Cite as Ponape Construction Co. v. Pohnpei ,
6 FSM Intrm. 114 (Pohnpei 1993)

[6 FSM Intrm. 114]






Andon L. Amaraich
Associate Justice

Trial:  March 9-10, 1993
Decided:  June 21, 1993

For the Plaintiffs:        Fredrick L. Ramp, Esq.
                                     P.O. Box 1480
                                     Kolonia, Pohnpei FM 96941

For the Defendant:     Kevin P. Shea
                                     Assistant Attorney General
                                      Pohnpei State Government
                                     Kolonia, Pohnpei FM  96941

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     A national court may exercise pendent jurisdiction over state law claims included in a plaintiff's cause of action if they arise out of a common nucleus of operative fact and are such that they ordinarily would be expected to be tried in one judicial proceeding, but its exercise of pendent jurisdiction will be limited so as to avoid needless decisions of state laws.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 116 (Pon. 1993).

Civil Procedure
     When a defendant cites certain defenses, but makes no argument as to how they apply and their application is not self-evident, the court may decline to speculate as to how they apply.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 119 (Pon. 1993).

Administrative Law
     The state cannot raise as a defense a plaintiff's failure to comply with its administrative

[6 FSM Intrm. 115]

procedures for claims when denial of opportunity for administrative relief is one of the injuries the plaintiff complains of.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 119-20 (Pon. 1993).

Civil Procedure ) Pleadings
     A party may not amend its pleadings after trial to include another issue unless it was tried by the express or implied consent of the parties.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 120 (Pon. 1993).

     A party seeking to offer evidence after trial must show good cause why it should be admitted.  The court, in exercising its discretion, must weigh the evidence's probative value against the danger of injuring the opposite party through surprise because the opposing party cannot properly examine or counter the evidence, and without good cause shown the court should deny its admission as untimely.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 121 (Pon. 1993).

     A witness's credibility may not be attacked by evidence of a prior criminal conviction if the crime did not involve dishonesty or false statement, or was not for a felony whose punishment ended within the past ten years, or if the prejudicial effect outweighs the probative value.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 122 (Pon. 1993).

     A contract is a promise between two parties for the future performance of mutual obligations, which the law will enforce in some way.  For the promise to be enforceable, there must be an offer and an acceptance, definite terms, and consideration for the promise (that which the performance is exchanged for).  When one party fails to perform their promise, there is a breach of contract.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 123 (Pon. 1993).

     Where the plaintiffs were performing their contractual obligations, neither the defendant's wishes to accommodate a municipality's environmental concerns nor the defendant's reliance upon a subsequently passed state law making the subject matter of the contract illegal but which exempts existing contracts, will prevent the defendant from being held liable for termination of the contract.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 124-25 (Pon. 1993).

Contracts ) Illegality
     As a general rule, an illegal contract is unenforceable.  Even when performance occurs and a benefit is conferred, no recovery in either expectation damages or quantum meruit may be had.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 125 (Pon. 1993).

Contracts ) Damages; Remedies
     The equitable remedy of specific performance is one where the court orders a breaching party to do that which he has agreed to do, thereby rendering the non-breaching party the exact benefit which he expected.  The remedy is available when money damages are inadequate compensation for the plaintiff ) when damages cannot be computed or when a substitute cannot be purchased.  Ponape Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 126 (Pon. 1993).

Civil Rights; Corporations
     A corporation is a person who may recover damages for violation of its civil rights when it is deprived of its property interests, such as contract rights, without due process of law.  Ponape

[6 FSM Intrm. 116]

Constr. Co. v. Pohnpei, 6 FSM Intrm. 114, 127-28 (Pon. 1993).

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ANDON L. AMARAICH, Associate Justice:
     This is an action for breach of contract, restitution, and violation of civil rights arising out of a dispute between certain construction companies and the government of the State of Pohnpei.  Plaintiffs are Ponape Construction Company, Inc. (hereinafter "PCC"), a corporation organized under the laws of the FSM, wholly owned by FSM citizens, and doing business primarily in Pohnpei State; Ace/M.N. Construction Company (hereinafter "Ace/MN"), a sole proprietorship owned by Robert Etscheit, Jr., doing business primarily in Pohnpei State; and Caroline Island Development Corporation (hereinafter "Cidco"), a diversely owned corporation, doing business in Pohnpei State and a subcontractor to Ace/MN.  Defendant is the government of the State of Pohnpei (hereinafter "the State").

     This Court has jurisdiction over the matter pursuant to FSM Constitution article XI, section 6(b).  Certain claims arise out of the Pohnpei State Constitution.  The Court will exercise its pendent jurisdiction over those claims, since they arise out of a "common nucleus of operative fact" and are such that the plaintiffs "would ordinarily be expected to try them in one judicial proceeding."  Ponape Chamber of Commerce v. Nett, 1 FSM Intrm. 389, 396 (Pon. 1984).  However, the Court's exercise of pendent jurisdiction will be limited so as to avoid "needless decisions of state law."  Id. at 397.

