FSM SUPREME COURT TRIAL DIVISION

Cite as Uehara v. Chuuk, 14 FSM Intrm. 221 (Chk. 2006)

[14 FSM Intrm. 221]

JULIE UEHARA,

Plaintiff,

vs.

CHUUK STATE, LAND MANAGEMENT

CHUUK STATE TREASURY, and CHUUK

ATTORNEY GENERAL’S OFFICE,

Defendants.

CIVIL ACTION NO. 2005-1005

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Dennis K. Yamase

Associate Justice

Trial: December 21, 23, 2005, January 25, 2006

Decided: May 15, 2006

APPEARANCES:

For the Plaintiff:   Fredrick Hartman

                               P.O. Box 222

                               Weno, Chuuk   FM   96942

For the Defendants:   Joses Gallen, Esq.

                                       Acting Attorney General

                                       Office of the Chuuk Attorney General

                                       P.O. Box 189

                                       Weno, Chuuk   FM   96942

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HEADNOTES

Interest and Usury

    A lease agreement’s penalty provision, which charged either one or two per cent per day (365% or 730% per annum respectively), is void since either interest rate is usurious. The penalty for charging a usurious interest rate is that the person charging such a rate has no right to receive or collect any interest. Uehara v. Chuuk, 14 FSM Intrm. 221, 225-26 (Chk. 2006).

[14 FSM Intrm. 222]

Contracts

    When a lot was leased for the purpose of supporting air transportation and a fence’s construction supported that purpose and the Lease Agreement permitted removal of soil and rock as allowed by Articles 6 through 19 of a 1984 Lease (incorporated by reference in the 1999 lease agreement), but the plaintiff neglected to submit that into evidence although by 1999 Lease Agreement’s terms, Articles 6 through 19 were to be attached to it, the plaintiff has not proven that the security fence’s construction, needed for airport

purposes, was barred by the 1999 Lease Agreement without further compensation. Uehara v. Chuuk, 14 FSM Intrm. 221, 226 (Chk. 2006).

Contracts ) Novation

    Parties to a contract may agree to replace an existing contract with a new and different contract before the original contract’s term has expired. The general rule is that parties to a contract may rescind it by making a new contract that is inconsistent with the original contract. Uehara v. Chuuk, 14 FSM Intrm. 221, 226 (Chk. 2006).

Constitutional Law ) Indefinite Land Use Agreements

    Under the original version of Article XIII, section 5 of the FSM Constitution, FSM governments were barred from obtaining an agreement for the use of land for an indefinite term and that could have made a land purchase agreement unconstitutional because of a reversionary clause returning the land to the original land owner or successor at the end of an indefinite term of airport use, but, when that provision was amended in 1991 so that only land lease agreements for an indefinite term were prohibited, and that constitutional amendment was effective before the subject land purchase agreement was executed, Article XIII, section 5 does not prohibit the Land Purchase Agreement because it is not a lease. Uehara v. Chuuk, 14 FSM Intrm. 221, 226 (Chk. 2006).

Property ) Deeds

    A land purchase agreement’s intent and effect was to transfer title to the lot to the State upon execution of the agreement; otherwise there would have been no need to include a clause requiring that the land be deeded back to the seller if she was not paid in full by a date certain. Uehara v. Chuuk, 14 FSM Intrm. 221, 226 (Chk. 2006).

Contracts ) Breach; Contracts ) Novation

    Since, upon the execution of a valid and legal substituted agreement the original agreement merges into and is extinguished, and since failure to perform the substituted agreement will not revive the old agreement, a 1999 lease agreement that was extinguished by a 2001 land purchase agreement will not be revived by the state’s breach of the land purchase agreement. Uehara v. Chuuk, 14 FSM Intrm. 221, 226 (Chk. 2006).

Contracts ) Conditions; Property ) Deeds

    Forfeitures are abhorrent to the law, and are construed strictly. Because the law abhors a forfeiture, the language effecting defeasance in a deed must clearly spell that fact out. Uehara v. Chuuk, 14 FSM Intrm. 221, 227 (Chk. 2006).

