Sets v Island Hardware [1988] FMSC 18; 3 FSM Intrm. 365 (Pon. 1988) (24 May 1988)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION (Pon.)
Cite as Sets v. Island Hardware, [1988] FMSC 18; 3 FSM Intrm. 365 (Pon. 1988)

[1988] FMSC 18; [3 FSM Intrm. 365]

SETS, INC.,
Plaintiff,

v.

ISLAND HARDWARE, INC.,
Defendant.

FSM CIV. NO. 1985-038

CHUA ENG CHUAN,
Plaintiff,

v.

ISLAND HARDWARE, INC.,
Defendant.

FSM CIV. NO. 1985-043

MEMORANDUM OF DECISION

Before Edward C. King
Chief Justice
FSM Supreme Court
May 24, 1988

[3 FSM Intrm. 366]

APPEARANCES:

For the Plaintiff:
R. Barrie Michelsen
Attorney at Law
Ramp & Michelsen
P.O. Box 1480
Kolonia, Pohnpei 96941

For the Defendant:
Maketo Robert
Attorney at Law
P.O. Box 979
Kolonia, Pohnpei 96941

* * * *

HEADNOTES

Debtors and Creditors Rights;
Civil Procedure
Where purchasers at a judicial sale are not served by summons and complaint pursuant to FSM Civ. R. 3 but receive notice of a motion seeking confirmation of the sale and made by a creditor of the party whose property was sold, and where the purchasers do not object to the motion, confirmation of the sale is effective and binding on the purchasers and is not violative of their rights of due process. Sets v. Island Hardware, [1988] FMSC 18; 3 FSM Intrm. 365, 368 (Pon. 1988).

Debtors and Creditors Rights;
Civil Procedure
The fact that stock issued by a corporation and formerly owned by a judgment debtor has been sold to a third party at a judicial sale of the debtor's assets does not make the corporation a party to the litigation concerning distribution of the assets of the insolvent debtor for purposes of determining whether the shares were validly issued and outstanding shares of the corporation. Sets v. Island Hardware, [1988] FMSC 18; 3 FSM Intrm. 365, 368 (Pon. 1988).

* * * *

COURT'S OPINION

EDWARD C. KING, Chief Justice:

Plaintiffs, Sets Inc. and Chua Eng Chuan, have renewed their previous motion for an order confirming the September 16, 1986, execution sale of Micronesian Developer Inc. [hereinafter MDI] stock or subscription rights formerly owned by Island Hardware.

In response to the original request, this Court issued an opinion on December 29, 1986, denying the request for confirmation, principally because

[3 FSM Intrm. 367]

none of the three parties with an apparent interest in the legal effect of the transaction is a party to this litigation.

Plaintiffs have now brought to the Court's attention United States authorities indicating that a purchaser at a judicial sale is deemed to be a party for purposes of proceedings relating to the legal effect of the sale itself. Makani Development Co. v. Stahl, 670 P.2d 1284, 1286 n.1 (Haw.App. 1983) (purchaser at a judicial sale is deemed to be a party to the litigation with standing to appeal); Pike v. Ruby Foo's Den, Inc. of Maryland, [1955] USCADC 320; 232 F.2d 683, 684 (D.C. Cir. 1956) (purchase at a receivership sale made the purchaser a party to an appeal by a third party from a ruling that the purchased asset belonged to the corporation whose assets were being sold in the receivership proceeding).

No party has brought to the Court's attention any traditional value or principle of customary law bearing upon the conduct of judicial sales. The proceedings in this case have been conducted pursuant to statutory law concerning enforcement of judgments, 6 F.S.M.C. 1401 et seq., and equitable principles. One of the statutory provisions, 6 F.S.M.C. 1404, specifically authorizes the Court to proceed in any manner "known to American common law or common in courts in the United States." Accordingly, it is proper for the Court to consider the cases cited by movants.

This court's principle concern in denying the original motion to confirm related to possible violation of FSM Civ. R. 3 and to due process requirements. The Ruby Foo's Den case cited above shows that in cases of this kind United States courts have accepted as parties additional persons not named in any complaint. This apparently has been done, despite lack of compliance with rule 3 of the Federal Rules of Civil Procedure, on the theory that these cases are in the nature of bankruptcy proceedings, where summary jurisdiction is quite extensive. 2 J. Moore, Moore's Federal Practice § 3.04 (2d ed. 1985). Thus, I conclude that, for purposes of these proceedings concerning the sale of corporate assets, both purchasers of MDI stock, Herman Semes and the undisclosed principal, may be regarded as parties, despite lack of compliance with FSM Civ. R. 3.

The due process rights of either purchaser are not affected. The record reflects that Mr. Semes has received service, and has not opposed the motion seeking confirmation of the sale. Counsel for the movants is also counsel for the undisclosed principal. It is apparent, therefore, that both buyers have had sufficient opportunity to raise any question as to whether they should be held liable to pay in full the price bid for the sale of stock or subscriptions.

The Court now concludes, in the absence of objection by either purchaser, that the sale was legally effective and binding and that Herman Semes, as well as the firm of Ramp and Michelsen, acting on behalf of their undisclosed principal, are required to pay the purchase price agreed upon by them.

[3 FSM Intrm. 368]

According to the return of execution it was understood that the sales of rights in MDI stock and subscriptions were subject to refund in the event it is "subsequently determined that the defendant [Island Hardware] did not own the stock or subscription rights." This establishes a condition subsequent pursuant to which the obligation to purchase might be set aside.

The procedural setting, however, is not ripe for a determination as to whether the condition subsequent has occurred. MDI, the corporation which issued the stock that is the subject of the sale, does not come within the Ruby Foo's Den rule mentioned above and is not a party to this litigation. The December 29, 1986 opinion has already noted the unlikelihood that MDI's attempted cancellation on September 17, 1986 of 736 shares subscribed to by Island Hardware could be given legal effect. Yet that could be determined definitively only if MDI were involved as a party. The Court, therefore, declines to rule on the legal efficacy of the attempted cancellation of those shares.

Under these circumstances the Court concludes that the motion for confirmation of the sale should be granted. The sale is complete, subject to timely establishment by one of the purchasers that the requirements of the condition subsequent have been met.

An order will issue, confirming that the purchasers have acquired whatever rights Island Hardware had in MDI, and are required to make payment in full of the agreed purchase price.