Court Opinion

ID: 9847226
Source: CourtListenerOpinion
Date Created: 2023-09-24 03:56:14.103791+00
Date Added: 2024-06-11T09:17:03.874492
License: Public Domain

DISSENTING OPINION OF
LEWIS, J.
Being of the opinion that the record is such that the judgment cannot be affirmed, I respectfully dissent. The principal points are reviewed under four headings.
1. The $121,000 matter; no agreement was reached on or before March 14, 1966
When the court found that as a term of the joint venture between the parties: “The sum of $121,000 [being] the value of Yee’s managerial ability and ‘know-how’ . . . shall be cred*236ited to Yee in the accounting”, this precluded the conclusion that the parties reached an agreement on or before March 14, 1966, because the quoted finding rests on testimony as to what happened at and after the meeting of April 26, 1966.
Shinn’s attorney, Genro Kashiwa, testified that prior to the April 26, 1966 meeting it had been his understanding that Shinn would put up the “so-called $121,000” but “get it back after the condominium units were sold. ” At the April meeting with Yee and his attorney “they said that he was not to get that back and that was to match Edwin Yee’s know-how . . . . ” He advised his client to go along with that “and Dr. Shinn finally agreed to that.”
While Kashiwa was not present at Shinn’s meetings with Yee prior to April 26, 1966, his understanding of the previous negotiations is borne out by his client’s testimony. Shinn was asked as to his stock in Waikaha Manor:
Q. . . . You had approximately ... I believe your testimony is . . . $121,000 in there. Now, when were you to get that $121,000 pursuant to the agreement that you had with Mr. Yee?
He answered:
A. It was a deferred money. I wasn’t giving anything away. . . .
Q. It was clearly your understanding that you would get back the money?
A. Absolutely.
On cross-examination, he testified:
Q. . . . I’m merely asking you, did you agree to pay to Edwin Yee, Limited $121,000 ....
A. Not $121,000 paying to Edwin Yee but deferred payment. ... In paying Waikaha Manor Corporation, only Mr. Yee and I both jointly will pay that proportion amount of $121,000 less. But that amount, total amount, will be returned to me after 80 per cent of the apartments are sold — this is out of Mr. Yee’s own mouth — or the *237Waikaha Manor condominium building is up, which came first.
The court rejected this contention, and as noted in the majority opinion we do not have it before us for review. The issue here is whether the agreement that Yee was to receive $121,000 for his managerial ability and know-how was reached during the period designated by the court in its findings, herein referred to as “the earlier period.” Yee testified that there was some sort of agreement prior to March 14,1966, but “I don’t think by that time we could have agreed to a complete oral understanding that early. ’ ’ The following is all that can be found in Yee’s testimony touching on the $121,000 matter during the earlier period:
“. . . I was suggesting to Dr. Shinn way back in January that if he were able to get Waikaha Manor, Inc., to reduce the $550,000 by the purported amount that was due him, it would therefore mean that we would have, if we went into a venture, that much less to pay.”
This was at a time when the parties were reviewing the amount of money that would have to be raised.
The court did not find that agreement was reached to seek this reduction in the amount to be paid Waikaha Manor, Inc. If a reduction had been achieved, the amount involved would have been variable, dependent on the actual value of Shinn’s Waikaha Manor holdings,1 a position Shinn took unsuccessfully.2 The court erred in finding that the parties had completed their negotiations on this point by March 14, 1966. These negotiations concerned the amount Shinn was to contribute, an essential term of the joint venture as the major*238ity opinion recognizes. While I am of the opinion that there were other essential terms on which the parties had not agreed by March 14, 1966, this suffices to show that no contract was made on or before that date.3
It is fundamental that “there must be mutual assent or a meeting of the minds on all essential elements or terms in order to form a binding contract.” Honolulu Rapid Transit Company, Ltd. v. Paschoal, 51 Haw. 19, 27, 449 P.2d 123, 127 (1968), followed in Carson v. Saito, 53 Haw. 178, 182, 489 P.2d 636, 638 (1971), and Earl M. Jorgensen Co. v. Mark Construction, Inc., 56 Haw. 466, 540 P.2d 978 (1975). “Only a contract with no material or essential terms to be settled can be enforced in a court of equity. It must have been completely determined between the parties and its terms definitely ascertainable without resort to future negotiations.” Molokai Ranch, Ltd. v. Morris, 36 Haw. 219, 227 (1942); Francone v. McClay, 41 Haw. 72, 78 (1955). “A court of equity cannot make a contract . . . .” Vierra v. Ropert, 10 Haw. 294, 300 (1896).