Contracts ) Conditions

    When the land purchase agreement’s forfeiture clause clearly states that title was to be returned to the seller if she was not paid in full by November 30, 2002, but that clause does not state that both the title and possession of the land were to be returned to the original land owner in the event of non-payment, the court cannot order the state to give possession of the lot to the original land owner, because contracts involving a forfeiture cannot be extended beyond the strict and literal meaning of the words used. Uehara v. Chuuk, 14 FSM Intrm. 221, 227 (Chk. 2006).

[14 FSM Intrm. 223]

Contracts ) Breach

    When, six months after the deadline for the state to either pay the plaintiff the balance of the purchase price or to deed the land back to the plaintiff, the state, having done neither, tendered to the plaintiff, and she accepted, a further payment of $24,787.50, by accepting this payment, the plaintiff is estopped from asserting that the land be deeded back to her because she has waived the breach and thus her right to enforce the land purchase agreement’s "deed back" clause. Uehara v. Chuuk, 14 FSM Intrm. 221, 227 (Chk. 2006).

Contracts ) Breach

    The general rule is that when the contracting party, with knowledge of the breach of the other party, receives money in the performance of the contract, he will be held to have waived the breach. Uehara v. Chuuk, 14 FSM Intrm. 221, 227 (Chk. 2006).

Contracts ) Breach; Contracts ) Conditions

    A land seller cannot claim a forfeiture and at the same time receive the purchase money. Accordingly, there can be no doubt that a vendor by receiving money when past due is precluded from availing himself of any right of forfeiture which has arisen because of the failure to pay on time. Uehara v. Chuuk, 14 FSM Intrm. 221, 227 (Chk. 2006).

Contracts ) Breach; Contracts ) Conditions

    If the land vendor receives a partial payment of an amount past due, he is precluded from immediately asserting a forfeiture of the contract for default in payment, and a land seller, who long after all purchase payments have become due accepts a payment, that seller has waived his right to declare a forfeiture as of the time of payment. Uehara v. Chuuk, 14 FSM Intrm. 221, 227 (Chk. 2006).

Judgments

    The court in every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party’s pleadings. Uehara v. Chuuk, 14 FSM Intrm. 221, 227 (Chk. 2006).

Contracts ) Conditions; Contracts ) Damages

    When the plaintiff is not entitled to the state’s forfeiture of the lot, she is entitled to damages. Her damages for the state’s breach of the land purchase agreement are the unpaid balance of the purchase price, and if this is not paid within a reasonable time, her right to claim forfeiture of title, which was suspended by her acceptance of a late partial payment, may be revived. Uehara v. Chuuk, 14 FSM Intrm. 221, 227 (Chk. 2006).

Judgments

    A judgment will accrue 9% interest thereon from the date the clerk enters judgment. Uehara v. Chuuk, 14 FSM Intrm. 221, 227-28 (Chk. 2006).

Costs

    A prevailing party is entitled to costs taxable by FSM Civ. R. 54(d), such as expenses for service of process and service of subpoenas. Uehara v. Chuuk, 14 FSM Intrm. 221, 228 (Chk. 2006).

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[14 FSM Intrm. 224]

COURT’S OPINION

DENNIS K. YAMASE, Associate Justice:

     Trial was held on December 21, 23, 2005 and January 25, 2006. Plaintiff Julie Uehara, seeks to evict the defendants from land known as Neinaset, and seeks damages of $25,000 for building a fence across the land, $250,000 for trespass, interest and penalties of $888,775 for non-payment of rent, plus further penalties and interest at 2% ($487) per day.

     The court heard testimony from the plaintiff’s husband, Scott Uehara, Chuuk State Land Management Officer Kaster K. Sisam, Julie Uehara, and Hiroshi Muludy. Closing arguments were submitted in writing on February 3, 2006, and the court requested further briefing on whether a clause in the purchase agreement (admitted as Exhibit 1) made that agreement one prohibited by Article XIII, section 5 of the FSM Constitution. Those briefs were submitted by March 1, 2006 and the case was considered submitted for decision at that time. Based on the evidence and testimony admitted, the court makes the following

Findings of Fact.

