Harada v. Burns

• Decision Date: 26 September 1968
• Docket Number: No. 4670,4670
• Citation: 445 P.2d 376,50 Haw. 528
• Parties: , 50 Haw. 588 Lyman T. HARADA et al. v. Edward J. BURNS et al., and Florence A. Ellis, et al.
• Court: Hawaii Supreme Court

Page 376

445 P.2d 376

50 Haw. 528, 50 Haw. 588

Lyman T. HARADA et al. v. Edward J. BURNS et al., and Florence A. Ellis, et al.

No. 4670.

Supreme Court of Hawai'i.

Sept. 26, 1968.

Rehearing Denied Oct. 4, 1968.

Syllabus by the Court

1. In the absence of any words to the contrary found in the mortgage agreement itself, the right to enforce a partial release covenant does not terminate with default in the payments due under the mortgage.

2. A defendant asserting a permissive legal counterclaim is entitled to a jury trial on the counterclaim when it is interposed in an equity suit.

William S. Ellis, Jr., pro se.

Ralph E. Corey, Honolulu, for appellants except William S. Ellis, Jr.

William F. Crockett, Wailuku (Crockett & Langa, Wailuku, of counsel) for appellees.

Before RICHARDSON, C. J., MARUMOTO, ABE, LEVINSON, JJ., and DOI, Circuit Judge assigned by reason of vacancy.

LEVINSON, Justice.

In a mortgage foreclosure action brought by the plaintiffs-appellees, the defendants-appellants counterclaimed for damages for breach of a partial release covenant in the mortgage. This appeal concerns the disposition of the counterclaim in the trial court.

The mortgage agreement contained the following partial release covenant:

AND the Mortgagees further covenant and agree with the Mortgagors (1) that they will on or after January 1, 1961, release from the lien of this mortgage any portion or portions of the mortgaged land upon written requests of the Mortgagors according to the rate of one (1) acre for each $2,700.00 of the purchase price paid to the Mortgagors (sic), provided that no request for such partial releases will be made until a subdivision of the mortgaged land has received preliminary approval of the proper government officials of the County of Maui. * * *

The defendants had paid a total of $27,000 of the $78,000 purchase price by February 16, 1962. An additional $7,000 installment delinquent, and the due date was came delinquent, and the due date was subsequently extended by the plaintiffs-mortgagee until June 20, 1963. On June 13, 1963 and June 19, 1963, the defendants-mortgagors applied to the Maui authorities for approval of a ten-acre subdivision of the mortgaged property. Final approval for the subdivision was granted on July 5, 1963. There was no procedure for securing 'preliminary approval,' as called for by the partial release covenant.

On June 17, 1963, the defendants requested the partial release of the ten acres; the request was based on the $27,000 already paid.

On June 20, 1963, the $7,000 payment originally due on November 20, 1962 was still unpaid; there is a dispute as to whether a furthfer extension until August 20, 1963 was granted by virtue of an interest payment made on June 17, 1963. However, for purposes of this opinion, we shall assume that the mortgagors were in default after June 20, 1963.

On June 25, 1963, the plaintiffs refused to grant the June 17 request for release because of the defendants' failure to obtain 'preliminary approval' of the subdivision, and the plaintiffs thereatened foreclosure proceedings because of the continuing delinquency. On July 9 the defendants were notified by the Maui county clerk of the July 5 final approval. It is unclear whether the plaintiffs also received notification at that time.

Meanwhile, the defendants had tentatively arranged with a loan source for the financing of the delinquent $7,000 payment. The loan was to be contingent upon the partial release of the ten acres, which would then be security for this prospective loan. On August 15, 1963, the plaintiffs were notified of this arrangement and were assured that the funds or a definite commitment for the funds would be available by August 20, 1963. On August 16 the plaintiffs responded by again informing the defendants of their refusal to release the ten acres, erroneously claiming that the subdivision approval had not been secured. On August 21, and on September 4, the defendants again requested the plaintiffs to release the acreage. On the latter occasion the defendants informed the plaintiffs that the same source of funds might be willing to finance future installments under the mortgage, provided that the release was immediately forthcoming. Finally, on September 26, the plaintiffs executed the requested partial release.