2. Negotiations on and after April 26, 1966; should this court modify the judgment?
The next question is whether the agreement found by the court ultimately was reached by the parties, even though it was not complete as early as March 14,1966. This question is answered by the court’s findings that the negotiations on and after April 26, 1966 concerned a “proposed amendment.” The court thus recognized that the later negotiations deviated from the terms which the court had found comprised the agreement. Of course, if any term of the agreement still was under negotiation — and at least one was — all were open to negotiation when the parties met with their attorneys on April 26, 1966. On the record, the most that plaintiffs can hope for is modification of the judgment.
*239Modification of the judgment would be possible only if this court could determine without additional findings that an agreement was reached as a result of the negotiations that occurred on and after April 26, 1966, and the terms of that agreement. I am of the opinion that no such disposition of the case is possible.
The record is clear up to a point. It shows that when the parties met with their attorneys on April 26, 1966, they worked out a new formula whereby Shinn could at any time fail or refuse to advance further capital without being excluded altogether from sharing in the profits; fixed Shinn’s share in the profits at 37Vi>% if he made all required payments instead of the 50% found by the court; and went into a number of other matters, with the result, according to the testimony of Yee and his attorney, Harold Yamada, that an oral agreement was reached. Yamada was instructed to draft the agreement. He presented his draft on July 12, 1966. Yee testified that this draft (herein referred to as Exhibit 3) contained “[m]y oral agreement with Dr. Shinn.” However, plaintiffs’ attorney, Mr. Kashiwa, also presented a draft. He testified that Exhibit 3 was his understanding of the agreement that had been reached by the parties prior thereto “except that there was some areas which I thought needed clarification, and, therefore, I wrote the letter of September 1st” (herein referred to as Exhibit 4). Exhibit 3 “did generally reflect what was agreed on at the April 26 meeting,” he testified, and further testified that “the two agreements [Exhibits 3 and 4] taken as a whole are acceptable to [Dr. Shinn].” He had Dr. Shinn sign them, though they were not delivered. The parties never did execute a written agreement.
I am of the opinion that if the parties reached an oral agreement on all essential points at the meeting of April 26, 1966, the execution of a written contract was not a condition precedent to the taking effect of that agreement. See Williston on Contracts, §§ 28 and 28A (3d ed.); Restatement of the Law of Contracts, § 26; General Realty Corporation v. Douglas Lowell, Inc., 223 Or. 244, 354 P.2d 306 (1960); Annotations, 122 A.L.R. 1217, 165 A.L.R. 756. However, this being *240an action for specific performance in which a constructive trust of the assets held in Yee’s name is sought, the evidence of the parol agreement must be clear, definite, and unequivocal. Poka v. Holi, 44 Haw. 464, 472, 357 P.2d 100, 106 (1960), rehearing denied, 44 Haw. 582, 358 P.2d 53; Kuwahara v. Kuwahara, 23 Haw. 273, 276 (1916); Ables v. Ables, 39 Haw. 598, 601 (1952); Kam Oi Lee v. King Fong Wong, 57 Haw. , P.2d (1976). This imposes a heavy burden on plaintiffs.
Exhibit 4 when compared with Exhibit 3 raises questions as to whether the parties did, at the April 1966 meeting, agree on all essential points leaving only arguments as to phraseology. Moreover, there is conflicting evidence on important points and the credibility of that evidence has not been determined. These are questions for the trial court to resolve, as further developed below.
