Honolulu, Ltd. v. Blackwell
| Decision Date | 23 February 1988 |
| Docket Number | 11754,Nos. 11674,s. 11674 |
| Citation | 750 P.2d 942,7 Haw.App. 210 |
| Court | Hawaii Court of Appeals |
| Parties | HONOLULU, LIMITED and HRT, Ltd., Plaintiffs-Appellees, v. James C. BLACKWELL, Virginia R. Blackwell, Michael S. Seemann, Love-Seemann Properties, First Interstate Bank of Hawaii, Stephen Love, Janet S. Lent-Koop, Richard D. Nelson and American City Bank, Defendants, v. SPECIALTY SURFACING CO. OF HAWAII, INC.; Case, Kay & Lynch, Intervenors, and Robert O. Lippi, Intervenor-Appellant. |
Syllabus by the Court
1. An appellant cannot raise as a ground for reversal on appeal an issue which was not raised in the lower court.
2. Where an agreement of sale clearly and unambiguously requires interest at the rate of 6% per annum to be paid on the unpaid balance, and imposes on late payments a charge of 4% of the payment due, the court in a foreclosure proceeding cannot authorize the commissioner to make interest payments to the vendor at the rate of 12% and late charges calculated on the entire balance due, and it is an abuse of discretion for the trial court to deny a motion to reconsider an order authorizing the higher interest rate and late charges.
3. Under a bankruptcy petition for reorganization, a new entity is created which is different from the pre-petition entity.
4. A reorganization trustee has all the power of an ordinary trustee and of a receiver in equity.
5. A reorganization trustee is a fiduciary of each creditor of the estate, and has a duty to treat all creditors fairly and to exercise that measure of care and diligence that an ordinarily prudent person under similar circumstances may exercise. A trustee may intervene in a state proceeding in order to claim the surplus and thereby protect the interest of the estate under reorganization.
6. Mortgage foreclosure is an equitable action and the function of the foreclosure court is to ascertain the precise amount due under the mortgage.
7. Courts of equity have the power to mold their decrees to conserve the equities of the parties under the circumstances of the case.
Allen S. Chock (T. Irving Chang and Jo Ann M. Uchida with him, on the briefs; Chang, Mui, Chang & Chock, of counsel), Honolulu, for intervenor-appellant Robert O. Lippi.
Glenn M. Miyajima (Reuben S.F. Wong and Wayne H. Mukaida with him, on the briefs; Law Offices of Reuben S.F. Wong, of counsel), Honolulu, for plaintiffs-appellees Honolulu, Ltd., and HRT, Ltd.
Before BURNS, C.J., and HEEN and TANAKA, JJ.
In this foreclosure action Intervenor-Appellant Robert O. Lippi, Trustee appointed by the bankruptcy court (Trustee) for Defendant Love-Seemann Properties (Properties), a California partnership, contends that the lower court committed error when it authorized the commissioner to make excessive interest and late charge payments to Plaintiffs Honolulu, Limited (Honolulu), and HRT, Ltd. (HRT) 1 (where appropriate hereinafter Honolulu and HRT will be referred to collectively as Plaintiffs), out of the foreclosure sale proceeds. We vacate that portion of the June 3, 1986 Order Granting Motion For Confirmation Of Commissioner's Sale (Order) which authorized the interest and late charge payments and remand for further proceedings.
Under a single agreement of sale (Agreement) dated May 5, 1978, Honolulu sold two adjoining pieces of real property in Hanalei, Kauai, to Defendants James C. Blackwell and Virginia R. Blackwell (hereinafter the Blackwells) for $475,000. The Agreement provided for a down payment of $25,000, monthly payments of interest only at the rate of 6% per annum, and payment of the full principal balance, together with interest, on May 22, 1983. Shortly thereafter, the Blackwells sold the two properties separately to Defendant Michael Seemann (Seemann) under two sub-agreements of sale (Sub-Agreements) in the amounts of $220,000 and $400,000. Seemann made down payments reducing the balances due to $200,000 and $360,000, respectively, which were to be paid in full on May 22, 1983, together with interest at 6% per annum. 2 Meanwhile, Seemann was required to make semi-annual interest payments. Seemann assigned all of his right, title and interest in the Sub-Agreements to Properties, a California partnership, in which Seemann and Defendant Stephen Love (Love) were general partners.
On May 18, 1982, the Blackwells assigned 15.179% of their interest in the Sub-Agreements to HRT, and, shortly thereafter assigned to HRT the interest payments already accrued and owing to the Blackwells under the Sub-Agreements. The Blackwells and Properties defaulted on the Agreement and Sub-Agreements by failing to pay their respective balances on May 22, 1983.
