Court Opinion

ID: 1389706
Source: CourtListenerOpinion
Date Created: 2013-10-30 05:55:24.901778+00
Date Added: 2024-06-11T14:54:32.926134
License: Public Domain

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:

  February 4, 1974    Hokuula, Inc. executes a
                      purchase money mortgage
                      in favor of appellants for
                      the property in question.
  March 19, 1974      Appellants' mortgage is
                      recorded.
  April 19, 1974      Hokuula, Inc. executes a
                      second mortgage in favor of
                      the predecessor-in-interest
                      of the appellee.
  November 20, 1975   Civil No. 46782 is filed. The
                      only allegation with respect
                      to the appellants is that they
                      may claim an interest in the
                      property pursuant to their
                      mortgage.
  November 22, 1975   Service of the complaint is
                      made upon the appellants.
  February 24, 1976   Pursuant to an application
                      and affidavit by appellee's
                      counsel, the clerk of court
                      enters a default against the
                      appellants.
  July 12, 1977       Appellee files a motion for
                      interlocutory decree of
                      foreclosure of the property
                      in question. The motion
                      does not seek to establish
                      appellee's mortgage as prior
                      to appellants' mortgage.
  July 16, 1977       The motion for interlocutory
                      decree of foreclosure is
                      served upon appellants. On
                      the same date, the entry of
                      default is served upon
                      appellants.
  July 27, 1977       Hearing is held on the
                      motion for interlocutory
                      decree of foreclosure.
                      Appellants do not attend.
  September 9, 1977   Findings of fact and
                      conclusions of law and an
                      interlocutory decree of
                      foreclosure pursuant to the
                      mortgage are entered. The
                      question of priority is
                      expressly reserved.
  October 24, 1977    Appellee's attorney by letter
                      sends the findings of fact,
                      conclusions of law and
                      interlocutory decree to the
                      appellants' then attorney
                      and advises them of the sale
                      date.
  October 31, 1977    The property in question is
                      sold at public auction.
                      Appellants attend and bid
                      $55,000 and $56,000 but are
                      unsuccessful bidders. The
                      record does not indicate
                      whether appellee bid. The
                      high bid is $71,200 as
                      against an appraised value
                      of $97,500.

*1337
  April 27, 1978      Appellee files a motion for
                      order confirming or
                      rejecting sale, accompanied
                      by an affidavit of counsel
                      and a title report showing
                      appellants' mortgage with
                      the date and recording data
                      with respect thereto. The
                      motion does not request an
                      adjudication that appellee's
                      interest is superior to that
                      of appellants'.
  May 2, 1978         The motion for order
                      confirming or rejecting
                      foreclosure sale is served
                      upon appellants.
  May 4, 1978         Appellants' attorney by
                      letter notifies appellee's
                      attorney that the
                      outstanding balance claimed
                      under the first mortgage is
                      $66,533.23.
  May 8, 1978         Appellee's then attorney by
                      letter informs appellants'
                      then attorney: "If you wish
                      us to consider a Stipulation
                      to aside the default and to
                      stipulate to the amount of
                      principal and interest due on
                      the first mortgage, then you
                      will need to provide me with
                      an amortization schedule
                      showing payments required,
                      and dates and amounts of
                      payments. I cannot merely
                      accept your letter of May
                      4th as `proof'."
  May 8, 1978         Hearing on the motion to
                      confirm or reject is held.
                      Appellants do not appear.
                      From the transcript, it
                      appears that the court
                      assumed that appellants
                      were entitled to priority.
                      The matter is continued for
                      two weeks.
  May 19, 1978        The continued motion to
                      confirm is heard.
                      Appellants do not appear.
                      The judge agrees to confirm
                      the sale and defer the
                      question of priorities with
                      respect to the proceeds.
  July 24, 1978       Additional findings of fact
                      and conclusions of law and
                      an order are entered by the
                      court. Appellants and
                      appellee are "forever
                      barred" from asserting any
                      "right, title or interest" in
                      the mortgaged property.
                      Jurisdiction re the priority
                      issue was reserved.
  July 11, 1979       Appellee files a motion for
                      determination of priorities,
                      together with a
                      memorandum in support
                      thereof. In the
                      memorandum for the first
                      time, appellee claims
                      priority over appellants by
                      reason of the default. The
                      motion and memorandum
                      are accompanied by a notice
                      of motion reciting service on
                      appellants' attorney.
  July 19, 1979       Appellants are personally
                      served with the motion and
                      memorandum.
  July 26, 1979       Hearing is held on the
                      motion to determine
                      priorities. In the course of
                      that hearing, the court
                      indicates to then counsel for
                      appellants that they have no
                      right to the monies because
                      the property has been sold
                      subject to appellants' first
                      mortgage lien, despite the
                      fact that the additional
                      findings of fact and order of
                      July 25, 1978 purported to
                      extinguish appellants' lien.
                      Neither counsel at the
                      hearing calls this
                      inconsistency to the
                      attention of the court.
                      (From the affidavits filed in
                      support and in opposition to
                      appellants' motion for relief
                      under Rule 60(b)(6), HRCP,
                      in Civil No. 46782, it appears
                      that there was a chambers
                      conference between then
                      counsel for the appellee,
                      then counsel for the
                      appellants and the court.
                      There is a conflict in the
                      affidavits as to what was
                      said at that conference
                      and no transcript is
                      available with respect
                      thereto. Appellants' then
                      counsel recited his version
                      of that conference to the
                      court at the hearing on
                      the motion for summary
                      judgment in Civil No.
                      69007.)
  October 2, 1979     Court in Civil No. 46782
                      enters an order distributing

