THE  SUPREME COURT OF THE
FEDERATED STATES OF MICRONESIA
TRIAL DIVISION
Cite as Senda v. Semes ,
8 FSM Intrm. 484 (Pon. 1998)

[8 FSM Intrm. 484]

AMBROS T. SENDA and AMBROS
AND COMPANY, INC.,
Plaintiffs,

vs.

HERMAN SEMES and HATLER GALLEN,
Defendants.

CIVIL ACTION NO. 1992-041

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Martin Yinug
Associate Justice

Trial:  January 21-23, 1998
Decided:  November 25, 1998

[8 FSM Intrm. 485]

APPEARANCES:
For the Plaintiffs:          Andrew Clayton, Esq.
                  Stephen V. Finnen, Esq.
                  Saimon & Associates
                  P.O. Box 1450
                  Kolonia, Pohnpei FM 96941

For the Defendants:     Charles Greenfield, Esq.
(Herman Semes)          Micronesian Legal Services Corporation
                  P.O. Box 129
                  Kolonia, Pohnpei FM 96941

(Hatler Gallen)               Joses Gallen, Esq.
                  P.O. Box 189
                  Weno, Chuuk, FM 96942

*    *    *    *
 
HEADNOTES
Civil Procedure ) Pleadings
     Generally, affirmative defenses that are not pled are waived.  Consequently, a pleader normally will not be penalized for exercising caution when he sets up affirmative matter that technically may not be an affirmative defense but nonetheless might fall within the residuary clause of Rule 8(c) of the Rules of Civil Procedure.  Senda v. Semes, 8 FSM Intrm. 484, 493 (Pon. 1998).

Civil Procedure ) Pleadings
     When an affirmative defense has not been pled but is raised after trial has begun, it is not waived when opposing counsel consents to its being raised.  Senda v. Semes, 8 FSM Intrm. 484, 493 (Pon. 1998).

Civil Procedure ) Pleadings
     Affirmative defenses that in each instance are tied to specific factual allegations do not present an instance of blanket pleading of frivolous affirmative defenses without regard to the facts of the case.  Senda v. Semes, 8 FSM Intrm. 484, 493-94 (Pon. 1998).

Civil Procedure ) Pleadings
     Issues raised in pleadings are not waived by a party's failure to discuss them in briefs.  Senda v. Semes, 8 FSM Intrm. 484, 494 n.6 (Pon. 1998).

Civil Procedure ) Pleadings
     Pleadings are designed to develop and present the precise points in dispute between parties and should narrow and focus issues for trial, not provide a vehicle for scattering legal theories to the wind in the hope that the trial process will eventually winnow some few grains from the cloud of chaff.  With respect to affirmative matter under Rule 8(c), counsel should come to trial knowing what affirmative defenses or "any other matter constituting an avoidance" the facts support, and present evidence accordingly.  Senda v. Semes, 8 FSM Intrm. 484, 494 (Pon. 1998).

Civil Procedure ) Pleadings
     Upon the court's own initiative at any time, the court may order stricken from any

[8 FSM Intrm. 486]

pleading any insufficient defense or immaterial matter.  Rule 12(f) is a useful vehicle for disposing of both legally and factually deficient defenses.  The former defenses are those which would not under the facts alleged, constitute a valid defense to the action, while the latter are irrelevant defenses appropriately disposed of under that portion of Rule 12(f) dealing with immaterial matter. Senda v. Semes, 8 FSM Intrm. 484, 494-95 (Pon. 1998).

Torts ) Contribution
     By statute, when two or more persons become jointly or severally liable in tort there is a right of contribution among them.  Senda v. Semes, 8 FSM Intrm. 484, 495 (Pon. 1998).

Common Law
     When FSM courts have not yet addressed an issue, the court may look to the Restatement and to decisions from jurisdictions in the common law tradition outside the FSM, all the while keeping in mind the suitability for the FSM of any given common law principle.  Senda v. Semes, 8 FSM Intrm. 484, 495 (Pon. 1998).

Remedies ) Restitution
     A person who has discharged more than his proportionate share of a duty owed by himself and another, as to which neither had a prior duty of performance, and who is entitled to contribution from the other is entitled to reimbursement, limited to the proportionate amount of his net outlay properly expended.  Senda v. Semes, 8 FSM Intrm. 484, 495 (Pon. 1998).

Remedies ) Restitution
     Contribution is an equitable doctrine based on principles of fundamental justice.  When any burden ought, from the relationship of the parties to be equally borne and each party is in aequali jure, contribution is due if one has been compelled to pay more than his share.  The right to contribution is not dependent on contract, joint action, or original relationship between the parties; it is based on principles of fundamental justice and equity.  Senda v. Semes, 8 FSM Intrm. 484, 495 (Pon. 1998).

Remedies ) Restitution
     The right to sue for contribution does not depend upon a prior determination that the defendants are liable.  Whether they are liable is the matter to be decided in the suit.  To recover a plaintiff must prove both that there was common burden of debt and that he has, as between himself and the defendant, paid more than his fair share of the common obligations.  Senda v. Semes, 8 FSM Intrm. 484, 496 (Pon. 1998).

Evidence ) Burden of Proof
     The defendants have the burden of proof with respect to each affirmative defense, and must prove that defense by a preponderance of the evidence.  Senda v. Semes, 8 FSM Intrm. 484, 496 (Pon. 1998).
 
Constitutional Law; Custom and Tradition
     The constitutional government works not to override custom, but works in cooperation with the traditional system in an atmosphere of mutual respect.  Senda v. Semes, 8 FSM Intrm. 484, 497 (Pon. 1998).

Custom and Tradition; Evidence ) Burden of Proof; Remedies ) Restitution
     In a civil case where defendants seeks to advance Pohnpeian customary practice as a defense to a claim of equitable contribution, the burden is on the defendants to establish by a preponderance of the evidence the relevant custom and tradition.  Senda v. Semes, 8 FSM Intrm. 484, 497 (Pon. 1998).

[8 FSM Intrm. 487]

Evidence ) Expert Opinion
     If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill experience, training, or education, may testify thereto in the form of an opinion.  Senda v. Semes, 8 FSM Intrm. 484, 497-98 (Pon. 1998).

Constitutional Law; Custom and Tradition
     Micronesian custom, and the constitutional legal system established by the people of the FSM, flow from differing (not necessarily inconsistent) premises and purposes.  These two systems, then, can be seen as supplementary and complementary, not contradictory.  Each has a valuable role to perform, independent of the other.  Senda v. Semes, 8 FSM Intrm. 484, 499 (Pon. 1998).

