Loyalty Development Co., Ltd. v. Wholesale Motors, Inc., 6544
| Decision Date | 25 January 1980 |
| Docket Number | No. 6544,6544 |
| Citation | 61 Haw. 483,605 P.2d 925 |
| Parties | LOYALTY DEVELOPMENT COMPANY, LTD., Plaintiff-Appellee, Cross-Appellant, v. WHOLESALE MOTORS, INC., Defendant-Appellant, Cross-Appellee. WHOLESALE MOTORS, INC., Plaintiff-Appellant, Cross-Appellee, v. LOYALTY DEVELOPMENT COMPANY, LTD., Defendant-Appellee, Cross-Appellant. |
| Court | Hawaii Supreme Court |
Syllabus by the Court
1. In the event the lessor and lessee were unable to agree on the annual rental for any ten-year period, subsequent to the initial ten-year period, a covenant in the lease provided for the appointment of three "appraisers" to determine the "market value" of the demised premises. The covenant also provided that "the decision of said appraisers or a majority of them shall be final, conclusive and binding on both parties hereto."
By this provision the determination of the market value of the demised premises made by the appraisers or a majority of them had the binding effect of a judgment of a court of law, and that the function of the panel of appraisers was the function of a board of arbitration.
2. Though the lease document did not subject the determination of the appraisers or a majority of them to vacation or modification in accordance with Chapter 658, Hawaii Revised Statutes, since the legislative policy is to encourage arbitration, the determination of market value by the appraisers or a majority of them can only be vacated or modified in accordance with said Chapter 658.
3. A conditional offer to pay the rentals due does not constitute proper tender of payment of the rentals.
4. Interest at 6% Is allowed in accordance with the provisions of HRS § 478-1(1).
W. Patrick O'Connor, Honolulu (Barlow & O'Connor, Honolulu, of counsel), for Wholesale Motors, Inc.
Neil F. Hulbert, Hawaii (Hong & Iwai, Honolulu, of counsel), for Loyalty Development Co., Ltd.
Before RICHARDSON, C. J., OGATA and MENOR, JJ., KOBAYASHI, Retired Justice, and CHANG, Circuit Judge, assigned by reason of vacancies.
Loyalty Development Company, Ltd., (hereinafter Loyalty) filed a complaint seeking summary possession against Wholesale Motors, Inc., (hereinafter Wholesale) of two parcels of land heretofore leased to Wholesale by Loyalty. Loyalty alleged that Wholesale failed to pay rent as provided in the lease documents.
Wholesale, on the other hand, filed a complaint for Declaratory Relief, challenging the valuation basis utilized by a majority of a panel of appraisers, appointed in accordance with the provisions of the lease documents, in determining the market value of the subject properties.
The complaints were consolidated for the purpose of resolution by the trial court. After stating that a "bona fide dispute" existed between the parties, on motion for summary judgment filed by Loyalty, the trial court granted to Loyalty rental due with interest thereon at 6%, but denied Loyalty's motion for termination of the leases, issuance of a writ of possession, and for reasonable attorney's fees.
On motion for summary judgment filed by Wholesale the trial court granted Wholesale's motion that the leases not be terminated, that a writ of possession not be issued, and that Loyalty be denied reasonable attorney's fees, but denied Wholesale's motion in respect to the rentals due to Loyalty.
The basic issue herein is whether the market value of the demised premises as determined by a majority of a panel of appraisers is binding on the parties.
The lease documents contain the following relevant provisions regarding the computation of rent for the decade commencing on January 1, 1973:
Such net annual rent for and during the next three successive ten-year periods and the remaining period of said term, commencing respectively on the 1st day of January in 1973, 1983, 1993 and 2003, as shall be determined for each of said periods by written agreement of the Lessor and Lessee or, if they fail to reach such agreement prior to such date which is ninety (90) days before the commencement of such period, the higher of the following two sums The product of the then prevailing rate of interest, charged by responsible lending institutions in the community for private loans in the security of real estate, and the then Market value of the demised land, exclusive of improvements thereon, As determined by appraisal ; or
The net rent hereunder payable for the year preceding such period;
Provided, however, that such net annual rent for the ten-year period commencing in 1973 shall not exceed twice the net annual rent hereunder payable for the year preceding such period. Monthly installments of rent at the same rate payable for the preceding year shall be paid on account of the rent for each such period until the determination thereof as herein provided. . . . (Emphasis added.)
