Anthony v. Kualoa Ranch, Inc.

Decision Date23 April 1987
Docket NumberNo. 11424,11424
Citation69 Haw. 112,736 P.2d 55
PartiesJames N. ANTHONY and Alberta Pua Anthony, Plaintiffs-Appellees, v. KUALOA RANCH, INC., a Hawaii corporation, and Francis Morgan, Defendants-Appellants.
CourtHawaii Supreme Court

Syllabus by the Court

1. A stay of judgment, pending a statutorily ordered arbitration, is not necessarily a final order because of our decision in Association of Owners of Kukui Plaza v. Swinerton & Walberg Co., 68 Haw. 98, 705 P.2d 28 (1985).

2. Because HRS § 516-70 provides that a lessor, on termination of a lease, where the lessee elects not to remove the improvements on the premises, must pay the lessee the fair market value of such improvements within 30 days after an appraisal or arbitration decision fixing the same, and, because the order appealed from assumes that such a payment will be made, over and above any damages the lessor may have sustained, and requires that such payment must be made, prior to the lessor's recovering possession of the premises, even though the lease has terminated, the order has sufficient finality to make it appealable.

3. The Contracts Clause of the United States Constitution does not operate to obliterate every exercise of the police power of the State of Hawaii which may affect existing contractual rights.

4. The Contracts Clause of the United States Constitution, however, imposes some limits on the power of the State of Hawaii to abridge existing contractual relationships even in the exercise of the police power.

5. The threshold inquiry in a Contracts Clause case, is whether the State law operates as a substantial impairment of existing contractual rights.

6. Prior to the adoption of HRS § 516-70, it was the law of Hawaii that a house erected on the premises of another became a fixture, and a part of the realty, and that any right of removal, given in the lease, had to be exercised as provided in the lease.

7. The provision of HRS § 516-70 requiring a lessor, on the expiration of a lease, negotiated and entered into before the effective date of HRS § 516-70, as amended in 1975, to pay to the lessee, if the lessee chooses not to remove the leasehold improvements, the fair market value of those improvements, regardless of whether the lessor wants, can use, or can afford them, substantially impairs the lessor's contractual rights.

8. HRS § 516-70 is not an exercise of the eminent domain power and is not limited, in operation, to those leases which may be converted into fee simple ownership by the exercise of that power under the Hawaii leasehold conversion act.

9. The express purpose of the legislature in making the 1975 amendment to HRS § 516-70 was only to do equity, as the State legislature saw it, between lessors and lessees of residential leaseholds, and had nothing to do with the purpose of the Hawaii leasehold conversion act to break up the oligopolistic ownership of residential lands and the resulting inequality of bargaining power between lessors and lessees.

10. HRS § 516-70, not being occasioned by an emergency and not being limited in duration, unconstitutionally impaired the appellants' contractual and property rights, as set forth in the lease in question, and violated the Contracts Clause of the United States Constitution.

Stanley K.W. Chong (Philip J. Leas with him on briefs; Cades Schutte Fleming & Wright, of counsel), Honolulu, for defendants-appellants.

Boyce R. Brown, Jr. (Brown & Johnston, of counsel), Honolulu, for plaintiffs-appellees.

Sonia Faust, Deputy Atty. Gen., amicus curiae brief, for State.

Before LUM, C.J., and NAKAMURA, PADGETT, HAYASHI and WAKATSUKI, JJ.

PADGETT, Justice.

This is an appeal from an order staying judgment pending arbitration. We reverse.

In 1953, appellants leased lot 55A of the Kaaawa Beach lots for residential purposes to Albert F. Biehl and Josephine H. Biehl at a rental of $75 per annum for a term of 30 years. The present appellees acquired the leasehold through mesne assignments, consented to by the appellants, in 1976. The lease contained the following provisions, inter alia:

THAT the Lessee will not erect or permit to be erected upon the demised premises any new buildings or to make or permit to be made any addition to any buildings which may at present exist or shall at any time during the said term be erected upon the land hereby demised, except in accordance with plans and specifications previously approved by the Lessor;

....