1.   On October 7, 1998, the plaintiff, Julie Uehara, was issued a certificate of title for Lot No. 001-A-05, known as Neinaset (also spelled Neinasat), on Weno, Chuuk.

2.   Lot No. 001-A-05 is a triangular piece of land, partially under the northeast end of the airport runway and almost all of which is inside the security fence that encloses the land used for airport operations.

3.   In May, 1999, Uehara and the State executed a lease agreement for Lot No. 001-A-05. (An earlier fifteen-year lease agreement expired May 10, 1999.) The new lease was for seven consecutive five-year "option" periods. The lease was for "Airport lands for the purpose of supporting air transportation." Lease Agreement art. I(A)(2).

4.   The new lease agreement provided for an initial lease payment of $2,545 before June 10, 1999 for the initial five-year "option" period (May 11, 1999 through May 10, 2004).

5.   The State paid Uehara $2,545 on June 2, 1999.

6.   The lease agreement provided that the second (and last) lease payment for the first "option" period was $27,586, to be paid by May 10, 2000.

7.   The State made a second lease payment to Uehara of $3,536.20 on December 18, 1999. No other payment was made before the May 10, 2000 deadline.

8.   The lease agreement provided that interest and penalties would accrue for late payment "at the rate of one (2%) [sic] per day until fully paid." Lease Agreement arts. 3(A)(3) and (4).

9.   The Lease Agreement provided that for leases of rock quarry lands the State could enter into a subsidiary lease agreement to quarry rock and minerals from quarry lands. Lease Agreement art. 3(A)(7). Lot No. 001-A-05 would have been listed in the Lease Agreement under Article 1(A)(1) (quarry lands), not under Article 1(A)(2) (airport lands), if it were quarry lands. It was not. Lot No. 001-A-05 is not quarry lands. The construction of a fence around the airport area did not constitute a taking of rocks and minerals from quarry lands. The fence construction’s purpose was to support air

[14 FSM Intrm. 225]

transportation.

10.   The Lease Agreement provided that it was "for surface rights use only, and shall not entitle the Government to remove any soil, rock, mineral or other subsurface matter from the land without the consent of the Lessor, except as provided in Article 4(E)." Lease Agreement art. 2(D)(D). Article 4(E) provides that except to the extent that provisions of the July 1984 lease "are modified by this Lease Agreement, Article 6 through Article 19 of the said [1984] Lease, herewith attached and incorporated as part of this agreement, continue in full force and effect" during the [1999] lease. The Lease Agreement was admitted into evidence as Exhibit B, but the 1984 Lease was not attached to it and was not in evidence.

11.   On December 14, 2001, Julie Uehara and the State executed a Land Purchase Agreement for Neinaset [Lot No. 001-A-05]. The agreed purchase price was $103,248.20.

12.   The purchase price included payment in full for the lease payments due to date (past use compensation).

13.   On January 18, 2002, the State paid Uehara the first installment under the Land Purchase Agreement, $20,623.20.

14.   On June 26, 2002, at Uehara’s request and for her benefit, the Chief of Land Management Kaster K. Sisam, Department of Commerce and Industry, wrote a memorandum addressed to whom it may concern acknowledging that the State of Chuuk had purchased Uehara’s lot for $103,248.20, and that it had already made a partial payment of $20,623.20 with the remaining $82,625.00 to be paid on or before November, 2002.

15.   The Land Purchase Agreement contained a clause that if the State failed to tender the full amount of the final payment by November 30, 2002, the land "shall be deeded back to the original land owner or his/her successor." Land Purchase Agreement art 3. This is a forfeiture clause.

16.   No second payment was made by November 30, 2002. Nor did the State deed the land back to Uehara.

17.   The Land Purchase Agreement also contained a reversion clause that read, "in the event Chuuk State or its successor no longer use the land(s) for airport and for supporting air services, the ownership of said land(s) shall be deeded back to the landowner or his/her successor." Land Purchase Agreement art. 3.

