Jayko International Inc v VCS Construction & Supplies [2002] FMSC 3; 10 FSM Intrm. 502 (Pon. 2002) (11 February 2002)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION

Cite as Jayko Int’l, Inc. v. VCS Constr. & Supplies,
[2002] FMSC 3; 10 FSM Intrm. 502 (Pon. 2002)

[2002] FMSC 3; [10 FSM Intrm. 502]

JAYKO INTERNATIONAL, INC.,
Plaintiff,

vs.

VCS CONSTRUCTION & SUPPLIES,
Defendant.

CIVIL ACTION NO. 2001-030

ORDER AND MEMORANDUM

Martin Yinug
Associate Justice

Decided: February 11, 2002

APPEARANCES:

For the Plaintiff:
Stephen V. Finnen, Esq.
Law Offices of Saimon & Associates
P.O. Box 1480
Kolonia, Pohnpei FM 96941

[10 FSM Intrm. 503]

For the Defendant:
Joseph S. Phillip, Esq.
P.O. Box 464
Kolonia, Pohnpei FM 96941

* * * *

HEADNOTES

Contracts - Novation; Debtors' and Creditors' Rights; Usury
Even assuming that the seller historically did not charge interest on its account with the buyer, nothing precludes the parties to a commercial transaction from coming to a new agreement regarding installment payments on the outstanding indebtedness that also included an interest component calculated over the prior 26 months period, so long as the interest rate charged did not contravene FSM public policy as set out in 34 F.S.M.C. 204. Jayko Int'l, Inc. v. VCS Constr. & Supplies, [2002] FMSC 3; 10 FSM Intrm. 502, 504 (Pon. 2002).

Debtors' and Creditors' Rights; Usury
When an agreement provides for 18% interest per annum on the principal remaining after the debtor's last payment, no usury issue arises, and when the interest charged cannot be said to be arbitrary and capricious on any other basis, the interest portion of the agreement is binding. Jayko Int'l, Inc. v. VCS Constr. & Supplies, [2002] FMSC 3; 10 FSM Intrm. 502, 504 (Pon. 2002).

Contracts - Interpretation
Contracts are not interpreted on the basis of one of the parties' subjective uncommunicated views or secret hopes. Instead, courts interpret and enforce agreements on an objective basis, according to the parties' reasonable expectations based upon the circumstances known to the parties and their words and actions, at the time the agreement was entered into. Jayko Int'l, Inc. v. VCS Constr. & Supplies, [2002] FMSC 3; 10 FSM Intrm. 502, 504-05 (Pon. 2002).

Civil Procedure - Summary Judgment; Contracts - Interpretation
The fact that a party's understanding of an agreement is at variance with its express terms does not raise an issue of fact precluding summary judgment. Jayko Int'l, Inc. v. VCS Constr. & Supplies, [2002] FMSC 3; 10 FSM Intrm. 502, 505 (Pon. 2002).

* * * *

COURT'S OPINION

MARTIN YINUG, Associate Justice:

The court has received the summary judgment motion filed on January 11, 2002, by plaintiff Jayco International, Inc., ("Jayco"); the response filed on January 17, 2002, by defendant VCS ("VCS"); and Jayko's reply.

Jayko has moved for summary judgment based on the following agreement which was appended to a single page record of VCS's purchases from Jayko.

Outstanding balance	$42,216.92
26 month's interest:	16,464.60
As of 01-01-01	58,681.52

[10 FSM Intrm. 504]

Interest at 1-1/2% per month will be added to above until fully paid

Effective 2-20-01, payment of $7,500.00 will be made monthly (every 30 days on 10th of each month) until account is paid in full. If a payment is not paid in time, the entire balance is due immediately. All legal expenses will be paid by VCS Construction in the event that this account goes to collection.

01-12-01

Date

/s/

Jose San Nicolas

VCS Construction

The first line of the foregoing is typewritten. There appears no dispute that the remaining portion, with the exception of the signature of Jose San Nicolas, is in the handwriting of Milan Kothari, president of Jayko. Nor does there appear to be any dispute that Mr. San Nicolas, the owner and general manager of VCS, signed the agreement.

In its response, VCS admits owing the sum of $42,216.92, but disputes the interest figure of $16,464.60. The interest was not computed on a declining balance basis. Rather, eleven payments totalling $78,795.50 were made on a debt of $121,012.42 over a period from October of 1998 to September of 2000. Jayko took the amount owed as of September of 2000, which was the $42,216.92, and computed interest on that amount for the 26 month period from November of 1998 through December of 2000. That interest so calculated as of January 1, 2001, was $16,464.60. As of November, 1998, which was the starting date for interest calculation, there was approximately $106,000 outstanding. Jayko has previously pointed out that the declining balance method of interest calculation with payments applied first to interest, then to principal, would have resulted in a principal of $66,900.59 and interest of $11,086.73 - versus principal of $42,216.92 and interest of $16,464.60 - for the 26 month period.

But VCS contends that historically no interest at all had been charged on account balances; that Jayko's manner of calculating interest is arbitrary and capricious; and that it amounts to "backdating" interest. Mr. San Nicolas asserts in his affidavit that he believed that by signing the agreement he was acknowledging that VCS owed the principal amount of $42,216.92. He also appears to contend that he did not think VCS was liable for the interest for the period prior to January 1, 2001. VCS urges that the interest question presents a fact issue precluding summary judgment.

Even assuming that Jayko did not historically charge interest on its account with VCS, nothing precludes the parties to this commercial transaction from coming to a new agreement regarding installment payments on the outstanding indebtedness that also included an interest component calculated over the prior 26 months period, so long as the interest rate charged did not contravene FSM public policy as set out in 34 F.S.M.C. 204. Since Jayko is seeking 18% interest per annum on the principal remaining after VCS's last payment, no usury issue arises, nor can the interest charged be said to be arbitrary and capricious on any other basis. Thus the interest portion of the agreement is binding.

As to Mr. San Nicolas' statements in his affidavit concerning his understanding of the agreement, the plaintiff has aptly cited to the following from Nanpei v. Kihara, [1992] FMSC 16; 5 FSM Intrm. 342, 345 (Pon. 1992), where plaintiff was granted summary judgment:

Mr. Nanpei also asserts that he "never understood or believed" that plaintiff was going to require that the money be returned. However, contracts are not interpreted on the

[2002] FMSC 4; [10 FSM Intrm. 505]

basis of the subjective uncommunicated views, or secret hopes of one of the parties. Instead, courts interpret and enforce agreements on an objective basis, according to the reasonable expectations of the parties based upon the circumstances known to the parties and their words and actions, at the time the agreement was entered into.

The agreement at issue specifies principal and interest in determining the amount owed as of January 1, 2001, and also indicates the prospective interest rate. The fact Mr. San Nicolas' understanding of the agreement is at variance with its express terms does not raise an issue of fact. Accordingly, Jayko's motion for summary judgment is granted.

Attorney fees of $2,740 are awarded in accordance with the fee affidavit submitted by plaintiff's counsel. Judgment issues herewith.

* * * *