     The main island of Pohnpei is connected to the island of Dekehtik by a causeway, known as Dekehtik causeway (hereinafter "the causeway").  In 1988, the State determined that the causeway was dangerously eroding and required extensive repairs.  In response to this situation, the Governor of Pohnpei State issued State Executive Order 3-88 on April 19, 1988, which lifted a prior moratorium on dredging "solely for the purpose of curbing further erosion along the east bank of the causeway to Dekehtik Island and to eliminate the present threat to the power poles."1   Pls.' Trial Ex. B.  The State then retained the services of the plaintiffs and one other construction company to perform emergency repair work on the causeway.2   Specifically, the goal was to widen the causeway by thirty (30) feet and to protect the shoreline along the causeway from further erosion.  In exchange for this emergency repair work, the companies would be allowed to dredge coral along the causeway which they then could either sell or use for other commercial projects.  Each company was made responsible for a portion of the causeway to widen.  Plaintiff PCC was made responsible for a portion of the west side of the causeway, while plaintiff Ace/MN was made responsible for a portion of the east side.  Plaintiff Cidco was sub-contracted by Ace/MN and worked on the same portion as that company.3  

[6 FSM Intrm. 117]

     The agreement entered into by the parties was an informal one.  No time limit for performance of the repair work was established by the parties, and no specifications were given for how much coral was to be used for repair work and how much could be taken by the plaintiffs.  However, it was understood that plaintiffs would perform both repairs and dredging under various permits issued by the State, including a United States Army Corps of Engineers Permit (hereinafter "the permit") which expires on December 31, 1994.  It was also apparent that plaintiffs were to perform the repairs as they saw fit.4   Test. Steve Nix (Mar. 9, 1993) (testifying that specifications of repair work were left up to plaintiffs); Pls.' Trial Exs. B, C, E.

     Formal authorization for plaintiffs to proceed was issued by the Director of Public Works on September 27, 1988.  Pls.' Trial Ex. E.

     When the project began, plaintiffs discovered that the area adjacent to the causeway had already been dredged and no good materials for dredging remained.  As a result, it was necessary to dredge further away from the causeway in order to obtain suitable material both for the repair work and for plaintiffs' commercial purposes.  In order to access the areas further away from the causeway, a finger previously built by the Pohnpei Transportation Authority (hereinafter "PTA") had to be repaired and extended from the causeway into the reef.  Also, plaintiff Ace/MN found it necessary to build a sea rock wall to protect the eastern shoreline of the causeways from the high tides and trade winds.  No objection to this additional work was made by the State.

     Plaintiff PCC did not begin operations until March, 1989 because of a delay in receiving construction equipment which it had ordered.  By May, 1989, PCC discovered that the causeway area which it had been assigned to repair had already been dredged and did not have sufficient suitable coral for repairs or commercial purposes.  As a result, with State consent, PCC switched its dredging operations to the eastern side of the causeway in order to obtain the necessary material to repair the western side.  This further delayed PCC's operations.

     On January 12, 1989, the Director of Public Works terminated Ace/MN's work on the causeway, claiming "lengthy delay and slow progress of the work" and asserting that PTA was then in a position to take over the project.5   However, on January 25, 1989, the Director of Public Works "superseded" his prior termination by rehiring Ace/MN to perform the repair work on the causeway.  No reasons were given for the re-hiring.

     On October 16, 1990, the Governor issued a memorandum to the Director of Land instructing him to terminate the dredging by November 30, 1990.  The terminations were based on "the concern of the people of Nett [over] the extensive damage done to the reef along the causeway" and the appearance that the plaintiffs "had not lived up to their commitment."  The Governor also advised the plaintiffs to "look and apply for alternative dredge sites."  Pls.' Trial Ex. H.  Another letter from the Director of Land to Robert Etscheit reiterated the public concern for damage done to the reef but instructed the plaintiffs to "cease all further dredging in the area, except to improve the causeway as designed and agreed."  Pls.' Trial Ex. I.  Thus, both the repair work and the dredging along the causeway ceased.

[6 FSM Intrm. 118]

     Plaintiffs, through Steve Nix, requested the Governor to reconsider.  In a letter dated November 27, 1990, Mr. Nix gave his understanding of the agreement and explained that Ace/MN had in fact been performing their obligations and had completed 75% of their portion of the project.  Pls.' Trial Ex. J.  The Governor's response "express[ed] the gratitude of the state for the improvement your company has made alongside the causeway" but declined to reconsider the termination because of the need to "respect the request of Nett District Government that dredging is curtailed in the area."  The Governor specified Nett Municipality's concerns as the reason for the termination.  Pls.' Trial Ex. K.  Mr. Nix continued to request reconsideration but, in the alternative, requested the State's assistance in locating and authorizing another dredge site and more time to remove the coral already dredged.  Pls.' Trial Ex. L.

