In the Matter of the Arbitration Between BANK OF HAWAII, Claimant-Appellant, and JAMES A. DEYOUNG, Respondent, and CITY BANK, Garnishee-Appellee
This appeal arises out of a dispute between claimant-appellant Bank of Hawaii (BOH) and garnishee-appellee City Bank (City Bank) regarding the garnishment by BOH of stock pledged as collateral for a loan to City Bank by James DeYoung (DeYoung). After initially granting a garnishment order in favor of BOH, the first circuit court granted City Bank's motion to dissolve the garnishment order on grounds that (1) DeYoung's pledged stock might not be garnishable under Hawai`i law as a debt that was due and owing; and (2) BOH's garnishment of the shares would impermissibly elevate BOH over City Bank in creditor priority.
BOH now appeals from the first circuit court's orders: (1) granting City Bank's motion to dissolve garnishee order, entered on October 15, 1997; and (2) denying claimant BOH's motion for reconsideration of the order, entered on February 4, 1998, granting City Bank's motion to dissolve garnishee order. On appeal, BOH contends that: (1) DeYoung's pledged stock is not a contingent debt, but is an "effect" subject to garnishment; (2) the right of setoff is waived; (3) the parties had adequate opportunity to be heard on garnishment; (4) City Bank's policy argument is misleading; and (5) BOH's motion for reconsideration was proper. City Bank argues, on the other hand, that: (1) its motion to dissolve was properly granted; (2) garnishment of the pledged stock would give BOH, at best, a lien right that cannot be acted upon until its debt is due and owing; and (3) the circuit court's denial of BOH's motion for reconsideration was proper.
Because a secured creditor may not dissolve enforcement proceedings initiated by a judgment creditor against a common debtor where the secured creditor has neither declared its loan in default nor instituted execution of its affirmative remedies under the security agreement, the circuit court erred in granting City Bank's motion to dissolve the garnishment order. We therefore vacate the circuit court's October 15, 1997 order dissolving the garnishment order and remand to the circuit court for reinstatement of its July 16, 1997 garnishment order. However, inasmuch as the July 16, 1997 garnishment order failed to reference City Bank's prior perfected security interest in the shares, we remand with instructions to amend the garnishment order so as to grant City Bank a superior security interest in the 2,125 shares of pledged HBC stock.
I. BACKGROUND
On or about January 25, 1994, DeYoung pledged 2,125 shares of Hawaii Baking Co., Inc. (HBC) stock as a guaranty for a term loan issued to HBC by City Bank pursuant to a security agreement. The shares were subsequently delivered to City Bank in April 1994 to be held during the pendency of the term loan.
Previously, on October 26, 1990, BOH had loaned to DeYoung the principal amount of $500,000 evidenced by a promissory note executed by DeYoung and payable to BOH. When DeYoung defaulted under the parties' second note modification agreement, BOH began collection proceedings against DeYoung and then placed the matter into arbitration.
Following an arbitration hearing, a final award was entered on June 5, 1995, awarding BOH $316,312.00, plus interest. On August 17, 1995, judgment was entered confirming the arbitration award in the amount of $326,452.33.
On June 9, 1997, BOH filed an ex parte motion for issuance of a postjudgment garnishee summons. BOH served the summons on City Bank on June 17, 1997. The summons provided that garnishee must respond either by appearing at a hearing or by filing a written disclosure with the court. Opting for the latter, City Bank filed a formal written disclosure on July 3, 1997, indicating that it was "in possession of that certain Stock Certificate No. 13 for 2,125 shares of the capital stock of Hawaii Baking Co., Inc. issued to [DeYoung]" and that "[s]aid Stock Certificate is pledged as collateral for certain extensions of credit from Garnishee to Hawaii Baking Co., Inc. in the amount of $500,000.00, $3,200,000.00 and $100,000.00." City Bank also asked that it be released as garnishee.
On July 8, 1997, counsel for BOH appeared before the circuit court and requested, pursuant to Hawai`i Revised Statutes (HRS) § 651-47(b) (1993), (1) that an order issue instructing City Bank to surrender Stock Certificate No. 13 to BOH. City Bank did not appear at the hearing. Because it had filed a written disclosure and because of the "negligible interests in its possession," City Bank believed that there was no reason to appear.
