Stone v. Jetmar Props., LLC - 733 N.W.2d 480 (Minn. Ct. App. 2007)

Rule:

Under Minnesota law deeds cannot be delivered to nonexistent entities, whether the entities are natural or legal. A deed cannot be delivered to a deceased grantee, for example. Similarly, the supreme court has held that because an organization was not a corporation de jure or de facto, it could not take title to real estate. An appellate court can find no basis in Minnesota law for delaying transfer of title to some indeterminate future date when the grantee might come into existence. In fact, many, but not all, courts have denied validity to deeds conveying property to corporations which are not incorporated at the time of conveyance. According to these courts, the effective date of a deed is usually stated to be the date of delivery, and if at that date the corporation is non-existent, the ordinary rule governs and the deed is treated as a nullity.

Facts:

Keith Hammond drafted and signed articles of organization for Jetmar Properties, LLC, in November 2002, but he did not file the articles with the secretary of state. Subsequently, Hammond obtained a three-day unsecured $200,000 loan from Selwin Ortega, which Hammond failed to repay. In April 2003, Hammond met Dale Stone whom he convinced to invest in several of Jetmar’s  "real estate ventures." Sometime in May 2003, Hammond asked Stone to quitclaim a duplex that Stone was renting out in exchange for an interest in the development. Hammond also told Stone that he would deed the property back to Stone free and clear in 60 days and that Stone could continue to collect rent. Thereafter, Hammond mortgaged the duplex to Ortega in exchange for an extension on the $200,000 loan. Hammond did not repay the loan or deed the property back to Stone. In December 2003, Ortega began foreclosure proceedings and purchased the property in exchange for the surrender of his $ 200,000 claim against Jetmar. Consequently, Stone brought the present action, alleging that Hammond and Jetmar had defrauded him in violation of Minn. Stat. § 325F.69, subd. 1 (2006). Stone sought damages and a declaratory judgment that he was the owner of the duplex. The district court held that, because Jetmar did not exist at the time of delivery, it was therefore incapable of taking title to land, and the quitclaim deed was void. Because the quitclaim deed was void, both the mortgage and the foreclosure were also void. The district court also concluded that Ortega was not a good-faith purchaser for value under Minn. Stat. § 507.34 (2006). Based on these conclusions, the court awarded Stone damages and title to the duplex. Ortega appealed, arguing that Jetmar was a de facto corporation when the deed was delivered, and alternatively, that Jetmar was not per se barred from accepting delivery of the deed despite its nonexistence at the time of transfer.

Issue:

Was Jetmar a de facto corporation when the quitclaim deed was delivered, thereby rendering the subsequent mortgage and foreclosure valid?

Answer:

No.

Conclusion:

The Court held that pursuant to Minn. Stat. § 322B.105 (2006), the LLC statute provided that an LLC was organized by filing articles of organization with the secretary of state. According to the Court, Ortega’s claim that the de facto-corporation doctrine applied in this case failed as a matter of fact because, as he acknowledged, there had been no colorable attempt to organize. Further, the de facto corporation doctrine had been abolished. The district court did not err in its decision.