Courts; Custom and Tradition
     One of our courts' express functions is to apply and interpret the duly enacted and promulgated laws and regulations which lie at the heart of a dispute.  Our court system exists to speak to the very issues to which Pohnpeian custom and tradition are silent.  In this way, the two systems complement each other.  Senda v. Semes, 8 FSM Intrm. 484, 499 (Pon. 1998).

Custom and Tradition; Remedies ) Restitution
     Allowing a contribution claim between parties who are relatives, and who are equally liable under a duly promulgated regulation for a corporation's debts, is consistent with the customary principle that relatives should assist one another.  Senda v. Semes, 8 FSM Intrm. 484, 499 (Pon. 1998).

Custom and Tradition; Remedies ) Restitution
     A contention that custom and tradition as a procedural device may prevent an equitable claim for contribution based on violation of a regulation governing the formation of corporations is an insufficient defense as a matter of law.  Senda v. Semes, 8 FSM Intrm. 484, 499 (Pon. 1998).

Civil Procedure ) Pleadings
     Normally a defense that is not pled is waived, but an affirmative defense is not waived when it is raised after trial has begun, and opposing counsel consents to its being raised.  Senda v. Semes, 8 FSM Intrm. 484, 499-500 (Pon. 1998).

Equity
     The clean hands doctrine has been expressed in the language that he who has done inequity shall not have equity.  A maxim which is closely related to, and which has been described as a corollary of, the clean hands maxim is where the wrong of the one party equals that of the other, the defendant is in the stronger position.  On the other hand, one whose wrong is less than that of the other may be granted relief in some circumstances.  Senda v. Semes, 8 FSM Intrm. 484, 500 (Pon. 1998).

Remedies ) Restitution; Statutes of Limitation; Torts ) Contribution
     The date of accrual for a contribution cause of action is the day the judgment was entered.  Obviously a prerequisite to any successful contribution action based on a judgment is the judgment itself.  The limitations period for a contribution action is six years.  Senda v. Semes, 8 FSM Intrm. 484, 500-01 (Pon. 1998).

Equity ) Laches, Estoppel and Waiver
     Generally, the laches defense is meant to prevent injustice as to a person against whom one seeks to assert rights where the one asserting the rights has slept on those rights.  Thus, laches at a minimum comprehends an inexcusable delay in bringing suit, and prejudice to the defendant as a result.  Senda v. Semes, 8 FSM Intrm. 484, 501 (Pon. 1998).

[8 FSM Intrm. 488]

Civil Procedure; Civil Procedure ) Pleadings
     Affirmative defenses that the court has ruled against earlier and affirmative defenses for which no evidence was presented at trial must fail.  Senda v. Semes, 8 FSM Intrm. 484, 501-02 (Pon. 1998).

Civil Procedure ) Pleadings
     When a party has mistakenly designated a counterclaim as a defense, the court, on such terms as justice requires, shall treat the pleading as if there had been a proper designation.  Senda v. Semes, 8 FSM Intrm. 484, 503 (Pon. 1998).

Civil Procedure ) Res Judicata
     Res judicata bars any further litigation of the same issues between the same parties or anyone claiming under those parties.  Senda v. Semes, 8 FSM Intrm. 484, 504 (Pon. 1998).

Contracts ) Indemnification; Remedies ) Restitution
     In the case of indemnity the defendant is liable for the whole damage springing from contract, while in contribution the defendant is chargeable only with a ratable proportion founded not on contract but upon equitable factors measured by equality of burden.  Senda v. Semes, 8 FSM Intrm. 484, 505 (Pon. 1998).

Business Organizations ) Corporations ) Liability
     Under ordinary circumstances, a parent corporation will not be held liable for the obligations of its subsidiary.  Senda v. Semes, 8 FSM Intrm. 484, 505 (Pon. 1998).

Business Organizations ) Corporations ) Liability
     The mere fact of a loan to a subsidiary is not sufficient to confer liability for the loan on the parent.  Senda v. Semes, 8 FSM Intrm. 484, 506 (Pon. 1998).

Business Organizations ) Corporations ) Liability; Remedies ) Restitution
     A party jointly and severally liable for a corporation's debts is not liable for contribution for a subsidiary's debt paid by a guarantor when the corporation was not a co guarantor of the subsidiary's loan.  Senda v. Semes, 8 FSM Intrm. 484, 506 (Pon. 1998).

Equity; Remedies ) Restitution
     Equity does not dictate that a setoff for the amount of a defendant's stock subscription be allowed against a contribution claim when the person claiming the setoff received by far the greatest benefit from the failed corporation while it was operating.  Senda v. Semes, 8 FSM Intrm. 484, 507 (Pon. 1998).

Remedies ) Restitution
     When C.P.A. Reg. 2.7 imposes the same degree of liability on all incorporators, and the parties' plan from the beginning was to share profits equally, balancing the equities favors a three-way, equal split of the debt burden on a contribution claim.  Senda v. Semes, 8 FSM Intrm. 484, 507-08 (Pon. 1998).

Remedies ) Restitution; Torts ) Contribution
     A person who has discharged more than his proportionate share of a duty owed by himself and another and who is entitled to contribution from the other is entitled to reimbursement limited to the proportionate amount of his net outlay properly expended.  When incurred interest expense is part of his net outlay properly expended, the other should contribute toward the interest expense. Senda v. Semes, 8 FSM Intrm. 484, 508 (Pon. 1998).

[8 FSM Intrm. 489]

*    *    *    *

COURT'S OPINION
MARTIN YINUG, Associate Justice:

I.  Introduction     
     This complex lawsuit, made more so by the unwieldy state of the pleadings at the time of trial, is one of numerous suits resulting from the failure of the Mid-Pacific Construction Company, Inc. ("Mid-Pac").  The parties to this suit were the incorporators and directors of Mid-Pac.  Plaintiff Ambros Senda seeks contribution from the defendants toward a judgment of $222,073.36 which was rendered against him individually in another case in this court, Civil Action 1988-099, Mid-Pac v. Senda.  The decision of the trial court in that case is reported at 4 FSM Intrm. 376 (Pon. 1990), affirmed, 5 FSM Intrm. 277 (App. 1992).  Mr. Senda was the sole defendant in Civil Action 1988-099, which was brought on assignment for the benefit of the Mid-Pac creditors.  His personal liability in that case arose from the fact that he, as an incorporator and one of the original directors of Mid-Pac, knowingly signed a false affidavit in order to obtain a corporate charter.  Per the affidavit, the corporation's minimum paid-in capital requirement of $11,200 had been certified as having been met by the payment of $5,100 each by Herman Semes and Hatler Gallen, and $1,000 by Ambros Senda.  Under Corporations, Partnerships and Associations Regulation 2.7 ("C.P.A. Reg. 2.7")1, the penalty for the filing of a false affidavit is the joint and several liability of the incorporators and original directors for subsequent corporate liabilities.  Hence the judgment against Senda.  Although they were also incorporators and directors of Mid-Pac, Semes and Gallen were not parties to that suit.

