Santiago v. Tanaka
| Decision Date | 15 January 2016 |
| Docket Number | No. SCWC–11–0000697.,SCWC–11–0000697. |
| Citation | 366 P.3d 612,137 Hawai'i 137 |
| Parties | Louis Robert SANTIAGO, as Trustee of the Louis Robert Santiago Revocable Living Trust dated November 17, 1999, as amended, and Yong Hwan Santiago, as Trustee of the Yong Shimabukuro Revocable Living Trust dated July 25, 1996, as amended, Petitioners/Plaintiffs–Appellants/Cross–Appellees, v. Ruth TANAKA, Respondent/Defendant–Appellee/Cross–Appellant. |
| Court | Hawaii Supreme Court |
Gary Victor Dubin and Frederick J. Arensmeyer, Honolulu, for petitioner.
Robert Goldberg, Lihue, for respondent.
This case involves the adequacy of disclosures that were made to the buyer during the sale of a commercial property and the seller's subsequent nonjudicial foreclosure and sale of the property when the mortgage payments were briefly interrupted because of an underlying dispute regarding mediation concerning the property. Two issues are presented: (1) whether the seller's failure to disclose certain facts regarding the property's sewer system is actionable under the common-law causes of action of nondisclosure and misrepresentation and (2) whether the seller's nonjudicial foreclosure of the property and ejectment of the Santiagos were wrongful under the facts of this case. We answer both questions in the affirmative.
On January 1, 1998, Louis Santiago (Louis)1 entered into a twenty-year commercial lease agreement to rent approximately 2,560 square feet of ground floor space of the Nawiliwili Tavern (Tavern) from owner Ruth Tanaka (Tanaka). After leasing the Tavern for over seven years and making all payments due under the lease, including his share of utilities, taxes, assessments, and insurance Louis and his wife, Yong Hwan Santiago (collectively, the Santiagos), decided to submit an offer to purchase the Tavern from Tanaka.2
In November 2005, Louis, represented by realtor Glenn Takase (Takase) of Coldwell Banker, submitted an offer to purchase the Tavern for $1,000,000.00, in the form of a "Deposit Receipt Offer and Acceptance" (DROA) to Tanaka's property manager and realtor, Wayne Richardson (Richardson).3 Tanaka did not accept Louis' initial offer, and the parties exchanged multiple counteroffers, all of which referenced and incorporated the DROA.
In January 2006, Tanaka submitted a counteroffer with an attached "Agreement of Sale Addendum to the DROA" (Agreement of Sale Addendum). In her Agreement of Sale Addendum, Tanaka made representations with respect to certain "Monthly Installments (based on current estimates; exact figures to be determined and adjusted at closing)," including "Sewer Fee & Assessments" in the amount of $150.00.4 The Santiagos rejected Tanaka's January 2006 counteroffer.
Ultimately, after further negotiations, Louis accepted a subsequent counteroffer from Tanaka (Accepted Counteroffer). The Accepted Counteroffer expressly provided that Tanaka and Louis "agree[ ] to sell/buy the [Tavern] on the terms and conditions set forth in the DROA as modified by this Counter Offer." The Accepted Counteroffer set the purchase price of the Tavern at $1,300,000, $800,000 of which was to be paid as a down payment, with the remaining $500,000 secured by a sixty-month "Mortgage, Security Agreement and Financing Statement" (Mortgage) financed by Tanaka. Attached to the Accepted Counteroffer were two addenda: a "Purchase Money Mortgage Addendum" (Mortgage Addendum) setting forth the provisions of the Mortgage and an "Existing ‘As Is' Condition Addendum" ("As Is" Addendum).
The stated purpose of the "As Is" Addendum was to note that the "Property [was] being sold in its existing condition" and that "[e]xcept as may be agreed to elsewhere in [the] DROA, [Tanaka] will make no repairs and will convey [the Tavern] without any representations or warranties, either expressed or implied." The addendum stated, however, that "[b]y selling Property in Existing ‘As Is' Condition, [Tanaka] remains obligated to disclose in writing any known defects or material facts of Property or improvements." (Emphases added).
