HAWAI'I NAT. BANK v. Cook

• Decision Date: 16 May 2000
• Docket Number: No. 22225.,22225.
• Parties: HAWAI`I NATIONAL BANK, Plaintiff-Appellant, v. Brian R. COOK, also known as Brian Richard Cook, dba Windward Self-Storage, Pohukaina Venture; Kona Country Fair Venture, Defendant-Appellees, First Hawaiian Bank; Bank of Honolulu; Finance Factors, Limited; City and County of Honolulu; United States of America; Federal Savings and Loan Insurance Corporation, Receiver for State Savings and Loan Association; John Does 1-50; Jane Does 1-50; Doe Partnerships 1-50; Doe Corporations 1-50; Doe Entities 1-50 and Doe Governmental Units 1-50, Defendants, and Trustees Under the Will and of the Estate of Bernice Pauahi Bishop, Deceased, Intervenor-Appellee, and Atlantic National Trust Limited Liability Company, also known as Atlantic National Trust, L.L.C., Intervenors. Trustees Under the Will and of the Estate of Bernice Pauahi Bishop, Deceased, Plaintiff-Appellee, v. Hawai`i National Bank, Defendant-Appellant, and Pohukaina Venture, and Brian R. Cook, also known as Brian Richard Cook, Defendant-Appellees, and Atlantic National Trust, L.L.C., Ahuimanu Land Corp., United States of America, City and County of Honolulu, John Does 1-50, Jane Does 1-50, Doe Partnerships 1-50, Doe Corporations 1-50, Doe Entities 3-50, and Doe Governmental Units 1-50, Defendants.
• Court: Hawaii Court of Appeals

55 P.3d 827

99 Haw. 334

HAWAI`I NATIONAL BANK, Plaintiff-Appellant, v. Brian R. COOK, also known as Brian Richard Cook, dba Windward Self-Storage, Pohukaina Venture; Kona Country Fair Venture, Defendant-Appellees,

First Hawaiian Bank; Bank of Honolulu; Finance Factors, Limited; City and County of Honolulu; United States of America; Federal Savings and Loan Insurance Corporation, Receiver for State Savings and Loan Association; John Does 1-50; Jane Does 1-50; Doe Partnerships 1-50; Doe Corporations 1-50; Doe Entities 1-50 and Doe Governmental Units 1-50, Defendants, and Trustees Under the Will and of the Estate of Bernice Pauahi Bishop, Deceased, Intervenor-Appellee, and Atlantic National Trust Limited Liability Company, also known as Atlantic National Trust, L.L.C., Intervenors. Trustees Under the Will and of the Estate of Bernice Pauahi Bishop, Deceased, Plaintiff-Appellee, v. Hawai`i National Bank, Defendant-Appellant, and Pohukaina Venture, and Brian R. Cook, also known as Brian Richard Cook, Defendant-Appellees, and Atlantic National Trust, L.L.C., Ahuimanu Land Corp., United States of America, City and County of Honolulu, John Does 1-50, Jane Does 1-50, Doe Partnerships 1-50, Doe Corporations 1-50, Doe Entities 3-50, and Doe Governmental Units 1-50, Defendants.

No. 22225.

Intermediate Court of Appeals of Hawai`i.

May 16, 2000.

Certiorari Granted June 21, 2000.

Robert M. Ehrhorn, Jr. and Elizabeth A. Kane (Takushi Funaki Wong & Stone), on the briefs, Honolulu, for plaintiff-appellant.

Cheryl A. Nakamura and Earl T. Sato (Rush Moore Craven Sutton Morry & Beh), on the briefs, Honolulu, for intervenor-appellee.

WATANABE, ACOBA, and LIM, JJ.

Opinion of the Court by LIM, J.

Plaintiff-Appellant Hawaii National Bank (HNB) appeals the following actions of the first circuit court: (1) the findings of fact, conclusions of law, and order denying HNB's motion for partial summary judgment and order granting judgment for Intervenor-Appellee Trustees Under the Will and of the Estate of Bernice Pauahi Bishop, Deceased (Bishop Estate), filed October 6, 1998; (2) the judgment thereon of even date; and (3) the deficiency judgment in favor of HNB and against Defendant-Appellee Brian R. Cook, also known as Brian Richard Cook, dba Windward Self-Storage (Cook), filed January 5, 1999.

We affirm.

I. BACKGROUND

The parties filing briefs in this appeal are Bishop Estate and HNB. Bishop Estate is the fee simple owner and was the lessor of two lots of commercial real property located in Kaka`ako, Hawaii (the Kaka`ako Properties). Bishop Estate leased each lot for a forty-year term.

Lease No. 11,249 (Lease 1) commenced on April 1, 1958 and by its terms was to terminate on March 31, 1998. Lease No. 11,251 (Lease 2) commenced on May 1, 1958 and by its terms was to terminate on April 30, 1998. Both Lease 1 and Lease 2 required payment of rent semiannually for the forty-year term.

Pohukaina Venture (Pohukaina) became the lessee of the Kaka`ako Properties pursuant to a March 14, 1978 assignment and thus owed rent to Bishop Estate under Leases 1 and 2 through March 31, 1998 and April 30, 1998, respectively.

At times hereinafter and indiscriminately, we will refer to the leases between Bishop Estate and Pohukaina as the "ground leases," and to the rent due Bishop Estate from Pohukaina under the ground leases as the "ground rent."