     After judgment was entered against Senda, he filed this case, originally as Civil Action 1991-001.  Also a progeny of the judgment against Senda was Sets Inc. v. Semes, Civil Action No. 1991-014, in which the plaintiff, a judgment creditor of Mid-Pac, claimed that Herman Semes should be liable for the corporate debts of Mid-Pac on the same basis that Ambros Senda had been held liable. Subsequently Mid-Pac's creditors sought to intervene in both of these cases, and to consolidate them.  The court granted the motion; the creditors filed a complaint2; and Ambros Senda filed an amended complaint which sought declaratory judgment that Semes and Gallen were also liable for the debts of Mid-Pac, as well as contribution from Semes and Gallen toward the judgment rendered against Senda in Civil Action No. 1988-099, which is the $222,073.36 judgment.

     On April 30, 1992, Gallen filed an answer to Senda's amended complaint in which he alleged eighteen affirmative defenses; also on that date Semes filed an answer to Senda's amended complaint alleging eighteen affirmative defenses. Apparently not to be outdone, five days later on May 5, 1992, Semes filed an amended answer alleging no less than twenty-one affirmative defenses.  Sixteen of the defenses alleged in both Gallen's answer and Semes' amended answer were all but verbatim the same, with occasional slight variations in wording.

     Various motions followed, and decisions on these motions have been reported at Mid-Pacific Constr. Co. v. Semes (I), 6 FSM Intrm. 171 (Pon. 1993); Mid-Pacific Constr. Co. v. Semes (II), 6 FSM

[8 FSM Intrm. 490]

Intrm. 180 (Pon. 1993); and Mid-Pacific Constr. Co. v. Semes, 7 FSM Intrm. 102 (Pon. 1995).3  These decisions address issues among Semes and Gallen and the creditors, not among Semes and Gallen and Senda.  The creditors and Senda filed a subsequent motion for summary judgment on July 19, 1995.  Thirty days later, on August 18, 1995, the creditors alone filed an amended motion for summary judgment to incorporate further factual material and to request specific monetary damages.  The subject of the motion and amended motion (treated as one by the court), along with the responses, was the liability of Semes and Gallen under C.P.A. Reg. 2.7, and certain defenses to that liability.

     In its ruling on the summary judgment motion(s) entered July 22, 1996, at page 5, the court held as follows:

     The Court therefore summarily adjudicates the potential liability of Semes and Gallen to the Mid-Pac Creditors for the violation of C.P.A. Reg. 2.7, for failure to file an accurate Stock Affidavit, based on the foregoing undisputed facts and conclusions of law.  Whether Semes and Gallen will be found liable depend upon their proof of their affirmative defenses.

Mid-Pacific Constr. Co. v. Semes, 7 FSM Intrm. 522, 526 (Pon. 1996).  The court also found that one of the defenses to liability under C.P.A. Reg. 2.7 pled by both Semes and Gallen to the creditors' complaint, that of de facto corporation, was insufficient as a matter of law.

     As of the time of trial, the creditors had dismissed their complaint by stipulation.  In discussions at trial before the commencement of testimony, counsel for Senda and Semes were in agreement that the court's July 22, 1996, ruling that Semes and Gallen were liable to the creditors for violation of C.P.A. Reg. 2.7, should be binding on Semes and Gallen as well.  The court found that there had already been an adjudication that Senda and Gallen had violated C.P.A. Reg. 2.7. This finding was without prejudice to the parties' presentation of their affirmative defenses to Senda's contribution claim.

     Thus remaining at trial was Senda's claim for contribution, and the defenses to that claim, as well as Semes' counterclaim for indemnification (as opposed to contribution) for judgments entered against him in Civil Action No. 1988-085, Bank of Guam v. Herman and Kioko Semes, and Civil Action No. 1988-012, California Pacific Associates and Kent International v. Mid-Pac Construction, et al.  Semes claimed that the judgments in those cases, though entered against him personally, were actually the obligations of Mid-Pac, and that he was entitled to indemnification from Senda for them.  Semes' additional counterclaim for setoff, that he should receive credit against any amount owed to Semes for the money that he paid by payroll deduction toward his stock subscription, was also tried over no objection from plaintiff, although it was not pled.

     Trial took place on January 21-23, 1998.  The court has also received and considered the parties extensive post trial submissions, including plaintiff's combined post-trial motion entitled "Motion to Amend Pleadings According to Proof, Rule 15(b); Motion to Join Real Party in Interest, Rule 17(a); and Motion to Intervene, Rule 24(a)."  Plaintiff filed the combined motion to reflect that during trial, Ambros Senda testified that it was Ambros and Company, Inc., a company which he owns in its entirety, that paid the judgment of $222,073.00, and not Senda personally.  This fact was apparently not known to plaintiff's counsel prior to trial.  The motion to add Ambros and Company, Inc., as a party was first made orally at the end of trial, and defendants objected at that time, but subsequently waived their objections.

[8 FSM Intrm. 491]

     The court addresses plaintiff's post-trial combined motion briefly here.  Since the defendants after trial waived their objections to adding Ambros and Company, Inc., as a party plaintiff, the motion is granted, the issue having been tried by the implied consent of the parties.  FSM Civ. R. 15(b); Wito Clan v. United Church of Christ, 6 FSM Intrm. 129, 133 (App. 1993).

II.  Findings of Fact
     1.  Relevant events began more than twenty years ago.  Semes, a first cousin of Senda and Gallen, initiated discussions with them in the middle part of 1978 about the possibility of incorporating Mid-Pac Construction, a construction business in which Semes and Gallen were already involved.  Mid-Pac had been in existence and operating for about a year at that time.  Senda was asked to join the corporation because of his educational background and business experience. Senda, after giving the matter some thought over the course of a month or so, decided to become secretary and treasurer of Mid-Pac Construction, Inc., as it was to be known, toward the end of 1978.

