Moran v. Guerreiro, 22910.

Citation37 P.3d 603,97 Haw. 354
Decision Date29 November 2001
Docket NumberNo. 22910.,22910.
PartiesRobert Norton MORAN, Plaintiff-Appellant, v. Walter P. GUERREIRO, as Special Administrator of the Estate of Nuha Kahalewai, Deceased; as Special Administrator of the Estate of Nana Kahalewai, Deceased; as Trustee Under the Last Will and Testament of Manuel Guerreiro, Deceased; and Individually, Defendant-Appellee, and John Does 1-50, et al., Defendants.
CourtCourt of Appeals of Hawai'i

Stephen T. Hioki, on the brief, for plaintiff-appellant.

Walter P. Guerreiro, defendant-appellee, pro se (no brief submitted).

BURNS, C.J., WATANABE, and FOLEY, JJ.

Opinion of the Court by WATANABE, J.

The lawsuit underlying this appeal was brought by Plaintiff-Appellant Robert Norton Moran (Moran or Mr. Moran) to enforce a contract for the sale of real property and to obtain damages resulting from the alleged breach of the contract. Applying its "inherent equity and supervisory powers as well as its inherent power to control the litigation process[,]" the Circuit Court of the First Circuit (the circuit court) dismissed Moran's complaint with prejudice, and set aside an agreement that had been reached to settle the lawsuit.

We conclude that the circuit court did not err in setting aside the settlement agreement. However, we conclude that the part of the circuit court's order that dismissed Moran's complaint with prejudice must be set aside. We remand for further proceedings consistent with this opinion.

BACKGROUND
A. The Contract

Moran is a licensed real estate broker. It appears from the record that on August 16, 1990, Moran and Defendant-Appellee Walter P. Guerreiro (Guerreiro or Mr. Guerreiro) signed a Deposit, Receipt, Offer and Acceptance (DROA) (the August 16, 1990 DROA), by which Moran agreed to purchase, and Guerreiro agreed to sell, certain real property located in Hale`iwa, O`ahu (the subject property) for $495,000.00.1

Thereafter, it was apparently discovered that Guerreiro could not convey clear title to the entire subject property, which consisted of three separate parcels. Parcel 1, identified under Tax Map Key (TMK) X-X-XXX-XXX and title to which stemmed from Land Commission2 Award (L.C.Aw.) No. 7342, included 14,475 square feet of land. Pursuant to an order entered by the circuit court in Special Proceeding No. 86-1007, Guerreiro, as Trustee under the Last Will and Testament of Manuel Guerreiro, Deceased (Manuel's Estate), had the authority to sell Parcel 1. Guerreiro, as Trustee for Manuel's Estate, held similar authority to sell Parcel 2, title to which stemmed from L.C. Aw. Nos. 2725, 2692, 3940, 2699, and 3373-B. Parcel 3, which encompassed about two-thirds of an acre and title to which stemmed from L.C. Aw. No. 2752, was owned as follows:

• Estate of Nuha Kahalewai, Deceased (Nuha's Estate), undivided 2/18th interest;
• Estate of Nana Kahalewai, Deceased (Nana's Estate), undivided 2/18th interest;
Lydia Sharpe (Sharpe), undivided 1/18th interest;
• Guerreiro, as Trustee for Manuel's Estate, undivided 13/18th interest.

Parcels 2 and 3, which encompassed a total of 211,384 square feet of land, had been consolidated for tax assessment purposes under TMK X-X-XXX-XXX.

The subject property thus included lands under two TMK numbers, title to which stemmed from a total of seven awards by the Land Commission (hereafter, L.C. parcels).

Sharpe was alive when the August 16, 1990 DROA was executed. To rectify his inability to convey clear title to the subject property, Guerreiro sought and obtained orders from the circuit court, dated June 20, 1991, in Special Proceeding Nos. 91-208 and 91-207, naming himself as Special Administrator for Nuha's and Nana's Estates, with authority to sell the respective interests of those estates in Parcel 3.

Following the signing of the August 16, 1990 DROA and the entry of the orders naming Guerreiro as Special Administrator for Nuha's and Nana's Estates, Guerreiro's then-attorney prepared a deed by which the various undivided interests in the subject property would be conveyed to Moran. Sharpe signed and acknowledged the deed before a notary public on May 7, 1992. Guerreiro was to sign the deed as Special Administrator for Nuha's and Nana's Estates and as Trustee for Manuel's Estate at the closing of escrow on the subject property. It appears, however, that the closing never occurred, in part, because Moran could not obtain the necessary financing.

