A city-funded development corporation bypassed normal procedures in granting a $50,000 business loan to former elections board chairman James L. Denson and may be unable to recover the funds now because Denson has defaulted and faces substantial personal debts.

The District of Columbia Development Corporation (DCDC), which receives nearly all of its funds from federal grants channeled through the city, gave an unsecured loan last November to Denson and his private company, the D.C. Institute for Economic Development.

The loan enabled Denson to keep a deposit on a purchase contract for the Washington Coliseum and adjoining Uline Ice House at Third and M streets NE.

The purchase contract for the complex called for Denson to pay its owners $1.3 million by March 28 or give up the nonrefundable deposit. Denson has not made the payment or secured other financing to close the deal.

The defaulted $50,000 loan, which is separate from a $30,000 loan on which a Denson firm defaulted in 1973, is one of several controversial financial dealings by the 47-year-old Denson, who resigned Friday as chairman of the D.C. Board of Elections and Ethics.

Denson has also resigned as president of the D.C. Chamber of Commerce, in the face of three investigations into whether he misappropriated thousands of dollars from the chamber, the major trade association for small and minority businesses in Washington.

As it now stands, the Coliseum owners could claim the $50,000 deposit and walk away from the deal, DCDC president Joseph D. Jackson said.

The loan was not secured by real estate or other securities and DCDC has demanded that it be repaid in full with interest by May 20, Jackson said. h

Denson faces substantial personal debts, according to his own statements and official records.

DCDC's only other hope -- if Denson and his company do not repay the loan -- is attempting to find a developer interested in taking over Denson's interest in the purchase contract for the Coliseum. Jackson said he had received such an expression of interest from a Washington developer whom he would not name.

DCDC's normal application procedures, which are borrowed from the Small Business Administration (SBA), were not followed in Denson's case, said Jackson.

"They were bypassed from the standpoint that all the documents in a normal loan proposal were not used because of the nature of the transaction," which he described as "a bridge-type situation."

Had the normal procedures been followed, Jackson said, Denson would have been required to acknowledge on application forms that a corporation he operated in Los Angeles, Service Concepts, Inc., defaulted on a $30,000 SBA loan in 1973.

Knowledge of that earlier default, Jackson said, might have affected whether Denson got the DCDC loan and, if he did, how it was secured.

Jackson said he had not been aware of the earlier default until he read of it in the newspaper last week.

The genesis of the Coliseum project to a large extent dates to the opening days of the Barry administration. Indeed, the project became intertwined with Barry's own fledgling economic development policy, which sought the political benefits of jobs and opportunities for minority entrepreneurs. And seven of the 15 members of the DCDC board were appointed by Barry.

Denson's position as a member of the elections and ethics board, and later, Barry's appointee as its chairman, created the potential for conflicts of interest as high-level city officials became involved in supporting what amounted to Denson's private real estate venture.

At any time while he was soliciting support and direct financial aid from city officials for his project, Denson could have been called upon to consider and rule upon questions of misconduct by those same city officials.

Barry had not been in office 90 days and had just brought Robert L. Moore from Houston as his new housing director when Moore wrote a letter of support for the Coliseum project.

On March 30, Moore gave his full commitment and the pledge of up to $100,000 in federal community development block grant funds to Denson's institute. "These funds . . . will be provided in support of an application for the acquisition and rehabilitation of the D.C. Coliseum project," Moore wrote to Denson.

The letter continued, "Please be advised that you have my personal support on this project. . . . I am also coordinating additional support through the mayor's economic development and minority business development office so that a total city focus can be provided."

Moore could not be reached for comment yesterday.

With that pledge from the city, Denson on April 6, 1979, gave a $2,000 check drawn on a Chamber of Commerce account to Charles W. Lockyer, vice president of PUBCO Corp., of Glenn Dale. PUBCO's subsidiary, Washington Coliseum Inc., has owned the Coliseum property for 12 years.

In an accompanying letter, Denson wrote, "The District of Columbia's Chamber of Commerce is prepared to offer you a purchase price of $1,250,000 for the Washington Coliseum land. . . .

