff challenging the validity of two
deeds was required to proceed on an action at law or an action
in equity.” Fidelity argued that the Palau court then held that
the plaintiff did not have to bring an action in equity first in
order to bring an action in law when it stated that the
plaintiff “is in a position to, at any time, bring an action of
ejectment,” which was an action at law. Fidelity contended that
“at any time” in Palau referred “not to a statute of limitations
(or lack thereof), but rather the availability of a particular
form of action.” KPL interpreted Palau similarly.
Further, KPL argued that “Palau demonstrates that claims of
forged deeds sound in fraud,” as the complainant in that case
9 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
“requested that the deeds in question be declared ‘fraudulent
and void.’” Therefore, KPL reiterated that the six-year statute
of limitations for fraud (HRS § 657-1(4)) applied.
KPL and Fidelity also argued that Hancock had constructive
notice of any alleged fraud upon the recordation of the
Trustee’s Deed with the Bureau of Conveyances in 2002. KPL
noted that there is no Hawaiʻi case holding that a recorded
document serves as constructive notice regarding actions
predicated on fraudulent conduct when the public record itself
constitutes evidence of the fraud; instead, KPL referred the
court again to cases from other jurisdictions for this point of
law. KPL and Fidelity did, however, distinguish Mosley, the
sole case Hancock relied upon, as addressing “constructive
notice for subsequent purchasers for value,” not constructive
notice for purposes of determining whether the statute of
limitations had begun to run.
The district court granted KPL’s motion to dismiss and
Fidelity’s motion for judgment on the pleadings. The district
court first stated that Hancock’s claims “unmistakably sound in
fraud”; therefore, HRS § 657-1(4)’s six-year statute of
limitations applied. The district court footnoted its agreement
with KPL and Fidelity’s interpretation of the Palau decision,
noting that the case “addressed the availability of an action in
equity or at law, and did not speak to whether a limitations
10 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
period is applicable” to forged deed claims. The district court
also rejected Hancock’s argument that Hawaiʻi Penal Code
definitions of forgery applied in this case.
The district court then acknowledged that there were no
Hawaiʻi cases addressing whether the recording of a deed serves
as constructive notice for purposes of a fraud claim. It went
on, however, to note that Hawaiʻi appellate courts have
“recognized that the recording of a document gives notice to the
general public of the conveyance,” citing Markham v. Markham, 80
Hawaiʻi 274, 281, 909 P.2d 602, 609 (App. 1996) (holding that the
“central purpose of recording a conveyance of real property is
to give notice to the general public of the conveyance and to
preserve the recorded instrument as evidence”). The district
court therefore charged Hancock with constructive notice of the
contents of the Trustee’s Deed upon the date it was recorded,
August 28, 2002, and held that Hancock’s 2013 Complaint’s fraud
claims were time-barred by the six-year statute of limitations.
The district court also rejected Hancock’s assertion that he did
not discover the fraudulent modification of the deed until 2013
due to KPL and Fidelity’s fraudulent concealment.
Judgment was entered in favor of KPL and Fidelity. Hancock
appealed the judgment to the Ninth Circuit.
11 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
B. Ninth Circuit Proceedings
The Ninth Circuit issued a memorandum opinion stating that
“a clarification of Hawaii law would resolve this case.” The
Ninth Circuit then vacated the district court’s judgment and
remanded the case to the district court with instructions to
certify two questions to this court. The district court issued
an order so doing, and this court agreed that the questions were
amenable to answer.
III. Certified Questions
This court may “answer, in its discretion . . . any
question or proposition of law certified to it by a federal
district or appellate court if the supreme court shall so
provide by rule.” HRS § 602-5 (2016). Hawaiʻi Rules of
Appellate Procedure Rule 13(a) (2000), on certified questions,
provides the following:
When a federal district or appellate court certifies to the Hawaiʻi Supreme Court that there is involved in any proceeding before it a question concerning the law of Hawaiʻi that is determinative of the case and that there is no clear controlling precedent in the Hawaiʻi judicial decisions, the Hawaiʻi Supreme Court may answer the certified question by written opinion.
A question of law presented by a certified question is
reviewable de novo under the right/wrong standard of review.
Francis v. Lee Enters., Inc., 89 Hawaiʻi 234, 236, 971 P.2d 707,
709 (1999) (citation omitted).
12 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
IV. Discussion
In their briefing of the issues before this court, the
parties largely7 reassert the arguments made before the district
court. As there is no need to reiterate these arguments, we
proceed directly to answering the modified certified questions.