     2.  Herman Senda, a sophisticated man who holds both an undergraduate business degree from the University of Guam and an MBA from Golden Gate University in San Francisco, prepared the stock affidavit (admitted into evidence as plaintiff's exhibit "A"), articles of incorporation, and by-laws of Mid-Pac.  He did so at the request of Senda and Gallen, and used the incorporation documents of Black Construction as a model. The parties discussed the contents of all documents in Pohnpeian, and Semes made sure that Senda and Gallen understood the contents of the documents.  These documents were filed with then Trust Territory Registrar of Corporations, and a corporate charter for Mid-Pac Construction Company, Inc., issued on November 20, 1978.

     3.  The stock affidavit, signed by Senda and Gallen, was false at the time it was signed, because the subscribers, Herman P. Senda, Hatler Gallen, and Ambros Senda, had not paid into the corporation the subscription amounts shown in the affidavit.  The affidavit recites that Semes and Gallen had already purchased 5,100 shares of stock at one dollar per share, and that Senda purchased 1,000 shares at one dollar per share.  Semes told Senda not to pay in his initial capital contribution of $1,000 at the time of incorporation because the profits from Mid-Pac would be used to pay for the shares of all three incorporators.  Gallen also believed that payments for his stock would come from the corporate profits.  The total initial capitalization was $11,200 ($5,100 + $5,100 + $1,000) because this was the projected profit from one of Mid-Pac's first projects.  Because this project was viewed essentially as belonging to Semes and Gallen, Mid-Pac's preincorporation principals, Semes and Gallen were assigned the larger stock subscriptions.  Senda thought that by signing the stock affidavit, he was obligating himself to purchase shares in the corporation.  Gallen does not understand English, but had had the venture explained to him in detail by Semes in Pohnpeian, and he trusted his cousins with respect to the accuracy and truth of the documents that he signed.

     4.  Of the three initial incorporators and directors of Mid-Pac, Semes and Gallen received salaries.  Semes was Mid-Pac's president, Senda was secretary/treasurer, and Gallen was vice-president and general manager.  From the time of Mid-Pac's incorporation until it went out of business in 1986, Semes received a salary of over $400 bi-weekly.  Until sometime in 1983, Semes held a full-time job in the Pohnpei governor's office.  While he was employed with the state, he would stop in at Mid-Pac's offices at odd times during the day, and also before and after government working hours.  His function as president was to negotiate contracts.  After he left employment with the state of Pohnpei, he fulfilled his responsibilities to Mid-Pac as he found time.  He did not work eight hours a day.  Gallen, who was responsible for running Mid-Pac on a day to day basis, received a salary of over $300 bi-weekly.  When Gallen left the corporation in 1981, he was replaced by either Damian Primo or Simiron Jim.

     5.  Senda and Gallen believed that the parties would share the profits of Mid-Pac equally.  Semes

[8 FSM Intrm. 492]

understood that profits were to be based on the number of shares owned:  the stock affidavit provides that the three incorporators would ultimately subscribe to 25,000 shares each.  At the time that Mid-Pac ceased doing business, Senda's stock account stood at 22,432 shares, while Semes and Gallen had their initial shares respectively of 1,000 and 5,100 each.  Semes accumulated his shares by paying for them through payroll deduction.  Gallen provided rent-free housing to Mid-Pac workers in exchange for a credit toward his stock contribution, although no documentation shows this.

     6.  The years 1979 and 1980 were good years for the corporation, although stock dividends were never declared and any profits remained in the corporation. Senda resigned as secretary/treasurer from the company in January of 1980 after his election to the Pohnpei legislature, and was replaced by Herman Semes' wife, Kioko Semes.  In April, 1981, Gallen left the company because he and Semes were not able to work together in operating the business.  Also in 1981 cash flow problems began which persisted.  To address cash flow problems in 1985, Semes issued a call to Senda and Gallen for payment of their stock subscriptions, which were not paid.  Mid-Pac went out of business in 1986.  All of the day-to-day corporate documents, including checks, vouchers, files, and bank records, where padlocked by DSI pursuant to a writ of execution against Mid-Pac in 1987 and subsequently lost, apparently because they were in the file cabinets that were sold under the writ of execution.

     7.  In 1988 the creditors of Mid-Pac filed Civil Action No. 1988-099 against Senda, and judgment was entered against him on December 19, 1990, for $222,073.36.  (That decision is reported at 4 FSM Intrm. 376 (Pon. 1990).)  To pay the judgment, Senda obtained two loans.  As to the particulars of these loans, the court incorporates Senda's proposed findings of fact thirty-two through thirty-eight, inclusive.

     8.  Senda obtained the first loan of $60,000 from Bank of Guam on December 4, 1992.  He subsequently obtained a second loan in the amount of $227,000 on March 10, 1993, also from Bank of Guam, to pay off the first loan, and to pay the total amount that remained unpaid on the judgment.  The difference between the $227,000 loan amount and the 222,073.36 judgment amount went to Ambros and Company, Inc., and is unrelated to this action.  The $227,00 loan to Senda was in the name of Ambros and Company, Inc., a corporation owned wholly by Senda. Ambros and Company, Inc., was able to obtain the loan at 2% over prime, whereas if Senda had obtained the loan personally, the annual interest rate would have been 15%.  As of the January 19, 1998, Senda had made 58 payments on the $227,000 loan, totalling, with interest, $266,958.92.  The last payment on the loan, as of time of trial, was expected to occur in June or July of 1998.

     9.  After Senda left the company, but before Gallen left, Island Hardware, Inc. ("Island Hardware"), was incorporated.  Semes was one of the incorporators of this company, which Semes testified was a wholly owned subsidiary of Mid-Pac. Semes took no salary from Island Hardware.  Semes personally guaranteed a loan in the amount of $60,553.00 to Island Hardware by the Bank of Guam, and when Island Hardware defaulted, the Bank of Guam sued him in the trial division of this court in Civil Action No. 1988-085, and on April 4, 1989, obtained a stipulated judgment against him totalling $72,650.82, inclusive of interest.  The loan proceeds had gone to the Bank of Guam to pay off previous loans to Island Hardware.

     10.  Also on this point, admitted into evidence over no objection from plaintiff was defendant's exhibit 9, a copy of a complaint in Civil Action No. 1987-015, Bank of Guam v. Mid-Pac Construction Co., Inc., another case from the trial division of this court.  The complaint sought judgment against Mid-Pac on the same loan that was the subject of Civil Action No. 1988-015, in which the stipulated judgment was entered against Semes.