On June 20, 1983, Plaintiffs filed the action below against the Blackwells, Love, Seemann, Properties, and the other named defendants who it is alleged may claim interests in the property. 3 Plaintiffs sought cancellation of the Agreement and judgment against the Blackwells for the balance due together with interest and late charges or, alternatively, sale of the property and a deficiency judgment. Although the complaint alleged the particulars of the Sub-Agreements and the assignments from the Blackwells to HRT, Plaintiffs did not request foreclosure of the Sub-Agreements and HRT was alleged to have joined the complaint as a "necessary party." 4 The complaint did request, however, that any sale bar all the defendants and persons claiming under them from all interest in the property. 5
On October 19, 1983, Plaintiffs moved for summary judgment (Motion for Summary Judgment) and for appointment of a commissioner to sell the property. Properties moved for a continuance of the hearing on the Motion for Summary Judgment arguing that since the complaint did not ask for foreclosure of the Sub-Agreements, the motion was improper. The court continued the hearing on the Motion for Summary Judgment, ordered Plaintiffs to file another amended complaint, and held that interest on the Agreement was to be paid at 12% from May 22, 1983.
On December 6, 1983, Plaintiffs filed their second amended complaint seeking foreclosure of the Agreement and the Sub-Agreements, and for judgment against Properties in an amount representing 15.179% of the balance due on the Sub-Agreements "together with interest as allowed by law." 6 On February 22, 1984, the lower court entered findings that the Blackwells were in default on the Agreement, granted summary judgment, ordered the sale of the property at public auction, and appointed a commissioner. No findings were made on the Sub-Agreements. Properties neither filed affidavits in opposition to the Motion for Summary Judgment nor answered the second amended complaint.
On April 18, 1984, one day prior to the scheduled auction sale, Properties filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. 11 U.S.C. § 101 et seq. The bankruptcy code's automatic stay, 11 U.S.C. § 362(a), was subsequently lifted by the bankruptcy court on Honolulu's motion and the proceedings resumed. On January 7, 1986, Trustee was appointed by the bankruptcy court.
After the original public auction was held, at which a high bid of $900,000 was received, the lower court received a petition to entertain a higher bid and conducted a further auction in the courtroom. The property was sold for $1.3 million, and the Order was entered. The Order confirmed the sale and authorized the commissioner to make the following payments, inter alia:
a) To Plaintiff HONOLULU, LIMITED
(1) Principal, interest and late charges (to April 21, $657,875.00
1986)
(2) Per diem after April 21, 1986 to closing 156.16 /day
b) To Plaintiff HRT, LTD
(1) Principal, interest and late charges (to April 21, 135,157.26
1986)
(2) Per diem after April 21, 1986 to closing 27.95 /day
On June 20, 1986, Properties filed a motion asking the lower court to reconsider the late charges authorization, claiming that the amount was calculated on the entire principal balance due rather than on the overdue semi-annual payments as provided in the Sub-Agreements. Properties' motion was denied as untimely on July 21, 1986.
On July 28, 1986, Trustee was allowed to intervene, and on July 31, 1986, the commissioner filed his final report showing that the sale was closed on June 17, 1986, and from the sale proceeds he had paid $666,776.12 to Honolulu and $136,750.41 to HRT, and had deposited a balance of $393,484.80 with the clerk of the court. On August 20, 1986, Plaintiffs filed a motion under Rule 54(b), Hawaii Rules of Civil Procedure (HRCP) (1981), asking for certification of the Order as a final judgment.
Also on August 20, 1986, Trustee filed a motion under Rule 60, HRCP (Rule 60 Motion), for partial relief from the Order, claiming that the Order erroneously authorized the commissioner to pay interest to Plaintiffs at the rate of 12% and Honolulu and HRT were overpaid in the amounts of $56,671.16 and $27,577.02, respectively. Trustee requested that Honolulu and HRT be ordered to refund the excess payments to him. The Rule 60 Motion was denied and Trustee filed a notice of appeal on October 1, 1986 (Supreme Court No. 11674). When Plaintiffs' motion for Rule 54(b) certification was granted on October 10, 1986, Trustee filed another notice of appeal (Supreme Court No. 11754). After joint oral argument we entered an order consolidating the two appeals.
On appeal Trustee asserts that the lower court erred in (1) authorizing any disbursements to HRT; (2) authorizing the assessment of late charges against the entire principal balances due under the Agreement and Sub-Agreements and interest at 12%; and (3) denying his Rule 60 Motion. Plaintiffs do not deny that the late charges are assessed against the entire unpaid balances and that the interest payments are calculated at 12%. However, they contend that (1) Trustee has no standing to question the...
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