Hartman v Henry [2019] FMSC 21; 22 FSM R. 292 (Pon. 2019) (18 July 2019)

FSM SUPREME COURT TRIAL DIVISION
CIVIL ACTION NO. 2012-031

KENNETH HARTMAN, on behalf of himself and
the family of Anceto Hartman, deceased,
Plaintiff,

vs.

BETHWELL HENRY, in his capacity as President
of Board of Directors of U Corporation, ROBERT
ARTHUR, in his capacity as General Manager of
U Corporation, and U CORPORATION,
Defendants.
_____________________________________________

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Dennis K. Yamase
Chief Justice

Trial: August 15-16, 2017
Decided: July 18, 2019

APPEARANCES:

For the Plaintiff: Danally Daniel, Esq.
Micronesian Legal Services Corporation
P.O. Box 129
Kolonia, Pohnpei FM 96941

For the Defendants: Stephen V. Finnen, Esq.
P.O. Box 1450
Kolonia, Pohnpei FM 96941

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HEADNOTES

Contracts
A contract is a promise or set of promises for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Hartman v. Henry, 22 FSM R. 292, 296 (Pon. 2019).

Contracts
A contract is a promise between two parties for the future performance of mutual obligations. Hartman v. Henry, 22 FSM R. 292, 296 (Pon. 2019).

Contracts
The obligation of contracts is generally limited to the parties making them. Hartman v. Henry, 22 FSM R. 292, 296 (Pon. 2019).

Business Organizations - Corporations - Liability; Contracts - Breach
A corporation is an artificial, juridical person separate from its owners and is thus a separate party. Thus, when a corporation enters into a contract under its name, and the contract is executed for the corporation "by" an individual, that individual, members of the corporate board, and employees of the corporation are not liable for any breach, absent unjust or fraudulent behavior. Hartman v. Henry, 22 FSM R. 292, 296 (Pon. 2019).

Torts - Waste
Waste is permanent harm to real property committed by a tenant. This may include the destruction, misuse, alteration, or neglect of premises by one lawfully in possession thereof. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Waste
To constitute waste the act must be wrongful, and it is the general rule that no act of a tenant will amount to waste unless it is or may be prejudicial to the inheritance. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Damages; Torts - Damages - Nominal; Torts - Waste
Damages for waste are normally the difference in value of the property before and after the act of waste. Since the damages for waste committed are usually measured by the injury actually sustained, if the value of the premises has been improved by the acts complained of, the complainants will only recover nominal damages, if any, at law. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Damages; Torts - Waste
Proof of diminution in value of property can be made by introducing the cost of repairs, and when the cost of repairs is submitted as evidence, the fact that repairs were not ultimately made does not prevent the property owner from securing recovery based on those estimated costs. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Damages; Torts - Waste
The allowance of damages is to award just compensation without enrichment. There is thus no universal test for determining the value of property injured or destroyed. The mode and amount of proof must be adapted to the facts of each case. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Waste
Voluntary (or commissive) waste is committed when a tenant does a deliberate or voluntary destructive act. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Waste
Permissive waste occurs when a tenant allows destruction of property by neglect, omission, or permission. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Waste
"Meliorating" waste, while technically waste, results when the character of land is altered but it results in the land being improved rather than injured, and acts or conduct which would otherwise constitute waste may be authorized or legalized by an appropriate provision in the document creating a tenancy. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Waste
A lessee committed voluntary waste when, at the lease’s conclusion, it did not remove certain fixtures from the property in a manner that would render the property safe and the property usable for farming or other uses because, when the lessors did not exercise the option under the lease to purchase fixtures and other property from the lessee, the lessee had the obligation to remove those fixtures in such a manner that it did not diminish the property by creating unsafe conditions. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Waste
The lessee did not commit any waste by constructing buildings and structures authorized by the lease agreement, such as the main building, bungalows ("abandoned houses"), or pedestrian bridge. Hartman v. Henry, 22 FSM R. 292, 297 (Pon. 2019).

