Shanghai Investment Co. v. Windward Park, Inc.

Breach of Contract - Real Estate - Specific Performance - On January 2, 1990, Alteka and Windward executed a Purchase and
Sale Agreement (the "agreement" or "original agreement"), under
which Alteka was to pay Windward $35 million for two adjoining
parcels of fee simple land and all land use permits for construction
an 18-hole golf course. The first parcel, the former site of the
Kailua Drive-In outdoor theater (the "Drive-In parcel"), consisted
of 24 acres. The second parcel (the "Texeira parcel"), located
adjacent to the Drive-In parcel was owned by Nakamoto Properties,
Inc., Antone S. Texeira, and Marjory Ann Texeira and consisted of
approximately 319 acres. George Okamura (Okamura) and Feiji (Feiji)
participated in the negotiations on behalf of Alteka.

In accordance with the agreement, Alteka made a $5 million earnest
money deposit (the "deposit") to Windward to be used for project
expenses. These expenses included acquiring the fee simple interest
in the Texeira parcel, obtaining the leasehold and fee simple
interests in the Drive-In parcel, and procuring the necessary permits
for construction of a golf course. Under the agreement,
the deposit was "nonrefundable" except as otherwise provided in
the contract.

Also pursuant to the agreement, Alteka retained the right to
terminate the agreement and recover the entire deposit if Windward
did not acquire the land in fee simple and the necessary permits by
December 31, 1992. Alteka was entitled to give notice of cancellation
at any time between December 31, 1992 and December 31, 2005. In the
event of cancellation by Alteka, Windward was required to repay any
amounts withdrawn from the deposit within 90 days, along with
interest computed at the same rate of interest that the balance of
the deposit was earning in escrow. To secure repayment of the
deposit, Windward gave Alteka a $5 million promissory note (the "note"),
which was secured by a personal guaranty by Thomas Enomoto,
Windward's principal.

In December 1990, Windward obtained a shoreline management area
permit, which required as a condition of its issuance that the
development be completed by December 1993. Upon obtaining the
permit, Windward began negotiations to purchase the Texeira
parcel. At that point, however, Windward indicated to Alteka that
it was "not prudent" to pursue the purchase of the Texeira parcel.
Apparently, an individual named Marco Rivera had obtained the
right to purchase the Texeira parcel and had attempted to sell it
to Windward for $29 million instead of the $5.7 million figure
provided in Windward's prior option to purchase. See supra note 1.
As a result, Windward reported to Alteka in its March 1991
quarterly report that "it is probably not feasible at this time to
actively pursue the purchase of this parcel." In its July 31, 1991
status report, Windward further notified Alteka, inter alia, that
the purchase of the Texeira parcel was not feasible because: (1)
the owner had inflated the purchase price from $5.7 million to $55
million; (2) Windward was unable to locate a non-potable water
source; and (3) the City and County of Honolulu was requesting
"$100 million impact fees as a condition to permitting a golf
course." Windward concluded that, "for the immediate foreseeable
future, we will take no further action unless we hear from you
otherwise."

Meanwhile, Windward continued with preparation of the Drive-In
parcel for purposes of a driving range. On May 6, 1991,
Windward drew $1,171,949.76 from the deposit to acquire the lease
for the Drive-In parcel and to pay various project expenses.

Upon notice of Windward's indication that it was not prudent to
proceed with the purchase of the Texeira parcel, Alteka canceled
the agreement and requested a refund of its deposit by letter
dated January 22, 1992. Windward maintained that Alteka did not
have the right to cancel before December 31, 1992. Upon Windward's
unwillingness to cancel the agreement, Alteka sent a second notice
of cancellation on April 8, 1992. This time, Windward agreed to
the cancellation, but could not immediately return the deposit. It
did suggest, however, that the parties restructure the agreement
if Windward could obtain outside financing.

