Billimont v Chuuk [2002] FMCSC 11; 11 FSM Intrm. 077 (Chk. S. Ct. Tr. 2002) (5 July 2002)

CHUUK STATE SUPREME COURT
TRIAL DIVISION

Cite as Billimont v. Chuuk
11 FSM Intrm. 77 (Chk. S. Ct. Tr. 2002)

[11 FSM Intrm. 77]

KAMITA W. BILLIMONT,
Plaintiff,

vs.

CHUUK STATE GOVERNMENT,
Defendant.

CSSC-CA-NO. 27-2002

MEMORANDUM OF DECISION

Wanis R. Simina
Associate Justice

Trial: May 22, 2002
Decided: July 5, 2002

APPEARANCES:

For the Plaintiff: Ben Enlet
P.O. Box 1650
Weno, Chuuk FM 96942

For the Defendants: Ready Johnny, Esq.
Attorney General
Office of the Chuuk Attorney General
P.O. Box 189
Weno, Chuuk FM 96942

* * * *

HEADNOTES

Contracts - Illegality
A contract entered into by government officials on behalf of the government but in violation of applicable law is illegal, and as a general rule an illegal contract is unenforceable, even when a benefit has been conferred on the party against whom enforcement is sought. Billimont v. Chuuk, 11 FSM Intrm. 77, 80, 81 (Chk. S. Ct. Tr. 2002).

[11 FSM Intrm. 78]

Contracts - Illegality
In order for a lease to be a valid obligation of state funds, it is necessary that the funds be not only already appropriated and available, but appropriated to the specific purpose of funding the lease payments. It is not enough that there are some funds in some account which could be used to pay the lease, having not been used as originally appropriated. Billimont v. Chuuk, 11 FSM Intrm. 77, 80 (Chk. S. Ct. Tr. 2002).

Contracts - Illegality
The Restrictive Measures Act, clearly and unambiguously, prohibits execution of housing leases for the benefit of state personnel following its effective date with the only possible exception for the benefit of expatriate professional employees. A lease for a Chuuk citizen does not fit the exception. Billimont v. Chuuk, 11 FSM Intrm. 77, 81 (Chk. S. Ct. Tr. 2002).

Contracts - Illegality
When the contract at issue is in violation of two separate Chuuk state statutes, it is illegal, void, and unenforceable, and the plaintiff’s breach of contract claim cannot be upheld. Judgment for the defendant on that claim is mandated. Billimont v. Chuuk, 11 FSM Intrm. 77, 81 (Chk. S. Ct. Tr. 2002).

Torts - Negligence
Negligence is the failure to use such care as a reasonably prudent and careful person would use under similar circumstances, or the failure to do what a person of ordinary prudence would have done under similar circumstances. Billimont v. Chuuk, 11 FSM Intrm. 77, 81 (Chk. S. Ct. Tr. 2002).

Torts - Negligence
In order to prove negligence, a plaintiff must prove the existence of a duty, breach of the duty, and damages proximately caused by the breach. Billimont v. Chuuk, 11 FSM Intrm. 77, 81 (Chk. S. Ct. Tr. 2002).

Torts - Negligence
The plaintiff, in order to establish the defendant’s negligence in failing to pay the sums due under the lease, has the burden of proving by a preponderance of the evidence the existence of a duty on the defendant’s part to pay. But, given the lease’s illegal nature, this essential fact cannot be proven as a matter of law. Billimont v. Chuuk, 11 FSM Intrm. 77, 81 (Chk. S. Ct. Tr. 2002).

Torts - Negligence
As a matter of law no reasonably prudent person would commit an act the consequence of which might result in that person’s imprisonment. Billimont v. Chuuk, 11 FSM Intrm. 77, 81 (Chk. S. Ct. Tr. 2002).

