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GREENE v. GIBRALTAR MORTG. INV. CORP.

February 29, 1980

Rosa GREENE
v.
GIBRALTAR MORTGAGE INVESTMENT CORPORATION et al.



The opinion of the court was delivered by: GREEN

MEMORANDUM OPINION

This matter is currently before the Court on plaintiff's motions for a preliminary injunction and partial summary judgment, and defendants' oppositions thereto. Plaintiff challenges the validity of a promissory note and deed of trust on her property based on violations of the Truth-In-Lending Act, 15 U.S.C. § 1601 et seq., and the District of Columbia Usury and Loan Shark Laws. After due notice to the parties pursuant to Fed.R.Civ.P. 65(a), this matter was consolidated for trial on the merits. Upon consideration of plaintiff's motions for preliminary injunction and partial summary judgment, defendants' oppositions, the testimony of witnesses and the oral arguments of counsel at the hearings in this matter, and the entire record herein, the Court concludes for the reasons set forth below that plaintiff's motion for preliminary injunction must be granted and that plaintiff's motion for partial summary judgment is denied.

 Factual Background

 Plaintiff, Rosa Greene, lives in a single family residence at 1502 Emerson St., N.W., Washington, D.C. which she purchased in 1966. The purchase was financed with a loan in the amount of $ 26,000 from the Carey Winston Company. In the spring of 1979 Mrs. Greene fell behind in her mortgage payments. In addition, her pipes burst during the winter and she needed money to pay for plumbing repairs. Mrs. Greene contacted several loan companies by phone and was turned down each time. She then called defendant, Gibraltar Mortgage Investment Corporation, a firm located in Arlington, Virginia. She spoke with Gibraltar's president, Mr. Willis Kemper, and met subsequently with him at Gibraltar's office on June 1, 1979.

 At this meeting, Mr. Kemper informed Mrs. Greene that she could not obtain a loan unless it was for a "business purpose." He discussed converting her single family home to a rooming house and encouraged her to apply for a rooming house license so that proof of a business purpose could be substantiated. Mrs. Greene gave Kemper $ 40.00 to process the loan application. Mr. Kemper visited the property at 1502 Emerson St. and appraised it at $ 49,000 without ever going inside. He left on vacation June 15th and left his secretary, Ms. Judi Boaz in charge.

 In mid-June 1979, plaintiff received a letter from an attorney representing the Carey Winston Company, the holder of the first deed of trust. This letter threatened to accelerate Mrs. Greene's obligations under the note and to foreclose unless all amounts due were received by June 21, 1979. She conveyed this information to Gibraltar on June 20, 1979. On the afternoon of June 21, 1979, plaintiff executed a promissory note to Gibraltar secured by a deed of trust on her property at 1502 Emerson St. N.W. In addition to plaintiff, Ms. Boaz and Mr. J. D. Miller, the settlement attorney and one of the trustees under the deed of trust, were present.

 At settlement, Mrs. Greene discovered for the first time that the principal of the note was $ 5,800, even though she and Mr. Kemper had only discussed a loan in the amount of $ 3,000. The statement of charges indicates that of this $ 5,800, $ 2,800 was deducted as a broker's fee and $ 290.00 was deducted in settlement fees. Immediately, Gibraltar dispatched a messenger to pay $ 1,581.90 directly to the Carey Winston Company that very afternoon. Plaintiff therefore only received $ 1,128 in proceeds allegedly to convert her home into a rooming house. The day after it was executed, Gibraltar assigned all of its interest in the note to defendant G. R. Quittschreiber. Plaintiff was to pay him $ 117.62 per month for five years thus paying approximately $ 7,000 for the use of $ 2,710.

 In September 1979, plaintiff became unemployed and fell behind in her payments under both the first and second deeds of trust. In December, defendant Quittschreiber contacted J. D. Miller and asked him to proceed with foreclosure. Shortly, thereafter, Quittschreiber went to Mrs. Greene's home and demanded payment in person and warned her that if she heard from Mr. Miller, she would be liable for attorney's fees. Mr. Miller then sent a letter to Mrs. Greene which informed her that all payments due under the promissory note had been accelerated and that foreclosure proceedings would be initiated if the note were not paid in full.

 Mr. Miller visited plaintiff the day she received the letter and suggested that he could find an investor to enter into a contractual arrangement with her. This investor, according to Mr. Miller, would make Mrs. Greene's payments through March and give her $ 1,000 to pay for fuel oil. She could remain in the house for a year, during which time she could buy back the contract for $ 10,000.

 Plaintiff then contacted an attorney who initiated this action, claiming violations of federal and District of Columbia consumer protection statutes.

 Discussion

 The Court need not decide this case on any statutory basis for this entire transaction was tainted with fraud and misrepresentation.

 A contract is void for fraud or misrepresentation where a party makes assertions not in accord with the facts regarding essential terms of the proposed contract, reasonably inducing apparent assent by one who neither knew or had reasonable opportunity to know what those essential terms were. See Restatement of Contracts § 475 (1932); Restatement (Second) of Contracts § 305 (Tentative Draft No. 12, 1977); Hill v. Marston, 82 F.2d 856, 65 App. D.C. 250 (1936). Omission or concealment of material facts can constitute a misrepresentation, just as a positive, direct assertion can. Restatement (Second) of Contracts § 306 (Tentative Draft No. 12, 1977); Andolsun v. Berlitz Schools of Languages of America, 196 A.2d 926, 927 (D.C.1964); Borzillo v. Thompson, 57 A.2d 195, 197-98 (D.C.1948); see Nader v. Allegheny Airlines, Inc., 445 F. Supp. 168, 174 (D.D.C.1978). Where a party's assertion not in accord with the facts induces the apparent assent of another party, there is no meeting of the minds and hence no contract. Hill v. Marston, supra; Lyon v. Smith, 2 App.D.C. 37, 39 (1893) (deed of trust void where true rate of interest misrepresented); Hollywood Credit Clothing v. Gibson, 188 A.2d 348 (1963). This is so even where the misrepresentation inducing assent is not deliberate. Battelle v. Cushing, 21 D.C. 59, 71-72 (1892); Hollywood Credit Clothing v. Gibson, supra, 188 A.2d at 349.

 In this case, defendant failed to disclose material facts to plaintiff in the negotiations that led to the promissory note and deed of trust. First, when plaintiff discussed the terms of a loan with Mr. Kemper, they agreed that the principal amount of the loan was to be in the vicinity of $ 3,000, which amount she would repay at an interest rate not out of line with prevailing market rates for second mortgages. Gibraltar did not explain or disclose that it charged a fee for brokering the loan, which, in this instance, amounted to more than the actual proceeds of the loan. Second, Gibraltar failed to disclose the significance of designating the loan as a business purpose loan, which operates as a waiver of rights plaintiff might otherwise exercise under federal and local consumer protection statutes. Moreover, that this was a sham designation is evidenced by the fact that Gibraltar paid over half of the ...


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