Opinion ID: 303769
Heading Depth: 1
Heading Rank: 4

Heading: The Claim of Manufacturers Life Insurance Company

Text: 50
51 On 30 August 1960 Pend-Maple, Inc., borrowed $545,000.00 from the Manufacturers Life Insurance Company. On 13 June 1961 Pend-Maple, Inc., borrowed another $75,000.00. Each loan was secured by a deed of trust on real estate in Maryland and each note carried 6 1/4% interest. 52 The Manufacturers Life Insurance Company is a Canadian corporation with its principal office in Toronto. On the relevant dates it maintained an office in the District of Columbia for selling insurance, but no office under its name for the purpose of making real estate loans. Pend-Maple, Inc., was a Maryland corporation, and executed the application for both loans in Maryland. 53 Pend-Maple, Inc., made the loan application to H. G. Smithy Company, a District of Columbia real estate broker and a mortgage broker. This loan was not solicited for Manufacturers, and at that time H. G. Smithy Company did not solicit loans on behalf of any one lender. It took loan applications and then decided where best to place them. Smithy charged Pend-Maple, Inc., a fee for placing the loan, but also paid Manufacturers a fee to accept the application. Smithy thus functioned as an independent broker making its own profit depending on its success in placing the application. The decision on accepting or rejecting the loan was made by Manufacturers at its home office in Toronto, Canada. The notes and deeds of trust were executed in Maryland and the deeds of trust recorded there. The funds were received by the borrower in Maryland. 54 However, during the time this loan, which was the first loan application Smithy had ever submitted to Manufacturers, was being negotiated, Smithy was also negotiating with Manufacturers to become its regular mortgage loan correspondent in the District of Columbia. This permanent relationship was established by an agreement dated 18 August 1960, just prior to the first loan and deed of trust of 30 August 1960. 55 On 5 March 1963 Parkwood purchased the property covered by the deeds of trust from Pend-Maple, Inc., taking the property subject to the deeds of trust but not assuming the notes. 56 The Referee and the District Court overruled the objection of the Trustee and allowed the secured claim on the same three grounds relied upon to support the claim of Equitable, and in addition held that Maryland rather than District of Columbia law was applicable to the transactions. We think that on the latter ground the District Court and the Referee were correct, and that Manufacturers' claim should be allowed as a secured claim. 57
58 The Trustee argues strenuously that Manufacturers was in fact engaged in the lending business in the District of Columbia by virtue of its relationship with Smithy, formally established twelve days before this particular loan was actually executed. The Trustee points to the regulations which define engaging in the regulated business of lending money in the District of Columbia 25 and asserts that what is regulated here is an activity in the District of Columbia, and that all the contacts with Maryland which we have listed above are immaterial when viewed in that light. We think the regulations prove that District of Columbia law could apply to the activities of Manufacturers in making loans, or indeed in making this loan, but the regulations and the statute (Sec. 26-601) under which they were made do not necessarily compel the conclusion that District of Columbia law does or should apply here. 59 The Trustee asserts that subsequent to the 18 August 1960 agreement, Manufacturers was held out by H. G. Smithy Company as making loans in the District, and the Trustee points to Smithy Company's activities in servicing the loans made through Smithy, including this particular one. However, all of these activities of Smithy in servicing these two particular loans occurred after the loans were made, and could not affect the validity of the loans and the deed of trust at the time they were made. If there had been a course of conduct by Smithy in holding itself out as the representative of Manufacturers and in doing the job of servicing the loans for Manufacturers in the District of Columbia prior to the two loans in question, the question of validity might have to be treated differently, but subsequent activities could not invalidate a note and deed of trust which were valid under Maryland law when made. 60 We think there are several grounds on which it can be said that Maryland law applies to the Manufacturers' loans. Generally, the validity of conveyances of real property, and of mortgages and deeds of trust, is determined by the law of the situs of the property. Usually the cases in which the question of the validity of conveyances of real property has arisen have not involved issues such as we have here of the effort of another jurisdiction to regulate a lending activity, but where real estate is concerned, as a general principle, we look to the jurisdiction in which the property is located for the law which governs the security in such transactions. 61 All of the documents involved were executed in Maryland. The loan application, the note and deed of trust were executed in Montgomery County, Maryland; the deed of trust was recorded in that County; and the funds were received by the borrower Maryland corporation in Maryland. The law of Maryland, the place where the contracts were made, should govern matters bearing upon the execution, interpretation, and validity of the contract. 26 62 Here we have a real estate transaction, involving a note, a security instrument, and a sizable sum of money, challenged as to its validity because of a moneylending regulatory statute in the District of Columbia, where some of the activities in connection with the loan unquestionably took place. At best, the Trustee can create a conflict between Maryland and District of Columbia law and a choice as to which might govern; where there is a choice of jurisdictions, the preferable course is to select the law of the jurisdiction which would sustain the transaction, and here this is Maryland. This rule contributes to the certainty of commercial transactions, one of the prime objects of all commercial law. 27 63 We think, however, that no one point is conclusive on Maryland law applying, neither the situs of the property, the execution of all the documents in Maryland, nor the fact that Maryland law would sustain the transaction and District of Columbia law invalidate it; we must therefore apply the principles, and weigh and balance the two jurisdictions' contacts with the transaction in the manner set forth in the Restatement of the Law (Second), Conflict of Laws, Sections 6 and 188. 28 In accordance with these principles, weighing the factors that point respectively to Maryland or to the District of Columbia as the source of law governing the transaction, we think that, on balance, the most weighty factors favor Maryland law. 64 We do not think the Trustee's reliance on Indian Lake Estates, Inc. v. Ten Individual Defendants, 121 U.S.App.D.C. 305, 350 F.2d 435 (1965), and Horning v. District of Columbia, 254 U.S. 135, 41 S.Ct. 53, 65 L.Ed. 185 (1920), is well placed. 65 In Indian Lake Estates, while the property was in Florida, this court did not reach or discuss the applicability of Sec. 26-601 to such loans made outside the District and secured on real property elsewhere. The case arose on the pleadings, and the holding of the court simply was that the complaint, reciting a loan contract entered into in the District of Columbia under such circumstances as to bring into play the D.C. Loan Shark Law, stated a cause of action. 66 Horning was a classic example of a transparent sham to circumvent the law. Horning was a pawnbroker who took his District of Columbia clients across a bridge into Virginia to execute the relevant documents, and then returned to his business of lending money on security in the District. The purpose of the Loan Shark Act has been said to be the protection of the residents of Washington from excessive interest, and Horning clearly was attempting to evade that purpose. In the case at bar we have no fraudulent or evasive purpose; everything done appears as a natural part of a business transaction without thought to evade the District of Columbia or any other law. 67 The Trustee makes no contention that the law of Maryland, if applied, would invalidate this transaction, and it is clear that Maryland law would not. While Article 58A of the Annotated Code of Maryland (1957 edition) is primarily a usury statute, the Maryland law is somewhat similar to D.C.Code 26-601 et seq., but it is clearly limited to loans of $300.00 or less. This limitation has been recognized by the highest court in Maryland. 29 This transaction, involving over one half million dollars, is therefore not invalidated by any Maryland law called to our attention by any party. 68 Accordingly, we sustain the District Court on this ground in its allowing the secured claim of Manufacturers Life Insurance Company. 69