General Investment Funds Real Estate Holding Co. v. Gildenhorn

Smith, J., delivered the opinion of the Court. Appellant General Investment Funds Real Estate Holding Company discovered it was holding a second lien on a tract of Maryland real estate because the release of a prior lien was forged. To protect itself, it then made an attempt to show that the prior lien was not a valid debt. We shall affirm the decree of the chancellor (Mathias, J.) who held the debt of that lien to be valid.

This matter can be best understood by reference to the cast of characters: Rollin Hills Apartments, Inc. (Rollin Hills) — a Maryland corporation which owned land in Prince George’s County included in the two deeds of trust we shall mention. Constas G. (Gus) Basiliko (Basiliko) — a real estate operator in the Washington suburban area who was the guiding light of Rollin Hills. General Investment Funds Real Estate Holding Company (GI) — an Ohio non-profit corporation holding title to real property for certain pension funds of The General Tire and Rubber Company and the secured party in a deed of trust from Rollin Hills.

William Gildenhorn (Gildenhorn) — described as “retired” from men’s furnishings, grocery and liquor businesses in the Washington area, maker of the loan which GI challenges. A. Slater Clarke and Herman Cohen — trustees of the deed of trust which secured Gildenhorn. It will also be helpful to refer to the dates of certain events: December 1, 1965 — deed of trust from Rollin Hills ¹⁷³ to Clarke and Cohen to secure payment of note of same date assigned to Gildenhorn. December 14, 1965 — deed of trust recorded among land records of Prince George’s County.

April 28, 1966 — date of forged release relative to this deed of trust. 1 July 27, 1966 — deed of trust from Rollin Hills to secure payment of note of same date to GI. August 3,1966 — the forged release recorded. August 10,1966 — the GI deed of trust recorded. December 12, 1966 — proceeding filed by Clarke and Cohen to foreclose deed of trust securing Gildenhorn loan.

January 4, 1967 — petition of Clarke and Cohen filed to expunge forged deed of release from the land records. January 5, 1967 — GI’s motion for leave to intervene and intervening petition filed. It attacked the adequacy of the consideration for the note., It did not raise any question relative to the applicability of the District of Columbia “loan shark” act to this transaction. January 19-20, 1967 — hearing held.

It was for this hearing that a subpoena duces tecum was served upon Gildenhorn. The chancellor was not satisfied with the fact that Gildenhorn did not produce the note at this hearing. The note ultimately was produced and filed in this proceeding. January 27, 1967 — notice by GI of its intent to depose “Security Bank”.

February 14, 1967 — argument relative to order to protect and Gildenhorn permitted to intervene. February 21, 1967 — GI’s bill of complaint to quiet title filed based upon District of Columbia “loan shark” act. March 13, 1967 — order of the United States District Court in the Rollin Hills bankruptcy mat ¹⁷⁴ ter enjoining further action in these proceedings. May 8, 1968 — U. S. District Court injunction dissolved.

September 18, 1969 — hearing held, testimony presented and cases consolidated. The decree of Judge Mathias pursuant to Maryland Rule 605 a stated in part, “[T]he Court makes an express determination that there is no just reason for delay, and expressly directs the entry of judgment in accordance with this final decree * * The $230,000.00 note in question was made to Rose M. Holmes, secretary to Clarke, the attorney who prepared the instrument. It was by her assigned to Gildenhorn. Consideration for the loan was $165,456.16 in cash and cancellation of a $27,500.00 note in another Basiliko corporation, which note was then in default.

The secretary was a “straw party” without interest in the matter. We are presented two questions. The first is whether the deed of trust is void under the District of Columbia “loan shark” act, 26 D. C. Code, §§ 601 et seq. (1967 ed.).

The second is whether the chancellor erred in decreeing that the Gildenhorn note should be allowed in the audit for its stated face value plus interest. I Under the facts developed in this case we are not obliged to make a determination as to whether this transaction is governed by the law of the District of Columbia, where the deed of trust was executed, or by Maryland law, where the land lies and the jurisdiction in which the case was tried. It does not clearly appear where the note was executed. In the view we take of this case this makes no difference.

The pertinent portion of the District of Columbia law upon which GI relies is 26 D. C. Code, § 601 (1967 ed.). It provides: “It shall be unlawful and illegal to engage in the District of Columbia in the business of loan ¹⁷⁵ ing money upon which a rate of interest greater than six per centum per annum is charged on any security of any kind, direct or collateral, tangible or intangible, without procuring a license; and all persons, firms, voluntary associations, joint-stock companies, incorporated societies, and corporations engaged in said business shall pay a license tax of five hundred dollars per annum to the District of Columbia * * GI concludes that the Gildenhorn deed of trust would fall if it can establish that Gildenhorn was engaging “in the District of Columbia in the business of loaning money upon which a rate of interest greater than six per centum per annum [was] charged”, that he had no license, and that this transaction took place within the District of Columbia. It reasons that in such a situation under District of Columbia law “there is no valid and enforceable debt”, thereby making the deed of trust “a lien to secure nothing”, citing Indian Lake Estates, Inc. v. Ten Individual Defendants, 121 U. S. App. D. C. 305, 350 F. 2d 435 (1965), cert. den., 383 U. S. 947 (1966) ; Royall v. Yudelevit, 106 U. S. App. D. C. 1, 268 F. 2d 577 (1959); and Hartman v. Lubar, 77 U. S. App. D. C. 95, 133 F. 2d 44 (1942), cert. den., 319 U. S. 767 (1943), in support of its conclusion. Gildenhorn is a Maryland resident.

The deed of trust was executed in Clarke’s District of Columbia office. It is agreed that the money passed in Maryland. The note admittedly brings in a rate of interest in excess of six per cent per annum. Within the contention relative to the District of Columbia law, GI claims the chancellor erred when he “repeatedly restricted inquiry directed to establishing that Gildenhorn made loans to other people”, in his refusal to admit into evidence “some ninety-nine (99) notes for collection” held by Security Bank in the District of Columbia “over four or five years”, and in his action on “Gildenhom’s failure to respond to subpoena to produce records”. ¹⁷⁶ GI called Gildenhorn as a witness.

In response to inquiry about records he had been directed to bring with him, he said he did not keep any records and that his only records for income tax purposes came from Security Bank where he placed his notes for collection, the bank notifying him when it collected interest. He said he loaned money “[a]bout once or twice a year, or sometimes in two years”. He had made “possibly two or three different deals with [Basiliko]”, all made through Clarke’s office. The chancellor was concerned about Gildenhorn’s failure to produce the note in question in compliance with the subpoena duces tecum.

He directed its production and it was filed in the proceeding. No issue was made by GI at that time relative to other matters mentioned in the subpoena. Hence, it has no basis for complaint to us because of Gildenhorn’s non-compliance, even if those items were relevant to the issues then before the court. Gildenhom’s testimony was confined to the January 20 hearing.

GI takes exception to the refusal of the chancellor to permit inquiry at that hearing into loan transactions Gildenhorn might have had with others. In the posture of the case at that time there was no allegation in the pleadings before the court that Gildenhorn was involved in transactions in violation of the District of Columbia statute. The only allegation was “inadequate consideration” for the note. Hence, it was, as the chancellor ruled, immaterial at that time whether Gildenhorn had been involved in other transactions in the District of Columbia.

Gildenhorn was not put on the stand as a witness at any subsequent hearing.