Title: Fujii v. Osborne

State: hawaii

Issuer: Hawaii Supreme Court

Document:

687 P.2d 1333 (1984) Kunio FUJII and Mary Haruyo Fujii, Plaintiffs-Appellants, v. J. Carl OSBORNE, Trustee in Reorganization for THC Financial Corporation, a Hawaii corporation, William V. Brilhante and Kathleen L. Brilhante, husband and wife, and First Hawaiian Bank, a Hawaii corporation, Defendants-Appellees, and Hokuula, Inc., a Hawaii corporation, Defendant. J. Carl OSBORNE, Trustee in Reorganization for THC Financial Corporation, a Hawaii corporation, Plaintiff-Appellee, v. Kunio FUJII and Mary Haruyo Fujii, Defendants-Appellants, and Hokuula, Inc., a Hawaii corporation, W. Dudley Child, Jr., Mary Lou Child, Robert W. Smythe, Jr., World Finance and Mortgage Corporation, a Hawaii corporation, Frank Huff Agency, Ltd., a Hawaii corporation, and Walter H. Poka, Defendants. Nos. 8898, 9342. Supreme Court of Hawaii. August 27, 1984. *1335 Randall Y.C. Ching, Honolulu (Shigemura and Ching, Honolulu, of counsel), for plaintiffs-appellants. Tamotsu Tanaka, Honolulu (Riccio M. Tanaka, Honolulu, of counsel), for defendants-appellees. Before LUM, C.J., and NAKAMURA, PADGETT, HAYASHI and WAKATSUKI, JJ. PADGETT, Justice. These are two appeals which we consolidated since they involve essentially the same parties and the same factual and legal issues. (1) In No. 8898, the appeal is from a judgment entered pursuant to an order for summary judgment in favor of appellee and against the appellants in Civil No. 69007, an action for foreclosure brought by the appellants, as first mortgagees, against the appellee and others after the sale of the mortgaged property, free and clear of the first mortgage lien, and the entry of the order in Civil No. 46782 distributing the net proceeds of the sale to appellee. (2) In No. 9342, the appeal is from an order denying, as untimely, a motion and an amended motion, brought by appellants, based upon Rule 60(b)(6), HRCP, for relief (i.e. to set aside) from the order in Civil No. 46782 for the distribution to appellee of the net proceeds of the foreclosure sale of property on which appellants held a first mortgage lien and appellee held a second mortgage lien. This case began as an action by appellee Osborne to foreclose a second mortgage on the property of defendant Hokuula, Inc. Appellants Fujii held a first mortgage on one piece of that property. The foreclosure was granted and, as a result of successive orders, the sale was confirmed, free and clear of appellants' mortgage lien, and the net proceeds ordered distributed to appellee to the exclusion of appellants. At oral argument, counsel for appellants and for the appellee agreed that the only issue before us was the question of the application of the proceeds of the foreclosure sale, and that the foreclosure sale *1336 itself, together with the title derived therefrom, was no longer at issue. As a result of that agreement, we affirm the judgments entered in Civil No. 69007 except as to appellee. As to appellee, we reverse the judgment in Civil No. 69007 and the order appealed from in Civil No. 46782, and remand with instructions. The judgment and order in question, taken together, had the bizarre, inequitable and unjust result of leaving the appellants, who had an admitted recorded superior first mortgage lien on the property in question, without either their mortgage lien on the property, or any portion of the proceeds from the sale of the property, despite the fact that at no time was a claim ever made against them, alleging that their mortgage had been paid or that for any other reason (other than the entry of a default), the second mortgagee-appellee who received the proceeds of the sale had priority over appellants. At oral argument, appellants' present counsel stated that he had come into the case on behalf of appellants' former counsel's malpractice carrier because as a result of that former counsel's handling of the case, there had been a settlement of the malpractice claim and an assignment of appellants' claim in these cases to that carrier. Those facts speak for themselves as to a part of what happened while appellants' original counsel was handling those cases. On the other hand, the then counsel for the appellee was at least equally at fault in bringing about the miscarriage of justice which resulted from these cases.[1] The following is a chronology of the significant events in this matter: Whether summary judgment in favor of appellee was properly granted in Civil No. 69007 turns upon whether the order determining proceeds, entered in Civil No. 46782 on October 2, 1979, is res judicata with respect to any claim on the proceeds from the foreclosure sale which the appellants may have against the appellee. That order, as we have noted, orders distribution of the proceeds of sale to the appellee but goes on to state: "BE IT CLARIFIED, HOWEVER, that this Order shall issue without prejudice to the interests of Defendants KUNIO FUJII and MARY HARUYO FUJII." Appellee contends the sentence just quoted only allowed appellants to sue the mortgagor. Appellants contend it preserved all their rights. The order obviously was ambiguous and required construction. Appellee did not request the court in Civil No. 69007 to take judicial notice of the pleadings, findings of fact and conclusions of law, and orders in Civil No. 46782, as it could have, pursuant to Rule 201, HRE. See Lalakea v. Baker, 43 Haw. 321 (1959); McAulton v. Smart, 54 Haw. 488, *1339 510 P.2d 93 (1973). If the court below had exercised its discretion to judicially notice those documents under Rule 201(b), HRE, it would have been required to give the parties some indication of that action, so that they could exercise their right to be heard on the judicial notice matter under Rule 201(e), HRE.