On August 7, 1992, Alteka and Windward entered into an amendment
to the agreement (the "amendment"), drafted by Windward's
attorneys. In it, the parties provided, inter alia, (1) that
Alteka could elect to cancel at any time after June 19, 1992, the
effective date of the amendment, notwithstanding paragraphs 3.4
and 4 of the original agreement, (2) a new interest rate for the
portion of the deposit spent by Windward, and (3) a deadline for
Windward to repay the $1,171,949.76 pursuant to the promissory
note executed simultaneously with the amendment. The amendment
also stated that "the terms of the Agreement and the Note shall
remain in full force and effect." Windward maintained that, as
consideration, Alteka orally agreed to obtain an investor for the
property.

Windward ultimately did not repay the $1,171,949.76 balance.
Fujita, who managed Alteka's affairs in Hawai`i, then apparently
hired an allegedly convicted felon, Henry Kaiser (Kaiser), to
collect the debt. Kaiser contacted Enomoto, and demanded and was
paid $10,000 for an extension of the deadline to obtain an
investor for the property. Because Windward was unable to obtain
outside financing, the shoreline area management permit expired
without any development being completed.

After unsuccessful attempts to resolve the issue, Fujita and
Enomoto sought to negotiate a settlement in which Windward would
pay Alteka $400,000. Because Windward did not have the funds,
Enomoto, a fifty percent owner of Shanghai, arranged for Shanghai
to pay the amount. Enomoto claimed that, pursuant to the settlement,
Alteka had agreed to assign the $1,171,949.76 note to Shanghai for
$400,000. Alteka contended, however, that no assignment was made,
inasmuch as no one from Alteka had signed the proposed assignment.
Although settlement documents were prepared, they were never executed,
and the settlement never occurred.

As a result of the foregoing, in Civil No. 94-2683-07, Shanghai
sued Alteka for specific performance of the agreement to assign,
or, in the alternative, for damages for breach of the alleged
assignment. In a related suit, Civil No. 95-3483-09, Alteka sued
Windward on its alleged breach of the amendment, fraudulent
assignment by Enomoto, and return of the $1,171,949.76 sum.
Windward counterclaimed on October 7, 1995, alleging that Alteka
had breached the agreement by sending a notice of cancellation and
that it was entitled to damages as a result of the breach. The two
cases were consolidated on January 19, 1996.

On February 28, 1996, Alteka amended its complaint. On March 8,
1996, Windward answered and filed an amended counterclaim, asserting,
again, that Alteka had breached the agreement by sending notice of
cancellation and that it was entitled to damages resulting from the
breach.

Shortly before trial, Windward sold the Drive-In parcel to Le
Jardin Academy for approximately $1.5 million. Upon learning of
the sale, Alteka obtained leave of court to add a claim for unjust
enrichment. Alteka filed a second amended complaint on July 24,
1996. Windward counterclaimed on August 2, 1996, alleging, inter
alia, that, as a result of Alteka's breach of the agreement,
Windward was entitled to keep Alteka's $5 million deposit as
liquidated damages. In response, Alteka filed a motion to strike
the counterclaim. The motion was subsequently denied by the court
on the first day of trial, August 12, 1996.

On August 26, 1996, after the close of the evidence, all parties
moved for a directed verdict. The trial court did not rule on the
motions. On August 29, 1996, the jury returned a special verdict,
awarding Windward $5 million for Alteka's breach of the agreement
and awarding Alteka $1,171,949.76, plus interest, for Windward's
failure to pay the note, $1,171,949.76 for Windward's breach of
the amendment, and $771,949, plus interest, for Windward's
purported assignment of the Note to Shanghai.

After the foreperson indicated that the jury had not intended to
award Windward $5 million in damages, the trial court asked the jury
to revisit the entire special verdict form. After further deliberation,
the jury awarded Windward $3,828,050 and left its earlier award to
Alteka intact.

Unknown

Unknown

Reversed and remanded with a $5 million award to Alteka on the previous jury verdict for Windward by the Supreme Court of Hawaii. See: ___ Haw. ___ (11-17-1999), ___ P.2d ___. Note: The above date reflects the appellate court decision date, not the original trial date. Reported by kkm.