FSM 4 Intrm. 182-186

Where there are various reasonable and practical alternative constructions of a contractual provision available, rules of interpretation dictate that any ambiguities in a contract should be construed more strictly against the party who wrote it. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990).

It is especially important for the Court to scrutinize carefully and strictly construe contractual provisions which relate to the payment of attorney's fees. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990).

This case presents facts and issues identical to a number of other cases currently before the court. Defendant Ioanis Bartolome in this case, and all of the defendants in the other cases, executed loan agreements with the plaintiff, Bank of the Federated States of Micronesia, using identical note and chattel mortgage forms prepared and supplied by the bank. All the defendants failed to make timely payments, and the bank instituted proceedings against each defendant in this Court for collection of the debt. None of the defendants filed any response to the complaint, and the bank obtained default judgments against each.

Each default judgment excluded the postjudgment "attorney's fees at $100 per hour...in the collection of the debt" requested by the bank. In each case, the bank then moved the court under FSM Civ. R. 60(a) to include, as "inadvertently omitted" from the default judgments, "attorney's fees for post judgment legal work required to collect this judgment at the rate of $100 per hour."

The omission of post judgment attorney's fees was not inadvertent, nor was it an error or oversight. The clerk's office only has authority to grant default judgments "for a sum certain or for a sum which can by computation be made certain." FSM Civ. R. 55(b)(1). Any award of attorney's fees must be based upon a showing, and a judicial finding, that the amount of the fees is reasonable. Therefore the relief which plaintiff seeks does not fall within the coverage of FSM Civ. R. 60(a).

Nonetheless, the Rules of Civil Procedure do provide a means for considering the question plaintiff wishes to present. Specifically, FSM Civ. R. 60(b)(6) permits the court to relieve a party from a judgment for "any reason" justifying the relief. Because no defendant has filed any response to any of the bank's pleadings or motions in these cases, there seems little likelihood that any defendant has been misled by the fact that the bank's motion was based on Rule 60(a) rather than Rule 60(b). Thus, under the circumstances of this case, the Court deems it appropriate to address the substantive issue under FSM Civ. R. 60(b) rather than to deny the motion on the procedural ground that the bank identified the wrong subsection of Rule 60.

The bank's argument in favor of the amended judgment relies upon the provision entitled "Indemnity" in the bank's standard form which each defendant signed. There is no suggestion that the requirement to pay attorney's fees arises from any source other than the contractual obligations of the loan agreement. The indemnity provision of the bank's form reads as follows:

INDEMNITY. By signing this agreement, you agree to indemnify and save harmless the Bank of the Federated States of Micronesia from any claim of a third party against the property which is the subject of this chattel mortgage. You also agree to pay reasonable attorney's fees incurred by the bank in defending against such claims, and agree to pay reasonable attorney's fees incurred by the Bank fo [sic] the Federated States of Micronesia in enforcing this agreement.

(Emphasis added.) The bank contends that the final words, "this agreement," refer to the entire note and chattel mortgage, and that therefore postjudgment attorney's fees are properly assessed against the defendants.

The indemnity provision of the contract, however, is not without ambiguity. The reference to "this agreement" in the final line is not necessarily to the entire note and chattel mortgage, but may also be read to mean only the agreement set forth in the indemnity provision, that is, the agreement to "indemnify and save harmless the Bank" against third party claims. So read, the second sentence in the provision would be merely an agreement "to pay reasonable attorney's fees incurred by the Bank" in opposing third party claims against the loan collateral and in compelling the debtor to provide the indemnification specified in the first sentence.

This Court has previously held that where "there are various reasonable and practical alternative constructions [of a contractual provision] available," rules of interpretation dictate that any ambiguities in a contract "should be construed more strictly against the party who wrote it." Semens v. Continental Air Lines, 2 FSM Intrm. 131, 146-47 (Pon. 1985). In indemnification provisions, in particular, the Court requires "pristine clarity in the language of the...clause." Id. at 146. In part, this insistence flows from recognition of "pertinent aspects of Micronesian society, such as less facility in the English language, less exposure to business concepts, and paucity of legal resources, which might cause a reasonably intelligent Micronesian to perceive meaning differently than would a person from some other nation." Id. at 149. Those aspects of Micronesian society referred to in Semens, and the rules of interpretation employed in that case, are no less applicable to the bank's loan agreement forms at issue here.

