Eastern Star, Inc., S.A. v. Union Bldg. Materials Corp., 9667

• Decision Date: 26 November 1985
• Docket Number: No. 9667,9667
• Citation: 6 Haw.App. 125,712 P.2d 1148
• Parties: EASTERN STAR, INC., S.A., Plaintiff-Appellee, Cross-Appellant, v. UNION BUILDING MATERIALS CORP. and Keith Kranz, Defendants-Appellants, Cross- Appellees, Robert Graves, Inc. and Robert Graves, Defendants-Cross-Appellees, and Harold T. Kurisu, Defendant.
• Court: Hawaii Court of Appeals

Page 1148

712 P.2d 1148

6 Haw.App. 125

EASTERN STAR, INC., S.A., Plaintiff-Appellee, Cross-Appellant, v. UNION BUILDING MATERIALS CORP. and Keith Kranz Defendants-Appellants, Cross- Appellees Robert Graves, Inc. and Robert Graves, Defendants-Cross-Appellees and Harold T. Kurisu, Defendant.

No. 9667.

Intermediate Court of Appeals of Hawai'i.

Nov. 26, 1985.

Syllabus by the Court

1. Hawaii Revised Statutes (HRS) § 480-2 was constructed in broad language to constitute a flexible tool to stop and prevent fraudulent, unfair, or deceptive business practices for the protection of both consumers and honest businessmen.

2. Under HRS § 480-2, a practice is unfair when it offends established public policy and when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.

3. Deception is an act causing, as a natural and probable result, a person to do that which he would not otherwise do. However, under HRS § 480-2, actual deception need not be shown; the capacity to deceive is sufficient.

4. Where a corporate officer or director participates in the acts proscribed by HRS § 480-2, he could be jointly and severally liable with the corporation.

5. HRS § 480-17, which provides that a corporate violation of the "penal" provisions of chapter 480 shall be deemed to be also that of the individual corporate directors, officers, or agents who authorized, ordered, or did the proscribed acts, does not do away with the "civil" liability of corporate directors, officers, or agents.

6. Under HRS § 480-13(a)(1), a showing that the defendant by his occupation holds himself out as having knowledge or skill peculiar to the practices involved in the transaction is sufficient to show that he is a "merchant."

7. In determining the sufficiency of a particular instruction, it is to be considered, as a whole, with the rest of the instructions; instructions need not be technically correct if the appellant suffers no prejudice on their account.

8. To prove fraud, the plaintiff must show that false representations were made; that the defendant made those representations with knowledge that they were false or without knowledge that they were true or false and in contemplation of the plaintiff relying upon them; and that plaintiff did rely upon them and suffered damages.

9. Although fraud cannot be predicated on statements which are promissory in their nature, a promise made without the present intent to fulfill the promise is actionable as fraud.

10. HRS §§ 480-2 and -13(a)(1) which established statutory claims for treble damages, do not supersede common law fraud claims based on deception in the course of trade and commerce.

11. An award of both treble damages under HRS § 480-2 and -13(a)(1) and punitive damages for fraud for the same act will constitute improper double recovery. The recovery should be either treble damages or punitive damages, whichever is the greater amount.

Alexander T. MacLaren (Walter G. Chuck and Artie M. Owen, III on the briefs; Walter T. Chuck, A Law Corp., of counsel), Honolulu, for defendants-appellants, cross-appellees.

Jack C. Morse (Morse, Nelson & Ross, Attorneys at Law A Law Corp., of counsel), Honolulu, for plaintiff-appellee, cross-appellant.

Before BURNS, C.J., and HEEN and TANAKA, JJ.

TANAKA, Judge.

Defendants Union Building Materials Corporation (UBM) and Keith Kranz (Kranz) (UBM and Kranz hereinafter collectively Defendants) appeal from the judgment awarding to plaintiff Eastern Star, Inc., S.A. (Eastern Star) treble damages under Hawaii Revised Statutes (HRS) § 480-13(a)(1) (1976) ¹ pursuant to the jury's special verdict. Eastern Star cross-appeals the trial court's dismissal of its common law fraud claim. We affirm the judgment awarding treble damages and reverse the dismissal of the fraud claim.

The issues raised by Defendants' appeal and our answers are:

I. Whether there was sufficient evidence to support the jury's finding that UBM committed unfair or deceptive acts or practices in violation of HRS § 480-2 (1976). ² Yes.

II. Whether Kranz could have been found liable under HRS §§ 480-2 and -13(a)(1) on the law and the evidence. Yes.

III. Whether the trial court's jury instruction on the doctrine of waiver was incomplete and prejudicial to Defendants. No.

The issues raised by Eastern Star's cross-appeal and our answers are:

IV. Whether the trial court erred in directing a verdict against Eastern Star on its common law fraud claim on the grounds of insufficient evidence. Yes.

V. Whether HRS §§ 480-2 and -13(a)(1) constitute the exclusive remedy and supersede the common law fraud remedy in the area of trade and commerce. No.