THAT on the last day of the term hereby demised or on any sooner termination thereof, the Lessee will peaceably and quietly yield and deliver up to the Lessor possession of the demised premises; PROVIDED, HOWEVER, that the Lessee, if he shall have observed and performed all of the covenants and conditions herein contained and on his part to be observed and performed, after giving written notice of his intention to the Lessor, shall have the privilege of removing any building or buildings which have been placed on the demised premises at his own expense, and if he shall remove the building or buildings, he shall clear the premises of all rubbish and debris and restore the surface to a condition satisfactory to the Lessor within such reasonable period as the Lessor shall prescribe[.]

Appellees, after taking over the lease, erected substantial additions to the residence on the premises. After the expiration of the lease on July 1, 1983, appellees filed suit for specific performance of an alleged agreement to enter into a new lease, and for damages for unfair and deceptive trade practices, and retaliatory acts. As an alternative to their prayer for specific performance of the alleged agreement for a new lease, they prayed that the appellants be ordered to buy from them the residential improvements existing on the premises under the provisions of HRS § 516-70. Appellants counterclaimed for a declaration that the lease had terminated, and for ejectment.

The case was tried before a jury which answered 17 special interrogatories. Thereafter, on March 6, 1986, the trial court entered its findings of fact, conclusions of law, and order. In that document, the court rejected appellees' claims for specific performance, and damages for unfair and deceptive trade practices and retaliatory acts; upheld appellants' claims of lease termination and for ejectment; ordered appellees to pay rental at the rate of $212 per month from July 2, 1983 to the time of ejectment; ordered appellants to pay appellees the fair market value of the leasehold improvements as of the date of the expiration of the lease; ordered the parties to mutually agree on the value of such improvements, and failing such agreement, to proceed to appraisal or arbitration of the fair market value of the leasehold improvements pursuant to HRS Chapter 658.

The parties did not agree on the value of the leasehold improvements and subsequently on May 5, 1986, the court entered its "Order Staying Judgment Pending Arbitration" from which this appeal is taken.

Appellees contend that the May 5 order does not have sufficient finality to make it appealable and, alternatively, that if it does have sufficient finality, the same was true of the March 6 order, and that therefore this appeal is taken too late. Appellants contend that the effective order was not that of March 6 but that of May 5, the stay, and that, under Association of Owners of Kukui Plaza v. Swinerton & Walberg Co., 68 Haw. 98, 705 P.2d 28 (1985), which overruled Pfaeltzer v. Patterson, 49 Haw. 59, 410 P.2d 974 (1966), the latter order is appealable.

HRS Chapter 658 applies to agreements, in written contracts, to settle controversies by arbitration, and to agreements, in writing, to submit existing controversies to arbitration. Such was the case in Swinerton, such was the case in Pfaeltzer. Here, however, we are dealing with a statutory requirement of arbitration.

HRS § 516-70, when originally enacted as § 43 of Act 307 of the Session Laws of 1967, merely provided:

At the termination of any lease, or at the expiration of the lease term, the lessee may remove all improvements on the lot which were constructed at the cost of, or otherwise paid for by the lessee, without compensating the lessor therefor.

That provision was not different, in substance, from the lease.

However, § 19 of Act 184 of the Session Laws of 1975 amended the statute to its present form, so that it now reads:

Reversion of improvements. (a) This section applies to all leases of residential lands as defined by section 516-1(5).

(b) At the termination of any lease, or at the expiration of the lease term, the lessee may, if not then in default under the terms of the lessee's lease, remove all onsite improvements on the lot which were constructed at the cost of, or otherwise paid for by, the lessee, without compensating the lessor therefor. If the lessee notifies the lessor in writing within sixty days before the termination or expiration that the lessee declines to remove such onsite improvements and if the lessee is not then in default under the terms of the lessee's lease, and if the lessor refuses to extend the term of the existing lease or to issue a new lease for a term of at least thirty years at a rental that is mutually agreeable to the parties or failing such agreement that is determined by arbitration pursuant to chapter 658, the lessor shall be required to compensate the lessee for the current fair market value of all such onsite improvements. Such improvements shall be appraised at the expense of the lessee. The appraiser selected shall be by mutual agreement of the lessee and the lessor or in conformance to chapter 658. The compensation shall be determined by mutual agreement or in conformity with chapter 658, and the compensation shall be paid within thirty days of determination. Such expense of arbitration shall be equally shared by both parties.

Because the requirement for arbitration was statutory, not contractual, Swinerton is...

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