On July 16, 1997, the circuit court entered its garnishment order, which provided in pertinent part as follows:
[P]ursuant to the Answer and disclosure of City Bank, City Bank shall forthwith transfer that certain Stock Certificate no. 13 for 2,125 shares of the capital stock of Hawaii Baking Co., Inc. issued to James A. DeYoung to Bank of Hawaii. Bank of Hawaii is hereby authorized to sell, assign, convey, and transfer said Stock Certificate at either a public or private sale, and apply the proceeds from the sale of said Stock Certificate to amounts due and owing to Bank of Hawaii under the judgment in the above-entitled action entered in favor of Bank of Hawaii on August 17, 1995, and against Defendant James A. DeYoung. The proceeds from said sale will be applied to the principal amount of the judgment, statutory interest at 10% per annum through the date sales proceeds are paid to Bank of Hawaii, plus Bank of Hawaii's attorneys' fees and costs. Any surplus proceeds shall be paid to Defendant James A. DeYoung or City Bank at the further order of this Court.
(Emphases added.)
On August 14, 1997, BOH served the order on City Bank. City
Bank thereafter filed a notice of appeal from the garnishment
order on August 18, 1997, which was later dismissed by
stipulation of the parties. On August 21, 1997, City Bank filed
a motion to dissolve the garnishee order under Hawai`i Rules of
Civil Procedure (HRCP) Rule 60(b) (1990), requesting relief
because: (1) the pledged stock was a "contingent debt" not
subject to garnishment under HRS § 652-1 (1993); (2)
and (2) the
order impermissibly granted BOH priority in the stock. In
response, BOH filed its opposition on August 29, 1997, arguing
that the pledged stock was not a contingent debt, but, rather,
was an "effect" subject to garnishment under HRS § 652-1. A hearing on City Bank's motion was held on September 16, 1997.
On October 15, 1997, the circuit court issued an order granting
City Bank's motion to dissolve the garnishee order, providing in
relevant part the following: 1. There is an unresolved issue of whether or not the shares of Hawaii Baking Co., ("HBC")
stock held as collateral by City Bank are garnishable under Hawai`i law as a debt which is due
and owing. 2. Allowing Bank of Hawaii to garnish the shares of HBC stock would unfairly elevate Bank of
Hawaii over City Bank in creditor priority. City Bank's priority interest was perfected in 1994.
Bank of Hawaii obtained its judgment pursuant to an arbitration award issued and confirmed in
1995. This issue of creditor priority is also unresolved. Based on the facts and circumstances presented in this case, the Court finds that good cause has
been established to dissolve the garnishee order previously issued by the Court on or about July
16, 1997. Therefore, the Motion to Dissolve Garnishee Order filed by City Bank is Granted. BOH subsequently filed a motion for reconsideration of the order
granting City Bank's motion to dissolve garnishee order under
HRCP Rule 59(e). BOH requested that the circuit court reconsider
and vacate the dissolution order, reinstate the garnishment
order, and amend the garnishment order to grant City Bank a
senior interest in the pledged stock. In the alternative, BOH
requested that the pledged stock be subject to attachment. City
Bank opposed the motion for reconsideration on the grounds that
BOH had not presented new evidence or law in support of its
motion for reconsideration. On February 4, 1998, the circuit court entered its order denying
BOH's motion for reconsideration of the dissolution order. BOH
timely appealed. II. STANDARDS OF REVIEW A. Motion to dissolve garnishee order The decision whether to grant or deny a motion to dissolve a
garnishee order is a question of law. "Questions of law are
reviewable de novo under the right/wrong standard of review."
Ditto v. McCurdy, 90 Hawai`i 345, 351, 978 P.2d 783, 789 (1999)
(quoting Best Place, Inc. v. Penn America Ins. Co., 82 Hawai`i
120, 123, 920 P.2d 334, 337 (1996) (citing State v. Baranco, 77
Hawai`i 351, 355, 884 P.2d 729, 733 (1994))). Under the de novo
or right/wrong standard, this court "examine[s] the facts and
answer[s] the question without being required to give any weight
to the trial court's answer to it." Pelosi v. Wailea Ranch
Estates, 91 Hawai`i 478, 487, 985 P.2d 1045 (1999). B. Statutory Interpretation The interpretation of a statute is also a question of law
reviewable de novo, under the right/wrong standard. See Amantiad
v. Odum, 90 Hawai`i 152, 160, 977 P.2d 160, 168 (1999) (citing
Franks v. City & County of Honolulu, 74 Haw. 328, 334, 843 P.2d
668, 671 (1993). "When construing a statute, our foremost
obligation is to ascertain and give effect to the intention of
the legislature, which is to be obtained primarily from the
language contained in the statute itself. And we must read
statutory language in the context of the entire statute and
construe it in a manner consistent with its purpose." Id.