In addition, it is especially important for the Court to scrutinize carefully and strictly construe contractual provisions which relate to the payment of attorney's fees.1 In some United States jurisdictions, for example, courts historically declined to enforce agreements to pay attorney's fees in debt collection cases, on grounds that such agreements oppress debtors, encourage litigation and constitute contractual penalties.2

Public solicitude about private loan agreements calling for debtors to pay creditors' expenses incurred in enforcing payment obligations has persisted to the present day. The Uniform Consumer Credit Code, designed as a

model for legislatures considering such legislation, offers alternative provisions regarding attorney's fees in consumer loans. 17 U.L.A. 253 (1978). One would entirely prohibit payment by the debtor of attorney's fees. U.C.C.C. § 2.413 (Alternative A). The other would limit such fees to a certain percentage of large loans only. Id., Alternative B. See also U.C.C.C. §§ 3.404, 3.514. The official comment points out that Alternative A reflects "a policy decision...treating this expense, like other collection costs, as part of the seller's cost of doing business."

The ambiguity of the indemnity provision prepared by the bank must be construed against the bank. Thus this loan agreement does not require debtors to pay attorney's fees incurred by the bank in collection actions against the debtors.

It is not necessary in this case to reach the question of whether unambiguous provisions calling for the debtor to pay the attorney's fees incurred by the creditor in debt collection cases would be valid. Certainly, however, to the extent that the Court may award attorney's fees to creditors in the future, it will be necessary for each creditor to establish that the attorney's fees to be charged are reasonable in relation to the amount of the debt as well as to the services rendered.

1. This concern is alleviated somewhat by the Pohnpei Judicial Act, Pon. S.L. 2L-160-82, which, at section 13(a), authorizes the Pohnpei Supreme Court to include "reasonable fees of counsel" within an award of court costs. However, no similar provision has been enacted by the national Congress or by any other state legislature within the Federated States of Micronesia. The national Judiciary Act of 1979, 4 F.S.M.C. 101-208, and the FSM Rules of Civil Procedure govern civil proceedings before this Court. Salik v. U Corp. 4 FSM Intrm. 48, 50 (Pon. 1989). Since neither the Congress, nor any state legislature other than Pohnpei has similarly provided for attorney's fee awards, it appears that the majority view within the Federated States of Micronesia remains that attorney's fees should not be awarded as a standard practice.

Of course, it also should be recognized that even the Pohnpei Judiciary Act authorizes attorney's fee awards only on the basis of court discretion, not by virtue of a contractual provision such as is before the Court in this case.

2. See, e.g., Merchants' Nat'l Bank v. Sevier, 14 F. 662 (8th Cir. 1882) (provision in note to pay 10% attorney's fee on amount due is void because it oppresses debtor, encourages litigation and constitutes penalty or forfeiture); Missouri Pac. R.R. v. Winburn Tile Mfg., 461 F.2d 984, 989-90 (8th Cir. 1972) (contractual provision for attorney's fees is penalty and therefore contrary to public policy in Arkansas). See generally 17 A.L.R.2d 288, 313-16 (1951); 17 Am. Jur. 2d Contracts § 164 (1964 & Supp. 1987).