The letter continued, "Acquisition will be by the D.C. Institute of Economic Development through a grant from the Department of Commerce Economic Development Administration."

Attaching the letter from Moore to his own letter, Denson added, "A complete, comprehensive redevelopment and utilization loan is being developed with a planning grant from the D.C. Department of Housing and Community Development."

By May, according to Jackson, Denson had approached the DCDC staff seeking direct financial participation by the city-funded corporation in the Coliseum venture.

Jackson has said that he and his staff were led to believe that Denson's institute, which would receive the financial support, was the "economic development component" of the chamber.

Indeed, last week when Jackson called in the $50,000 loan, he said one of the main reasons for doing so was that Denson had provided "misleading information" about the institute's affiliation with the chamber.

However, Jackson also acknoweldged that Denson had provided him with the institute's 1976 articles of incorporation, which show no legal or corporate relationship between the chamber and Denson's institute.

Still, the DCDC board of directors took up Denson's loan last summer and some initial requests for more documentation were made by Board members according to Jackson.

On Aug. 2, 1979, Denson signed a purchase contract for the Coliseum and adjoining ice house. Throughout the contract, references to the D.C. Chamber of Commerce as buyer were crossed out and replaced by the name of Denson's institute.

The document also acknowledges receipt of $50,000 from Denson as a nonrefundable deposit. The contract calls for settlement to occur "not later than Nov. 26, 1979," or "the deposit of $50,000 shall be retained by the seller as and for liquidated damages."

(The deadline eventually was extended to a final date of March 28, 1980.)

Even at this late stage in the purchase negotiations, Denson had apparently not secured the major financing needed to make good on the contract. The Commerce Department grant Denson had mentioned in the April 6 letter had not even been applied for.

Not until Nov. 6 did Denson submit a 46-page "preliminary feasibility study" to Commerce officials on behalf of his institute. The proposal asked for $6 million in federal grants to buy and renovate the Coliseum.

It was not until Dec. 5, already a week past the purchase contract deadline, that Denson received a reply from Curtis R. McClinton, director of EDA's office of special projects.

"Based on a preliminary review of the proposal, it appears that additional information is needed prior to EDA consideration, including evidence of endorsement by the District of Columbia." McClinton noted that for the price of the $6 million government grant, Denson had estimated that the Coliseum project would create 100 direct jobs.

Denson went to Mayor Barry with his problem.

Shortly thereafter, Barry wrote a "Dear Curtis" letter to McClinton. "The District Government is happy to endorse the concept of the proposal. . . . I look forward to advancing this project as quickly as possible," Barry wrote.

In the meantime, DCDC had told Denson in a Nov. 20 letter that he would get the $50,000 loan for the purchase contract deposit as long as he showed that his institute was a valid D.C. corporation. Denson was also to provide DCDC with "reslutions of borrower's board of directors authorizing borrower's execution of the documents required . . . and authorizing borrower to execute the [loan] contract."

Subsequently, according to Jackson, he received a resolution of the institute's board dated Nov. 11, 1979, authorizing DCDC to assume the purchase contract in the event that Denson's company could not close on the deal.

The original document, Jackson said, is witnessed by Denson and signed by Allison Bryant, then executive vice president of the chamber and director of Denson's institute.

In an interview last week, Denson acknowledged that the nine-member board had "never met."

"I'm still trying to get it off the ground," said Denson. "All activities were initiated by me."

Three other members of the board, listed in Denson's chamber records, said last week they had agreed to serve on the body, but had never met or voted on any resolutions.

"I certainly never got called to a meeting, not while I was awake or alive," said lawyer R. Robert Linowes, partner in Linowes and Blocher, and former president of the Greater Washington Board of Trade.

Another listed board member, John Touchstone, director of economic affairs at the Metropolitan Washington Council of Governments, listened to a reading of the resolution and said, "I'll be damned.I've never heard of this, hell no, no indeed."

Board member Bryant G. Harris, vice president for administration at Howard University and one of the original incorporators of Denson's institute, said, "I didn't know anything about it."

Harris said he had seen a copy of the resolution subsequent to the date it was signed, and added, "I saw that very recently."