Truk v Maeda Construction Co Ltd [1988] FMSC 28; 3 FSM Intrm. 489 (Truk 1988) (19 October 1988)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION (Truk)
Cite as Truk State v. Maeda Construction Co. Ltd., 3 FSM Intrm.489 (Truk, 1988)

[1988] FMSC 28; [3 FSM Intrm. 489]

STATE OF TRUK,
Plaintiff,

v.

MAEDA CONSTRUCTION CO., LTD.
Defendant.

CIVIL ACTION NO. 1987-1025

OPINION

Before Honorable Richard H. Benson
Associate Justice
October 19, 1988

[3 FSM Intrm. 490]

APPEARANCES:

For the Plaintiff:
Jeanne H. Rayphand, Esq.
Attorney at Law
Attorney General's office
Moen, Truk 96942

For the Defendant:
Gary D. Hull, Esq.
Attorney at Law
Suite 903 Pac. News Bldg.
238 Archbishop Flores St.
Agana, Guam 96910

* * * *

HEADNOTE

Remedies - quantum meruit
A party completing projects is not entitled to quantum meruit recovery against the state when the contracts were done at the instance of the governor who had no authority to obligate the funds of the state, when the contracts did not purport to obligate the funds of the state, in which the governor promised to use his best efforts to find funds to pay for work performed, when the party accepted the risk that the governor might not be able to find funds, and when the governor promised payment when and if funds were available, even though the work performed was satisfactory, the charges were reasonable, and the work benefitted the state. Truk v. Maeda Constr. Co. (III), [1988] FMSC 28; 3 FSM Intrm. 489, 493-94 (Truk 1988).

* * * *

COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

PROCEDURAL BACKGROUND

In its action against the defendant, Truk State sought a declaration that a 1986 promissory note executed by the then Governor of Truk State in favor of the defendant was void. The note represented the balance for certain services performed by the defendant, plus interest. Summary judgment in favor of Truk State was granted May 12, 1988.

In its counterclaim the defendant prayed for damages on the grounds of unjust enrichment and quantum meruit in the event that the note was found void. Its motion for summary judgment for this relief was denied by order filed June 16, 1988.]

The trial on the defendant's counterclaim was held on September 26,

[3 FSM Intrm. 491]

1988. Testimony was presented, and arguments of counsel received. Having fully considered the evidence and arguments, these findings and conclusions are now entered pursuant to Rule 52(a).

FINDINGS OF FACT

1. The defendant began doing business in Truk State in 1978. It was first awarded a contract to extend, widen and surface the airstrip. Later contracts were for dock facilities, a fisheries facility, water and sewer lines and paving. The then Governor of Truk State, Erhart Aten, found the defendant's work good, and done promptly.

2. In the summer of 1982 about one half of the paving called for in a contract between Trust Territory of the Pacific Islands and the defendant had been done. When the paving was completed the defendant intended to "demobilize," i.e., reduce its workforce, dismantle its asphalt plant, and dispose of its equipment.

Governor Aten wished to have certain paving work done which was not included in the existing contract, and have it done promptly and at lower cost by using the defendant's facilities and manpower already in place.

3. At about the same time, imminent approval of the Compact of Free Association was expected, making funds available for capital improvement in Truk State. Governor Aten had confidence that the defendant had the capacity to author feasibility studies to estimate the cost of public capital improvement projects to be undertaken.

4. At the instance of Governor Aten, Maeda prepared feasibility studies for Dublon, Moen and for nine islands in the Faichuk area of the Truk Lagoon.

5. The total charged by defendant for the paving and for the feasibility studies was $837,500.00, of which $565,000,000 had been paid by the end of 1983, leaving a balance of $272,500.00.

[This sum, plus interest, being unpaid in 1986, was set forth in the promissory note signed by Governor Aten. It was the validity of this note which was the issue presented in the complaint of Truk State in this case. As stated, the note was found to be void, and judgment entered accordingly.]

6. This $272,50.0.00 is the amount unpaid on the Faichuk feasibility study and three paving jobs. The details of each are set forth below.

A. Faichuk Feasibility Study

The Governor asked Maeda for the cost of performing the study. On October 2, 1982 the defendant submitted a quotation of $300,000.00. This was later increased to $314,500.00 so that the island of Fanapanges was included. On January 26, 1983 the Special Assistant to the Governor for fiscal affairs gave a notice to proceed to Maeda. The notice concluded, "With regard to the

[3 FSM Intrm. 492]

cost of this studies [sic] we will discuss it at a later date."

