Kamaole Resort Twenty-One v. Ficke Hawaiian Investments, Inc.
| Decision Date | 26 February 1979 |
| Docket Number | No. 6115,TWENTY-ONE,6115 |
| Citation | 591 P.2d 104,60 Haw. 413 |
| Court | Hawaii Supreme Court |
| Parties | KAMAOLE RESORT, a Limited Partnership, Plaintiff-Appellee, Cross Appellee and Defendant-Appellee, Cross Appellee, v. FICKE HAWAIIAN INVESTMENTS, INC., Defendant-Appellant, Cross Appellee, Malcolm Meyer et al., Defendants-Appellees, Cross Appellants, TRYCK, NYMAN & HAYES, INC., Claimant, v. C. Bruce FICKE, Individually and/or d/b/a C. Bruce Ficke & Associates et al., Defendants-Appellants, Cross Appellees, Malcolm Meyer et al., Defendants-Appellees, Cross Appellants. |
Syllabus by the Court
1. Provision in promissory note for change in rate of interest after default construed as limited to default in payment of principal.
2. A promissory note may provide for increased interest rate after acceleration of maturity for nonpayment of interest installment.
3. Statutory interest accrues only on judgments which adjudicate liability for the payment of money. HRS § 478-2.
4. Decree in mortgage foreclosure action which orders only the sale of the mortgaged property is not a money judgment upon which statutory interest accrues.
5. Mortgage which purports to secure all antecedent debts is effective to secure antecedent debt specifically identified in subsequent instrument executed by parties, notwithstanding limitation on effect of dragnet clause.
Roy L. Anderson, Davis, Witherwax, Playdon & Gerson, Honolulu, for defendants-appellants, cross-appellees, Ficke, et al.
Wendell H. Marumoto, Honolulu, for defendant-appellee, cross-appellant, Morprop Inc.
William F. Crockett, Crockett & Crockett, Wailuku, for plaintiff-appellee, cross-appellee and defendant-appellee, cross-appellee, Kamaole Resort Twenty-One.
Before RICHARDSON, C. M., and OGATA, MENOR and KIDWELL, JJ. *
These consolidated cases constitute a multi-party action to foreclose mortgages and mechanics liens. The matter is before us on appeals by both the first mortgagee and the mortgagor from a decree of foreclosure. The decree determined the amounts of the mortgagor's indebtedness to each of the mortgagees which were secured by the respective mortgages. The questions on appeal involve only these amounts, the propriety of the foreclosure of the mortgages not being in issue.
Appellee Kamaole Resort Twenty-One (KR21), a limited partnership, entered into an agreement of sale dated December 20, 1972, with C. Bruce Ficke and Guy F. Kasnick which provided for the sale to these individuals of a parcel of land on the island of Maui. The individuals assigned their rights under the agreement of sale to appellant Ficke Hawaiian Investments, Inc. (Ficke). Ficke mortgaged its interests in the property to the predecessor in interest of appellant Morprop Incorporated, 1 the first mortgagee, to secure a promissory note in the amount of $2,800,000. Ficke then completed the purchase of the property pursuant to the agreement of sale, giving a second mortgage to KR21 to secure a promissory note in the amount of $1,250,000. The priority of these mortgages is not in issue.
Ficke became in default under the first mortgage by reason of nonpayment of interest due on January 1, 1974. The record does not disclose whether a formal notice of default was given to Ficke by the first mortgagee. Ficke became in default under the second mortgage by reason of nonpayment of interest due on January 20, 1974. On January 21, 1974, the second mortgagee gave notice to Ficke of the default and of the second mortgagee's election to declare the unpaid principal amount due and payable. The first mortgagee having given notice of intention to foreclose the first mortgage by exercise of its power of sale, the second mortgagee commenced this action to foreclose the second mortgage. By cross-claim, the first mortgagee sought foreclosure of the first mortgage in this action, which was subsequently consolidated with another action brought by mechanics lien claimants. No issues arising out of the mechanics lien action are before us.