*1338
                      proceeds. That order
                      recites "... the Court
                      having considered Plaintiff's
                      priority over defaulting
                      Defendants to proceeds of
                      foreclosure sale, ... and it
                      appearing that according to
                      Section 667-3 [HRS],
                      Defendants FUJII may not
                      be forced to their right of
                      recovery against the
                      proceeds; ..." It orders
                      the proceeds paid to
                      appellee and concludes:
                      "BE IT CLARIFIED,
                      HOWEVER, that this Order
                      shall issue without prejudice
                      to the interests of
                      Defendants KUNIO FUJII
                      and MARY HARUYO
                      FUJII."
  January 21, 1981    Appellants file Civil No.
                      69007, reciting the fact of
                      the order of October 2, 1979
                      in Civil No. 46782 with
                      respect to the final
                      conclusion quoted above and
                      praying for a foreclosure on
                      the property.
  January 21, 1982    Defendant First Hawaiian
                      Bank files a motion for
                      summary judgment in Civil
                      No. 69007.
  January 29, 1982    Appellee joins the motion
                      for summary judgment.
  February 10, 1982   A hearing on the motion for
                      summary judgment is held
                      and the court orally grants
                      the motion.
  March 29, 1982      A judgment in favor of
                      appellee is entered.
  April 8, 1982       Appellants move for
                      reconsideration.
  May 11, 1982        The motion for
                      reconsideration is heard and
                      orally denied.
  June 2, 1982        An order denying the
                      motion to reconsider is
                      entered.
  July 2, 1982        Notice of appeal in Civil No.
                      69007 is filed.
  September 24, 1982  Appellants, by new counsel,
                      move in Civil No. 46782 for
                      a determination of priority
                      to funds pursuant to Rule
                      67, HRCP.
  September 28, 1982  Appellee files a
                      memorandum in opposition
                      to the September 24 motion.
  November 24, 1982   Appellants in Civil No.
                      46782 file a motion for relief
                      from "the Order Approving
                      Commissioner's Report,
                      Confirming Commissioner's
                      Sale of Real Property at
                      Public Auction, and
                      Directing Distribution of
                      Proceeds filed on July 25,
                      1978, and for reformation of
                      the Commissioner's Deed".
                      The motion purports to be
                      made pursuant to Rules 67
                      and 60(b)(6), HRCP.
  December 6, 1982    A hearing on the motion for
                      determination of priorities
                      and amended motion for
                      relief from order is held and
                      orally denied.
  March 22, 1983      An order denying motion for
                      determination of priorities
                      and amended motion for
                      relief from order, on the
                      ground of timeliness, is
                      entered.
  April 8, 1983       A notice of appeal from the
                      order denying relief is filed
                      in Civil No. 46782.

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:

Proceeds, how applied. Mortgage creditors shall be entitled to payment according to the priority of their liens, and not pro rata; and judgments of foreclosure shall operate to extinguish the liens of subsequent mortgages of the same property, without forcing prior mortgagees to their right of recovery. The surplus after payment of the mortgage foreclosed, shall be applied pro tanto to the next junior mortgage, and so on to the payment, wholly or in part, of mortgages junior to the one assessed.
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.
NOTES
[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.