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.