Opinion ID: 303769
Heading Depth: 2
Heading Rank: 3

Heading: Hartford as a holder in due course.

Text: 85 There is much argument in the briefs as to whether the effect of Sec. 26-601 is to make security instruments given in violation thereof truly void or merely voidable, allowing defenses to be asserted, and, even if the security instruments are truly void, whether a holder in due course can still prevail. We need decide none of these questions here, because we conclude that Hartford was not found to be a holder in due course and on the facts could not have been so found. 86 The question whether a holder is a holder in due course is a question of fact. 31 The burden was on Hartford to prove to the fact-finder, the Referee, and the District Court, that it was a holder in due course. 32 The District of Columbia Uniform Commercial Code provides: 87 After it is shown that a defense exists a person claiming the rights of a holder in due course has the burden of establishing that he    is in all respects a holder in due course. 33 88 Hartford argued to the Referee that its rights under the deed of trust are not affected by any invalidity stemming from Sec. 26-601 because Hartford is a holder in due course, but the Referee as the original finder of fact made no such finding, and the District Court made no fact-finding or conclusions of law of its own, merely adopting those of the Referee. 89 Nor do we see that the Referee or District Court could have made any such finding of fact. When Hartford purchased the note and deed of trust, it appeared on the face of the instrument that the loan was made at over six percent. On the face of the note the lender of the note was described as Walker & Dunlop, Inc., of Washington, D.C., and Hartford knew from its negotiations with Walker & Dunlop in making the loan that this company was engaged in making such loans in the District of Columbia. The loan is also shown on the face to be payable in Washington, D.C. Thus, from all of the uncontradicted facts, Hartford knew that it was purchasing a note and accompanying security covered at its inception by the laws of the District of Columbia, and Hartford should have been on notice that by virtue of Sec. 26-601 a defense existed against the note. Since to have been a holder in due course Hartford would have had to have taken the note with no notice of any infirmity in the instrument or defect in the title of the person negotiating it, 34 Hartford could not have qualified for holder in due course status. 90 Hartford asserts that it did not know that the loan was illegal under Sec. 26-601 and that in the exercise of reasonable diligence it could not be expected to know. At the time of the note's execution (1960) and at the time of its negotiation to Hartford (1961) the governing law for commercial paper in the District of Columbia was the Negotiable Instruments Law. 35 Hartford claims that it became a holder in due course because at that time it met all the required conditions, including that at the time when the note was negotiated to it, Hartford had no notice of any infirmity in the instrument or defect in the title of Walker & Dunlop. 91 But the burden of establishing this was on Hartford; it could hardly plead ignorance of the law as an excuse, a holder cannot convert himself into a holder in due course by being ignorant of the law. While the question of whether Walker & Dunlop, Inc., as a real estate broker was entitled to an exemption under Sec. 26-610 may not be perfectly plain on its face, it was perfectly plain that Walker & Dunlop had acted for itself in making the loan originally, and the whole tenor of the real estate broker's exemption under Sec. 26-610 is to take the real estate broker out from the licensing requirement of Sec. 26-601 simply because the real estate broker is an agent and does not act for himself. Where persons are in the business of making loans on real estate themselves, Sec. 26-601 requires them to be licensed, unless they are specifically exempt under Sec. 26-610. We have held that transactions and obligations in violation of Sec. 26-601 are void, 36 and therefore the maker of the note or the security instrument, or his assignee, would have had a defense. This should have been apparent from the face of the note and the governing District of Columbia law, and Hartford should have been on notice of this defense, and on notice that it was not a holder in due course. It is possible to argue, as the Trustee strenuously has, that the obligations incurred in violation of Sec. 26-601 are void and of no effect even in the hands of a holder in due course. We have not passed upon this question, as it is not necessary under the disposition we now make. But all of this was the law when Hartford purchased the note and accompanying deed of trust. Under these circumstances it is not surprising that, although Hartford sought it, neither the Referee nor the District Court made a finding of fact that it was a holder in due course. Nor do we so find here. 92