     On February 20, 1991, the Governor informed the plaintiffs that he would re-impose the prior moratorium on dredging in accordance with Legislative Resolution No. 184-86.  Pls.' Trial Exs. M, N.  Later, the Governor informed the plaintiffs that the State would assist them in locating an alternative dredge site and directed the Director of Land to provide the assistance.  However, the Governor stated that dredging around the causeway could no longer take place since the state legislature had enacted a law prohibiting dredging in the area. Pls.' Trial Ex. O.  Plaintiffs later received notice of the law in question)Pon. S.L. 2L-197-91)from the Director of Land.  The Director noted that "[t]he only exception of the law is a legal or bona fide contract that may have been in force prior to the enactment of the law."  Pls.' Trial Ex. U.

     No alternative dredge site was ever explored.  Rather than comply with the Governor's directive, the Director of Land, through his attorney, raised a number of questions to the plaintiffs about the agreement with the State.  Pls.' Trial Ex. P. As a result, the Director of Land did not provide assistance in locating a new dredge site.  Repair of the causeway never resumed.

     Plaintiffs filed a complaint on December 13, 1991.  The complaint avers that plaintiffs had entered into a contract with the State and that the State breached the contract by terminating the repair work on the causeway.  Plaintiffs argue that they were performing their obligations under the contract when the project was terminated and that the State should have allowed them to complete the repair work and to dredge coral for a period of several years.  Plaintiffs also assert that the unilateral termination by the State, pursuant to a change in the law, was unjustified and without an opportunity for the plaintiffs to present their case at a hearing and as such violated their state and national constitutional rights of due process.  Plaintiff PCC seeks specific performance of the contract, while Ace/MN seeks damages for breach of contract and quantum meruit.  Both plaintiffs seek damages for civil rights violations.

          TThe State's answer lists as defenses: 1) that the complaint fails to state a claim upon which relief may be granted; 2) that plaintiffs' claims are barred by FSM Const. art. XIII, 5; 3) that plaintiffs' claims are barred by FSM Const. art. XIII, 4; 4) that the court lacks subject matter jurisdiction; 5) that plaintiffs lack standing to bring this action against the state.  Later, the State amended its defense to add that there never was a contract with the plaintiffs to dredge in return for repairing the causeway.  Rather, the agreement between the State and the plaintiffs was vague and undiscernible in its term and thus is unenforceable.  The State also avers that the agreement was of an indefinite duration and as such could be unilaterally terminated by either party.  The State ultimately terminated the agreement because the plaintiffs failed to perform.  Finally, since there was no contract granting plaintiffs a property interest, no civil rights violation occurred.

[6 FSM Intrm. 119]

     Certain defenses raised by the State in its answer to the complaint were neither explained nor expanded on in later filings, at trial, or in the State's closing statement.  While the State focused primarily on the defenses that were added after the answer, it never explored its original defenses.  Those defenses are: 1) that the complaint fails to state a claim upon which relief may be granted; 2) that plaintiffs' claims are barred by FSM Const. art. XIII, 5; 3) that plaintiffs' claims are barred by FSM Const. art. XIII, . 4; 4) that the court lacks subject matter jurisdiction; 5) that plaintiffs lack standing to bring this action against the State. Regarding the defense of lack of jurisdiction, the State later stipulated to the fact that this Court does have jurisdiction over the matter pursuant to FSM Constitution article XI, section 6(b).  Stipulated Pretrial Statement at 3 (Nov. 6, 1992).  Therefore, that defense is hereby considered withdrawn.

     Regarding the other defenses, the state has neither made any showing of how they apply to the instant matter nor formally withdrawn them.  No discussion of these defenses was made at trial.  Nor is their application self-evident.  Absent some from of argument from the State as to how these defenses apply, the Court will not conjure an analysis on behalf of the State if the State chose not to do so itself.  Therefore, those defenses are summarily rejected and will not be the basis for this Court's ruling.

     The Court's analysis will address the issues that have been presented and argued to the Court by the litigants.

Failure to Comply with Procedure
     In its closing statement, the State argues that plaintiffs failed to comply with the State Liability Act which requires a claimant to first present his claim to the appropriate state agency and be denied relief by that agency before filing suit and which prohibits suits for claims in excess of the dollar amount presented to the agency.6   While this issue was not presented at trial, I will address it here.

     The evidence presented at trial indicates that the plaintiffs wrote numerous letters to the Governor and to the Department of Land in connection with their claims.  Pls.' Trial Exs. J, L, O, P, Q, R.  Their requests for a resolution of the matter included a request for an alternate site, which was ordered by the Governor and never carried out.  It is clear from the exhibits that the plaintiffs

[6 FSM Intrm. 120]

did seek administrative action by the State before filing this suit.  Either the Governor, the Department of Public Works, or the Department of Land could have referred plaintiffs to the appropriate agency for a formal hearing.  That no such hearing occurred at any point in time is precisely one of the injuries that plaintiffs are claiming.  Therefore, I find no violation of the Liability Act, as plaintiffs did seek an administrative resolution before filing the instant suit.