Torts - Negligence
When a reasonably prudent person in the Director of Treasury’s position would not willingly and intentionally violate Chuuk state laws, and when to pay sums purportedly due under the contract at issue would violate Chuuk state laws, subjecting the party authorizing payment to criminal penalties, the plaintiff cannot as a matter of law prove a material and indispensable element of her claim of negligence for failure to pay her because the sums are due her on an illegal contract. Billimont v. Chuuk, 11 FSM Intrm. 77, 81 (Chk. S. Ct. Tr. 2002).

* * * *

[11 FSM Intrm. 79]

COURT’S OPINION

WANIS R. SIMINA, Associate Justice:

I. INTRODUCTION

This action for breach of contract and negligence was tried by the Court on May 22, 2002. Plaintiff was present and represented by her Counselor of record, Ben Enlet. Defendant Chuuk State was represented by its Attorney General, Ready Johnny.

Plaintiff’s complaint pleads two causes of action, negligence and breach of contract. The claims are based upon a lease for the occupancy of a house owned by the Plaintiff, signed by the Plaintiff and approved by the State Attorney General as to form on July 14, 1999, and executed by the Governor of Chuuk State on August 24, 1999. Significantly, the lease has a line for certification of availability of funds, to be signed by the "Director of Treasury, Chuuk State." The availability of funds was not certified by the Director of Treasury.

The lease, attached to the complaint as an exhibit, and incorporated into the complaint by specific reference, is on its face a lease for real property between the Plaintiff and the Defendant, the purpose of which was, according to testimony at trial, to provide housing for Gideon Kikku, a citizen of Chuuk State and at that time Chuuk State Deputy Director of Public Affairs.^[1] The term of the lease was to run from August, 1997 through August, 2001^[1] at the rate of $250.00 per month. Testimony at trial established that Deputy Director Kiku did in fact occupy the leased premises from August, 1997 through March, 2001, a total of 44 months. Evidence further established that the Defendant made no payments on the lease during the occupancy of the premises by the Deputy Director, or at any time. If the lease is a valid contract between the parties, Plaintiff would be entitled to judgment in the sum of $11,000.00 on her breach of contract claim.

Plaintiff alleged, in addition to breach of contract, the negligence of the Defendant. The complaint alleges that "Plaintiff has been damaged from Defendant’s negligence and ignorance and total failure to compensate the Plaintiff."^[1] As such, the negligence claim can be interpreted as a claim for tortious breach of contract, the negligence being the failure to pay sums due under the contract.

Unfortunately for the Plaintiff, the lease is not a valid contract at all, but is in fact an illegal contract, violating two separate Chuuk State laws. As an illegal contract, it is incapable of enforcement by this Court. Additionally, as the Plaintiff introduced no evidence establishing the negligence of the Defendant, the Plaintiff’s claims for negligence must also fail, and judgment must be entered for the Defendant.

II. THE CONTRACT VIOLATES CHUUK STATE LAW AND IS VOID

There is no dispute that the written lease agreement has all of the necessary attributes of a valid

[11 FSM Intrm. 80]

contract enforceable at law. It is an offer to lease property to the government, accepted by the Governor as the representative of the government, and its terms are clear and readily capable of enforcement. As will be shown, however, the lease violates both the Chuuk State Financial Management Act, Chk. S.L.^[1] No. 5-44, and the Restrictive Measures Act, Chk. S.L. No. 2-94-22, signed into law by former Governor Gouland on October 29, 1994. The rules of law are clear in this case: (1) a contract entered into by government officials on behalf of the government but in violation of applicable law is illegal, Ponape Transfer & Storage v. Federated Shipping Co.[1987] FMSC 14; , 3 FSM Intrm. 174, 178 (Pon. 1987); and (2) as a general rule an illegal contract is unenforceable, even where a benefit has been conferred on the party against whom enforcement is sought, Ponape Constr. Co. v. Pohnpei, [1993] FMSC 23; 6 FSM Intrm. 114, 125 (Pon. 1993).

Chk. S.L. No. 5-44, § 8 provides:

§ 8. Criminal penalties for wrongful obligation of funds. (1) No officer or employee of the State, or allottee of a State appropriation shall obligate or authorize or order anyone to obligate funds of the General Fund.