18.   On May 30, 2003, the State paid Uehara another $24,787.50 toward the purchase price (for a total of $45,410.70). The State made no further payments to Uehara.

19.   At some point, Uehara’s certificate of title for Lot No. 001-A-05 was torn into several pieces. It was later taped beck together, and, in that condition, was admitted into evidence as Exhibit A.

      Based upon these findings, the court makes the following

Conclusions of Law.

1.   The Lease Agreement’s penalty provision, regardless of whether it is for one or two per cent per day (365% or 730% per annum respectively), is void since either interest rate is usurious. See 34

[14 FSM Intrm. 226]

F.S.M.C. §§ 203, 204, 206. The penalty for charging a usurious interest rate is that the person charging such a rate has no right to receive or collect any interest. 34 F.S.M.C. 206; see also Walter v. Damai, 12 FSM Intrm. 648, 650 (Pon. 2004). Uehara therefore was, and is, not entitled to any interest on late or unpaid lease amounts.

2.   Uehara failed to meet her burden to prove by a preponderance of the evidence that she was entitled to extra compensation because the State built a new fence around the airport lands. Lot No. 001-A-05 was leased for "the purpose of supporting air transportation" and the fence’s construction supported that purpose. The Lease Agreement permitted removal of soil and rock as allowed by Articles 6 through 19 of the 1984 Lease (incorporated by reference in the 1999 lease agreement), but Uehara neglected to submit that into evidence although by 1999 Lease Agreement’s terms, Articles 6 through 19 were to be attached to it. Uehara therefore has not proven that the security fence’s construction, needed for airport purposes, was barred by the 1999 Lease Agreement without further compensation.

3.   The December 14, 2001 Land Purchase Agreement superseded, and was substituted for, the May 1999 Land Lease Agreement and included compensation for the unpaid amounts under the Lease Agreement. Parties to a contract may agree to replace an existing contract with a new and different contract before the original contract’s term has expired. The general rule is that parties to a contract may rescind it by making a new contract that is inconsistent with the original contract. Phillip v. Aldis, 3 FSM Intrm. 33, 37 (Pon. S. Ct. Tr. 1987).

4.   Under the original version of Article XIII, section 5 of the FSM Constitution, governments in the FSM were barred from obtaining "[a]n agreement for the use of land for an indefinite term." That could have made the Land Purchase Agreement unconstitutional because of its reversionary clause returning the land to the original land owner or successor at the end of an indefinite term of airport use. However, that provision was amended in 1991 so that only land lease agreements for an indefinite term were prohibited, and that constitutional amendment was effective before the Land Purchase Agreement was executed. The Land Purchase Agreement is not a lease. Article XIII, section 5 does not prohibit it.

5.   The Land Purchase Agreement’s intent and effect was to transfer title to Lot No. 001-A-05 to the State upon execution of the agreement; otherwise there would be no need to include a clause requiring that the land be deeded back to the seller if she was not paid in full by a date certain.

6.   The State breached the Land Purchase Agreement by not paying Uehara the full purchase price.

7.   The State’s failure to perform the Land Purchase Agreement did not revive or reinstate the earlier (1999) Lease Agreement. "Upon the execution of a valid and legal substituted agreement the original agreement merges into and is extinguished, and failure to perform the substituted agreement will not revive the old agreement." 17A Am. Jur. 2d Contracts § 513, at 527 (1991). The 1999 Lease Agreement was extinguished by the 2001 Land Purchase Agreement. The State’s breach of the Land Purchase Agreement did not revive the Lease Agreement.

8.   Under the circumstances of this case, the court cannot enforce the Land

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Purchase Agreement’s forfeiture clause and order the State to deed the land back to Uehara because Uehara was not paid in full by November 30, 2002.