Closing Statement
     At the close of trial, oral arguments were waived by counsel.  Instead, written briefs were to be simultaneously submitted to the Court.  However, in addition to submitting a written closing statement, the State submitted a motion to amend its answer along with an affidavit offered as evidence of prior criminal conviction of witness Steve Nix.  This evidence is then referred to in the Statement as a basis for the position that Mr. Nix's testimony be discarded as not credible.

     1.  Amendment of Pleading
     The motion to amend the answer is made pursuant to FSM Civil Rule 15(b) which states in pertinent part:

     When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.  Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; . . . .

     Based on this rule, the State seeks to include the affirmation defense of statute of frauds in the answer, since at the time of filing the answer, "then-counsel for defendant was not aware and did not raise this affirmative defense." Motion to Amend Answer at 2 (Mar. 26, 1993).

     I find this motion to be improper for two reasons:  First, Rule 15(b) allows amendment of a pleading when an issue has not been raised by the pleading but is tried by express or implied consent of the parties.

     Express consent may be given by stipulation, or may be incorporated in a pretrial order and rarely raises any serious fact questions.  Implied consent . . . seems to depend on whether the parties recognized that an issue not presented by the pleadings entered the case at trial.  If they do not, there is no consent and the amendment cannot be allowed.

6A Charles A. Wright et al., Federal Practice and Procedure 1493, at 18-20 (1990) (footnotes omitted).  It is the moving party who must show that such consent, express or implied, existed at trial.  In its motion, the State has made no attempt to show consent for allowing the issue of statute of frauds.  It is clear that no express consent has been obtained for the issue of statute of frauds, either by stipulated motion or by pretrial order.  Also the matter was not specifically raised at trial and there is no apparent recognition by the plaintiffs of the issue having entered the case at trial.  Therefore, there is no clearly implied consent by the parties to the issue of statute of frauds.

     Second, present counsel for the State previously amended the State's answer to add the defenses of vagueness and indefinite duration.  Such amendment was accepted by the Court in a stipulated pretrial statement.  Therefore, counsel had the opportunity then to include the defense of

[6 FSM Intrm. 121]

statute of frauds.  Counsel ultimately filed a motion to dismiss on the basis of the statute of frauds defense on the day before trial.  That motion was denied as untimely.

     Neither the facts nor the law support the State's motion to amend its answer after trial has already taken place.  Therefore, the motion to amend is denied. Section V of the State's closing statement, which raises the defense of statute of fraud, is hereby stricken from the record.

     2.  Impeachment of Nix
     In its closing statement, the state argues that the testimony of witness Steve Nix should be discarded for lack of credibility, due to prior criminal convictions. One of these convictions was for refusing to enter the United States draft in 1963. The other was a Pohnpei State conviction for assault in 1985.  The State then includes the affidavit of Francisco Joseph who as a detective allegedly investigated the assault case in 1985.  Mr. Joseph also alleges in his affidavit that Mr. Nix offered employment to the victim of the assault to avoid a civil suit. The State then relies on Mr. Joseph's affidavit to advance the position that the trial testimony of Mr. Martin Ethonol, the victim in the 1985 assault case, should be discounted for lack of credibility.7  

     The issue of Mr. Nix's prior convictions was explored by the State at trial.  The State specifically asked Mr. Nix whether or not he had ever been convicted of a crime of moral turpitude.  When Mr. Nix asked what that meant, counsel for the State explained that it involved "lying, cheating, dishonesty."  Mr. Nix then explained in open court his two convictions and counsel for the State moved on, presumably because Mr. Nix's crimes did not involve moral turpitude.

     Now, the State seeks to re-argue this issue after trial by relying on the affidavit of an individual who could have been called as a witness at trial but was not. Such an attempt should be shaped as a motion to reopen the case for the purpose of introducing further evidence in the case.  However, the State has made no such motion, As a result, the Court is left with untimely offered evidence.

     It is within the sound discretion of the Court whether or not to admit additional evidence after trial.  Exercise of such discretion must take into account the probative value of the evidence against the danger of injuring the opposite party through surprise.  Evidence offered after trial cannot be properly examined or countered by the opposing party.  Thus, the party offering the evidence must show good cause why the evidence should be admitted.  In the absence of such showing, it is a proper exercise of discretion for the Court to refuse the admission of untimely evidence.

     As stated above, the State neither makes a motion to reopen the case nor offers any reason why the Court should admit the affidavit of Francisco Joseph. In view of the lack of any showing by the State why the Court should admit the affidavit, I find no obvious reason to admit it.

     Furthermore, the substance of the affidavit is hearsay.  Mr. Joseph's affidavit makes allegations of what occurred based on the investigation which he conducted after the incident.  No personal knowledge of the events is indicated. No reference is made to any investigative report

[6 FSM Intrm. 122]

setting forth Mr. Joseph's factual findings.  As such, the substance of the affidavit is wholly inadmissible.  FSM Evid. R. 803(8).