     11.  Gallen holds the traditional title of Son Madau en Lehiak, or village chief, in Madolenihmw.  

[8 FSM Intrm. 493]

He testified that Pohnpeian custom concerning family members is that one cousin does not sue another cousin, and that to do so disrupts the harmony of the family. Gallen testified that if a cousin owed him money, and the cousin were not able to pay, Gallen would write off the debt.  Semes, who holds the traditional titles of Souwel Lapalap en Kitti and is also a Nan Kiroauhn Pohsoain, or section chief, testified that the appropriate way to resolve a dispute of the sort at issue is for the close family members to get together and help one another.  Senda, who holds the traditional title of Soulalap en Uh, conceded that under custom and tradition it may not be "fair" for cousins to sue one another, but that nothing prevents such a suit.  Although the parties are first cousins, in the eyes of Pohnpeian custom they are brothers.

     12.  Senda testified that he never sought the financial assistance of Semes and Gallen after the judgment was entered against him.  He testified that he was in pain and felt totally neglected by his cousins, and that he felt "left out in the cold."  Had his cousins approached him first, so he testified, he would have sought and asked for their help.  Senda testified that he filed the contribution action because he believed that he and the defendants were "together in this," and because he believed that they should all share the responsibility of the judgment.

III.  Discussion and Conclusions of Law
     The court first determines whether Senda is entitled to equitable contribution. The court will then come to grips with the host of affirmative defenses.  Following that is a discussion of Semes' counterclaims, then a discussion of the appropriate manner of contribution.  But before embarking on this task, the court will comment on the state of the pleadings as they stood at the time of trial relative to defendants' affirmative defenses.

A.  The Pleading of the Affirmative Defenses
     As previously noted, defendant Semes's amended answer to Senda's amended complaint pled twenty-one affirmative defenses, while Gallen answered with eighteen.  Sixteen affirmative defenses are common to the answers of both Semes and Gallen ) they are all but verbatim the same, with only slight variations. Thus between the two answers, there are twenty-three distinct affirmative defenses; plus an additional defense that Semes argued in his post trial submissions, but did not plead; plus a partial defense that Semes raised at trial over no objection from plaintiff but neither argued nor pled, for a total of twenty-five (25).

     Generally, affirmative defenses that are not pled are waived.  Kelson v. City of Springfield, 767 F.2d 651, 657 (9th Cir. 1987).  Consequently, a pleader "[n]ormally . . . will not be penalized for exercising caution" when he "set[s] up affirmative matter that technically may not be an affirmative defense but nonetheless might fall within the residuary clause of Rule 8(c) [of the Rules of Civil Procedure]." 5 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure 1271, at 304 (1969).  Rule 8(c) of the FSM Rules of Civil Procedure, the same as the United States Federal Rule, lists nineteen affirmative defenses, followed by the residuary clause:  "and any other matter constituting an avoidance or affirmative defenses."  Where an affirmative defense has not been pled but is raised after trial has begun, it is not waived where opposing counsel consents to its being raised.  DelCostello v. International Broth. of Teamsters, 588 F. Supp. 902, 905 (D. Md. 1984).

     This case does not present an instance of the blanket pleading of frivolous affirmative defenses without regard to the facts of the case as discussed in In re Sanction of Berman, 7 FSM Intrm. 654

[8 FSM Intrm. 494]

(App. 1996).  The defendants' affirmative defenses 4 in each instance are tied to specific factual allegations, but that is the best that can be said of some of them. 5 Because the presentation of evidence took all of the time that the court had calendared for the trial, the court directed counsel to submit written oral arguments.  A measure of the defendants' commitment to their myriad affirmative defenses as of the time of trial is that defendants in their post trial submissions each argue only two.6

     Assuming purely for the sake of argument that prudence dictated pleading the affirmative defenses in 1992 when the answers were filed in this complex case, by the time of trial counsel knew which affirmative defenses had evidentiary support. However, in their joint pretrial statement, filed by plaintiff and both defendants, the parties merely recite the fact that the defenses had been pled in the answers to Senda's amended complaint.  Between them, the parties made no effort to prune what was by then, and probably was from the beginning, an overgrown tangle of affirmative defenses.  This serves no point, and is not careful practice.

     "Pleadings are designed to develop and present the precise points in dispute between parties."  61A Am. Jur. 2d Pleading 3 (1981) (emphasis added). Pleadings should narrow and focus issues for trial, not provide a vehicle for scattering legal theories to the wind in the hope that the trial process will eventually winnow some few grains from the cloud of chaff.  With respect to affirmative matter under Rule 8(c), counsel should come to trial knowing what affirmative defenses or "any other matter constituting an avoidance" the facts support, and present evidence accordingly.

     The defenses remained in the case as of time of trial.  Rule 12(f) provides in pertinent part that "upon the court's own initiative at any time, the court may order stricken from any pleading any insufficient defense or . . . immaterial . . . matter." FSM Civ. R. 12(f) (emphasis added).  Rule 12(f) is a useful vehicle for disposing of both legally and factually deficient defenses.  The former defenses

[8 FSM Intrm. 495]

are those which would not "under the facts alleged, constitute a valid defense to the action," while the latter are irrelevant defenses "appropriately disposed of under that portion of Rule 12(f) dealing with immaterial matter." 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure 1381, at 795 (1969).

     One course would be for the court, if only on principle, to summarily strike certain of the affirmative defenses under Rule 12(f).  However, the distinction between striking a defense after trial, as opposed to before trial, and dismissing a defense on the basis of the evidence is slight.  At the risk of rising to the bait, the court makes a finding, infra at part III.C., with respect to each affirmative defense in light of the evidence presented.

B.  Senda's Claim for Contribution
     With respect to whether a claim for a non-statutory, equitable claim for contribution exists in the FSM, the court looks to the useful analysis plaintiff offers in his post-trial brief.

     Contribution among tortfeasors exists under national law by statute.  Congress has enacted the Contribution Among Joint Tort-feasors Act, 6 F.S.M.C. 1201 et seq.  That statute, though, is directed toward the eponymous tort-feasors:  "where two or more persons become jointly or severally liable in tort . . . , there is a right of contribution among them."  6 F.S.M.C. 1202(1) (emphasis added).  In the case at bar, liability results from violation of C.P.A. Reg. 2.7.  As such, this case does not fall within the ambit of the contribution statute.

     Courts in the FSM have yet to address the issue of contribution based on mutual, non-tort liability, which in this case results from violation of a regulation promulgated pursuant to statute.  In such cases, the court may look to the Restatement and to decisions from jurisdictions in the common law tradition outside the FSM, all the while keeping in mind the suitability for the FSM of any given common law principle.  Rauzi v. FSM, 2 FSM Intrm. 8, 14-15 (Pon. 1985).