(a) unless at the same time there are funds appropriated and available for obligation; and

(b) unless the obligation is for the purpose specified by the appropriation.

(2) Violation of this Section shall be a crime punishable by imprisonment of not more than two years or a fine of not more than $2,500.00, or both.

(emphasis added).

The lease agreement sued upon was an obligation of funds of the General Fund, authorized by the Governor, pursuant to his signature. In order to be a valid obligation of funds, it was necessary that the funds be not only already appropriated and available, but appropriated to the specific purpose of funding the lease payments. In other words, it is not enough that there are some funds in some account which could be used to pay the lease, having not been used as originally appropriated. In order to satisfy Chk. S.L. No. 5-44, § 8, the appropriation must have been for the specific purpose of funding this lease agreement.

Plaintiff introduced absolutely no evidence to establish the prior appropriation of funds by the Legislature to meet the obligation created by this agreement. In fact, the contract itself is circumstantial evidence that there were no funds previously appropriated and available for funding this lease agreement. Despite the fact that the lease had a provision calling for the signature of the Director of Treasury to certify availability of funds, the provision was not executed by the Director of Treasury. The Court finds this lack of certification evidence of the fact that there was no appropriation for this purported obligation of public funds. The execution of the agreement by the Governor was therefore an illegal act in violation of the Chuuk State Financial Management Act, and the lease agreement must therefore be found to be illegal, void and unenforceable.

The lease is not only in violation of the Financial Management Act, it is in clear violation of the provisions of the Restrictive Measures Act, Chk. S.L. No. 2-94-22. The Restrictive Measures Act was passed by the Legislature and signed by the former Governor during a previous time of extreme financial

[11 FSM Intrm. 81]

distress^[1] in Chuuk State. Section 1 of the Act states the finding of the Chuuk State Legislature and the purpose of the Act:

§ 1. Finding. It is the finding of the Legislature that the State is perilously close to a point whereby it may not be able to effectively deliver the services required by the public good and welfare unless strict measures are instituted and enforced at this time to generate new revenues, maximize revenue collection, reduce or cut spending, trim and streamline government operations, eliminate wasteful and corrupt practices which cheat the public of enormous fiscal resources, such as... letting contracts or agreements which place the government at a disadvantage directly as a result of contract negotiation and execution . .&#1and the like.

The restrictions imposed by the Act included restrictions on hiring and promotion of state employees, § 2(a), overtime work by state employees, § 2(b),hase, lease or rental of veof vehicles by the government without prior appropriation, § 2(f), and most important to the decision in this case, restrictions on the lease of premises for housing of government employees. Chk. S.L. No. 2-94-22 § 2(e) provides: "There shall be no new housing, room, or space rental, lease, or purchase for personnel or office; existing rentals and leases shall not be renewed upon their expiration or termination; a housing allowance may be included in the salary of only expatriate professional employees." (emphasis added).

This section of the Restrictive Measures Act is clear and unambiguous, requiring no interpretation. Execution of housing leases for the benefit of state personnel following the effective date of the Act is prohibited by the Act. The only possible exception is for the benefit of expatriate professional employees. Deputy Director Kikku, as a citizen of Chuuk, does not fit the exception.

As stated above, a contract entered into by government officials on behalf of the government but in violation of applicable law is illegal. Ponape Transfer & Storage v. Federated Shipping Co.[1987] FMSC 14; , 3 FSM Intrm. 174, 178 (Pon. 1987). As a general rule an illegal contract is unenforceable, even where a benefit has been conferred on the party against whom enforcement is sought. Ponape Constr. Co. v. Pohnpei, [1993] FMSC 23; 6 FSM Intrm. 114, 125 (Pon. 1993). See also Truk v. Maeda Constr. Co., [1988] FMSC 21; 3 FSM Intrm. 485, 487 (Truk 1988); Billimon v. Chuuk, [1991] FMCSC 1; 5 FSM Intrm. 130, 135-36 (Chk. S. Ct. Tr. 1991). The contract at issue in this case is in violation of two separate statutes of the State of Chuuk, is therefore illegal and void, and unenforceable. Plaintiff’s claim for breach of contract cannot be upheld, and judgment for the Defendant on that claim is mandated.