A. A deed is void ab initio for fraud, such that a claim challenging the validity of the deed is not subject to a statute of limitations, when (1) a deed is forged; or (2) a deed has been procured by fraud in the factum.
The first modified certified question asks, “Under Hawaiʻi
law, when is a deed void ab initio for fraud, such that a claim
challenging the validity of the deed is not subject to a statute
of limitations?” A survey of our case law reveals that we have
recognized void deed claims in two instances where fraud has
been perpetrated upon a grantor: (1) a deed is forged, meaning
the deed has been falsely made, completed, endorsed, or altered
with intent to defraud; and (2) where the deed itself is
procured due to fraud in the factum, such as when a person is
7 Hancock, however, newly raises the argument that HRS § 456-6(b) (2013), governing notaries, contains no statute of limitations, as follows:
For the official misconduct or neglect of a notary public or breach of any of the conditions of the notary’s official bond, the notary and the surety on the notary’s official bond shall be liable to the party injured thereby for all the damages sustained. The party shall have a right of action in the party’s own name upon the bond and may prosecute the action to final judgment and execution.
There is no allegation in Hancock’s complaint that a notary fraudulently modified the deed; therefore, this argument has been waived.
13 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
fraudulently deceived about the nature of the document that has
been signed, as when a document is surreptitiously substituted
for signature. Under our case law, deeds executed as a result
of this type of fraud are void ab initio. Palau, 22 Haw. at 361
(“A forged deed is void and passes no title.”); Iaea v. Iaea, 59
Haw. 648, 650, 586 P.2d 1015, 1017 (1978) (per curiam)
(affirming the circuit court’s judgment that decreed a forged
deed to be “null and void”); Kapiolani v. Mahelona, 9 Haw. 676,
678, 680-81 (Haw. Rep. 1895) (affirming the circuit court’s
decree cancelling a deed containing the forged signature of King
Kalakaua); Gonsalves, 47 Haw. at 147 (“The fraud perpetrated on
[the grantor] went to the nature of the document and not mere
details, and therefore, all of the documents were void. . . .”).
First, a deed is void where it is forged, meaning it has
been falsely made, completed, endorsed, or altered with intent
to defraud.8 See, e.g., Iaea, 59 Haw. at 650, 586 P.2d at 1017
8 This definition of forgery is drawn from HRS § 708-850, which defines a “forged instrument” as “a written instrument which has been falsely made, completed, endorsed, or altered.” HRS § 708-852, titled “Forgery in the second degree,” makes forgery of a deed a class C felony. This court has previously looked to the criminal definition of “forgery” in the civil context. See Maui Fin. Co. v. Han, 34 Haw. 226 (Haw. Terr. 1937). In that case, Sarah Hong, the wife of Hong Chang Sok, signed Sok’s name as an endorser on a promissory note while Sok was not present. 34 Haw at 228. Sok could not read or write English, but Sarah could. Id. She waited until he returned home for his approval, but Sok did not say anything. 34 Haw. at 229. The Territorial Supreme Court held that Sarah did not commit forgery because she was entirely lacking in the “specific intent to deceive another and prejudice him in some right.” Id. Furthermore, the Territorial Supreme Court held that Sok ratified his wife’s action when he remained silent after she sought his approval of her act. Id.
14 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
(affirming the trial court’s finding that a deed was forged
where the plaintiff’s husband signed her name on it without her
consent); Palau, 22 Haw. at 358 (remanding allegation that two
different grantors’ signatures on deeds were fabricated);
Kapiolani, 9 Haw. 676 (affirming the circuit court’s
determination that a deed purportedly from King Kalakaua was not
signed by him).
Second, a deed is void where it is procured by fraud in the
factum. Gonsalves, 47 Haw. at 147, 384 P.2d at 302. Fraud in
the factum “goes to the nature of the document itself,” Adair,
64 Haw. at 320 n.4, 640 P.2d at 300 n.4, where, for example, a
grantor signs a deed fraudulently represented to be a lease.