	THE SUPREME COURT OF THE FEDERATED STATES OF MICRONESIA Cite as Bank of the FSM v. Bartolome , 4 FSM Intrm. 182 (Pohnpei 1990) [4 FSM Intrm. 182] BANK OF THE FEDERATED STATES OF MICRONESIA, Plaintiff, vs. IOANIS BARTOLOME, Defendant. FSM CIV. NO. 1988-117 OPINION Before Edward C. King Chief Justice January 30, 1990 APPEARANCES: For the Plaintiff: Fredrick L. Ramp Attorney at Law P.O. Box 1480 Kolonia, Pohnpei 96941 For the Defendant: In Pro Per * * * * HEADNOTES Judgments - Default The clerk's office only has authority to grant default judgments for a sum certain or for a sum which can by computation be made certain. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 184 (Pon. 1990). Attorney, Trial Counselor and Client - Fees Any award of attorney's fees must be based upon a showing, and a judicial finding, that the amount of the fees is reasonable. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 184 (Pon. 1990). [4 FSM Intrm. 183] Judgments - Relief from Judgment Rule 60(b)(6) of the FSM Rules of Civil Procedure permits the Court to relieve a party from judgment for any reason justifying the relief. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 184 (Pon. 1990). Contracts - Interpretation Where there are various reasonable and practical alternative constructions of a contractual provision available, rules of interpretation dictate that any ambiguities in a contract should be construed more strictly against the party who wrote it. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990). Contracts - Indemnification In indemnification provisions, in particular, the Court requires pristine clarity in the language of the clause. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990). Attorney, Trial Counselor and Client - Fees; Contracts It is especially important for the Court to scrutinize carefully and strictly construe contractual provisions which relate to the payment of attorney's fees. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990). * * * * COURT'S OPINION EDWARD C. KING, Chief Justice: This case presents facts and issues identical to a number of other cases currently before the court. Defendant Ioanis Bartolome in this case, and all of the defendants in the other cases, executed loan agreements with the plaintiff, Bank of the Federated States of Micronesia, using identical note and chattel mortgage forms prepared and supplied by the bank. All the defendants failed to make timely payments, and the bank instituted proceedings against each defendant in this Court for collection of the debt. None of the defendants filed any response to the complaint, and the bank obtained default judgments against each. Each default judgment excluded the postjudgment "attorney's fees at $100 per hour...in the collection of the debt" requested by the bank. In each case, the bank then moved the court under FSM Civ. R. 60(a) to include, as "inadvertently omitted" from the default judgments, "attorney's fees for post judgment legal work required to collect this judgment at the rate of $100 per hour." I. Legal Analysis Procedural Issue. [4 FSM Intrm. 184] The omission of post judgment attorney's fees was not inadvertent, nor was it an error or oversight. The clerk's office only has authority to grant default judgments "for a sum certain or for a sum which can by computation be made certain." FSM Civ. R. 55(b)(1). Any award of attorney's fees must be based upon a showing, and a judicial finding, that the amount of the fees is reasonable. Therefore the relief which plaintiff seeks does not fall within the coverage of FSM Civ. R. 60(a). Nonetheless, the Rules of Civil Procedure do provide a means for considering the question plaintiff wishes to present. Specifically, FSM Civ. R. 60(b)(6) permits the court to relieve a party from a judgment for "any reason" justifying the relief. Because no defendant has filed any response to any of the bank's pleadings or motions in these cases, there seems little likelihood that any defendant has been misled by the fact that the bank's motion was based on Rule 60(a) rather than Rule 60(b). Thus, under the circumstances of this case, the Court deems it appropriate to address the substantive issue under FSM Civ. R. 60(b) rather than to deny the motion on the procedural ground that the bank identified the wrong subsection of Rule 60. Attorney's Fees. The bank's argument in favor of the amended judgment relies upon the provision entitled "Indemnity" in the bank's standard form which each defendant signed. There is no suggestion that the requirement to pay attorney's fees arises from any source other than the contractual obligations of the loan agreement. The indemnity provision of the bank's form reads as follows: INDEMNITY. By signing this agreement, you agree to indemnify and save harmless the Bank of the Federated States of Micronesia from any claim of a third party against the property which is the subject of this chattel mortgage. You also agree to pay reasonable attorney's fees incurred by the bank in defending against such claims, and agree to pay reasonable attorney's fees incurred by the Bank fo [sic] the Federated States of Micronesia in enforcing this agreement. (Emphasis added.) The bank contends that the final words, "this agreement," refer to the entire note and chattel mortgage, and that therefore postjudgment attorney's fees are properly assessed against the defendants. The indemnity provision of the contract, however, is not without ambiguity. The reference to "this agreement" in the final line is not necessarily to the entire note and chattel mortgage, but may also be read to mean only the agreement set forth in the indemnity provision, that is, the agreement to "indemnify and save harmless the Bank" against third party claims. So read, the second sentence in the provision would be merely an agreement "to pay reasonable attorney's fees incurred by the Bank" in opposing third party claims against the loan collateral and in compelling the debtor to provide the indemnification specified in the first sentence. [4 FSM Intrm. 