By a letter to Guerreiro dated June 29, 1993, Moran proposed terms for a new DROA for the subject property. The letter stated, in relevant part, as follows:

This letter is a proposal to purchase the subject property . . . and, if approved, it would replace the old DROA which would then be null and void.
In hopes of finalizing this deal I am prepared to make a new offer to replace the old contract dated August 16, 1990. This is not a cancellation of the existing contract.
I have based my figures on the following material facts which affect the property and I have done a development analysis based on these facts.
First, as you know, I have been trying to secure financing for this transaction for quit [sic] some time. I have tried all avenues and several different companies. Even companies that specialize in higher risk, short term investment loans. Due to the nature of the circumstances that affect this property and the overregulation and credit crunch we are experiencing in the lending industry my efforts have not been successful.
However, since you have been so patient and cooperative and I feel that this still could be a viable deal I would like to proceed with new terms based on the following.
After doing research on the property I discovered that approximately 1/3 of the property lies within the floodway. According to [the Department of Land Utilization], this basically is a non-building zone. The other 2/3 of the property lie within the flood fringe. This basically means that in order to build you must meet strict codes for foundations and lot grading. These are very expensive to have engineered and then to have constructed. . . . In the present market, it is a risky decision to invest so much money in high tech building for this particular area.
The property does not, as you know, have legal access which is another high risk detraction from future development and sales of the property.
The one redeeming quality of this deal is the ability to reinstate the seperate [sic] Land Court Awards that exist on the map but have been consolidated into one TMK. On this I have not been able to get a straight answer after rigorous inquiry. So this is still uncertain.
These will be the main risk factors I or any other buyer will have to take in the purchase of this property.
With all this in mind and in addition to the present Real Estate market, I am willing to make you a modification proposal as follows.
Total purchase price to be $350,000. $150,000 in cash at closing and the balance of $200,000 to be paid off over three years at 4% with monthly payments of principal and interest.
If you are in agreement with this modification I am willing to go forward with this purchase in an expeditious manner and set a closing date of July 31, 1993.
This modification offer is good through July 1, 1993 at 6:00 [p.m.]

(Emphasis in original.)

On July 1, 1993, Guerreiro handwrote a counterproposal at the bottom of Moran's letter. Essentially, Guerreiro agreed to Moran's terms but insisted that he be paid an additional $9,378.00, by separate check, to compensate Guerreiro for the rental income he had lost after evicting, at Moran's request, the tenants who had been leasing houses on the subject property.

By a DROA dated July 31, 1993,3 Moran formalized his offer to purchase the subject property from Guerreiro for $359,378.00, to be paid as follows:

$ 15,000.00 Initial deposit in cash $ 9,378.00 Additional cash deposit, to be paid into escrow on or before closing $150,000.00 Balance of down payment, to be paid into escrow before closing ___________ $174,378.00 Total cash funds from Moran (exclusive of closing costs) $200,000.00 By way of lease option on remaining property, as described in special terms to the DROA. Moran to have 36 months or less to exercise this option, and during this period, Moran to pay $5,904.00 per month rent. Upon exercising this option all rents except 4% would go toward the principal balance. $359,378.00 Total Purchase Price

The special terms that Moran listed in paragraph C-67 of the July 31, 1993 DROA were as follows:

1. This offer does not replace existing offer, dated June 29 & July 1, 1993 unless this offer is accepted. 2. Upon payment of $150,000 Seller to deed to Buyer [L.C. Aws.] 2692, 2725, 3940, 3378-B [sic], 2699 & 2752 shown on tax map. Zone 6, section 2, plat 4, island of Oahu. 3. Upon excercise [sic] of option, Seller will deed to [L.C. Aw.] 7342, TMK 6-2-4 Oahu. 4. During lease option period Buyer will have normal tenant rights to [L.C. Aw.] 7342 and improvements. 5. Buyer to [sic] adddtional [sic] [$]9,378.00 at closing to reimburse Sllers [sic] for lost rental income[.] 6. On execution of this agreement by both parties, both parties agree that the DROA date 8/13/90 [sic] between Moran/Guerreiro becomes null and void[.] 7. The majority of the down payment is coming from the Sale [of] 66-138A Walikanahele. The balance from the buyers [sic] share of the commission and Buyers [sic] deposit[.] 8. Balance of [$]200,000 or less will be from a 1031 [exchange.4]

(Footnote added.) Under Moran's proposal, then, Moran would get title to Parcels 2 and 3 at closing, lease Parcel 1 at a monthly rent of $5,904.00, and have a three-year option to purchase the fee interest in Parcel 1 for $200,000.00. Since Moran's proposal provided that upon exercise of the option to purchase Parcel 1, all rents paid by Moran, "except 4%" (the taxes), "would go toward the principal balance," and since $200,000.00 divided by 36 (months) is equal...

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