In April 2006, Tanaka sent Louis a "Seller's Real Property Disclosure Statement" (Disclosure Statement). The Disclosure Statement expressly stated that it was "intended to assist [Tanaka] in organizing and presenting all material facts concerning the Property" and that Tanaka is "obligated to fully and accurately disclose in writing to a buyer all ‘material facts' concerning the property."5
The Disclosure Statement further noted, "It is very important that the Seller exercise due care in preparing responses to questions posed in the Disclosure Statement, and that all responses are made in good faith, are truthful and complete to the best of Seller's knowledge," because "Seller's agent, Buyer and Buyer's agent may rely upon Seller's disclosures." Finally, the Disclosure Statement instructed Tanaka, in her capacity as the Seller of the Tavern, to answer all questions and explain all material facts known to her.
As is relevant to the issues presented in this case, question 77 of the Disclosure Statement asked, "What type of waste water/sewage system do you have?" Tanaka checked boxes to indicate that the Tavern was "Connected" to a "Private Sewer." The last page of the Disclosure Statement provided a space for Tanaka to provide further explanation of any prior disclosure. In addition to clarifications pertaining to other questions on the Disclosure Statement, Tanaka referenced question 77 and noted that the Tavern's sewer is a 6
Tanaka subsequently disclosed twenty documents pertaining to different aspects of the Tavern, several of which were related to the Tavern's private sewer connection. One of the disclosed documents was an agreement dated May 16, 1995, between Tanaka and James Jasper Enterprises, LLP (Jasper), to connect the Tavern to Jasper's existing private sewer system. The agreement, entitled "Agreement for Maintenance and Operation of Wastewater System and Connection to Wastewater System Located at Nawiliwili, Kauai, Hawai‘i" (Wastewater Agreement), provided the following pertinent terms for the maintenance and cleanout charges:
(Emphases added).
Based on Tanaka's disclosures and the $150 estimated monthly installment for sewer fees and assessments represented in the Agreement of Sale Addendum, Takase and Louis believed the costs associated with the Tavern's private sewer system were the amounts listed in the Wastewater Agreement—$150 for a monthly maintenance fee and $150 for a bi-monthly cleaning fee. After reviewing the disclosures with Takase and believing that Tanaka had provided all documentation, Louis accepted the disclosed documents.
As noted, to finance a portion of the purchase price of the Tavern, the Santiagos obtained a mortgage from Tanaka. In the Mortgage, the Santiagos covenanted to pay the $500,000 loan pursuant to the terms of a Promissory Note.
The Mortgage provided that in the event of any default "in the performance or observance of any covenant or condition" of the Mortgage or the Promissory Note, "the whole amount of all indebtedness owing" under the Mortgage "shall at the option of the Mortgagee become at once due and payable without notice or demand." Additionally, the Mortgage provided as follows:
[T]he Mortgagee may, with or without taking possession, foreclose [the] Mortgage, by court proceeding (with the immediate right to a receivership with the aforesaid powers on ex parte order and without bond pending foreclosure), or, as now or then provided by law, by advertisement and sale of the mortgaged property or any part or parts thereof at public auction in the county in which the mortgaged property are situated....
(Emphases added).
The Promissory Note provided that payment of $9,724.63 was due on the tenth day of each month, commencing on August 10, 2006, until the satisfaction of the debt on August 10, 2011. It additionally stated that the failure to pay "any sum" due under the Promissory Note constitutes an "Event of Default" and that "[i]f any Event of Default shall occur and be continuing, the entire principal sum and accrued interest thereon" shall "immediately become due and payable." (Emphasis added).
The parties closed the sale pursuant to the U.S. Department of Housing and Urban Development Settlement Statement (HUD Statement) on August 10, 2006, and the deed transferring the Tavern's title from Tanaka to the...
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