See also Gonsalves, 47 Haw. 145, 384 P.2d at 301 (affirming
trial court’s order denying specific performance of a lease,
bill of sale, and consent to mortgage, all of which were
fraudulently procured by a real estate agent who did not
disclose the nature of the documents to the grantor, who could
not read English). In these circumstances, deeds are void ab
initio and not subject to any statute of limitations.9
9 We note, however, that this court previously left open the possibility that the defense of laches could bar a claim that a deed was procured through fraud in the factum. Adair, 64 Haw. at 325 (“[W]e have no doubt that laches may preclude an action to cancel a deed for fraud [in the factum] under appropriate circumstances.”). We more recently held that laches is a defense at law and at equity. Association of Apartment Owners of Royal Aloha, 139 Hawaiʻi at 231, 386 P.3d at 868. As the issue is not before us, we also do not address whether or not adverse possession would also apply in favor of a (continued. . .)
15 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
Other jurisdictions have similarly held that a claim that a
deed is void is not subject to a statute of limitations. For
example, the Court of Appeals of New York stated, “For over a
century, . . . a forged deed has been treated in New York as
void ab initio. . . [A] statute of limitations cannot validate
what is void at its inception. Therefore, a void deed is not
subject to a statutory time bar.” Faison v. Lewis, 32 N.E.3d
400, 407 (N.Y. 2015). The Faison court went on to observe that
such a rule is “the prevailing approach in other jurisdictions,”
32 N.E.3d at 405, citing, inter alia, Moore v. Smith-Snagg, 793
So.2d 1000, 1001 (Fla. Dist. Ct. App. 2015) (per curiam)
(“[T]here is no statute of limitations in respect to the
challenge of a forged deed, which is void ab initio.”); and
Thompson v. Ebbert, 160 P.3d 754, 757 (Idaho 2007) (“Because the
lease agreement was void ab initio, it could be challenged at
any time. . . . [The plaintiff’s] action to declare the lease
agreement void [due to a lack of authority to lease a portion of
the property] was not time barred.”).
(continued. . .) third party who is a bona fide purchaser of a property whose chain of title contained a deed procured by fraud in the factum.
16 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
B. The six-year catch-all statute of limitations under HRS § 657-1(4) applies to a claim that a deed was procured by fraud of the type that does not render it void ab initio, e.g., fraud in the inducement and constructive fraud.
The second modified certified question asks, “Under Hawaiʻi
law, what statute of limitations applies to a claim that a deed
was procured by fraud of the type that does not render it void
ab initio?”
In Hawaiʻi, there are three types of fraud recognized in the
conveyance context: (1) fraud in the factum, (2) fraud in the
inducement, and (3) constructive fraud. Aames Funding Corp. v.
Mores, 107 Hawaiʻi 95, 103, 110 P.3d 1042, 1050 (2005). First,
fraud in the factum “is fraud which goes to the nature of the
document itself.” Id. As stated, supra, Section IV.A., a deed
procured through fraud in the factum is void ab initio, and a
claim challenging the validity of such a deed is not subject to
a statute of limitations. Second, fraud in the inducement is
“fraud which induces the transaction by misrepresentation of
motivating factors.” 107 Hawaiʻi at 103-04, 110 P.3d at 1050-51.
Third, constructive fraud is “characterized by the breach of
fiduciary or confidential relationship.” 107 Hawaiʻi at 104, 110
P.3d at 1051.
Under Hawaiʻi precedent, the latter two fraud claims are
governed by HRS § 657-1(4). That statute states, “The following
actions shall be commenced within six years next after the cause
17 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
of action accrued, and not after: . . . Personal actions10 of any
nature whatsoever not specifically covered by the laws of the
State.”
This court has applied HRS § 657-1(4) to claims involving
fraud. See, e.g., Au, 63 Haw. 210, 626 P.3d 173 (applying HRS §
657-1(4) to plaintiffs’ claims that defendants fraudulently
and/or negligently misrepresented to her that the home she
bought from them did not have a water leak); Eastman v. McGowan,
86 Hawaiʻi 21, 946 P.2d 1317 (1997) (applying HRS § 657-1(4) to
plaintiffs’ claims that defendant fraudulently misrepresented to
them that she would reconvey real property to them); cf. Small
v. Badenhop, 67 Haw. 626, 701 P.2d 647 (1985) (engaging in a
laches analysis, based upon finding that the analogous statute
of limitations would be the six-year statute of limitations
found in HRS § 657-1, to a claim involving constructive fraud).
Therefore, we answer the second certified question, as modified,
as follows: HRS § 657-1(4)’s six-year statute of limitations
applies to a claim that a deed has been procured through fraud
10 A “personal action” is an action brought for the recovery of personal property, for the enforcement of a contract or to recover for its breach, or for the recovery of damages for the commission of an injury to the person or property; an action for the recovery of a debt, or damages from the breach of contract, or for a specific personal chattel, or for the satisfaction in damages for injury to the person or property. Au, 63 Haw. at 217, 626 P.2d at 179 (citations omitted).