Torts - Damages; Torts - Waste
When the lessee did not have the obligation to restore the property to its original state, damages are recoverable only for the former lessee’s acts which rendered the property unsafe and require remediation in order to make the lessor whole. Hartman v. Henry, 22 FSM R. 292, 298 (Pon. 2019).

Property - Lease; Torts - Damages; Torts - Waste
When the lease did not require the lessee, at the lease’s termination, to remove the structures and foundations, the lessor’s requested damages will be reduced because the lessee should not have to pay for the removal of slabs and foundations that remain on the property. Hartman v. Henry, 22 FSM R. 292, 298 (Pon. 2019).

Torts - Damages; Torts - Waste
Damages for permissive waste is not recoverable, including any damages related to clearing trees and brushes or cutting and removing. Hartman v. Henry, 22 FSM R. 292, 298 (Pon. 2019).

Torts - Damages; Torts - Waste
When a bridge that was constructed on the property was, under the lease, a permissible structure that improved the property’s value, the former lessee is not liable for its removal. Hartman v. Henry, 22 FSM R. 292, 298 (Pon. 2019).

Torts - Damages; Torts - Waste
Damages will be awarded for certain potentially dangerous materials including cut pipes, wires, rebar, certain other items left protruding from the ground and property that were a safety hazard and should have been removed because it resulted in the diminution of the properties’ value. Hartman v. Henry, 22 FSM R. 292, 299 (Pon. 2019).

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COURT’S DECISION

DENNIS K. YAMASE, Chief Justice:

I. BACKGROUND

On May 1, 2017, after a summary judgment hearing, the court issued an Order Granting And Denying Summary Judgment in Part. The Order concluded that, "When seen in the light most favorable to the plaintiffs, they have presented sufficient evidence to raise genuine issues of material fact with regard to waste on the premises in breach of contract. Summary judgment is hereby granted for all other causes of action or hereby DISMISSED for the reasons discussed." (emphasis added). This left the issue of waste as the sole issue remaining for trial.

On August 15 and 16, 2017, this court held a trial in this matter and a visitation of the subject property on the afternoon of August 16, 2017. Danally Daniel, Esq. (Daniel) of Micronesian Legal Services Corporation (MLSC) appeared on behalf of the plaintiff Hartman and Stephen V. Finnen, Esq. (Finnen) appeared on behalf of the defendants (Bethwell Henry et al.). The plaintiff put forth four witnesses: Aracely Ladore, DJ Hartman, Cassidy Shoniber, and Elizabeth Arthur. The defendants put forth five witnesses: Elizabeth Arthur, Dominicka Panuelo, Pentrick Ringlen, Daisylin George, and Sochiki Stamson.

The plaintiff submitted Exhibit A, the Lease Agreement/090A-04 between Anceto Hartman and U Corporation, which was stipulated to by both counsel, and Exhibit B, an estimate for clearing and cleaning of the land by Kleen Kut submitted by Kingston Anson. Both Exhibits A and B were admitted into evidence on August 15, 2017. A visitation to the site was taken on the afternoon of August 16, 2017.

II. FINDINGS OF FACT

1. 1. On July 26, 1972, plaintiff Kenneth Hartman’s father Anceto Hartman, now deceased, entered into a lease agreement with the defendant U Corporation. (Plaintiff’s Ex. A, "Lease Agreement.") The Lease Agreement was executed on behalf of U Corporation "BY: /s/ Bethwel Henry."
   
2. 2. The purpose of the lease was for land on which a hotel and its operations known as "The Village Hotel" was built and operated by the defendants.
   
3. 3. Prior to the lease period, the land was used primarily for subsistence farming.
   