185] This Court has previously held that where "there are various reasonable and practical alternative constructions [of a contractual provision] available," rules of interpretation dictate that any ambiguities in a contract "should be construed more strictly against the party who wrote it." Semens v. Continental Air Lines, 2 FSM Intrm. 131, 146-47 (Pon. 1985). In indemnification provisions, in particular, the Court requires "pristine clarity in the language of the...clause." Id. at 146. In part, this insistence flows from recognition of "pertinent aspects of Micronesian society, such as less facility in the English language, less exposure to business concepts, and paucity of legal resources, which might cause a reasonably intelligent Micronesian to perceive meaning differently than would a person from some other nation." Id. at 149. Those aspects of Micronesian society referred to in Semens, and the rules of interpretation employed in that case, are no less applicable to the bank's loan agreement forms at issue here. In addition, it is especially important for the Court to scrutinize carefully and strictly construe contractual provisions which relate to the payment of attorney's fees.1 In some United States jurisdictions, for example, courts historically declined to enforce agreements to pay attorney's fees in debt collection cases, on grounds that such agreements oppress debtors, encourage litigation and constitute contractual penalties.2 Public solicitude about private loan agreements calling for debtors to pay creditors' expenses incurred in enforcing payment obligations has persisted to the present day. The Uniform Consumer Credit Code, designed as a [4 FSM Intrm. 186] model for legislatures considering such legislation, offers alternative provisions regarding attorney's fees in consumer loans. 17 U.L.A. 253 (1978). One would entirely prohibit payment by the debtor of attorney's fees. U.C.C.C. § 2.413 (Alternative A). The other would limit such fees to a certain percentage of large loans only. Id., Alternative B. See also U.C.C.C. §§ 3.404, 3.514. The official comment points out that Alternative A reflects "a policy decision...treating this expense, like other collection costs, as part of the seller's cost of doing business." Even where reasonable attorney's fees are allowed in general, courts will under some circumstances refuse to give the provision effect because the circumstances of the case make the fee unreasonable.3 II. Conclusion The ambiguity of the indemnity provision prepared by the bank must be construed against the bank. Thus this loan agreement does not require debtors to pay attorney's fees incurred by the bank in collection actions against the debtors. It is not necessary in this case to reach the question of whether unambiguous provisions calling for the debtor to pay the attorney's fees incurred by the creditor in debt collection cases would be valid. Certainly, however, to the extent that the Court may award attorney's fees to creditors in the future, it will be necessary for each creditor to establish that the attorney's fees to be charged are reasonable in relation to the amount of the debt as well as to the services rendered. The motion for relief from judgment is denied. * * * * Footnotes: 1. This concern is alleviated somewhat by the Pohnpei Judicial Act, Pon. S.L. 2L-160-82, which, at section 13(a), authorizes the Pohnpei Supreme Court to include "reasonable fees of counsel" within an award of court costs. However, no similar provision has been enacted by the national Congress or by any other state legislature within the Federated States of Micronesia. The national Judiciary Act of 1979, 4 F.S.M.C. 101-208, and the FSM Rules of Civil Procedure govern civil proceedings before this Court. Salik v. U Corp. 4 FSM Intrm. 48, 50 (Pon. 1989). Since neither the Congress, nor any state legislature other than Pohnpei has similarly provided for attorney's fee awards, it appears that the majority view within the Federated States of Micronesia remains that attorney's fees should not be awarded as a standard practice. Of course, it also should be recognized that even the Pohnpei Judiciary Act authorizes attorney's fee awards only on the basis of court discretion, not by virtue of a contractual provision such as is before the Court in this case. 2. See, e.g., Merchants' Nat'l Bank v. Sevier, 14 F. 662 (8th Cir. 1882) (provision in note to pay 10% attorney's fee on amount due is void because it oppresses debtor, encourages litigation and constitutes penalty or forfeiture); Missouri Pac. R.R. v. Winburn Tile Mfg., 461 F.2d 984, 989-90 (8th Cir. 1972) (contractual provision for attorney's fees is penalty and therefore contrary to public policy in Arkansas). See generally 17 A.L.R.2d 288, 313-16 (1951); 17 Am. Jur. 2d Contracts § 164 (1964 & Supp. 1987). 3. See, e.g., Cable Marine, Inc. v. M/V Trust Me II, 632 F.2d 1344, 56 A.L.R. Fed. 867 (5th Cir. 1980); Annot., 56 A.L.R. Fed. 871 (1982).