18 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
of the kind that does not render it void ab initio, e.g., fraud
in the inducement and constructive fraud.
C. A plaintiff grantor’s claim for fraudulent modification of an executed deed accrues when the plaintiff grantor discovers, or reasonably should have discovered, the existence of the claim or the identity of the person who is liable for the claim.
The third modified certified question asks, “Under Hawaiʻi
law, when does the statute of limitations begin to run on a
grantor’s claim that a deed was procured by fraud of the type
that does not render it void ab initio: upon recordation of the
deed or at some other point in time?” There are conflicting
decisions from other states as to whether the recordation of a
conveyance document charges a party to a conveyance with
constructive notice of any alleged fraud. See, e.g., 152 A.L.R.
461, “Public Records as constructive notice as regards actions
predicated upon fraudulent misrepresentation or concealment, so
as to start the running of the statute of limitations against
the bringing of such action” (1944 & Cum. Supp.). On one hand,
some courts hold that, “since public records . . . of
conveyances . . . are open to the public, everyone is bound by
notice of their contents,” including parties to the conveyance
themselves. Id. (citing, e.g., Blum v. Elkins, 369 S.W.2d 810,
813-14 (Tex. App. 1963) (charging grantor with constructive
notice of the consideration paid for the sale of grantor’s
property, once the deed was recorded)).
19 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
On the other hand, “[o]ther courts take the view that a
public record of a conveyance of land being meant for the
protection of possible subsequent purchasers or encumbrancers,
only they – and not the innocent party to a fraudulent
transaction – are bound thereby.” 152 A.L.R. 461. These courts
reason that once a grantor has made a conveyance, the grantor is
under no duty to examine the property records to see if fraud
has been committed. See 152 A.L.R. 461 (citing, e.g., Gates v.
Kansas Farmers’ Union Royalty Co., 111 P.2d 1098, 1103-04 (Kan.
1941) (“[N]either is the recording of a deed executed by the
owner of a property constructive notice to the grantor of the
fact that there had been fraudulently included in the deed a
description of property other than that which the grantor had
intended to convey so as to start the running of the statute of
limitations. . . . Normally an owner of the property who
executes a deed therefor has no occasion to examine the record
after the deed is recorded, to ascertain if a fraud has been
committed upon him.”)).
Some courts further consider whether the one perpetrating
the fraud is in a fiduciary position with respect to the
defrauded party. 152 A.L.R. 461. In cases where a fiduciary
relationship exists, there is a “relaxed” duty to search
property records for fraud. Id. (citing, e.g., Hutto v.
Knowlton, 108 P. 825, 825 (Kan. 1910) (“Where fiduciary
20 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
relations exist requiring the disclosure of the true state of
facts, there is no reason to anticipate unfaithfulness, and the
obligation to search the record is relaxed.”)).
Hawaiʻi’s appellate courts have not yet decided whether the
recordation of a conveyance document charges a party to the
conveyance with constructive notice of fraud for statute of
limitations purposes. The Hawaiʻi appellate cases concerning the
recordation of documents as providing constructive notice deal
primarily with constructive notice to subsequent purchasers or
encumbrancers. See, e.g., Lathrop v. Sakatani, 111 Hawaiʻi 307,
310, 141 P.3d 480, 483 (2006) (recordation of a lis pendens
provides constructive notice of a lawsuit to third parties);
Ass’n of Apartment Owners of Kukui Plaza v. City & Cty. of
Honolulu, 7 Haw. App. 60, 70, 742 P.2d 974, 981 (1987)
(recordation of leases placed buyers on notice that City had the
right to acquire parking areas for municipal parking); Harada v.
Ellis, 4 Haw. App. 439, 443, 667 P.2d 834, 838 (1983)
(recordation of lis pendens provided constructive notice of
counterclaim to prospective purchaser of the property).
In this case, we agree with Hancock that recordation of a
deed does not, as a matter of law, provide constructive notice
to the grantor that the deed was fraudulently modified after
execution. It is true that recordation of a deed provides
constructive notice to subsequent purchasers and encumbrancers
21 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
of the contents of the deed. See Markham, 80 Hawaiʻi at 281, 909
P.2d at 609 (holding that the “central purpose of recording a
conveyance of real property is to give notice to the general
public of the conveyance and to preserve the recorded instrument
as evidence”). We have long held, however, that “the recording
of a deed is notice, not, as it is sometimes inaccurately said
to the whole world, but merely to those who are bound to search
the record.” In re Nelson, 26 Haw. 809, 820 (Haw. Terr. 1923).