3. The sublease override; whose testimony should be believed?
One area in which there is conflicting evidence concerns the sublease rent, which was in excess of the rent reserved in the Bishop Estate lease. Plaintiffs were awarded a share in this override. However, the court did not take into account the negotiations after March 14, 1966. It found these negotiations looked only to a “proposed amendment” and did not culminate in any agreement, but made no findings as to the particulars of the “proposed amendment.” In fact, no agreement had been reached by the March date, and the negotiations on and after April 26, 1966 were part of the main negotiations. Exclusion from consideration by the court of the evidence as to what occurred in the later negotiations was error and invalidated the court’s findings. Rowe v. General Motors Corporation, 457 F.2d 348, 356, note 15 (5th Cir. 1972); Ritter v. Morton, 513 F.2d 942, 949 (9th Cir. 1975); Grigsby v. Coastal Marine Service of Texas, Inc., 412 F.2d 1011, 1042 (5th Cir. 1969).
*241Yee and Yamada testified that Shinn and Kashiwa were told about the sublease at the April 26,1966 meeting, and also were informed that Shinn was not to participate in it, to which Kashiwa, Shinn’s attorney, agreed. The discussion specifically included the override, according to this evidence. The following is from Yee’s testimony:
Q. At any time, did you tell Dr. Shinn or Mr. Kashiwa of these override provisions?
A. That is called a sandwich rent position. On the first meeting on April 26 when Dr. Shinn, Mr. Kashiwa, Harold Yamada, and I were present, I think Genro Kashiwa asked me whether there was a sublease, and I indicated there was, and whether there was a sandwich rent provision, and I said there was. Then he says, “Is this involved in this development together with Dr. Shinn?” And I said, “No, this is not involved. This sublease and sandwich rent is not included. The only part that Dr. Shinn has a portion of would be that part where the profit would be from the sales of the apartment units.” This is in the presence of these other three men.
A. May I answer further on the first question. These three other men were there, and this is why in the initial draft of the Yamada agreement and subsequently the Kashiwa addendum no mention was made of the sandwich rent provision.
Q. There is no mention of the sandwich rent in the Yamada agreement or in the Kashiwa amendment.
A. That’s correct. And that’s because of the agreement made at that time. Certainly, if there were such an agreement, both of these documents would so indicate this.
Shinn and Kashiwa denied knowledge of the override. If this is believed it would explain why Exhibit 4 did not take issue with the description in Exhibit 3 of the profits in which Shinn was to share, namely “the profits received by Yee from *242Condominium Hawaii, Inc., from the sale of the apartment units in the project.” It would clear the way for reliance on a constructive trust in all joint venture assets held in Yee’s name. On the other hand, if Yee and Yamada are to be believed, the most that Shinn could receive would be a share in the profits from the sale of the apartments. This court cannot resolve the question.
4. The 25% matter; ichose testimony should be believed?
As has been stated, Shinn’s share in the profits was fixed at 37V6% at the April 26,1966 meeting.4 At this April meeting the parties were in agreement that there was only 75% to be divided, but there was a conflict in the evidence as to why this was so. On one view of the evidence the clean hands maxim was applicable. This matter was not pursued in the trial court, as the defendants did not raise it there nor did the court raise it of its own motion. A direction for determination of the applicability of the clean hands maxim should be included in the remand for further fact determination which in my judgment must issue.
Dr. Shinn testified that “all through the year of 1966 was the most difficult year in the history of the United States . . . that means Hawaii, too, ... to raise mortgage money.” Yee assured him at one of their early meetings that he had both interim financing and take-out money for the project from Island Federal Savings and Loan Association. During a conversation in the month of January 1966, Shinn testified, Yee told him that it had been arranged with Cliff Krueger, the president of Island Federal, that "25 per cent interest in the building will be given away underneath the table. ’ ’ According *243to Shinn’s testimony, he hotly refused to go along with the arrangement, telling Yee: “Just forget about it. I don’t want to be [a] partner. I don’t want any money to go underneath the table.” Yee’s reply, according to Shinn, was “Gool, cool. We’ll drop the subject.” Shinn further testified he never heard about the 25% again until the later negotiations, which as noted above commenced April 26, 1966. “I went for 50-50 or none at all . . . .”