(quoting Gray v. Administrative Dir. of the Court, 84 Hawai`i
138, 148, 931 P.2d 580, 590 (1997) (internal citations, quotation
marks, brackets, ellipses, and footnote omitted)). III. DISCUSSION A. DeYoung's interest in the pledged HBC stock is garnishable
under Hawai`i law. BOH contends that the trial court erred in granting City Bank's
motion to dissolve the garnishee order because DeYoung's pledged
stock is either an "effect" or a debt subject to garnishment
under HRS § 652-1. City Bank maintains, on the other hand, that
because the return of DeYoung's pledged stock is "contingent," in
the sense that it may never become due and payable to DeYoung,
the stock is not garnishable. City Bank argues, in the
alternative, that even if DeYoung's interest in the pledged stock
is garnishable, BOH is entitled only to a lien interest which
cannot be acted upon until City Bank's "debt" is due and owing. (3)
We hold that DeYoung's interest in the pledged stock was
garnishable under HRS chapter 652. HRS § 651-47(b) (1993) expressly provides that [a] security or any share or other interest evidenced thereby which is outstanding and in the
possession of a person who is entitled to such possession under a security interest or lien or other
right of retention therein shall be reached by garnishment as provided in chapter 652. (Emphasis added.) See also Union Bank v. Federal Deposit Ins.
Corp., 899 P.2d 564, 565 (Or. 1995) ("even though property may be
subject to a pledge agreement it may be reached by timely
garnishment") (citation omitted)); Grouse Creek Ranches v. Budget
Fin. Corp., 488 P.2d 917, 925 (Nev. 1971) (stating identical
principle). HRS § 652-1 allows the garnishment of "(1) The goods and effects
of the defendant then in the hands of the garnishee; (2) Any debt
then owing from the garnishee to the defendant; (3) Moneys of the
defendant then in the possession of the garnishee for safekeeping
. . . ; and (4) A portion of the defendant's wages, salary,
stipend, commissions, annuity, or net income under a trust[.]"
(Emphasis and ellipses added.) This court has defined "[t]he
word 'effects' [to denote] property in a more extensive sense
than 'goods.' It embraces things in action as well as tangible
personal property." Nichols v. Mossman, 35 Haw. 772, 777 (1941)
(citation omitted and brackets added). As such, this court has
held that common stock is "property" or an "effect" subject to
garnishment. Id. The pledgor of capital stock that is subject to a security
interest retains a property interest in that stock
notwithstanding the pledge. See generally HRS § 490:9-311
(1993). Indeed, Comment 1 to the official text of HRS § 490:9-311 "make[s] clear that in all security transactions under this
Article, the debtor has an interest (whether legal title or an
equity) which he can dispose of and which his creditors can
reach." (4)
Moreover, HRS § 490:9-311 expressly provides for garnishment of a
debtor's interest in collateral: "The debtor's rights in
collateral may be voluntarily or involuntarily transferred (by
way of sale, creation of a security interest, attachment, levy,
garnishment or other judicial process) notwithstanding a
provision in the security agreement prohibiting any transfer or
making the transfer constitute a default." (Emphasis added.)
See also J.N. Laliotis Eng'g Constr., Inc. v. Mastor, 600 So. 2d
1271, 1273 (1992) (Florida's codification of UCC § 9-311 allows
the debtor's interest in a certificated security in the
possession of a secured party to be reached by a creditor by
legal process upon the secured party); Altec Lansing v. Friedman
Sound, Inc., 204 So. 2d 740, 741 (Fla. 1967) (a security
agreement "may create a prior lien in favor of the person named
in the agreement as creditor on the chattels involved but does
not exempt them from a forced judicial sale"); Union Bank, 899
P.2d at 565 ("all rights in collateral retained by a debtor may
be garnished"); Brescher v. Associates Fin. Servs. Co., 460 So.