A grantor is ordinarily not duty bound to search the record of
the completed conveyance to determine whether the documents
filed were fraudulently modified.
Further, as Hancock points out, Fidelity occupied a
fiduciary role with respect to the parties to the conveyance.
See DeMello v. Home Escrow, Inc., 4 Haw. App. 41, 47, 659 P.2d
759, 763 (1983) (“The general rule is that an escrow depository
occupies a fiduciary relationship with the parties to the escrow
agreement or instructions[.]”). As such, Fidelity was required
to “comply strictly with the provisions” of the parties’ escrow
agreement or instructions. Id. Hancock correctly alleges he
should have been able to rely on Fidelity to faithfully record
the deed he executed.
The question then becomes at what point does a fraudulent
modification claim accrue, for statute of limitations purposes?
Hancock asserts that any statute of limitations applicable to
22 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
his case would be tolled due to Fidelity’s alleged act of
removing two paragraphs from the deed he executed without
disclosing the change to him. As such, Hancock claims
fraudulent concealment of his cause of action. See Au, 63 Haw.
at 215-16, 626 P.2d at 178 (“Fraudulent concealment involves the
actions taken by a liable party to conceal a known cause of
action.”).
HRS § 657-20 (2016), titled “Extension by fraudulent
concealment,” provides a six-year statute of limitations for
actions under HRS chapter 657, commencing when the plaintiff
discovers, or reasonably should have discovered, the claim or
the identity of the person who is liable for the claim:
If any person who is liable to any of the actions mentioned in this part . . . fraudulently conceals the existence of a cause of action or the identity of any person who is liable for the claim from the knowledge of the person entitled to bring the action, the action may be commenced at any time within six years after the person who is entitled to bring the same discovers or reasonably should have discovered, the existence of the cause of action or the identity of the person who is liable for the claim, although the action would otherwise be barred by the period of limitations.
The statute makes clear that the statute of limitations for
bringing a fraudulent modification claim accrues when the
plaintiff discovers, or reasonably should have discovered, the
existence of the claim or the identity of the person who is
liable for the claim.
23 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
V. Conclusion
To reiterate, the three questions before this court, as
reframed, are as follows:
1. Under Hawaiʻi law, when is a deed void ab initio for fraud, such that a claim challenging the validity of the deed is not subject to a statute of limitations?
2. Under Hawaiʻi law, what statute of limitations applies to a claim that a deed was procured by fraud of the type that does not render it void ab initio?
3. Under Hawaiʻi law, when does the statute of limitations begin to run on a grantor’s claim that a deed was procured by fraud of the type that does not render it void ab initio: upon recordation of the deed or at some other point in time?
that, under Hawaiʻi law, a deed is void ab initio for fraud, such
that a claim challenging the validity of the deed is not subject
to a statute of limitations, when (1) a deed is forged, meaning
it has been falsely made, completed, endorsed, or altered with
intent to defraud; or (2) a deed has been procured by fraud in
the factum, such as when a person is fraudulently deceived about
the nature of the document that has been signed, as when a
document is surreptitiously substituted for signature. To
answer the second modified certified question, we hold that the
six-year statute of limitations under HRS § 657-1(4) applies to
claims that a deed was procured by fraud of the type that does
not render it void ab initio, e.g., fraud in the inducement and
constructive fraud. To answer the third modified certified
question, we hold that the statute of limitations begins to run
24 *** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
on a grantor’s claim that a deed was procured by fraud of the
type that does not render it void ab initio when the grantor
discovers, or reasonably should have discovered, the existence
of the claim or the person liable for the claim, as discussed in
this opinion.11
Jade Lynne Ching /s/ Mark E. Recktenwald for appellant Kulana Partners LLC /s/ Paula A. Nakayama
Ryan H. Engle, /s/ Sabrina S. McKenna Georgia Anton, and Eric B. Levasseur, /s/ Richard W. Pollack pro hac vice, for appellant /s/ Michael D. Wilson Fidelity National Title & Escrow of Hawaii, Inc.
Timothy Hogan for appellee
11 Our opinion is limited to answering the certified questions as reframed by this court, and does not address alternate grounds identified in the federal district court’s January 10, 2014 order.