     Section 85 of the Restatement of Restitution provides that

     [a] person who has discharged more than his proportionate share of a duty owed by himself and another, as to which neither had a prior duty of performance, and who is entitled to contribution from the other . . . is entitled to reimbursement, limited

     (a)  to the proportionate amount of his net outlay properly expended . . .
 
The court has held, in its ruling on summary judgment, that Semes and Gallen have, like Senda, violated C.P.A. Reg. 2.7, and are thus liable for the debts of Mid-Pac.  They all three find themselves in the same situation in that regard.  In Restatement terms, as among the three, there is a common duty with respect to the debts of Mid-Pac, a judgment for which was entered against Senda.  In accord with the Restatement is Vickers Petroleum Co. v. Biffle, 239 F.2d 602, 606 (10th Cir. 1956):

Contribution is an equitable doctrine based on principles of fundamental justice.  . . . "[W]hen any burden ought, from the relationship of the parties . . . to be equally borne and each party is in aequali jure, contribution is due if one has been compelled to pay more than his share."  "The right to contribution is not dependent on contract, joint action, or original relationship between the parties; it is based on principles of fundamental justice and equity."

(citing by omitted footnotes to 13 Am. Jur. Contribution 3, 6 (no date provided) respectively).

[8 FSM Intrm. 496]

     A decision of Associate Justice Louis Brandeis, Phillips-Jones Corp. v. Parmley, 302 U.S. 233, 58 S. Ct. 197, 82 L. Ed. 221 (1937), provides insight. Like the instant case, the dispute in Parmley generated extensive litigation, resulting in two separate campaigns through the appeal process to the United States Supreme Court.  Phillips, one of the eleven shareholders of a liquidated corporation, was assessed pursuant to statute the entire unpaid tax liability of the corporation.  Phillips died; his estate challenged the assessment to the Board of Tax Appeals, then to the District Court of the Second Circuit, and finally to the United States Supreme Court.  The liability of Phillip's estate for the entire assessment was affirmed at each step of the appeal; the estate paid the tax, then filed a equitable action in district court for contribution.  The court dismissed the suit on the basis that the other shareholders had never been assessed the tax liability, and the Court of Appeals affirmed on the same basis.  The United States Supreme Court granted certiorari, and reversed.  It prefaced its holding in no uncertain terms by noting that "[t]he injustice of allowing the other stockholders to escape contribution is obvious.  And there is nothing in the applicable statutes, or the unwritten law, which compels our doing so."  Id. at 235, 58 S. Ct. at 198, 82 L. Ed. at 223.  The court went on to opine:

The right of a stockholder transferee [i.e., the estate of Phillips] to contribution arises under the general law and does not differ from that of any other person who has paid more than his fair share of a common burden.  The right to sue for contribution does not depend upon a prior determination that the defendants are liable.  Whether they are liable is the matter to be decided in the suit.  To recover a plaintiff must prove both that there was common burden of debt and that he has, as between himself and the defendant, paid more than his fair share of the common obligations.

Id. at 236, 58 S. Ct. at 198-99, 82 L. Ed. at 223.
 
     In this suit, the court has found that Gallen and Semes are equally as liable for the debts of Mid-Pac as Senda is.  The debts were reduced to judgment against Senda and he paid it.  Thus, Senda has made his case that "there was a common burden of debt and that he has, as between himself and the defendant[s], paid more than his share of the common obligations."  Id. at 236, 58 S. Ct. at 199, 82 L. Ed. at 223.  Senda is entitled to contribution, subject only to any affirmative defense successfully proved by Semes or Gallen.

C.  The Affirmative Defenses
     The elements of contribution as set out in Parmley, supra, are two:  a common burden, and payment of more than one's fair share of that burden.  The court evaluates the affirmative defenses in the light of these two concerns.  The court in its July 22, 1996, ruling on the motion for summary judgment determined the existence of the common burden when it found that Senda had made out a prima facie case that Semes and Gallen had violated Reg. 2.7.  Whether Semes and Gallen should make equitable contribution toward the judgment paid by Senda turns on an analysis of the second factor:  does any affirmative defense alleged by either relieve them of their obligation to pay their fair share of the judgment?

     The court will consider seriatim the defenses the parties argued post trial; the identical defenses of both parties; the separate defenses of Semes, including the one partial defense offered at trial but not pled; and lastly the separate affirmative defenses of Semes.  The defendants have the burden of proof with respect to each affirmative defense, and must prove that defense by a preponderance of the evidence.  Martin v. Weaver, 666 F.2d 1013, 1019 (6th Cir. 1981), cert. denied, 456 U.S. 962 (1982).

[8 FSM Intrm. 497]

     1.  Defenses argued post trial
     Gallen argues that in fact he had complied with the requirements of C.P.A. Reg. 2.7.  This is raised in his answer as his third affirmative defense; it is also one of the affirmative defenses common to both answers, as Semes raises it as his fourth affirmative defense.  The court's finding at the commencement of trial that the July 22, 1996, summary judgment ruling determined that both Semes and Gallen violated C.P.A. Reg. 2.7 precludes this argument by either party.

     Gallen also argues his seventh affirmative defense, that he withdrew from the corporation before Mid-Pac had incurred the debts on which the judgment against Senda is based.  Equity has no resonance with this argument for the simple reason that as between Senda and Gallen, Senda withdrew from the corporation before Gallen, yet it was against Senda that the judgment was entered.  The fact of Gallen's withdrawal has no relevance to Senda's contribution claim.  Hence, neither of Gallen's argued defenses shields him from liability for Senda's contribution claim.
 
     Semes argued two defenses in his post trial papers.  He contends that Senda's lawsuit against him is foreclosed altogether by the Pohnpeian tradition that relatives do not sue each other.  Second, he urges that Senda has unclean hands, an equitable defense that he argues from facts admitted into evidence, but did not plead.

          a.  Pohnpeian custom and tradition as a defense to Senda's contribution claim

     Semes argues post trial that Senda is foreclosed from bringing this action against the defendants because Senda and the defendants are relatives.  Semes contends that under Pohnpeian custom and tradition, relatives do not sue one another, and that this lawsuit must therefore be dismissed.  The court will deem the argument subsumed under Semes' seventh affirmative defense, in which he cites Article XI, Section 11 of the FSM Constitution, the Judicial Guidance Clause, which provides that "Court decisions shall be consistent with this Constitution, Micronesian custom and traditions, and the social and geographical configuration of Micronesia."