2d 464, 466 (Fla. App. 1984) (comment 1 of UCC § 9-311
establishes the intent to change the common law rule in some
states that prohibited the judgment creditor from proceeding
against the debtor's interest in personal property covered by a
security agreement); Frierson v. United Farm Agency, Inc., 868
F.2d 302, 305 (8th Cir. 1989) (allowing a secured creditor to
"impair[] the status of other creditors by preventing them from
exercising valid liens . . . would fly in the face of all Article
9, which is premised on the debtor's ability to exercise rights
in the property"); 1A Secured Transactions Under the Uniform
Commercial Code § 7A.26[1], at 7A-154 (1999) ("Contrary to what
may have been the case under pre-Code law, the existence of the
security interest does not preclude the judgment creditor from
levying against, attaching or garnishing the collateral.")
(Citation omitted.)); 6 Am. Jur. 2d Attachment and Garnishment §
144 (1963) ("It is provided, in the chapter of the Uniform
Commercial Code concerning secured transactions, that the
attachment or garnishment of a debtor's rights in collateral is
not precluded by a provision in the security agreement which
prohibits any transfer or which makes the transfer constitute a
default.") (Citations omitted.)). Comment 2 to the official text of HRS § 490:9-311 instructs that
"in all security interests the debtor's interest in the
collateral remains subject to claims of creditors who take
appropriate action. It is left to the law of each state to
determine the form of 'appropriate process.'" (Emphasis added.)
As mentioned above, one form of "appropriate process" is
garnishment. See HRS § 651-47(b). Thus, although the pledged
shares of HBC stock remained subject to City Bank's perfected
security interest, DeYoung's rights in those shares were properly
transferred by way of garnishment. See infra section III.B. City Bank maintains that because it holds the HBC stock as
collateral to secure a loan, its obligation to return the
property to the pledgor is contingent, and therefore not
garnishable under HRS chapter 652. This argument is
unpersuasive. It is well established that "under our garnishment statutes, HRS
Chapter 652, the debt must be owing at the time of the service of
the garnishee process upon the garnishee, and that if the debt is
contingent, the garnishment lien does not attach." Employees'
Retirement System of the State of Hawaii v. Real Estate Finance
Corporation, 71 Haw. 392, 398, 793 P.2d 170, 173 (1990). See
also Miyashiro v. Yap, 27 Haw. 297, 297 (1923) ("A debt which is
uncertain and contingent, in the sense that it may never become
due and payable, is not subject to garnishment.") (Citation
omitted.)); 6 Am. Jur. 2d Attachment and Garnishment § 126 (1963)
("As a general rule, a debt or claim which is uncertain or
contingent, in the sense that it may never become due and
payable, is not attachable or garnishable.") (Citation
omitted.)). Contrary to City Bank's contention, DeYoung's interest in the
pledged stock is not contingent on HBC's performance on the
underlying loan obligation. Under the express terms of HRS
§ 490:9-311, and at the time of the service of the garnishee
summons, (5) DeYoung had an immediate, unrestricted, and non-contingent right to transfer voluntarily or involuntarily his
property interest in the pledged stock subject to City Bank's
security interest. See HRS § 490:9-311. Indeed, his interest
was one that "he [could] dispose of and [that] his creditors
[could] reach." See HRS § 490:9-311, Comment 1. In light of the foregoing analysis, the property interest
retained by DeYoung in the 2,125 shares of pledged stock,
although subject to City Bank's security interest, was properly
garnished under HRS chapter 652. B. The circuit court erred in granting City Bank's motion to
dissolve the garnishment order. Although shares of stock subject to a security interest are
properly garnishable under HRS chapter 652, City Bank argues that
the circuit court erred in ruling that BOH, as garnishor, could
sell the shares of stock. BOH maintains that City Bank had no
right to prevent BOH from taking possession of and selling the
collateral inasmuch as there had been no declaration of default,
and, in any case, City Bank's interest continues in the
collateral and any proceeds. We agree with BOH's contentions. Under HRS § 490:9-304(1), "generally a security interest in
'instruments[ (6)] . . . can be perfected only by the secured
party's taking possession[.]'" United Indep. Ins. Agencies v.
