Opinion ID: 1514857
Heading Depth: 1
Heading Rank: 1

Heading: through IV

Text: The first four contentions of the appellants which we have enumerated above, all stand or fall on the question of whether the transactions, whereby the appellee purchased the notes on which the appellants appear as makers, were permeated with fraud to which the appellee was a party. We call attention to the fact that the lower court heard this case sitting without a jury and accordingly was to judge both the law and the facts. Maryland Rule 886 a provides: a. Upon Both Law and Evidence. When an action has been tried by the lower court without a jury, this Court will review the case upon both the law and the evidence, but the judgment of the lower court will not be set aside on the evidence unless clearly erroneous and due regard will be given to the opportunity of the lower court to judge the credibility of the witnesses. The significance of Rule 886 a cannot be minimized in this case because the several legal theories upon which the appellants relied to establish their defense became inapplicable because of their failure to prove the facts which may have rendered their theories apposite. The lower court found that the evidence did not support a finding of any devious or fraudulent conduct on the part of the appellee which colored the transaction and we do not think the court erred in so holding. Judge Shure having had the opportunity to observe and listen to the witnesses and form an opinion as to their credibility made these observations in his opinion:    both of the defendants did sign the notes in July, 1955 and they did sign deeds of trust in July 1955 and according to the testimony in this case, the first time that they mentioned anything irregular about the transaction was when they filed a plea of usury on September 16, 1966. In addition the suit was filed in August 1961 and their original plea doesn't mention usury or anything improper, but merely a general plea  a general issue plea that they were not indebted as alleged.    there is no evidence from any source, from any witness of any improper conduct on the part of the corporation, who is the plaintiff in this case or Irvin Kas, who testified in the corporation's behalf. There is no evidence that he had any knowledge that the broker was going to use any part of the money for improper purposes if this was in fact the case, and as I intimated, there is no evidence that he knew or could have known that there was any irregularity about the transactions, if in fact, there was any irregularity there. The evidence before me indicates that there was no irregularity, but I mention that because the attorney for the defendants keep repeating that there is something improper about this transaction. In any event, Mr. and Mrs. Katz signed the notes and they signed the deed of trust and there is no evidence that there was any duress or impropriety about that and more importantly, there is no evidence that Mr. Kas for the plaintiff corporation had any knowledge that there was anything improper about it. On the contrary, the evidence is that he knew the Katzs, Mr. and Mrs. Katz for a year prior to that time. He says that, and that he went and saw the property that was to be security for the note and that he got a statement from Mr. Spurling the broker and then he delivered the money, so he paid for the notes that he received, and the evidence further discloses that later on he not only received payment for the notes.. . on the notes, but that he went to Virginia and made collections from the Katzs and he talked about conversations that he had with them and that finally they told him that things weren't working out so, he foreclosed on the second trust note and he purchased the property and there is no evidence that there was anything irregular about the sale and he testified without contradiction that he bought the property for $1,000. [Subject to the first trust.] To this we add, that the testimony of Mr. Paroni, an officer of the District Title Insurance Company, who explained the data contained on the settlement sheets prepared by an employee of the Title Company, reveals that $3,150.00 was paid by Jennie Michaelson to Arren Paulson, from whom she purchased the property, simultaneously with her sale to the appellants, and this $3,150.00 came from the proceeds of the sale of the second trust note. This is corroborative of the fact that this was the $3,150.00 which Mr. Kas paid for the second trust note on behalf of the District Mortgage and Investment Corporation and which bore on its face the legend that it was given for deferred purchase money. The settlement sheet, which was received in evidence, further revealed that the purchase price on the sale from Jennie Michaelson to the appellants was listed at $14,950.00. Mr. Katz affixed his signature to the sheet signifying his approval of its contents. The appellants rely heavily on the cases of Hill v. Hawes, 79 U.S. App. D.C. 168, 144 F.2d 511 (1944), and Beatty v. Franklin Investment Company, Inc., 115 U.S. App. D.C. 311, 319 F.2d 712 (1963). We think that both cases are distinguishable from the case at bar. In Hawes, supra, the Court said: The defense is that the $2,286.80 was advanced by the defendant, not as a loan, but as the purchase price of a previously executed $3,600 note which he testified he bought in due course at a 40% discount from a man named Robinson. This note was signed by the Byrds and