Yee testified he never said that 25% of the profits was to go to Cliff Krueger, and never made such an arrangement. According to Yee, from the very beginning his arrangement with Shinn was that 75% of the profits would be shared between them. “I said to Dr. Shinn that the 25% is committed to people who are helping in the project and helping in the financing,” and Dr. Shinn said “okay.” Yee “never told Dr. Shinn to whom I was going to give the 25 percent,” just “someone else” for “help with the sales and financing.” What he had in mind, he testified, was division of this 25% among associates and relatives who regularly helped him with his projects. He explained the practice of having nominees who act as apartment buyers, saying this was the kind of help in securing financing he had in mind.
Cliff Krueger, called as a witness at the first trial,5 testified on October 30,1969 that he made no arrangements for a 25% kickback for arranging financing for Kahala Towers. He was not a witness at the second trial.6 Upon argument in this court, we were assured that no kickback was paid. The trial court made a similar inquiry and received the same answer.
Shinn would not admit that he ultimately agreed to the 25% payment even though his memory was refreshed by calling to his attention his testimony at the first trial. The evidence that he did so agree consists in his signature on *244Exhibit 4, the pertinent provisions of which are reviewed below, and the testimony of his attorney, Genro Kashiwa, who on April 26, 1966 was present at the negotiations for the first time. Kashiwa téstified he had never heard of this 25% matter before. It was one of two things that were “really different” from what Shinn had told him. Instead of ¿ 50-50 joint venture, “at this meeting they say it’s 37Mt, and we discussed why it was 371/2.” The testimony continues: “And the reason was that Dr. Shinn was to get one half of 75 per cent of the profits, and I found out that the 25 per cent of the profits was supposed to go to the person who arranged to get the mortgage financing ... a 6.8 million mortgage loan commitment.... And, therefore, the only thing remaining to be split between the two partners was 75 per cent, and 37V£ per cent is 50 per cent of 75 per cent. ” He further testified as to the person who would receive the 25%: “And we understood that this was not Edwin Yee or his brothers or anybody else, but we understood that to be Mr. Cliff Krueger of Island Federal.”
Kashiwa advised Shinn to go along with this plan, and testified that Shinn ultimately agreed “on the understanding that the 25 per cent would go to Cliff Krueger or somebody else for obtaining the mortgage loan commitment. And it was made — And that’s what I clarified in my letter. . . referring to Paragraph 5 of Exhibit 4 which read:
5. It is understood that 25% of profits has been committed to third party or parties other than Edwin Yee, Ltd. or any other corporation that Edwin Yee or his relative and associates are connected with or have any interest in, as consideration for obtaining financing for the project; that the total profit to Shinn and Yee shall not in any event be less than 75% of the profits of the project; and that Edwin Yee’s profits and advantages shall not in any way, directly or indirectly exceed 371^%^
Kashiwa’s testimony continued:
Q. . . . Now, nowhere in this provision does it state that this 25 per cent is going to Mr. Cliff Krueger, does it? A. No, it doesn’t state that. . . .
*245A. I didn’t think it was appropriate to use his name.
Q. You were informed that this was to go to Mr. Krueger?
A. Yes.
Q. Specifically Mr. Krueger?
A. Yes.
Exhibit 3 had contained nothing as to the disposition of the 25%, merely showing that there was 75% to be divided between the parties. On its face, this gave considerable leeway to Yee, the managing partner, as to the disposition of the remaining 25%, and if this truly represented what was agreed at the April 26,1966 meeting and Yee’s other testimony were believed, no question of clean hands was involved.
On the other hand, if Shinn’s and Kashiwa’s testimony were believed and paragraph 5 of Exhibit 4 more nearly represented what was agreed at the April 26, 1966 meeting, the real intent being that 25% of the profits should be paid to the president of Island Federal as a reward for the loan commitment, Shinn would be out of court under the clean hands maxim.