4. 4. The period of the lease was 20 years, beginning on June 1, 1972 and ending on May 31, 1992. Additionally, the lease had two options for automatic renewal of ten years which would start immediately after the expiration of the original lease period. After the two ten year period options ended in May, 2012, the defendants continued to use the premises until April 30, 2013 when they vacated. They attempted to renegotiate the lease with the landowners, but were unsuccessful.
   
5. 5. Defendants paid $318.00 per year in rent for the first five-year period, $477.00 per year for the second five year period, $636.00 per year for the third five-year period, $795.00 per year for the fourth five-year period, and they continued to pay $795.00 per year for the remainder of the period until they vacated the premises at the end of April, 2013.
   
6. 6. Before the lease period ended, members of the plaintiff’s family entered upon the land and settled into four of the bungalows and the restaurant. On April 18, 2013 an Order for Agreed to Preliminary Injunction dealing with this matter was issued to allow the defendants to finalize and close down the business, pack up, and clear the property without interruption. This Order was issued in U Corporation d/b/a Village Hotel v. Araselihna Hartman and Raphael Ladore, Civil Action No. 2013-013.
   
7. 7. Before the lease period ended, the plaintiff attempted to obtain a new lease for the land from third parties. Parties were interested, but often came to the conclusion, after inspection, that the land and buildings were not in good condition.
   
8. 8. Before the lease period ended, plaintiff and his family never demanded that the structures be taken down.
   
9. 9. Before the lease period ended, no offer was made by the plaintiff or the defendants for the plaintiff to purchase furniture, toilets, covers, linens, fixtures, fittings, or other items used for the Village Hotel operations.
   
10. 10. After the defendants left the site, four bungalows and the restaurant were being used by plaintiff or his family members.
    
11. 11. At its peak, the Village Hotel had more than 50 employees, 23 bungalows, a fully functioning restaurant, bar, gazebo, a gift shop selling T-shirts and other gift items, tour operations, including SCUBA diving and snorkeling, fishing, hiking, and other activities.
    
12. 12. Under Section XVI of the Lease, the "Lessee agrees not to cause waste to the premises." Ex. A.
    
13. 13. Pursuant to Section VII of the Lease, the "Lessor hereby agrees that the lessee may erect on the Premises such roads, buildings, docks, structures, or equipment and dredge channels and remove trees and plants as it may require for carrying on its business." Ex. A
    
14. 14. Pursuant to Section VIII of the Lease, the "Lessee shall have the first right to execute a new lease for the premises at the conclusion of this lease; provided that, if the premises is not leased by the Lessee then the Lessor may purchase at the then fair market value all buildings, fixtures or parts thereof that he so desires."
    
15. 15. No evidence was submitted that either Robert Arthur or Bethwell Henry perpetrated any fraud or engaged in any unjust behavior personally or as representatives of U Corporation.
    
16. 16. As of August 16, 2017, the site where the Village used to be located contained significant dangerous debris, including cut pipes protruding from the ground, rebar, and loose wires.
    

III. CONCLUSIONS OF LAW

A. Dismissal of Individual Defendants

1. 1. A contract is a promise or set of promises for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Pohnpei Transfer & Storage, Inc. v. Shoniber, 21 FSM R. 14, 17 (Pon. 2016). A contract is a promise between two parties for the future performance of mutual obligations. Id. at 17.
   
2. 2. The obligation of contracts is generally limited to the parties making them. 17A AM. JUR. 2D Contracts § 421 (1991).
   
3. 3. A corporation is an artificial, juridical person separate from its owners and is thus a separate party. Smith v. Nimea, 19 FSM R. 163, 173 (App. 2013). When a corporation enters into a contract under its name, and the contract is executed for the corporation "by" an individual, that individual, members of the corporate board, and employees of the corporation are not liable for any breach, absent unjust or fraudulent behavior. See Id. at 174; Adams v. Island Homes Constr. Inc., 10 FSM R. 611, 614 (Pon. 2002).
   