FACTS

Eastern Star is a Panamanian corporation with its principal office in Hong Kong. UBM, a Hawaii corporation, is engaged principally in the business of wholesaling and retailing building materials and supplies and is owned by Kranz, its president and chief executive officer, and his wife. Robert Graves, Inc. (Graves, Inc.), a Hawaii corporation, was wholly owned and operated by Robert Graves (Graves). ³

In 1979 Graves, the owner of Bishop Estate leasehold lot 212 on Mariner's Ridge, Hawaii Kai, listed the lot, together with a single-family dwelling to be constructed thereon, for sale. In July 1979, Cesar Magsaysay (Magsaysay), then president of Eastern Star, met with Graves to negotiate the purchase of the lot/construction package. Graves represented to Magsaysay that he was an experienced, licensed contractor.

A Deposit Receipt, Offer and Acceptance (DROA) dated July 15, 1979, and signed by Eastern Star's agent, Antonio P. Villamayor (Villamayor), the Philippine vice-consul in Honolulu, was accepted by Graves on July 16, 1979. The DROA provided for a purchase price of $210,000 ($70,000 for leasehold lot 212 and $140,000 for the dwelling to be constructed).

Graves took the DROA to Kranz who prepared a "Construction Contract" (Contract) and "Uniform Performance Bond, Assignment of Contract and Agreement" (Bond) on forms printed for the Savings & Loan League of Hawaii. ⁴ The Contract was dated August 23, 1979, and signed by Villamayor as "Owner," and Graves, Inc. as "Contractor." It provided for a contractual price of $140,000 to be "[d]eposit[ed] with Surety upon signing contract," ⁵ and called for completion within 120 working days, subject to, inter alia, "extreme stress of weather, ... or other conditions beyond the control of Contractor." The Bond, in the amount of $70,000 (50% of the contract price), was also dated August 23, 1979. It was signed by Graves, Inc. as "Principal," UBM by "Keith Kranz, President," as "Surety," and Villamayor as "Owner," and provided for the surety's liability upon the principal's failure to complete the construction of the dwelling in accordance with the terms of the Contract free and clear of liens.

By assignment of lease dated September 11, 1979, Graves conveyed leasehold lot 212 to Eastern Star. On October 9, 1979, Eastern Star transferred the $140,000, which had been deposited with the escrow named in the DROA, to UBM. ⁶

David Alampay (Alampay), who became the president of Eastern Star in December 1979, observed the slow progress of construction on his visits to Honolulu. He had cause for concern when Bishop Estate informed Eastern Star on January 31, 1980, that the building completion deadline had expired. Eastern Star retained attorney Jack C. Morse (Morse) in regards to the matter. On March 5, 1980, Eastern Star hired Charles Yamanaka (Yamanaka), a civil engineer and construction consultant, to monitor the construction. During the first week of April 1980, Yamanaka learned that Graves, Inc. was not a licensed contractor and that no building permit had been issued for the dwelling.

Thereafter, Alampay made another trip to Honolulu and held a meeting with Morse, Kranz, and Graves on April 21, 1980. At the meeting, Alampay handed Graves a letter which terminated the Contract with Graves, Inc. because of the lack of a contractor's license and failure to obtain a building permit. Alampay also gave Kranz a letter informing UBM of the principal's default under the Bond and requesting UBM, as surety, to assume completion of the construction. Kranz stated at the meeting that UBM had been issued a contractor's license with Alfred Cambra as its responsible managing employee ⁷ and that Graves was allowed to use UBM's license.

Subsequently, Eastern Star as "Owner," UBM as "Contractor," and Graves, Inc. as "Agent" for Contractor executed an "Amendment to Construction Contract" (Amendment) dated April 23, 1980. The Amendment extended the completion deadline to August 1, 1980, provided for extras of $16,580 thereby increasing the contract price to $156,580, and required a 100% performance and payment bond of $156,580. The Contract, as amended by the Amendment, is hereinafter referred to as the "Amended Contract."

Since construction was not completed by August 1, 1980, and satisfactory proof of excusable delay was lacking, Eastern Star terminated the Amended Contract with UBM on August 28, 1980. On the same day, Eastern Star entered into a contract with Kailua Builders to complete the construction for $103,000.

On September 2, 1980, Eastern Star filed its original complaint against UBM, Graves, Inc., Kranz, and Graves, alleging breach of contract, fraud, and unfair and deceptive acts and practices under HRS § 480-2. It prayed for compensatory damages, punitive damages, treble damages under HRS § 480-13, interest, costs, and attorney's fees.

Kailua Builders completed the construction of the dwelling by December 1980. Thereafter, however, the dwelling suffered leaks when it rained and developed seepage, molds, and mildew on the ground floor areas. Cracks appeared in the floors and walls. Eastern Star first hired an architect, then a structural engineer, to investigate and analyze the problems. The structural engineer determined that the causes were improper...