secured by a trust deed on the same property. Robinson was the payee. Defendant testifies that he did not know either the Byrds or Robinson but bought the note through a man named McKinley, who represented himself to be the agent of Robinson. We do not consider this evidence sufficient to show that the defendant was a holder in due course of the original note which he claims to have purchased. The circumstances surrounding the transaction constitute a badge of fraud which is not rebutted. Competent businessmen do not purchase notes in substantial sums executed by parties unknown to them whose credit they have not investigated. This circumstance, coupled with the fact that the defendant claims to have bought a note which was amply secured at the outrageous discount of about 40%, makes a prima facie showing of usury which must be explained before the purchaser can be found to be a holder in due course.   . (Emphasis supplied.) [Id. at 169] In Beatty, supra, the Court again found circumstances surrounding the transaction which constituted a badge of fraud and made a prima facie showing of usury which had to be explained before Franklin could be found to be a holder in due course. [Id. at 714] Note, however, that in the instant case we are dealing with a second and third trust which were subject to a first trust in the amount of $7,000.00, a substantial sum when viewed in contemplation of the purchase price of $14,950.00. It is not unreasonable to assume that a second and third trust under such circumstances might well be purchased at a substantial discount. See Metropolitan Loan and Trust Co. v. Schaefer, 44 App. D.C. 356 (1916), Elliott et al. v. Schlein, 104 A.2d 418 (1954). It could not be said that there was ample security for the trust, as was stated by the court in Hills v. Hawes, supra ; nor are we dealing with a situation such as found in Beatty, supra, wherein the court had before it a chattel mortgage transaction securing the sale of a motor vehicle, which instrument had on its face an item listed finance charge of $150.00 and which was included as a part of the purchase price which was listed at $695.00. The cash down payment was $294.00; there was a trade-in allowance of $100.00 and an unpaid balance of $301.00, on which there was the stated finance charge of $150.00, all incorporated in the purchase price. The lower court readily agreed with the law set forth in Hill v. Hawes, supra , and Beatty, supra, but pointedly observed that the facts of the instant case did not square with those cited by the appellants. The court emphasizes, as we have noted in the excerpts from its opinion which we have quoted, that the appellee did not purchase the notes from a stranger but knew the appellants, that Kas visited the property, made inquiries concerning the transaction from the realtor involved and the Title Company, and had no knowledge of any straw transactions on the part of the appellants. One cannot review the opinion of the lower court without concluding that it found that if there were any suspicious circumstances raised by the discounting of the notes, it had been rebutted by the testimony and evidence presented by the appellee. Certainly the appellants, while relying upon Hill v. Hawes, supra , and Beatty, supra, did little at the trial of this matter to bring their case within the scope of those decisions, as they did not testify as to their version of the transaction and did not rebut the testimony of the appellee. Furthermore, their own delay in raising the defense of usury two years after filing their general issue plea did not strengthen their defense. We do not think that under the circumstances of this case the transactions were usurious. We hasten to point out that any action to recover any usurious portion of the interest, if in fact it was usurious, would had to have been brought within one year of the date of payment of the interest (D.C. Code (1961), § 28-2704), which of course was not done in this case. The finding by the lower court that the transactions were not usurious is also significant in dispelling the badge of fraud, which if it had existed would have affected other questions surrounding the transaction, such as the appellee's knowledge as to whether or not the appellants were straw men of Spurling, as they alleged, and therefore accommodation makers. Again, in viewing the findings of the lower court we see that it was satisfied that the appellee had no knowledge of the appellants being cast in any role, other than in their capacity of maker and had no knowledge that they were straw men of Spurling. We accept the court's finding that the appellee is a holder in due course, for reasons we have already indicated. We also note, that once it is conceded that the appellee was a holder in due course, the defense of usury is not available to the appellants. Beatty v. Franklin Investment Company, 319 F.2d 712, 713 (1963). As a corollary to the finding that the appellant is a holder in due course, we think it becomes of no significance that the District Mortgage and Investment Corporation, which was controlled and owned by Irvin Kas and Associates, assigned the note to the appellee, a corporation also controlled and owned by Irvin Kas and Associates, without value. It was explained by Mr. Kas on cross-examination that this transfer of the notes was done for bookkeeping purposes and that both companies were owned by the same people; this testimony was uncontradicted.