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Santiago v. Tanaka

Supreme Court of Hawai'i

December 29, 2015

LOUIS ROBERT SANTIAGO, as Trustee of the Louis Robert Santiago Revocable Living Trust dated November 17, 1999, as amended, and YONG HWAN SANTIAGO, as Trustee of the Yong Shimabukuro Revocable Living Trust dated July 25, 1996, as amended, Petitioners/Plaintiffs-Appellants/Cross-Appellees,
RUTH TANAKA, Respondent/Defendant-Appellee/Cross-Appellant

As Amended January 15, 2016.

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Gary Victor Dubin and Frederick J. Arensmeyer for petitioner.

Robert Goldberg for respondent.



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[137 Hawai'i 139] AMENDED OPINION


I. Introduction

This case involves the adequacy of disclosures that were made to the buyer during the sale of a commercial property and the seller's subsequent nonjudicial foreclosure and sale of the property when the mortgage payments were briefly interrupted because of an underlying dispute regarding mediation concerning the property. Two issues are presented: (1) whether the seller's failure to disclose certain facts regarding the property's sewer system is actionable under the common-law causes of action of nondisclosure and misrepresentation and (2) whether the seller's nonjudicial foreclosure of the property and ejectment of the Santiagos were wrongful under the facts of this case. We answer both questions in the affirmative.

II. Background

A. The Santiagos' Lease and Purchase of Nawiliwili Tavern

On January 1, 1998, Louis Santiago (Louis)[1] entered into a twenty-year commercial lease agreement to rent approximately 2,560 square feet of ground floor space of the Nawiliwili Tavern (Tavern) from owner Ruth Tanaka (Tanaka). After leasing the Tavern for over seven years and making all payments due under the lease, including his share of utilities, taxes, assessments, and insurance,

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[137 Hawai'i 140] Louis and his wife, Yong Hwan Santiago (collectively, the Santiagos), decided to submit an offer to purchase the Tavern from Tanaka.[2]

1. Negotiations for Purchase of Tavern

In November 2005, Louis, represented by realtor Glenn Takase (Takase) of Coldwell Banker, submitted an offer to purchase the Tavern for $1,000,000.00, in the form of a " Deposit Receipt Offer and Acceptance" (DROA) to Tanaka's property manager and realtor, Wayne Richardson (Richardson).[3] Tanaka did not accept Louis' initial offer, and the parties exchanged multiple counteroffers, all of which referenced and incorporated the DROA.

In January 2006, Tanaka submitted a counteroffer with an attached " Agreement of Sale Addendum to the DROA" (Agreement of Sale Addendum). In her Agreement of Sale Addendum, Tanaka made representations with respect to certain " Monthly Installments (based on current estimates; exact figures to be determined and adjusted at closing)," including " Sewer Fee & Assessments" in the amount of $150.00.[4] The Santiagos rejected Tanaka's January 2006 counteroffer.

2. Accepted Purchase Contract

Ultimately, after further negotiations, Louis accepted a subsequent counteroffer from Tanaka (Accepted Counteroffer). The Accepted Counteroffer expressly provided that Tanaka and Louis " agree[] to sell/buy the [Tavern] on the terms and conditions set forth in the DROA as modified by this Counter Offer." The Accepted Counteroffer set the purchase price of the Tavern at $1,300,000, $800,000 of which was to be paid as a down payment, with the remaining $500,000 secured by a sixty-month " Mortgage, Security Agreement and Financing Statement" (Mortgage) financed by Tanaka. Attached to the Accepted Counteroffer were two addenda: a " Purchase Money Mortgage Addendum" (Mortgage Addendum) setting forth the provisions of the Mortgage and an " Existing 'As Is' Condition Addendum" (" As Is" Addendum).

The stated purpose of the " As Is" Addendum was to note that the " Property [was] being sold in its existing condition" and that

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[137 Hawai'i 141] " [e]xcept as may be agreed to elsewhere in [the] DROA, [Tanaka] will make no repairs and will convey [the Tavern] without any representations or warranties, either expressed or implied." The addendum stated, however, that " [b]y selling Property in Existing 'As Is' Condition, [Tanaka] remains obligated to disclose in writing any known defects or material facts of Property or improvements." (Emphases added).

3. Seller's Disclosures

In April 2006, Tanaka sent Louis a " Seller's Real Property Disclosure Statement" (Disclosure Statement). The Disclosure Statement expressly stated that it was " intended to assist [Tanaka] in organizing and presenting all material facts concerning the Property" and that Tanaka is " obligated to fully and accurately disclose in writing to a buyer all 'material facts' concerning the property." [5]

The Disclosure Statement further noted, " It is very important that the Seller exercise due care in preparing responses to questions posed in the Disclosure Statement, and that all responses are made in good faith, are truthful and complete to the best of Seller's knowledge," because " Seller's agent, Buyer and Buyer's agent may rely upon Seller's disclosures." Finally, the Disclosure Statement instructed Tanaka, in her capacity as ...

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