     A witness's credibility may be attacked by evidence of a prior criminal conviction if the crime was either a felony)i.e. a crime punishable by death or over one year's imprisonment)or a crime involving "dishonesty or false statement, regardless of the punishment."  FSM Evid. R. 609(a).  Such evidence of prior conviction is inadmissible when the conviction or release from imprisonment occurred over ten years ago, unless the Court deems that its probative value outweighs its prejudicial effect.  FSM Evid. R. 609(b).

     Neither one of Mr. Nix's crimes involve dishonesty or false statement.  Mr. Nix's conviction for refusal to enter the draft occurred thirty years ago in the United States and has no probative value in this particular matter.  Indeed, it has no relevance even for impeachment purposes.  The State asserts that "Mr. Nix was convicted of a felony for failure to serve his country in the time of war, which in the United States is a serious crime."  Opp'n to Pls.' Motion to Strike at 2. Refusal to register for the draft may be a serious crime, but it unquestionably is not a crime of dishonesty.  The 1985 conviction is a felony and did occur within ten years and thus is technically admissible.  However, I find its probative value to be severely limited and largely outweighed by its prejudicial effect.

     For more above reasons, I cannot allow the affidavit of Mr. Francisco Joseph in this matter.  The affidavit is hereby stricken from the record, as are all arguments in the State's closing statement which refer to the affidavit.8  

     In taking this action, I express grave concern over the State Attorney General's apparent disregard for our rule of practice which requires that all filings by an attorney be well grounded in law and fact, "that to the best of the signer's knowledge, information, and belief there is good ground to support it; and that it is not interposed for delay."  FSM Civ. R. 11.  What this means is that attorneys may not discard our rules of practice for convenience.  The State Attorney General has presented new defenses and evidence after trial without proper motions and has needlessly disparaged a witness in a manner inconsistent with our rules of procedure.  Such a lack of observance of our rules has resulted in delay and waste of the Court's limited resource by compelling the Court to strike material from the record and to address issues not pertinent to the litigation. Such conduct is unquestionably sanctionable, and the Court will take appropriate action to remedy it at the proper time.

     The parties have submitted their understanding of what the issues in this case appear to be.  Some issues are subordinate to others.  I find the main issues to be the following:  1) Was there a legally enforceable contract between the parties?  Was this contract breached by the State?  2) Is Ace/MN entitled to quantum meruit?  3) Is PCC entitled to specific performance?  4) Were plaintiffs' civil rights violated? Specifically, do the plaintiffs have a constitutionally protected property interest which would require a pre-termination hearing or the location of an alternative dredge site by the State?

[6 FSM Intrm. 123]

     Thus, the following analysis will comprise of addressing each issue in turn.

Enforceable Contract
     The first issue which must be resolved is whether or not a legally enforceable contract existed between the parties.  Plaintiffs contend that their agreement with the State did constitute an contract in that it was agreed that plaintiffs would be allowed to dredge in return for repairing the causeway.  Plaintiffs maintain that the State, through oral and written representations, agreed to this arrangement, plaintiffs detrimentally relied on it, and therefore the State should be legally bound by it.  Because the State did not abide by the arrangement, it should be held liable for breach of contract.

     The State argues that no enforceable contract existed.  Rather, the agreement between the plaintiffs and the State was vague and indefinite in its terms and thus was terminable at will by either party.

     A contract is a promise between two parties for the future performance of mutual obligations, Which the law will enforce in some way.9   For the promise to be enforceable, there must be an offer and an acceptance, definite terms, and consideration for the promise (that which the performance is exchanged for). When one party fails to perform their promise, there is a breach of contract.

     There is no question that there was an arrangement between the parties.  The facts indicate that the Government offered to permit plaintiffs to dredge if they would perform the emergency repairs on the causeway.  The permission to dredge coral for commercial purposes constituted consideration for the repair work.  The plaintiffs accepted by commencing performance of their agreement. This is evidenced by the fact that the Government issued permits to the plaintiffs and both emergency repairs and dredging were well underway before termination.  Because the agreement between the parties did not establish a deadline for completion of the repair work, such lacking did not render the contract indefinite or vague so as to invalidate it.  Other terms were agreed upon, such as the dimension for widening the causeway and the fact that plaintiffs were accorded wide discretion in how to perform the repairs.

     Also, while no deadline for repairs was established, I find that the permission to dredge was meant to run with the Army Corps of Engineers permit)i.e. until December 31, 1994.  While the repairs were meant to last until the emergency no longer existed, it was clear that plaintiffs could continue to dredge until the end of the permit.  Plaintiffs entered into the contract with the understanding that, even when repairs were completed, they would be allowed to dredge commercially until December 31, 1994.

     Wherefore I find that the arrangement between the parties did constitute an enforceable contract.

[6 FSM Intrm. 124]

Breach of Contract
     When the State ordered the dredging to cease and later ordered all repair work to cease, it chose to no longer abide by its contractual obligations to the plaintiffs.  Such action unilaterally terminated the contract between the parties and did presumably constitute a breach of contract.