Bank of Honolulu, 6 Haw. App. 222, 229 n.10, 718 P.2d 1097, 1102
n.10 (1986). It is uncontroverted that City Bank took all the
necessary steps for perfecting its security interest in the
shares of HBC stock. City Bank obtained possession of the shares
in April 1994, thereby perfecting its security interest as of
that date. As a judgment creditor, BOH became a subsequent lien
creditor upon service of the writ of garnishment on the garnishee
in July 1997. Absent a statutory or common law exception, a secured creditor
with a perfected security interest in collateral is entitled to
priority over a subsequent lien creditor seeking to claim the
same collateral. Shaw Mudge & Co. v. Sher-Mart Manufacturing
Co., 334 A.2d 357, 359, 360 (N.J. 1975); W.S. Badcock Corp. v.
Myers, 696 So. 2d 776 (Fla. App. 1996) ("A perfected secured
creditor has priority over an unsecured creditor and over a
subsequent lien creditor, even the trustee in bankruptcy.")
(Citing White & Summers, Uniform Commercial Code § 23-5, at
918.)); 1A Secured Transactions Under the Uniform Commercial Code
§ 7E.02[3][b], at 7E-9 (1999). Accordingly, City Bank, as a
prior perfected secured party, had priority over BOH's claim to
HBC's shares. As described above, a debtor's rights in collateral may be
involuntarily transferred by way of garnishment. See HRS
§ 490:9-311. Although HRS § 490:9-311 allows the judicial
process creditor to encumber the debtor's property, the secured
party with a prior security interest is not without remedy.
Indeed, garnishment by a judgment creditor does not extinguish
the prior security interest or give the judgment creditor
priority. Rather, as HRS § 490:9-306(2) provides, such a
transfer remains subject to the prior perfected security
interest: "a security interest continues in collateral
notwithstanding sale, exchange or other disposition thereof . . .
and also continues in any identifiable proceeds[.]" In other
words, after the transfer, the secured creditor has two
alternative assets to look to in order to satisfy the secure
obligation: the original disposed collateral and the proceeds
generated by the disposition. See Secured Transactions Under the
Uniform Commercial Code § 7A.15[1], at 7A-62-63 (1999). A garnishing party also has the right to sell the garnished
security subject to the interest of the secured party. Altec
Lansing, 204 So. 2d at 741 (collateral subject to a prior
security interest "may still be sold by an execution creditor
subject to the lien provided in the security agreement"); J.N.
Laliotis, 600 So. 2d at 1273 (stating same principle); See 1A
Secured Transactions Under the Uniform Commercial Code
§ 7E.02[3][b], at 7E-9 (1999) ("Property sold in satisfaction of
a judgment creditor's claim remains subject to the interest of a
prior secured party.") In any case, City Bank could not prevent BOH from taking
possession of and selling the collateral because there had been
no declaration of default. Under HRS § 490:9-501, "[w]hen a
debtor is in default under a security agreement, a secured party
has the rights and remedies provided in this Part and . . . those
provided in the security agreement. He [or she] may reduce the
claim to a judgment, foreclose or otherwise enforce the security
interest by any available judicial procedure." (Brackets added.)
"[A] secured party cannot assert its rights under a security
agreement to dissolve a writ of attachment or prevent a judicial
sale 'absent a declaration that the secured debt is in default
and an exercise by the secured creditor of its rights over the
collateral.'" Martens v. Hadley Mem'l Hosp., 729 F.Supp. 1391,
1395 (D.D.C. 1990) (citation omitted). See also Frierson, 868
F.2d at 305 (a secured creditor cannot frustrate enforcement
proceedings by a judgment creditor against a debtor where the
secured party has neither declared its loan in default nor
instituted execution of its affirmative remedies such as
acceleration of the loan). In Frierson, as in this case, a judgment creditor garnished funds
of a debtor in which a bank held a prior, perfected security
interest. Id. at 302-303. The United States Court of Appeals
for the Eighth Circuit held that, although the bank could not
defeat the garnishment proceedings because its loan was not in
default and because it did not initiate a good faith execution of
its affirmative remedies provided in the security agreement, the
judgment creditor was required to take the funds subject to the
bank's superior security interest. Id. at 304-305. See also
United Nat'l Bank of Parkersburg v. Norton Mach. Co., 610 N.E.2d
486, 490 (Ohio App. 1991); 1A Secured Transactions Under the
Uniform Commercial Code § 7A.26[1], at 7A-154. (7) In the instant case, City Bank does not allege the existence of a
default on the part of DeYoung. (8) Absent default, an essential
prerequisite to the exercise of its rights as a secured party,
City Bank was not entitled to immediate possession of the shares
or the proceeds from the sale of the shares of stock. In fact,
absent declaration of default, City Bank could not dissolve the
garnishment order obtained by BOH. IV. CONCLUSION Because a secured creditor may not dissolve enforcement
proceedings by a judgment creditor against a common debtor where
the secured party has neither declared its loan in default nor
instituted execution of its affirmative remedies under the
security agreement, the circuit court erred in granting City
Bank's motion to dissolve the garnishment order. We therefore
vacate the circuit court's October 15, 1997 order dissolving the
garnishment order. However, because the circuit court's July 16,
1997 garnishment order did not reference City Bank's prior
perfected security interest in the shares, we remand with
instructions to the circuit court to amend its garnishment order
so as to grant City Bank a superior security interest in the
2,125 shares of pledged HBC stock. On the briefs: Susan Cachero Sakai (Michael C. Webb with her on the briefs for claimant-appellant Gerald I. Fujita for garnishee-appellee 1. HRS § 651-47(b) provides: A security or any share or other interest evidenced thereby which is outstanding and in the
possession of a person who is entitled to such possession under a security interest or lien or other
right of retention therein shall be reached by garnishment as provided in chapter 652.