“Illegality, if of a serious nature, need not be pleaded. If it appears in evidence the court of its own motion will deny relief to the plaintiff. The defendant cannot waive the defense if he wishes to do so. Indeed, if the court suspects illegality, it may examine witnesses and develop facts not brought out by the parties, and thereby establish illegality that precludes recovery by the plaintiff.... ”Restatement of Contracts § 600, Comment a; Sinnar v. Le Roy, 44 Wash.2d 728, 270 P.2d 800 (1954). If the issue of illegality has not been pursued in the trial court, the appellate court may itself raise the issue and remand for findings on the point, Waring v. Lobdell, 63 Wash. 2d 532, 387 P.2d 9797 (1964), or if further findings are *246not necessary, the appellate court may order the case dismissed though the issue of illegality was not raised in the trial court. Gaudiosi v. Mellon, 269 F.2d 873 (3d Cir. 1959); Primeau v. Granfield, 193 F.911 (2d Cir. 1911); Armstrong v. Gresham, 73 Colo. 13, 213 P. 114 (1923). Quoting from Gaudiosi v. Mellon, supra;
“Courts are concerned primarily with their own integrity in the application of the clean hands maxim and even though not raised by the parties the court will of its own motion apply it.” (p. 881)
This court has said:
“The application of the maxim of‘clean hands’ is not in protection or vindication of rights of parties but a salutary guide of the conscience of the chancellor. The right to apply the maxim does not depend upon the state of the pleadings. It is inherent in the court. ”Young v. Wo, 36 Haw. 676, 685 (1944).
As stated by Lord Mansfield in the much quoted case of Holman v. Johnson, 1 Cowper 341, 343, 98 Eng. Rep. 1120, 1121 (1775):
“The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may say so. . . .”
That a plaintiff is able to make a good case for relief without alleging or proving the illegality will not save his case when the evidence shows a hidden corrupt purpose. Sinnar v. Le Roy, supra, 44 Wash. 2d 728, 270 P.2d 800 (1954); Corbin on Contracts, Vol. 6A,§§ 1460, 1533. The court will act in accordance with the realities of the situation, not confining itself to technicalities as to the exact provisions of the contract between the parties but instead taking into account any *247resultant fraud upon third parties. Baccioces v. Transamerica Corp., 2 Cal. App. 2d 595. 38 P.2d 417, 418 (1934); Kaiser-Frazer Corp. v. Otis & Co., 195 F.2d 838 (2d Cir. 1952).
Here, if the testimony of Shinn and Kashiwa is believed, Shinn, practically from the beginning of the negotiations, understood that the vital construction loan for the project had been obtained by commercial bribery.8 Whether or not in violation of the penal law of the state, commercial bribery is regarded as being of a heinous character. McConnell v. Commonwealth Pictures, 7 N.Y.2d 465, 166 N.E.2d 494, 199 N.Y.S.2d 483, 487 (1960), followed in Colyvas v. Red Hand Compositions Co., 318 F.Supp. 1376 (S.D.N.Y. 1970). If a bank official receives a bonus for making a loan, it is a fraud upon the stockholders. Fleishacker v. Blum, 109 F.2d 543 (9th Cir. 1940).
When Shinn, according to Kashiwa’s testimony, agreéd that Krueger should be paid 25% of the profits, he did so knowing that the front money for which he was committing himself would bring to fruition the loan which he had been informed was illegally obtained. He understood also that if all went as hoped this would culminate in the payoff from profits to which he had agreed, with 37V£% of the profits going to himself. The exact date of the loan commitment has no bearing. One who acquires rights in the fruits of a wrong already committed cannot excuse himself on that ground when he has acted affirmatively to magnify and increase its effects. Precision Instrument Manufacturing Co. v. Automatic Maintenance Machinery Co., 324 U.S. 806, 819 (1945).
Nor does it matter that it was Yee who obtained the loan. Even if Shinn had no wrongful purpose of his own, “he can maintain no action for breach if he does any act in furtherance of the other party’s wrongful purpose. ’ ’ Corbin on Contracts, vol. 6A, § 1518, p. 747; Restatement of the Law of Contracts, vol. II, § 602(2); Sherwood & Roberts-Yakima, Inc. v. Leach, 67 Wash. 2d 630, 409 P.2d 160 (1965); Paul Jones & Co. v. *248Wilkins, 185 S.W. 1074 (Tenn. 1916); Aiken v. Blaisdell, 41 Vt. 655, 668 (1869).