     The State advances three distinct reasons as justification and rebuttal of the presumption: 1) that plaintiffs failed to perform; 2) that Nett Municipality wanted the dredging curtailed; and 3) that the contract was rendered illegal by Pohnpei S.L. 2L-197-91.  Each is taken in turn.

     1.  Failure to Perform
     Generally, a party's failure to perform constitutes a breach of contact and the non-breaching party may suspend its own performance and terminate the contract.10   However, by the State's own admission, Ace/MN had performed nearly 100% of its portion of the repairs.  Dep. Finale Henry at 12-13; Test. Finale Henry (Mar. 10, 1993).  While PCC admittedly had not performed as much repair work by the time it was terminated, no deadline for completing the repair work was ever imposed by the State on the plaintiffs.11   That the State did not impose a deadline or make clear that time was of the essence is an indication that repairs were not meant to be completed within any specific period of time but would continue as long as the emergency existed.  Had PCC been given more time, there is no reason to believe that it would not have completed its portion of the repairs.

     Therefore, I find that the plaintiffs had performed or were performing their contractual obligations at the time of termination.

     2.  Nett Municipality
     The State advanced as another reason for termination the need to "respect the request of Nett District Government that dredging is curtailed in the area." Pls.' Trial Ex. K.  According to the Governor, Nett was concerned about the environmental impact of the dredging in the area, and the Governor tried to accommodate those concerns.

     However legitimate the desire to accommodate a municipality, such a decision is a matter of policy and does not constitute a legally valid reason for unilateral termination of an enforceable contract.  The State must make whatever political decisions it sees fit.  However, that such decisions may result in a breach of contract is a consequence that the State, not the plaintiffs, must bear.

[6 FSM Intrm. 125]

     3.  Illegal Contract
     As a general rule, an illegal contract is unenforceable.  Even when performance occurs and a benefit is conferred, no recovery in either expectation damages or quantum meruit may be had.

     The State claims that the agreement with the plaintiffs was rendered illegal by the enactment of Pohnpei S.L. 2L-197-91.  As a result, the contract can no longer be enforced, since to do so would contravene the law of the State.  Plaintiffs respond that the law was enacted after the contract was entered into and thus is exempt from the illegality.

     The Pohnpei State Constitution states:  "No law may impair an existing contractual obligation, except for the protection of an essential public interest." Pon. Const. art. IV, 5.  Nothing in the language of Pohnpei S.L. 2L-197-91 suggests a retroactive application which would impair already existing contacts. Thus, in view of the constitutional limitation and the language of the state law, it must be presumed that the law would only apply to contract entered after its enactment.  Because the law does not impair existing contracts, the issue of "an essential public interest" does not arise, nor was such an issue ever raised by the State at trial.  Contracts entered into before S.L. 2L-197-91's enactment are exempt from its prohibition.

     The evidence indicates that the illegality which would render the agreement unenforceable arose well after the agreement was entered into and already terminated by the State.  Initially, plaintiffs were terminated for lack of performance.  Pls.' Trial Ex. I.  Later, it was because of the concern of Nett Municipality.  Pls.' Trial Ex. K.  The Governor then invoked Legislative Resolution No. 184-86 in reimposing the moratorium on dredging," Pls.' Trial Ex. M, despite the fact that the resolution had not yet been enacted as law and thus was not binding on him.  Finally, once S.L. 2L-197-91 passed, the Governor invoked it as a reason for prohibiting dredging activities.  Pls.' Trial Ex. O.  This was nine months and three reasons after the initial termination.

     Furthermore, the Director of Land advised plaintiffs of this exemption and requested that contracts be forwarded to him.  Pls.' Trial Ex. U.  Plaintiffs complied with this request and warned the Director that they thought the State to be in breach of their contract.  Pls.' Trial Ex. R.  I find that, because the contract was enforceable, it should have been exempt from S.L. 2L-197-91.

     Thus, I find the invocation of illegality to be improper in this matter.  The State may not evade its contractual obligations by ex post facto legislation.

     None of the positions advanced by the State justify its termination of the contract.  Wherefore I hold that the State did breach its contract with the plaintiffs by its termination of the projects.

     Plaintiffs Ace/MN requests damages for breach of contract in the amount of $222,400.00 which, according to Ace/MN, is the value of its repairs less the amount of coral it sold.  While Ace/MN's estimates were not made with the greatest precision, they are consistent with)even below)the State's own general estimate that Ace/MN performed nearly 100% of its portion of a project which the State estimated at $1.2 million.  Dep. Finale Henry at 12-13; Test. Finale Henry (Mar. 10, 1993).  Thus, the State valued Ace/MN's work at $300,000.00.  The State offered no precise measurements or records of the work conducted by Ace/MN to refute Ace/MN's

[6 FSM Intrm. 126]

estimates.12   This is largely due to the State's failure to adequately monitor the repair work on the causeway.

     Accordingly, I hereby award Ace/MN compensatory damages in the sum of $222,400.00.