9.   Forfeitures are "abhorrent to the law, [and] are construed strictly." Nielsen v. Woods, 687 P.2d 486, 489 (Colo. Ct. App. 1984); cf. Kihara v. Nanpei, 5 FSM Intrm. 342, 344 (Pon. 1992) (contract conditions that create forfeitures are disfavored). "Because the law abhors a forfeiture, the language effecting defeasance in a deed must clearly spell that fact out." United States v. Goings, 372 F. Supp. 811, 819 (D.N.D. 1974).

10.   The Land Purchase Agreement’s forfeiture clause clearly states that title was to be returned to Uehara if she was not paid in full by November 30, 2002 ) "the land shall be deeded back to the original land owner." Land Purchase Agreement art. 3. However, that clause does not state that both the title and possession of the land were to be returned to the original land owner in the event of non-payment. The court therefore cannot order the State to give possession of Lot No. 001-A-05 back to the original land owner, Uehara. "[C]ontracts involving a forfeiture cannot be extended beyond the strict and literal meaning of the words used." 17A Am. Jur. 2d Contracts § 564, at 579 (1991). Therefore Uehara could only require the State to forfeit title to, not possession of, Lot No. 001-A-05. (Presumably, at that point, the parties’ intent was that another agreement, either for lease or purchase, would be negotiated.)

11.   Six months after the deadline for the State to either pay Uehara the balance of the purchase price or to deed the land back to Uehara, the State, having done neither, tendered to Uehara, and Uehara accepted, a further payment of $24,787.50. By accepting this payment, Uehara is estopped from asserting that the land be deeded back to her. She has waived the breach and thus her right to enforce the "deed back" clause of the Land Purchase Agreement. "[T]he general rule [is] that where the contracting party, with knowledge of the breach of the other party, receives money in the performance of the contract, he will be held to have waived the breach." 17A Am. Jur. 2d Contracts § 564, at 579 (1991). A land seller "cannot claim a forfeiture and at the same time receive the purchase money. Accordingly, there can be no doubt that a vendor by receiving money when past due is precluded from availing himself of any right of forfeiture which has arisen because of the failure to pay on time." 77 Am. Jur. 2d Vendor and Purchaser § 589, at 716 (1975). But "if the vendor receives a partial payment of an amount past due, he is precluded from immediately asserting a forfeiture of the contract for default in payment," and a land seller, who long after all purchase payments have become due accepts a payment, that seller has waived his right to declare a forfeiture as of the time of payment. Id. Uehara therefore cannot insist on both the State’s forfeiture of title to the land and accept and retain the payment under the Land Purchase Agreement made after the forfeiture clause’s effective date. At a minimum, she had to choose one or the other.

12.   Uehara has proven that the State has breached the Land Purchase Agreement. She is entitled to relief for that breach. The court in "every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party’s pleadings." FSM Civ. R. 54(c).

13.   Uehara is not entitled to the State’s forfeiture of Lot No. 001-A-05. She is entitled to damages. Uehara’s damages for the State’s breach of the Land Purchase Agreement are the unpaid balance of the purchase price ) $57,837.50 ($103,248.20 minus the $45,410.70 already paid in two installments). If this $57,837.50 is not paid within a reasonable time, Uehara’s right to claim forfeiture of title, which was suspended by her acceptance of a late partial payment, may be revived. 77 Am. Jur. 2d Vendor and Purchaser § 589, at 716 (1975).

14.   The $57,837.50 will accrue 9% interest thereon, 6 F.S.M.C. 1401, from the date the clerk

[14 FSM Intrm. 228]

enters judgment. Uehara is also entitled to costs taxable by the prevailing party, FSM Civ. R. 54(d), such as expenses for service of process and service of subpoenas.

      Let the clerk enter judgment accordingly.

_______________________________

Footnotes:

1.   Compare "An agreement for the use of land for an indefinite term is prohibited. . . ." FSM Const. art. XIII, § 5 (1978) with "A lease agreement for the use of land for an indefinite term by a noncitizen, a corporation not wholly owned by citizens, or any government is prohibited." FSM Const. art. XIII, § 5 (1991).

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