Court Opinion

ID: 9788825
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:19:23.709155+00
Date Added: 2024-06-11T15:43:01.431600
License: Public Domain

Dissenting Opinion of
ACOBA, J.
I.
A.
The Trastees Under the Will and of the Estate of Bernice Pauahi Bishop, Deceased (Bishop Estate) are the fee simple owners and lessors of two lots of commercial real property located in Kaka'ako, Hawai'i (the Kaka'ako Properties). Pohukaina Ventures (Pohukaina) was a lessee of the Kaka'ako Properties.1
Hawai'i National Bank (HNB) held the following relevant instruments which covered Pohukaina’s leasehold interest in the Kaka'ako Properties: (1) a mortgage, recorded on September 28,1988, from Pohukaina to HNB and the promissory note it secured, which was co-signed by Pohukaina, Brian Richard Cook aka Brian R. Cook dba Windward Self Storage (Cook), and Kona Country Fair Venture (Kona Country), in the amount of $1,100,000 (Mortgage A); (2) a mortgage, recorded on July 12,1989, from Pohukaina to HNB and the promissory note it secured, which was co-signed by Pohukaina, Cook, and Kona Country in the amount of $250,000 (Mortgage B); and (3) a mortgage, recorded on April 28, 1978, from Pohukaina to State Savings and Loan Association (State Savings), the promissory note it secured, signed by Pohukaina, in the amount of $600,000 (Mortgage C), and a “Collateral Assignment of Lease or Leases” (collateral assignment), all of which were ultimately assigned to HNB.2
B.
Mortgages A and B contained the following language relating to the collection and payment of rent:
Mortgagor does hereby mortgage, assign and transfer unto Mortgagee, its successor and assigns, all of its leasehold interest [in the Kaka'ako Properties].
TO HAVE AND TO HOLD said Indenture of Lease and all the rights, interests and estate of Mortgagor, ... and all the rents, issues and profits thereof [.]
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BUT UPON ANY DEFAULT ... Mortgagor under any provision of this mortgage, or intended to be secured thereby, on any and every account, shall at the option of the Mortgagee become at once due and payable without notice or demand, and with or without foreclosure the Mortgagee shall have the immediate right to receive and collect all rents and profits *351due, and said rents and profits are hereby assigned to Mortgagee[.]
(Emphases added).
Mortgages A and B were consented to by the lessor, Bishop Estate, through consent and estoppel certificates executed on September 12,1988 and July 11, 1989.
Mortgage C, securing the April 25, 1978 promissory note signed by Pohukaina to State Savings, is similar to Mortgages A and B. It provides that State Savings was “TO HAVE AND TO HOLD the same, and all the right, interest, and estate of the Mortgagor in ... all the rents, issues, and profits” held under the leases of the Kaka'ako Property. Mortgage C also stated that in the event of a default, the Mortgagee “may receive and collect all rents, income, and profits from the property hereby mortgaged ... and said rents, income, and profits are hereby assigned to the Mortgagee.”
Bishop Estate also consented to Mortgage C in a “Consent to Mortgage” document executed on April 11,1978.
In the collateral assignment related to Mortgage C, (collateral assignment), Pohu-kaina assigned to State Savings the subleases on the Kaka'ako Properties and “all rents, income and profits” issuing from the Kaka'ako Properties. The collateral assignment provided in relevant part that
[ujpon or upon any time after default in the payment ... the assignee without in any way waiving such default may at its option ... sue for or otherwise collect and receive all rents, income and profits of said premises, including those past due and tmpaid [.]
(Emphases added).
Thus, under all the mortgages, Bishop Estate agreed to look solely to its lessee’s own credit for satisfaction of the semi-annual rent owed it. And in the event of the lessee’s default, Bishop Estate relinquished additional security which might have been obtained from the subtenants’ rents, in favor of the mortgagee, ultimately, HNB.
Conceivably, Bishop Estate agreed to the assignments of rents in order to accommodate Pohukaina’s use of the property and, thereby, preserve the viability of Pohukaina’s leasehold interest. However, once Bishop Estate consented to these assignments, I believe it had no legal or equitable right to priority in payment of the collected rent from the subtenants on the Kaka'ako Properties over that of HNB, the mortgagee. Following its lessee’s default, Bishop Estate obtained what it was legally entitled to under its lease provisions, that is, a judgment for money damages against Pohukaina and cancellation of the ground leases.
C.
The majority justifies its decision on the ground that the exercise of “equitable jurisdiction” is warranted to “conserve the equities of the parties” or when the strict adherence to the terms of an agreement would be “harsh and unreasonable under the circumstances.” Majority opinion at 838-839 (citing Honolulu, Ltd. v. Blackwell, 7 Haw.App. 210, 219, 750 P.2d 942, 948 (1988); Jenkins v. Wise, 58 Haw. 592, 597-98, 574 P.2d 1337, 1341 (1978)). It reasons that since the Commissioner took possession of mortgaged property and had a duty to preserve the property for the benefit of all concerned, he had an equitable duty to pay the ground rent to Bishop Estate. Majority opinion at 839-840 and 841.
I must respectfully disagree.
As between Bishop Estate and HNB, there was no valid reason to, in effect, void the mortgage provisions and assignment. We are not concerned with a forfeiture provision which, historically, equity would refuse to enforce. Nor are we faced with “equities” which would make enforcement of the mortgage and assignment provisions “harsh and unreasonable.” Jenkins, 58 Haw. at 597, 574 P.2d at 1341.
There is no evidence in the record to demonstrate that the payment of rent to Bishop Estate would extend the leases of the Kaka'ako Properties. The ground leases were cancelled as of January 26, 1998 pursuant to the trial court’s grant of summary judgment to Bishop Estate. However, the leases were to terminate in any event on March 31,1998 and April 30,1998 respectively by their own terms, all within two and *352three months of the cancellation. Thus, the April 1,1998 report filed by the Commissioner said that “in absence of an extension of the ground lease by Bishop Estate, there was very limited probability in selling the Kaka[’]ako Property.” The Commissioner thus opined that “the Kaka[’]ako Property was not marketable, and the time and considerable cost of auctioning the Kaka[’]ako Property would not benefit any of the parties in this ease.” Therefore, as the leases had no market value they were not viable assets required to be equitably preserved for the mortgage creditors by the payment over to Bishop Estate of the subtenants’ rents.
II.
For the foregoing reasons, I would vacate the court’s October 6, 1998 judgment incorporating the October 6, 1998 entitled “Findings of Facts; Conclusions of Law; Order Denying [HNB’s] Motion for Partial Summary Judgment Filed on February 2, 1998 and Order Granting Judgment for [Bishop Estate]” and instruct the court to direct that rent collected from the Kaka'ako Properties be paid to the mortgagee, HNB, pursuant to the mortgages and collateral assignment.

. There were two separate leases for the two lots of commercial property located in Kaka'ako, Ha-wai'i to Pohukaina Venture (Pohukaina) by the Trustees of the Estate of Bernice Pauahi Bishop. The first lease was Lease No. 11,249 and the second lease was Lease No. 11,251.

. On September 30, 1996, State Savings assigned the promissory note, a mortgage, and a "Collateral Assignment of Lease or Leases” to BTD-1996 NPC 1, L.L.C. (BTD). BTD then assigned its interests to Atlantic National Trust, L.L.C. (Atlantic), which in turn assigned its interest to HNB in an instrument recorded on January 27, 1998.