The defendants claim that because of the delay in executing the release, the relations between the defendants and their loan source seriously deteriorated, and that because of this deterioration, the source rescinded all tentative commitments for additional funds. Subsequent to the release, the defendants made no payments under the mortgage and the plaintiffs brought an action to foreclose. The defendants counterclaimed for damages based on claims of disparagement of their business reputation and interference with their advantageous financial relationship with the loan source, all of which were alleged to have resulted from the plaintiffs' purported breach of contract in failing to execute the partial release promptly.

The trial court granted summary judgment on the plaintiffs' foreclosure complaint under H.R.C.P. 54(b), reserving jurisdiction over the counterclaim. The defendants had demanded a jury trial on their counterclaim, but the court struck this demand. Then on motion by the plaintiffs the court granted summary judgment in favor of the plaintiffs on the defendants' counterclaim with the court finding no genuine issue as to any material fact.

The defendants have appealed claiming that summary judgment against them on the counterclaim should not have been granted and that they have a right to a jury trial on the counterclaim. We agree and reverse on both issues.

1. Summary Judgment

In granting the motion for summary judgment, the trial court concluded as a matter of law that the 'plaintiffs were not obligated to execute the requested release of mortgage until the defendants paid the installment of principal that had been due and payable on November 20, 1962.' This was error.

In the absence of any words to the contrary found in the mortgage agreement itself, the right to enforce a partial release covenant does not terminate with default in the payments due under the mortgage. Vawter v. Crafts, 41 Minn. 14, 42 N.W. 483 (1889); Turner v. Schuh, 297 Ill.App. 317, 17 N.E.2d 517 (1938); Conley v. Poway Land & Investment Co., 232 Cal.App.2d 22, 42 Cal.Rptr. 636 (1965). We believe that the reasons behind this posiiton are compelling.

Contrary to the plaintiffs' contention, we infer from the fact of there being no express provision making the release covenant unenforceable upon default that the covenant is unconditioanl except for the 'written request' and 'preliminary approval' requirements. There is nothing in the nature of the covenant that makes it conditional upon any other covenant in the agreement.

There is no injustice done to the plaintiffs from this construction of the instrument since the remaining security would be equally as sufficient as it would have been if the release had been demanded before default. There is no damage suffered since all the parties will receive what they bargained for in the agreement.

Furthermore, the very existence of the release clause in the mortgage agreement supports the inference that its purpose was to facilitate the sale and conveyance of clear title to parcels of the land subject to the mortgage in order to generate funds which could be used to reduce the remaining indebtedness. The construction advocated by the plaintiffs derogates from this apparent purpose.

The affidavits filed by the parties show that there are disputed factual issues which must be decided at a trial on the merits. For example, there is a question as to whether the plaintiffs did in fact fail to comply with the partial release covenant, a determination which depends in part upon finding that there was an unreasonable delay in executing the release. Likewise, there is a factual dispute relating to the existence of actual damages, which, of course, the defendants must prove. The aformentioned disputed facts are not intended to be exhaustive. They serve, however, to indicate that there must be a trial on the merits of the defendants' counterclaim, rather than a disposition by way of summary judgment.

2. Trial by Jury

The constitution of Hawaii, article I, section 10 provides: 'In suits at common law where the value in controversy shall exceed one hundred dollars, the right of trial by jury shall be preserved.' The origin of this section is the seventh amendment of the United States Constitution which provides for jury trials for common law actions involving more than twenty dollars. Rule 38(a) of the Hawaii Rules of Civil Procedure provides that 'The right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States or the Territory shall be preserved to the parties inviolate.' This rule, adopted in 1953, was taken verbatim from the Federal Rules of Civil Procedure 38(a) except for the addition of the words 'or the Territory.' R.L.H.1955, § 231-6 provides that 'Either party to a civil action may demand a trial by jury by a written document filed in court within ten days after the case is at issue * * *.'

The seventh amendment jury trial requirement is not binding upon the states. Bartholomew, The Gitlow Doctrine Brought Down to Date, II, 54 A.B.A.J. 785, 787 (1968). See, e. g., Pearson v. Yewdall, 95 U.S. 294, 24 L.Ed. 436 (1877). The decision in the instant case, therefore, rests on the interpretation of the constitution of Hawaii, its statutes, and its rules of procedure. However, since the Hawaii constitutional provision and rule of procedure were patterned after the Federal Constitution and Rules, the interpretation of those provisions by the federal courts are deemed to be highly persuasive in the reasoning of this court. ¹ The provisions found in the federal and Hawaii...