     Semes' contention misapprehends the nature of the relationship between our constitutionally mandated courts and custom and tradition.  Defendants would have it that Pohnpeian custom and tradition control, to the exclusion of our judicial system.  The court brings to this discussion a different premise entirely.  As Chief Justice King wrote in In re Iriarte (II), 1 FSM Intrm. 255, 271 (Pon 1982):  "In short, the constitutional government works not to override custom but to work in cooperation with the traditional system in an atmosphere of mutual respect."  The court's analysis turns on this synthesis of the two systems.

     The court in FSM v. Mudong, 1 FSM Intrm. 135, 141-43 (Pon. 1982) held that in the context of a criminal case, a defendant must establish the effect of customary law by the preponderance of the evidence.  So, too, in a civil case where defendants seeks to advance Pohnpeian customary practice as a defense to a claim of equitable contribution, the burden is on the defendants to establish by a preponderance of the evidence the relevant custom and tradition.  See Martin, 666 F.2d at 1019.

     All three parties to this case hold traditional titles:  Senda that of Soulalap en Uh; Semes that of Souwel Lapalap en Kitti ) he is also a Nan Kiroauhn Pohsoain, or section chief; and Gallen that of Son Madau en Lehiak, or village chief, in Madolenihmw.  However, no party suggested that he was an expert on Pohnpeian custom and tradition within the meaning of Rule 702 of the FSM Rules of Evidence, and no party presented an outside expert on the issue.  Rule 702 provides that if "specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill experience, training, or education, may testify thereto

[8 FSM Intrm. 498]

in the form of an opinion."

     Defendants opined that family members do not sue each other under Pohnpeian custom, although defendants produced no evidence that custom and tradition require the dismissal of the instant lawsuit.  Plaintiff testified that it may not be "fair" under custom and tradition for family members to sue one another, but that nothing precludes it.  Signally lacking relative to defendants' testimony on the point was any evidentiary foundation to support the conclusion that relatives do not litigate between themselves.  Plaintiff's counsel points out that in his office alone, there are a number of lawsuits pending between family members.  Such a putative custom may be one more honored in the breach than in the observance.

     It is fair to say that the filing of a lawsuit is a relatively recent concept in Micronesia.  As presently constituted, our courts are defined by constitution ) the state courts by their respective state constitutions, and the national court by the FSM Constitution.  In contrast are custom and tradition, which are cumulatively reflective of cultural history from the earliest precontact times through the present. Neither Semes or Gallen provided any testimony as to how mutual exposure of these two approaches to dispute resolution ) one old, one very new ) had produced in the relatively short span of time from the beginnings of our present court system until now the putative Pohnpeian custom that one does not file a lawsuit against family members.  The court was left with no sense of the mechanism by which this purported custom had developed, with no sense as to how a customary attitude had evolved about something so intrinsically distinct from custom as resorting to our constitutionally established court system to resolve disputes.  Nor, having testified that the way to resolve the instant dispute was for the parties to get together and assist one another, did defendants offer any testimony to show how a dispute proceeds under custom and tradition where the parties themselves, who in this instance are brothers in the eyes of custom, are not able to resolve it.  No testimony was offered to show that such procedures even exist under custom, nor to show how those procedures may analogize to our constitutionally mandated court system in the event that they do exist.  Hence, the evidence presented as to the existence of relevant Pohnpeian custom and tradition such that it would preclude Senda's access to our constitutionally mandated court system altogether was not persuasive.

     But more to the point, defendants presented no evidence at all that as to the substance of the instant dispute, Pohnpeian custom and tradition purport to speak to a claim for contribution by one incorporator and officer of a corporation against his co-incorporators and officers for liability incurred as a result of the violation of a regulation promulgated pursuant to statute.  At the heart of this dispute lies the corporation, a non-customary concept and creature of statute which at all relevant times was a duly approved means for conducting commercial activity. Corporations, Partnerships, and Associations Regulation 2.7 was part of the statutory and regulatory scheme governing corporations.  The controversy at bar owes its entire existence to the failure of Senda, Semes, and Gallen to comply with C.P.A. Reg. 2.7, and is substantively extra-custom.

     Semes is a sophisticated man who holds both an undergraduate degree in business, and an MBA.  He personally prepared the documents necessary to obtain the corporate charter.  He testified to his familiarity with the legal implications of a corporation as a business tool, stock ownership, and the mechanics of establishing and maintaining a corporation.  The evidence was overwhelming that the parties intended to define their business relationship by the corporate structure as outlined by statute and regulation in order to obtain the protections offered thereby.  No party intended this complex business venture to go forward in the context of Pohnpeian custom and tradition.  That the parties failed to meet the requirements of C.P.A. 2.7 such that a large personal judgment was entered against one of their number upon Mid-Pac's failure does not take their venture out of the context of statute and regulation and place it in that of custom and tradition.

[8 FSM Intrm. 499]

     "Micronesian custom, and the constitutional legal system established by the people of the Federated States of Micronesia, flow from differing (not necessarily inconsistent) premises and purposes."  Mudong, 1 FSM Intrm. at 144.  As the court in Mudong goes on to observe, these "two systems, then, can be seen as supplementary and complementary, not contradictory.  Each has a valuable role to perform, independent of the other.  There may often be opportunities for coordination or mutual support, but there appears no reason why one system should control the other."  Id. at 145.

     Where, as here, no evidence suggests that Pohnpeian custom and tradition speak to a dispute of the sort at issue, the opportunity arises for our constitutional court system and Pohnpeian custom to work in concert.  One of the express functions of our courts is to apply and interpret the duly enacted and promulgated laws and regulations which lie at the heart of the instant dispute, and which gave rise to Senda's claim for equitable contribution.  Our court system exists to speak to the very issues in this case as to which Pohnpeian custom and tradition are silent.  In this way, the two systems complement each other.

     The two systems come to synthesis in another way as well.  Semes testified generally that as between family members, when a problem arises, it is incumbent upon the family members to get together and help one another.  If this be true, it is an apt gloss on the common law idea of sharing the burden, in turn the basis for equitable contribution as discussed supra.  Ambros Senda felt abandoned by his cousins when the judgment was entered against him ) he testified that he "felt left out in the cold."  Defendants did not come to Senda's assistance when he faced the sizable judgment.  Thus their conduct was inconsistent with Semes' own testimony about this aspect of custom and tradition.  Having done nothing, they can scarcely be heard to say that it is Senda who is violating Pohnpeian custom and tradition by bringing an action in this court for equitable contribution.