III. PLAINTIFF CANNOT PROVE NEGLIGENCE

Plaintiff has alleged that she "has been damaged from Defendant’s negligence and ignorance and total failure to compensate the Plaintiff." The Court construes this allegation as asserting that the Defendant had a duty to pay the amounts due under the lease, and that its failure to do so constitutes negligence.

Negligence is the failure to use such care as a reasonably prudent and careful person would use under similar circumstances, or the failure to do what a person of ordinary prudence would have done under similar circumstances. Epiti v. Chuuk, [1991] FMCSC 3; 5 FSM Intrm. 162, 166 (Chk. S. Ct. Tr. 1991). Put another way, in order to prove negligence, a plaintiff must prove the existence of a duty, breach of the duty, and damages proximately caused by the breach. Nena v. Kosrae, [1990] FMKSC 2; 5 FSM Intrm. 417, 420 (Kos. S. Ct. Tr. 1990). In order to establish the negligence of the Defendant in failing "to compensate the Plaintiff," the Plaintiff has the burden of proving, by a preponderance of the evidence, the existence of a duty on the part of the Defendant to pay the sums due under the contract. This the Plaintiff cannot do.

In order to establish negligence, the Plaintiff must prove that the Director of Treasury, or his designee, had a duty to pay the sums due under the lease. Put another way, the Plaintiff must establish that a reasonably prudent person in the position of the Director of Treasury would have paid the sums due under the lease. Given the illegal nature of the lease, this essential fact cannot be proven as a matter of law.

The Court finds that a reasonably prudent person in the position of the Director of Treasury would not under any set of circumstances willingly and intentionally violate the laws of Chuuk State. To pay sums purportedly due under the contract at issue would be a violation of the laws of Chuuk State, subjecting the party authorizing payment to criminal penalties including imprisonment and fine. Chk. S.L. No. 5-44, §§ 8, 9.^[2] The Court finds as a matter of law that no reasonably prudent person would commit an act the consequence of which might result in that person’s imprisonment. Therefore, Plaintiff cannot as a matter of law prove a material and indispensable element of her claim of negligence. Judgment for the Defendant on the claim of negligence is also mandated.

IV. CONCLUSION

The purported contract sued upon was an illegal contract, in violation of two separate laws of Chuuk State. As such, it is void and unenforceable by the Court. Furthermore, Plaintiff cannot establish, as a matter of law, negligence on the part of Chuuk State in failing to pay sums purportedly due on the illegal contract. Judgment must be entered in favor of the Defendant Chuuk State on both causes of action asserted by the Plaintiff.

Judgment shall so issue. Each party shall bear their own fees and costs incurred in this dispute.

* * * *

Footnotes:
1. Mr. Kikku is presently the Director of Public Affairs.

2. There was no evidence introduced at trial to explain the inconsistency between the date of performance and the date of execution of the lease contract. Given the decision of the Court, this inconsistency is immaterial.

3. Complaint, 5, at 2.

4. The Act, passed by the Truk State Legislature prior to the effective date of the Constitution, was originally designated "TSL" rather than "CSL." The change in designation is made for the purpose of consistency and clarity.

---

^[1] The Court takes judicial notice of the current fiscal peril facing the State, perhaps resulting from the same or similar fiscal practices which led to the passage of the Restrictive Measures Act in 1994.

^[2] CSL 5-44 § 9 provides: § 9. Criminal Penalties for wrongful expenditure of funds. (1) No officer or employee of the State shall make or authorize any expenditure of money from the General Fund in advance of the appropriation and availability of funds, or in excess of the amount appropriated, or for another purpose than that specified in an appropriation. (2) Violation of this Section shall be a State crime, punishable, upon conviction by imprisonment for not more than three years or a fine of not more than $5,000.00 or both.