In regard to appraisal the lease documents provide as follows:
Whenever this lease provides that the market value of the demised land shall be determined by appraisal for computation of any rent hereunder, said market value shall be determined by three impartial real estate appraisers, one to be appointed by each of the parties hereto, and the Lessor and Lessee each shall promptly name one such appraiser and give written notice thereof to the other party, and in case either party shall fail so to do within ten (10) days after such notice of the appointment of the first appraiser, the party naming the first appraiser may apply to any person then sitting as judge of the Circuit Court of the First Circuit of the State of Hawaii for appointment of a second appraiser, and the two appraisers thus appointed in either manner shall appoint a third appraiser, and in case of their failure so to do within ten (10) days after the appointment of the second appraiser, either party may have the third appraiser appointed by such judge, and the three appraisers so appointed shall proceed to determine the matters in question, and The decision of said appraisers or a majority of them shall be final, conclusive and binding on both parties hereto . . . . (Emphasis added.)
Wholesale contends that the majority of the appraisers erred in determining the market value of the demised premises on the highest and best use of said premises.
Wholesale contends that the market value of the demised premises must be determined on the actual use of the premises, to-wit: automobile dealership, and, in support of its position, cites the improvement requirements in the lease documents which obligates Loyalty to construct as follows:
a. On Lot 1115 "Lessee will at its own expense during the first three (3) years of said term construct and complete on the demised land a new industrial building or buildings costing at least $80,000.00 in accordance with minimum building standards established for the subdivision by the Owners thereof and complete plans, specifications and plot plan therefor prepared for the Lessee by a licensed architect or engineer and approved in writing by the Lessor . . . ."
b. On Lot 1156 "Lessee will at its own expense during the first three (3) years of said term construct and complete on the demised land a new building or buildings costing at least $120,000.00 in accordance with minimum building standard established for the subdivision by the Owners thereof and complete plans, specifications and plot plan therefor prepared for the Lessee by a licensed architect or engineer and approved in writing by the Lessor . . . ."
Additionally, Wholesale contends that the conduct of the parties herein basically restricted the use of the premises to that of an automobile dealership.
The essence of Wholesale's contention is that the lease provides for, and the conduct of the parties supports the conclusion that the premises have been demised for the restricted use of automobile dealership.
We conclude that Wholesale errs in its contention. Neither the provision in the lease, relied upon by Wholesale, nor the conduct of the parties, as reflected by the record, supports the assertion of Wholesale. Furthermore, the lease documents provide the following in regard to the use of the premises: "Lessee will use and allow the use of said premises only for purposes permitted by the zoning ordinances . . . ." The zoning ordinance governing the use of the demised premises does not restrict the use of the premises to automobile dealership.
The question then is the finality of the market value of the demised premises as determined by the appraisers or a majority of them.
In our opinion, Ching v. Hawaiian Restaurants, Ltd., 50 Haw. 563, 445 P.2d 370 (1968), is determinative of the issue herein.
Ching involved the following: In the event the lessors and lessee were unable to agree on the annual rental for any five-year period, a covenant in the lease provided for the appointment of three "appraisers" to determine the "fair market value" of the demised premises. It also provided that the fair market value as determined by any two of the appraisers was to be final, conclusive and binding upon both parties.
We held that "by this provision" (in the lease) the decision of the two appraisers had the binding effect of a judgment of a court of law, and that the function of the panel of appraisers was a function of a board of arbitration.
Additionally, we stated that, since the determination of "fair market value" by any two...
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