The court finds that U Corporation is the only proper defendant in this case, as the Lease Agreement was clearly executed on behalf of U Corporation "BY: /s/ Bethwel Henry." In addition, no evidence was submitted that either Bethwell Henry or Robert Arthur committed any actions that could possibly make them liable because of their positions with U Corporation. Accordingly, the court dismisses Bethwell Henry and Robert Arthur as defendants and will only consider the claim of waste against defendant U Corporation.

B. Waste

1. 1. Waste is "[p]ermanent harm to real property committed by a tenant." BLACK’S LAW DICTIONARY 1621 (1998). This may include the "destruction, misuse, alteration, or neglect of premises by one lawfully in possession thereof." 78 AM. JUR. 2D Waste § 1, a (1975). "To constituttitute waste the act must be wrongful, and it is the general rule that no act of a tenant will amount to unless it is or may be prejudicial to the inheritance." Id. at 396.
   
2. 2. "Damages for waste are normally the difference in value of the property before and after the act of waste." Wolphagen v. Ramp, 8 FSM R. 241, 244 (Pon. 1998). "The damages for waste committed are usually measured by the injury actually sustained . . . and . . . if the value of the premises has been improved by the acts complained of, the complainants will only recover nominal damages, if any at law." Id.
   
3. 3. Proof of diminution in value of property can be made by introducing the cost of repairs. See Johnson v. Northwest Acceptance Corp., 485 P.2d 12, 16-17 (Or. 1971). Since the allowance of damages is to award just compensation without enrichment, there is no universal test for determining the value of property injured or destroyed, and the mode and amount of proof must be adapted to the facts of each case. Where the cost of repairs are submitted as evidence, the fact that repairs were not ultimately made does not prevent the property owner from securing recovery based on those estimated costs. Id.
   
4. 4. Voluntary (or commissive) waste is committed when a tenant does a deliberate or voluntary destructive act. 78 AM. JUR. 2D Waste § 3, at 397 (1975). Permissive waste occurs when a tenant allows destruction of property by neglect, omission, or permission. Id. "Meliorating" waste, while technically waste, results when the character of land tered but it results in then the land being improved rather than injured. Id. § 5. or conduct which would ould otherwise constitute waste may be authorized or legalized by an appropriate provision in the document creating a tenancy. Id.
5. 5. The defendant U Corporation committed voluntary waste when it did not remove certain fixtures from the property at the conclusion of the lease in a manner that would render the property safe and the property usable for farming or other uses. While the plaintiffs did not exercise the option under the lease to purchase fixtures and other property from the defendant, the defendant had the obligation to remove the fixtures in such a manner that it did not diminish the property by creating unsafe conditions.
   
6. 6. The defendant did not commit any waste by constructing buildings and structures authorized by the Lease Agreement, including the Main Building, bungalows ("abandoned houses") or pedestrian bridge.
   
7. 7. The defendant did not commit any waste with respect to any brushes, branches, shrubs or trees.
   
8. 8. There was no evidence that the defendant abandoned vehicles on the property.

The plaintiff argues that the tenant rendered the premises unsafe when it left behind concrete, logs, buildings, roofs, and electric wires. Plaintiff submitted a $31,150.00 cost estimate to remediate all of the damage to the property in the form of a detailed written estimate from a professional contractor, Kleen Kut. Ex. B. Additionally, the plaintiffs submitted approximately 40 photos taken by Kenny Omura on June 17, 2013 purporting to show waste to the premises. The court personally visited the site on August 16, 2017 and viewed the conditions on the property.

The defendant responds that those estimates do not accurately reflect the cost of repairs that would be required to restore the land, but more importantly that the obligation to restore the land to its original state was not in the lease, nor was it contemplated by the parties. Ultimately, the defendant represented that most, if not all, of the alleged damages are in fact improvements to the land permitted by the contract, not waste, which the Lessor was entitled to purchase, but elected not to do so.