[2] Moreover, appellee did not, pursuant to Rule 56, HRCP, seek to place before the court, in Civil No. 69007, by affidavit or otherwise, the record and files, or any other facts, with respect to what had happened in Civil No. 46782, in support of its motion for summary judgment. Construction of legal documents such as contracts, deeds or, in this case, a court order entered in a different case, is a matter of law, but, where such a document is ambiguous, resort can, and, in this case, necessarily must, be had to facts, such as the record, including transcripts, etc. in the case in which the ambiguous order is entered, (if, as here, such matters exist) which may be material in aiding the court in its interpretation of the document. The record before the court in Civil No. 69007, was insufficient to establish that there was no genuine issue as to the existence of any material fact, which the court needed to consider in construing the ambiguous order of October 2, 1979, and thus appellee failed to show that he was entitled to a judgment, as a matter of law, on his defense of res judicata. Rule 56(c), HRCP. The judgment in favor of appellee in Civil No. 69007 must therefore be reversed. The March 22, 1983 order in Civil No. 46782, denying relief from the order determining priorities entered October 2, 1979, must also be reversed because, if the orders of January 24, 1979 and October 2, 1979 had the effect, as appellee contends, of terminating appellants' first mortgage lien, and foreclosing appellants from contesting the distribution of the proceeds to appellee, they were in direct violation of HRS § 667-3, and thus beyond the power of the court below. Section 667-3 specifically provides: From the transcript of the hearing on, and the memorandum in support of, appellee's motion for payment of all the proceeds to appellee, it is apparent that appellee's contention is that the court was not bound by the statute quoted above, because a default had been entered against the appellants. Appellee, however, in his complaint in Civil No. 46782, had not claimed any priority with respect to proceeds against appellants for any reason, and had not prayed for priority over appellants with respect to the proceeds of any foreclosure sale. Thus no judgment for affirmative relief had been sought by appellee against appellants at the time the default against appellants was entered. Rule 55(a), HRCP, expressly provides for the entry of a default only as to parties against whom a judgment for affirmative relief is sought. The clerk therefore had no authority to enter the default under the provisions of Rule 55(a), HRCP. Moreover, no default judgment against appellants under Rule 55(b), HRCP, was ever *1340 sought. The erroneously entered default therefore did not have any effect on the clear and mandatory provisions of HRS § 667-3. Accordingly, appellants' mortgage lien should not have been terminated by the confirmation of the sale on July 24, 1978 unless appellants' priority over appellee, as to the proceeds, was preserved. The court below denied appellants' Rule 60(b)(6), HRCP, motion on the ground that it was "untimely." Since that motion was not made pursuant to the provisions of Rule 60(b)(1), (2) or (3), the one-year limitation on bringing motions under those subsections provided for in Rule 60(b), HRCP, is not applicable. We think the application for relief in this case was properly brought under Rule 60(b)(6), HRCP, for the reason that, while the court entering the order of October 2, 1979 had jurisdiction of the parties, and of the subject property, the order entered was, in the circumstances, beyond its power, because of HRS § 667-3. We also think that the application for relief, given the unusual facts in this case, was made within a reasonable time. Accordingly, we reverse the order denying relief under Rule 60(b)(6). We consolidated these cases for purposes of appeal. They will remain consolidated on remand. On remand, the court below will vacate the order of October 2, 1979, entered in Civil No. 46782, and will determine priorities as to the sale proceeds as of October 2, 1979, in accordance with HRS § 667-3. In considering any claims with respect to interest between that date, and the date a judgment in the circuit court is entered, pursuant to our mandate, the court below may take into consideration any equities it finds have arisen as a result of the conduct of both former counsel for the appellants and the appellee, as well as any other facts which, under the law, it can consider on the issue of such interest. The court below will then enter a judgment specifying the proceeds to be paid to appellants, with the surplus, if any, to be retained by appellee, and otherwise complying with this opinion. The judgment in Civil No. 69007 is affirmed with respect to parties other than appellee in whose favor judgment has entered, and reversed as to appellee. The order appealed from in No. 46782 denying the motion for relief, under Rule 60(b)(6), HRCP, from the order of October 2, 1979 is reversed. The cases are consolidated and remanded for further proceedings consistent herewith. [1] We express no opinion one way or the other as to whether appellee's then counsel was guilty of malpractice. [2] Even taking those documents into consideration however, the order appealed from remains ambiguous.