Though the actions of the defendant, as depicted by Shinn and Kashiwa, were more reprehensible than those of plaintiff, this is immaterial when public policy requires the assertion of the clean hands maxim because of the seriousness of the* illegality involved. Precision Instrument Manufacturing Co. v. Automatic Maintenance Machinery Co., supra, 324 U.S. 806, 814 (1945). “In respect to offenses in which is involved any moral delinquency or turpitude, all parties are deemed equally guilty, and courts will not inquire into their relative guilt.” Lowell v. The Boston and Lowell Rail Road Corp., 40 Mass. (23 Pick.) 24, 32 (1839).
Nor is plaintiff in the clear just because defendant denies that any wrong occurred. Young v. Wo, supra, 36 Haw. 676, 681 (1944). And the result would not be affected though the court found that no kickback ever was promised Krueger, if Shinn and Kashiwa understood that it was and agreed that 25% of the profits should be reserved for that purpose. Kuehnert v. Texstar Corporation, 412 F.2d 700, 703-704 (5th Cir. 1969); Bishop v. Bishop, 257 F.2d 495, 501 (3d Cir. 1958). Furthermore, the fact that the immoral purpose was not consummated has no bearing. Hyde Park Amusement Co. v. Mogler, 358 Mo. 336, 214 S.W.2d 541 (1948); Young v. Hampton, 36 Cal. 2d 799, 228 P.2d 1, 5 (1951); Belling v. Croter, 57 Cal. App. 2d 296, 134 P.2d 532 (1943).
If Shinn’s and Kashiwa’s testimony is believed, this case calls for application of the rule that the court will not serve as referee in an accounting between co-conspirators. James v. Du Breuil, 500 F.2d 155, 160 (5th Cir. 1974); Morrison v. Bennett, 20 Mont. 560, 52 P. 553, 557 (1898); Primeau v. Granfield, supra, 193 F. 911 (2d Cir. 1911). See also the following cases, involving suits by an inactive partner, who nevertheless is aware of the illegality, against the active partner. Tucker v. Binenstock, 310 Pa. 254, 165 A. 247 (1933); Vaszaukus v. Vaszaukus, 115 Conn. 418, 161 A. 856 (1932).
Accordingly, I would reverse and remand for further proceedings.

 Shinn testified that he received only $90,000 from Waikaha Manor, Inc., for his holdings.

 According to Yee, Shinn did not take this position until after the April 26, 1966 meeting:
Q. And on April 26, or at any time before that, did Dr. Shinn ever ask you to take less than $121,000?
A. No, he didn’t.

 It is noteworthy that prior to the April 26,1966 meeting only $2500 was paid in as capital contributions by Shinn, plus another $2500 on April 22, 1966 which was withdrawn six days latee.

 On review of the evidence as to what happened prior to the April 26, 1966 meeting, the court’s finding that Shinn’s share was 50% is supported only by Shinn’s testimony that he refused to take less. Since Yee throughout took the position that there was only 75% to be divided between the parties this leads to the conclusion that no agreement was reached on Shinn’s percentage during the earlier period. However this may be, the percentage Shinn was to receive was open for negotiation at the April meeting, no complete agreement having been arrived at up to that time.

 This case first was tried in 1969, and preliminary findings of fact and conclusions of law were entered. Upon the death of the presiding judge, a new trial was ordered. The appeal is from the judgment rendered upon the second trial.

 Some time before 1972, Krueger pleaded guilty to a charge of giving false information to the Federal Home Loan Bank Board and was sentenced to two years’ imprisonment. See United States v. Krueger, 454 F.2d 1154 (9th Cir. 1972).

 Some courts have said that for the issue of illegality or unclean hands to be raised for the first time in the appellate court there should be no shadow of doubt. Mosley v. Magnolia Petroleum Co., 45 N.M. 230, 114 P.2d 740 (1941); Radley v. Smith, 6 Utah 2d 314, 319, 313 P.2d 465, 468 (1957). But since a remand in any event is called for in the present case because of errors of the trial court, the question whether a remand would be ordered solely on the issue of clean hands when not urged in the trial c.ourt, is not presented.

 Commercial bribery is a crime under the Hawaii Penal Code enacted by Act 9. S.L. 1972, HRS § 708-880. although in 1966 it was not.