The study was delivered in October 1983. of the $314,500.00, $250,000.00 has been paid. The defendant in its counterclaim seeks the balance of $64,500.00.

B. Paving for parking at and a driveway to the Legislature Building, a nearby road, and at the Police Station.

The Governor requested a cost proposal for this work. in its September 15, 1982 letter, Maeda gave a proposal of $150,000.00. This letter shows how these paving projects were done: "This paving work, stated above, could be, and will be incorporated with our present on going project, upon your acceptance of our proposal."

The work was completed in November 1982. No part of the $150,000.00 has been paid. On February 7, 1983 Maeda wrote Governor Aten, "The Paving of the Legislature Parking ($150,000.00) was completed, but contract was not executed as of this date." The next day Maeda wrote,

As submitted per your request of September 15, 1982, (copy attached) to pave the subject areas as stated above, a verbal Notice to Proceed was made by Governor Aten.

The subject [sic] project has since been completed as of November 1982, with the exception of the (nearby road] ...

As stated in attached [sic] proposal by Maeda, we request an official acceptance, with Notice to Proceed, duly signed by the Governor, and, or, any authorized persons, in addition to governors [sic] signature if required, to consummate this long past due contract.

C. Paving at Post Office

The then Governor and the Post Office Master gave the notice to proceed on February 10, 1983. The notice stated, "Both the Post Office Master and I will seek funds for payment of the paving work and payment will be made when available."

The paving was completed within one month of the notice to proceed. The entire amount, $12,000.00, remains unpaid.

D. Paving of Transco road

This paving was accomplished about the time of the paving of the post office parking area, but in any event not later than October 1983. Of the $51,000.00 for this job, $5,000.00 has been paid, leaving a balance of $46,000.00.

[3 FSM Intrm. 493]

7. The foregoing projects were performed without written contracts or appropriation.

8. The costs are reasonable, and all work was satisfactory.

9. The project manager for Maeda, who was the one responsible for the affairs of the defendant in Truk, did not have actual knowledge of the charter provisions with respect to obligation of funds.

10. The defendant knew that funds were not available for payment - that upon completion of the work an appropriation would have to be requested by Governor Aten from the Legislature, funds found elsewhere, or await Compact Funds. Maeda was promised payment by Governor Aten if and when funds were available.

CONCLUSIONS OF LAW

... No obligation for the payment of money shall be incurred except as authorized by law ...

Truk State Charter Art. VI Section 8 effective March, 1978

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."

Truk State Law 5-44 Section 8(1) effective December 27, 1982

I conclude that no ground exists which would warrant giving Maeda the relief it seeks in its counterclaim.

1. Governor Aten lacked the authority to obligate the funds of Truk State for the projects he asked Maeda to undertake.

2. The contracts for the four projects were entered into between Governor Aten and Maeda for the performance of clearly specified work. There were offers through the cost proposals, and acceptances by the notices to proceed. The consideration was Governor Aten's promise to use his best efforts to find funds to pay for the work, and to pay Maeda when and if the funds were available.

[3 FSM Intrm. 494]

Before work began Maeda knew and accepted the risk that the Governor would not be able to find available funds or persuade the Legislature to appropriate the funds.

The contracts were for the benefit of Truk State, although Governor Aten also benefitted in that he was able to satisfy his constituency which was exerting pressure upon him. No cause of action may be maintained by the promisor against the beneficiary, at least under the facts found in this case.

3. The contracts did not purport to obligate funds of Truk State. Moreover, the defendant is presumed to know the laws of Truk State, and is therefore charged with knowledge that the contracts were not the obligation of Truk State since there was no compliance with the Charter or the Financial Management Act.

4. The facts of this case provide no justification for the court to invade the province of the Truk State Legislature which has chosen not to appropriate funds for these projects. If quantum meruit were granted by a judgment of the court it would be approving an evasion of the legislature function. Such an judgment could be seen as a willingness of the court to support the payment of public projects by means other than by funding through legislative action.

The defendant is entitled to take nothing by its counterclaim, and the counterclaim is dismissed on its merits.

Let judgment be entered accordingly.

So ordered this 19th day of October, 1988