2. HRS § 652-1 provides in pertinent part: Garnishee process; "garnishee fund" (a) Before judgment. When any goods or effects of a
debtor are in the possession of an attorney, agent, factor, or trustee (in this chapter jointly and
severally included in the term "garnishee"), or when any debt is due from any person (also
included under the term "garnishee") to a debtor, or when any person has in the person's
possession for safekeeping any moneys of the debtor, any creditor may bring the creditor's action
against the debtor and in the creditor's petition for process, or by amendments of the complaint at
any time before judgment, after meeting the requirements of section 652-1.5, may request the
court to insert in the process a direction that service of a true and attested copy thereof be made
upon the garnishee in any of the manners described under section 652-2.5 and to summon the
garnishee to appear personally upon the day or term appointed in the process for hearing the
action or at any other time appointed by the court and then and there on oath to answer all of the
following inquiries, herein inclusively referred to as the "disclosure": (1) Whether at the time the copy was served on the garnishee, the garnishee had any of the goods
or effects of the defendant in the garnishee's hands and, if so, the nature, amount and value
thereof; (2) Whether at the time of service, the garnishee was indebted to the defendant and, if so, the
nature and amount of the debt; or (3) Whether at the time of service on the garnishee, the garnishee had any moneys of the
defendant in the garnishee's possession for safekeeping and, if so, the amount thereof. . . . . From the time of service, the garnishee shall secure in the garnishee's hands to pay such judgment
as the plaintiff shall recover in the action, such of the following property or chooses then in the
garnishee's possession or owing to the defendant as shall equal the amount or value specified in
the summons, except what the court has expressly found to be exempt from execution pursuant to
section 652-1.5(d) or (f): (1) The goods and effects of the defendant then in the hands of the garnishee; (2) Any debt then owing from the garnishee to the defendant; (3) Moneys of the defendant then in the possession of the garnishee for safekeeping; and (4) A portion of the defendant's wages, salary, stipend, commissions, annuity, or net income
under a trust[.]
Debts payable in future. If upon disclosure made on oath by the
debtor it appears that the garnishee is indebted to the
defendant, but that the debt is not payable and will not become
due until some future time, then such judgment as the plaintiff
may recover shall constitute a lien upon the debt until and at
the time it becomes due and payable.
4. "[A] pledge of capital stock is a secured transaction governed by Article 9 of [Hawai`i's
version of the] UCC, HRS §§ 490:9-101, et seq." United Indep. Ins. Agencies, Inc. v. Bank of
Honolulu, 6 Haw. App. 222, 229, 718 P.2d 1097, 1102 (1986).
5. "[T]he garnishable character of the goods or effects or debts
involved in any garnishment proceedings are . . . determined as
of the time of service on the garnishee." Nichols, 35 Haw. at
776.
6. HRS § 490:9-105(1)(j) (Supp. 1984) defines 'instrument' to include 'security' as defined in
HRS § 490:8-102.
7. Once the secured party declares the loan in default and accelerates the debt, it can trace and
recapture. See Frierson, 868 F.2d at 305. The secured party may alternatively elect to repossess
the collateral under HRS § 490:9-503.