Quantum Meruit
     Because I find the State liable for damages in breach of contract, no recovery in quantum meruit is necessary.

Specific Performance
     Plaintiff PCC requests specific performance of the contract in lieu of damages.  The equitable remedy of specific performance is one where the Court orders a breaching party in a contract to do that which he has agreed to do, thereby rendering the non-breaching party the exact benefit which he expected. "[A] decree for specific performance is nothing more or less than a means of compelling a party to do precisely what he ought to have done without being coerced by a court."  71 Am. Jur. 2d Specific Performance 1, at 10 (1973). The remedy is available when money damages are inadequate compensation for the plaintiff)i.e. when damages cannot be computed or when a substitute cannot be purchased.

     PCC was late in commencing its repair work.  As a result, it had not performed a large amount of repairs when the State terminated the project. However, PCC was performing its obligations when it was terminated and would have completed its performance had it been given the chance.  As a result of the early termination, PCC was unable to commercially dredge coral in compensation for the work that it did perform.

     The method of compensation)i.e. commercial dredging rights)makes a reliable computation of expectation damages impracticable, since PCC had not dredged sufficiently to establish a basis with which to refer to.  Unlike Ace/MN, PCC did not substantially perform its portion of the project, thus compensatory damages cannot be accurately computed.

     Wherefore, it is hereby ordered that specific performance be rendered by the State in favor of PCC.  Specifically, the State shall expressly permit PCC to complete its portion of the repairs as originally agreed, and shall permit PCC to dredge coral on the eastern side of the causeway in order to perform the repairs. In return for the repair, the State is hereby ordered to extend commercial dredging rights to PCC effective immediately.  The commercial dredging rights shall last until December 31, 1994 plus the number of days equal to the period starting October 16, 1990 and ending on the effective date that PCC recommences its repairs under this order.

Civil Rights
     Plaintiffs seek damages for the violation of their state and national civil rights. Specifically, plaintiffs claim that their contract with the State constituted a property interest which the State could not take without due process of law. Because the State did not provide plaintiffs with notice

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or an opportunity for a hearing, the termination of the agreement violated plaintiffs' right to due process of law.

     The State responds that plaintiffs have not proven their claim for civil rights violations and that plaintiffs, as corporation, lack standing to bring a civil rights action.

     1.  Standing
     The proposition that corporations have no constitutional rights was not advanced by the State at or before trial.  No authority is cited for the proposition. A defense not asserted in responsive pleading or by amendment should be considered waived, especially when the opposing party has no opportunity to respond.  FSM Civ. R. 12(b).  Thus, the State has waived the defense of lack of standing.  However, I choose to address it because of the question raised.

     In general, a person must have standing in order to assert a challenge.  "The essence of standing in its constitutional dimension is whether plaintiffs has a personal stake in the issue presented. . . . A challenger must have some right specifically affected, and the interest that he seeks to protect must be within the zone of interests to be protected by the statute or constitutional guaranty in question.  16 C.J.S. Constitutional Law 64, at 166-67 (1984) (footnotes omitted).

     The due process provisions of both the Pohnpei and FSM Constitutions refer to "persons."  The State wrongly assumes that "persons" only means natural persons, as opposed to legal persons such as corporations)or state governments.  Corporations are entities created by law.  However, that fact alone does not deprive them of certain constitutional rights, including rights to due process of law.  It is well recognized in U.S. jurisprudence that corporations have standing to assert constitutional claims on their own behalf.  Id. at 168-69.  While it is clear that the intangible, artificial nature of a corporation prevents it from having certain rights reserved for physical beings, it is uncontroversial that a corporation can own property, and can sue and be sued.  All of our business regulation and corporate statutory law is premised on the basic understanding that certain process is due when the government acts towards corporations.  This Court has previously ruled in favor of corporations asserting constitutional claims. Actouka v. Kolonia Town, 5 FSM Intrm. 121 (Pon. 1991).

     Wherefore, corporations have standing to assert constitutional claims against the State for deprivation of property without due process of law.

     2.  Constitutional Language
     The FSM Constitution states that "[a] person may not be deprived of life, liberty, or property without due process of law, or be denied the equal protection of the laws."  FSM Const. art. IV, 3.  The Pohnpei Constitution states that "[n]o person may be deprived of life, liberty, or property without due process of law. Private property may not be taken except for a public purpose with just compensation."  Pon. Const. art. IV, 4.

     The relevant analysis is one of procedural due process.  With regard to the Pohnpei State Constitution, the Pohnpei Supreme Court has articulated the doctrine as one which

     relates to the requisite characteristics of proceedings toward a deprivation of life, liberty, or property and thus makes it necessary that a person whom it is sought to deprive of such a right must be given notice of this fact; in other words, he must be

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given notice of the proceedings against him in that regard, he must be given an opportunity to defend himself before a tribunal or office having jurisdiction of the cause, and the problem of the propriety of this deprivation, under the circumstances presented, must be solved in a manner consistent with essential fairness, otherwise, in accordance with the Pohnpeian concept of justice.