HNB was the holder of the following instruments which covered certain properties, including Pohukaina's leasehold interests in the Kaka`ako Properties: (1) a September 29, 1988 promissory note (Note A) in the amount of $1,100,000 and co-signed by Pohukaina, Cook and Kona Country Fair Venture (Kona Country); (2) a mortgage from Pohukaina to HNB securing Note A, which was executed and delivered on August 25, 1988 and recorded on September 28, 1988 (Mortgage A); (3) a July 12, 1989 promissory note (Note B) in the amount of $250,000 and co-signed by Pohukaina, Cook and Kona Country; and (4) a mortgage from Pohukaina to HNB securing Note B, which was executed, delivered and recorded on July 12, 1989 (Mortgage B).

HNB also held, by assignment, a promissory note, first mortgage and collateral assignment of leases from Pohukaina (Collateral Assignment), dated April 25, 1978 and recorded on January 27, 1998, previously held by Atlantic National Trust Limited Liability Company, also known as Atlantic National Trust, L.L.C. (Atlantic),¹ which covered Pohukaina's leasehold interests in the Kaka`ako Properties.

This appeal focuses our attention squarely on the assignment-of-rents provisions found in Mortgage A, Mortgage B and the Collateral Assignment. Hereinafter, the provisions will collectively be referred to as HNB's Assignment of Rents.

Mortgages A and B, with Pohukaina as Mortgagor and HNB as Mortgagee, each provided, in pertinent part, that:

Mortgagor does hereby mortgage, assign and transfer unto Mortgagee, its successors and assigns, all of its leasehold interest described in Exhibit "A" [which describes the Kaka`ako Properties] attached hereto and made a part hereof.

TO HAVE AND TO HOLD said Indenture of Lease and all the rights, interest and estate of the Mortgagor, both at law and in equity, in and to the premises hereby demised and all buildings and improvements now or hereafter situate or being on said premises, and all and singular the tenements, hereditaments, rights, privileges and appurtenances thereunto belonging, and all the rents, issues and profits thereof, unto the Mortgagee and the successors and assigns of the Mortgagee for and during the remainder of the term of said lease yet to come and unexpired.

. . . .

And [the mortgagor] will punctually pay the rent at the times and in the manner in said lease required[.]

. . . .

BUT UPON ANY DEFAULT in the performance or observance of any covenant or condition herein or in any promissory note contained or of the terms of any other indebtedness hereby secured, or if the Mortgagor (or any of them, if there be more than one) is adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking relief as a debtor under any law for the relief or aid of debtors, or shall enter into any arrangement or composition with creditors or if a receiver is appointed with respect to the property herein described, or if the mortgaged property, or any part thereof, shall be seized or levied upon under any legal process or under any claim of legal right, then, in each such event, the whole amount of all indebtedness owing by or chargeable to the Mortgagor under any provision of this mortgage, or intended to be secured hereby, on any and every account, shall at the option of the Mortgagee become at once due and payable without notice or demand, and with or without foreclosure the Mortgagee shall have the immediate right to receive and collect all rents and profits due or accrued or to become due, and said rents and profits are hereby assigned to the Mortgagee, and said Mortgagee is hereby irrevocably appointed the attorney in fact of the Mortgagor with power in the name of the Mortgagor or the Mortgagee to demand, sue for, collect, recover and receive all such rents and profits, to compromise and settle claims for rents or profits upon such terms and conditions as may seem proper[.]

(Emphasis on the assignment of rents clauses added).

Mortgages A and B also each included a "consent and estoppel certificate" from Bishop Estate, providing:

That the [Bishop Estate], . . . [does] hereby consent to the execution of the within and foregoing Mortgage by [Pohukaina], as Mortgagor, in favor of [HNB], as Mortgagee, upon the express conditions, however, that this consent shall not authorize, nor be deemed to authorize, any further or other assignment or mortgage of said leases and that should there be any conflict between the terms of said leases and the terms of said Mortgage, the former shall control, and that nothing herein shall be construed as being a waiver of any of the terms, covenants and conditions of said leases.

The Collateral Assignment assigned to HNB "all rents, income and profits" arising from the Kaka`ako Properties.

The Collateral Assignment further provided that:

So long as there shall exist no default by the assignor . . . the assignor shall have the right to collect . . . all rents, income and profits arising under said lease or from the premises described therein and to retain, use and enjoy the same.

However:

[u]pon or at any time after default in the payment . . . the assignee without in any way waiving such default may at its option without notice and without regard to the adequacy of the security for the said principal sum, interest and indebtedness secured hereby and by said note and mortgage, either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, take possession of the premises described in said lease and/or mortgage and have, hold, manage, lease and operate the same on such terms and for such period of time as the assignee may deem proper and either with or without taking possession of said premises in its own name, demand, sue for or otherwise collect and receive all rents, income and profits of said premises, including those past due and unpaid . . . .

(Emphasis on the assignment of rents clause added.)

II. PROCEDURAL HISTORY

On October 4, 1996, HNB filed a complaint for foreclosure on the Kaka`ako Properties (Civil Number 96-4088). The complaint named, among others, Pohukaina, Cook, and Kona Country as defendants because each party had failed to make payments on its mortgage loans. In particular, HNB alleged that as of October 15, 1996, Pohukaina, Cook, and Kona Country owed the following:

Note A Principal $889,586.21 Interest from 7/30/96 to 10/15/96 at 20,258.71 10.75% per annum. Late charges 2,280.00 ___________ Total as of 10/15/96 $912,124.92

plus a per diem interest accrual of $261.29 per day for each day after October 15, 1996 until paid.

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