On November 1, 1974, the circuit court entered a Decree of Foreclosure and Order of Sale, finding that Ficke was in default under both mortgages and that both mortgagees were entitled to foreclose their respective mortgages. Sale of the mortgaged property was ordered. The relative priorities of the liens and the amounts, including interest, secured thereby were not determined. On February 25, 1975 an Order of Sale and Directions to Commissioners was entered which directed that the property be sold on terms, with deferred payments secured by a purchase money mortgage. The questions of priorities and of the amounts secured were again reserved. An appeal from that order was taken to this court but was subsequently withdrawn and dismissed by stipulation. After further proceedings, a Supplemental Decree of Foreclosure was entered on October 28, 1975, from which the present appeal is taken. The record shows no stay of proceedings to enforce any judgment or order of the circuit court in this action. We are not advised whether further proceedings have been had.
The first mortgagee raises two issues on appeal. First, it argues that the trial court erred in awarding interest at the statutory rate of 6% Per annum under HRS § 478-2 following entry of the decree of foreclosure dated November 1, 1974. It also contends that the trial court erred in awarding interest at the contracted "default rate" of 15% From January 2, 1974, when the mortgagor failed to pay interest due, until the November 1, 1974 decree of foreclosure.
The note secured by the first mortgage provided:
If default be made in the payment of any installment under this Note, . . . the entire principal sum and accrued interest shall at once become due and payable without notice, at the option of the holder of this note. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The principal of the note and any part thereof, and accrued interest, if any, shall bear interest at the rate of fifteen percent (15%) per annum after default until paid.
The note provided for interest (contract interest) at a rate 6% Above the prime rate of interest charged by First National City Bank of New York. During the period from the mortgagor's default in the payment of interest due on January 1, 1974, until the entry of the supplemental decree of foreclosure on October 28, 1975, the contract rate of interest on the note ranged from somewhat more than 13% To somewhat more than 18%. The supplemental decree contained "findings of fact and conclusions of law" to the effect, inter alia, that the unpaid principal amount of the indebtedness owed by the mortgagor to the first mortgagee and secured by the first mortgage was $2,800,000; that interest on said sum accrued at the contract rate of 6% Over the prime rate from December 21, 1973 to January 1, 1974; that interest accrued on said sum at the default rate of 15% From January 2, 1974 to November 1, 1974; and that interest was and would be owed by the first mortgagee from November 2, 1974 until the "judgment is satisfied" at the statutory rate provided by HRS § 478-2 upon the aggregate of said sums or $3,168,355.56. This amount is characterized in the decree as "judgment secured by lien."
The interest rate for the period from the date of default until at least the date of the original decree of foreclosure depends solely upon the agreement between the parties. It is not contended that any rule of law invalidated provisions for a change in the interest rate after maturity, and we do not have that issue. The mortgagor has not disputed the contentions of the first mortgagee. The second mortgagee argues, in support of the decree, that the last sentence of the quoted provision uses the term "default" in the same sense as in the first sentence, where it refers to any nonpayment, with the result that mere nonpayment of interest due on January 1, 1974 made the default rate effective thereafter. The first mortgagee asserts that the context makes it apparent that the last sentence provides the rate at which interest is to be computed only after a default in the payment of the principal. Unless the holder of the note accelerated its maturity by exercise of the option given in the first sentence, upon nonpayment of the interest, it is argued that the default rate did not become applicable by reason of the default in payment of interest.
The principal of the note was payable in full, in a single payment, on May 9, 1974. Interest was payable monthly. Since no installment payments of principal were provided, it is apparent that the default referred to in the first quoted sentence was necessarily a default in the payment of interest. We think that the sense of the third quoted sentence is to be found by reading the sentence as dealing with the principal of the note, with "default" in this context being a default in the payment of principal. Had default interest exceeded contract interest for the period in question, a situation which was much more likely to have been in the contemplation of the parties when the note was made, on the record before us we would have felt compelled to resolve the ambiguity against the first mortgagee and to hold that the contract rate applied. Calvin (Arakawa) v. Limco, Ltd., 60 Haw. 154, 587 P.2d 1216 (1978). The language in dispute does not have a different meaning because unusual circumstances cause it to favor the mortgagee instead of the mortgagor.
There is no finding, or any suggestion in the record, that payment of principal was accelerated by exercise of the first mortgagee's option to declare the principal sum due upon the default in payment of interest. In the absence of such acceleration of the maturity of the note, it was error for the trial court to compute interest at the default rate of 15% For any period prior to May 9, 1974. After that date, however, payment of principal was in...
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