Paulus v. Pohnpei, 3 FSM Intrm. 208, 221 (Pon. S. Ct. Tr. 1987).

     Regarding the FSM Constitution, this Court has stated the concept even more plainly: "The fundamental concept of procedural due process is that the government may not be permitted to strip citizens of `life, liberty, or property' in an unfair, arbitrary manner."  Semens v. FSM, 4 FSM Intrm. 66, 74 (App. 1989) (quoting Suldan v. FSM (II), 1 FSM Intrm. 339, 354 (Pon. 1983)).  See also Gimnang v. Yap, 5 FSM Intrm. 13, 25 (App. 1991).  In both cases, the issue is whether or not plaintiffs have a property interest which the State cannot seize in an arbitrary, summary fashion.

     3.  Plaintiffs' Property Interest
     A property interest does not arise simply from a person's abstract desire or need for it.  It is "defined by existing rules or understandings that stem from an independent source."  Board of Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 2709, 33 L. Ed. 2d 548, 561 (1972).  This Court has found liberty to contract to be a constitutionally protected property interest.  In Suldan v. FSM (II), 1 FSM Intrm. 339, 351 (Pon. 1983) the Court declared that "[g]overnment employment that is `property' within the meaning of the Due Process Clause cannot be taken without due process."  It further specified what constitutes a property interest: "To be property protected under the constitution, the employment right must be supported by more than merely the employee's own personal hope.  There must be a claim of entitlement based upon government assurance of continual employment or dismissal for only specified reasons."  Id. at 352.

     The foregoing rationale leads back to the threshold question of whether or not there was an enforceable contract.  The existence of a property interest is premised on the existence of an enforceable contract.  I have already held that such a contract existed.  Therefore, I find that a property interest did exist which could not be taken without due process of law.

     4.  Due Process
     The facts indicate that the State did not provide plaintiffs with a hearing either before or after terminating the contract.  Plaintiffs were not given an opportunity to defend themselves before an administrative tribunal against the allegation of lack of performance, nor were they allowed an opportunity to challenge the propriety of the termination.

     It must be noted that the contract between the parties was informally entered into since no written document was executed.  However, when terminating the contract, the State attempted to use that informality against the plaintiffs by insisting on formal terms.  Nevertheless, whether the contract is formal or informal, due process must be given.

     Wherefore I find that the State did violate the plaintiffs' right of due process under both the Pohnpei State and FSM Constitutions.  The State is hereby held liable for damages in the amount of $5,000.00 each for PCC and Ace/MN.

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     The arrangement to repair the causeway in return for commercial dredging rights constituted an enforceable contract between the State and the plaintiffs, which the state breached by unilaterally terminating the contract.

     The State is liable to Ace/MN for the amount of $222,400.00.

     The State is ordered to render specific performance of the contract with PCC in the manner described above.

     The State is found to have violated plaintiffs' due process rights and is ordered to pay $5,000.00 in damages to each.

     Parties shall bear their own costs and attorney's fees.

*    *    *    *
1.  The moratorium had been issued pursuant to a legislative resolution.  Pon. Leg. Res. 184-86.
2.  The third company, named N.D.C., is not a party to this suit.
3.  Hence, the only real parties in interest among the plaintiffs are PCC and Ace/MN.
4.  In none of the communications between the parties was there any discussion on how repairs were to be conducted.
5.  "Presently the government has repaired an available crane and is now capable of accomplishing the  work as needed."  Pls.' Trial Ex. F.
6.  The State cites Section 24 of the Pohnpei Government Liability Act of 1991 which states:

(1) An action shall not be instituted upon a claim against the State or an employee acting within the scope of his or her public duties or employment unless the claimant shall have first presented the claim to the appropriate government agency and the claim shall have been finally denied by the agency in writing . . . .

(2) Court actions instituted under this section shall not be instituted for any sum in excess of the amount of the claim presented to the government agency . . . .

Pon. S.L. 2L-192-91, 24.
7.  At trial, the State cross-examined Mr. Ethanol and yet did not attempt to introduce the incident between Mr. Nix and him.
8.  Specifically, lines 2 (beginning with "Interestingly") through 9 of page 5 and lines 5 through 17 of page 6 are hereby stricken from the record.
9.  The Restatement defines a contract as "a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty."  Restatement (Second) of Contracts 1 (1981).
10.  This is especially the case with construction contracts.  E. Allan Farnsworth, Contracts 8.15 (1982).
11.  The State argued that, because there was an emergency, the repairs should have been completed within two years.  I fail to see the relation between the urgency for repairs and the duration of those repairs.  If the situation is as critical as the State claims, then it may likely require lengthy and expensive repairs.  That the State may want a quick fix is a question of policy which belongs to the State. However, the State must then make clear that a quick fix is what it wants.
12.  The State offered finger measurements which were taken on the morning of Mr. Henry's testimony, four years after the fingers had been repaired.  Such measurements are unreliable, as the fingers have presumably deteriorated over four years.