IV. DAMAGES

The evidence of damages submitted by plaintiffs consisted of Exhibit B, a written estimate by Kleen Kut which would require 14 days to do the following:

1. 1. Clear Project site and clear all items, trees and brushes. Clear all vehicles. Remove and clear Main Building (Restaurant, Office, wal[k]way, gazebo). Clear foundations, slabs, all structural materials, and all dangerous debri[s]. (7 days, $11,500).
   
2. 2. Secure and safely cut down 3 trees. Secure and safely cut down tree trunks to a level satisfactory to client. (2 days, $3,150.00).
   
3. 3. Cut tree trunk and branches to small pieces and dispose at Dekehtik Dumpster. (1 day, $2,500.00).
   
4. 4. Clear 9 [abandoned] houses. Clear all structural foundations (cement, rebars, and debris). (3 days, $8,000.00)
   

5. Clear bridge. (1 day, $5,000.00) Ex. B.

While the court finds that waste is evident in this case, the court finds that damages are recoverable only for the acts of U Corporation which rendered the property unsafe and require remediation in order to make the plaintiff whole. The defendant did not have the obligation to restore the property to its original state. Exhibit A clearly permitted U Corporation to erect buildings and structures as required to operate the Village Hotel. It is arguable that foundations and slabs on which the buildings were constructed improved the property and added value, although it does not appear the plaintiff was able to capitalize on these improvements. And the court notes that the plaintiff’s family moved onto the property and occupied the area where the Village had a restaurant and occupied a number of the former stand alone hotel room bungalows. Nothing in the Lease Agreement required the defendant to remove these structures and foundations at the termination of the Lease. Thus, the damages requested by plaintiff will be reduced in that defendants should not have to pay for the removal of slabs and foundations that remain on the property.

Any permissive waste is not recoverable, including any damages related to "clearing trees and brushes" or cutting and removing is not allowable. In addition, there was no evidence presented that defendant abandoned any vehicles on the property. The court also finds that the bridge that was constructed was a permissible structure under the lease that improved the value of the property, and that defendant should not be liable for its removal.
However, after personally viewing the property and the condition that it was left in, the court finds that the defendant should have removed certain potentially dangerous materials including cut pipes, wires, rebar, and certain other items left protruding from the ground and property. These abandoned items were a safety hazard and should have been removed because it resulted in the diminution of the properties’ value. Accordingly, the court will award damages equal to 50% of the tasks specified in items 1 and 4 above, as the areas in the vicinity of the Main House and the bungalows ("9 abandoned houses") contained a number of dangerous abandoned items that should have been removed by the defendant and that still need to be removed to render the property safe. As stated above, the court will disallow any damages for removing trees and brush (items 2 and 3 above).

Plaintiff’s estimate from Kleen Kut states that it would cost approximately $11,500 for 7 days of work to clear the main building, including the main offices and restaurant, and includes removing dangerous debris from that area. Kleen Kut estimated that it would cost $8,000.00 for 3 days of work to clear nine other abandoned structures of rebar and other dangerous debris. However, this estimate also includes removing concrete foundations, which are not unsafe and could be considered an improvement if properly utilized. Accordingly, the court will discount the estimate for remediation in items 1 and 4 above by fifty percent, to allow plaintiffs to recover only for the removal of dangerous materials and debris. Therefore the total damages awarded to the plaintiffs is equal to 50 percent of ($11,500 plus $8,000), or a total of $9,750.

V. CONCLUSION AND JUDGMENT

The Court finds that U Corporation is the only proper defendant in this case as it was the party to the Lease Agreement that was the subject of this dispute. Accordingly, defendants’ MOTION TO DISMISS the individual defendants Bethwell Henry and Robert Arthur is HEREBY GRANTED.

It is also ADJUDGED, ORDERED and DECREED that plaintiff Kenneth Hartman, on behalf of himself and the family of Anceto Hartman, deceased, is awarded judgment of damages in the amount of $9,750.00 against the sole remaining defendant, U Corporation, for his claim of waste.

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