     Defendants base their custom and tradition defense on Article XI, Section 11, of the FSM Constitution, which contains the familiar admonition that "[c]ourt decisions shall be consistent with . . . Micronesian customs and traditions." Allowing a claim for contribution as between the parties, who are relatives, and who are equally liable under a duly promulgated regulation for the debts of the corporation, is consistent with the customary principle as advanced by Senda that relatives should assist one another.

     Although Gallen did not argue the defense of Pohnpeian custom and tradition in his post trial papers, he pled it as his sixth affirmative defense in language identical to Semes' seventh affirmative defense.  Nothing specific to Gallen's situation relative to events changes the court's analysis.  Pohnpeian custom and tradition do not preclude Senda's claim for equitable contribution from Gallen.

     Defendants failed to meet their burden with respect to showing the court that they may use custom and tradition as a procedural device to prevent Senda from bringing his claim for contribution.  Defendants also failed to present any evidence to show that Senda's equitable claim for contribution based on violation of a regulation governing the formation of corporations is one by nature lying within the province of Pohnpeian custom and tradition.  Under these circumstances, the court rejects defendants' contention that Pohnpeian custom and tradition require the dismissal of this action.  As a defense, this contention is insufficient as a matter of law.

     b.  Clean hands
     Semes contends that Senda is prevented from seeking equitable contribution by the equitable doctrine of clean hands because Senda signed the false stock affidavit, and therefore has unclean hands.  In this case where unbridled pleading was the rule, and numerous defenses were pled but not argued, this affirmative defense was argued but not pled.  Normally a defense that is not pled is

[8 FSM Intrm. 500]

waived.  Dobbs v. Vornado, 576 F. Supp. 1072, 1081 (E.D.N.Y. 1983).  However, an affirmative defense is not waived where it is raised after trial has begun, and opposing counsel consents to its being raised.  DelCostello, 588 F. Supp. at 905. Plaintiff addresses Semes' clean hands defense in both his post trial brief, and in his post trial reply brief without objecting to it.  The defense is not waived.

     The clean hands doctrine has been "expressed in the language that he who has done inequity shall not have equity."  27 Am. Jur. 2d Equity 136 (1966) (footnote omitted).  Material to the instant discussion is "[a] maxim which is closely related to, and which has been described as a corollary of, the `clean hands' maxim."  27 Am. Jur. 2d Equity 141 (1966) (footnotes omitted).  This maxim is "`in pari delicto, potior est conditio defendentis' ) that is to say, where the wrong of the one party equals that of the other, the defendant is in the stronger position." However, the same commentator goes on to note:

On the other hand, where the parties appear not to have been in pari delicto, the one whose wrong is less than that of the other may be granted relief in some circumstances.  . . . [T]he court should weigh the substance of the right asserted by the plaintiff against the transgression claimed to foreclose it.  The relative extent of each party's wrong upon the other and upon the public should be taken into account, and an equitable balance made.

Id. (footnotes omitted).

     Senda, on his oath, signed the false stock affidavit.  But so did Semes, and it was Semes who prepared the affidavit, not Senda.  Semes told Senda not to pay in his initial capital contribution of $1,000, a nominal sum compared to the amounts at issue in the case and a de minimis amount to Senda given the resources that Senda was subsequently able to command.  The reason for Semes' advice was that the profits from Mid-Pac would be used to pay for the shares of all three incorporators.  As a result of following the advice Semes gave, Senda found himself with a personal liability of over $220,000 for the corporation's debts.  Considering these facts, "the one whose wrong is less than that of the other," id., is Senda.  Or in other words, as between Senda and Semes, Senda has the cleaner hands.  Consequently Semes cannot seek refuge in the equitable defense of clean hands.

     2.  The identical affirmative defenses
     The first of the affirmative defenses pled by both defendants but argued post trial by neither is that of statute of limitations, which is Semes' second affirmative defense, and Gallen's first.  The court previously addressed the statute of limitations defense as between the defendants and the creditors, and the court's ruling is found in Mid-Pacific Construction Co. v. Semes (I), 6 FSM Intrm. 171, 174-78 (Pon. 1993).  Relative to the creditors' cause of action against Semes and Gallen for their failure to meet the requirements of C.P.A. Reg. 2.7, the court found that the statute began to run as of the time Mid-Pac was declared insolvent. Generally, the court noted that the accrual date for a cause of action is the first date on which the plaintiff could have maintained an action to a successful result. 6 FSM Intrm. at 176.

     While the event giving rise to the judgment against Senda, i.e., the filing of the false stock affidavit, took place twenty years ago in 1978, the judgment towards which Senda seeks contribution was not entered against Senda until December 19, 1990.  Hence the issue lends itself to a bright line analysis.  The date of accrual for Senda's cause of action is the day the judgment was entered against him.  Obviously a prerequisite to any successful contribution action based on a judgment is the judgment itself.  Senda first filed his complaint in Civil Action No. 1991-001 for contribution based on the judgment on January 14, 1991, less than a month after judgment was entered against him.  The

[8 FSM Intrm. 501]

amended complaint in the consolidated case, Civil Action No. 1992-041, was filed on April 23, 1992.  Even looking to the time of the filing of the amended complaint, just four months and four days elapsed from the date of the judgment until the time of the filing of the amended complaint.  The limitations periods for specified causes of action are set out at 6 F.S.M.C. 801 through 804, and a cause of action for contribution does not fall within any of specified categories. The catch-all section is 805, which provides that "[a]ll actions other than those covered in the preceding sections of this Chapter shall be commenced within 6 years after the cause of action accrues."  Thus, the limitations period for a contribution action is 6 years, and plaintiff commenced his action within a few months after it accrued.  This defense is deficient as a matter of law.
 
     The affirmative defense of laches (Semes' third affirmative defense, Gallen's second), the equity embodiment of the limitations defense, is discussed relative to the claim of the creditors in Mid-Pacific Construction Co. v. Semes (II), 6 FSM Intrm. 180, 185-86 (Pon. 1993).  Generally, this defense is meant to prevent injustice as to a person against whom one seeks to assert rights where the one asserting the rights has, in the stock common law formulation, slept on those rights.  Thus, laches at a minimum comprehends an inexcusable delay in bringing suit, and prejudice to the defendant as a result.  Id.  Relative to Senda's contribution claim, and continuing the time-honored somnolence metaphor, in this case Mr. Senda did not so much as become drowsy.  He asserted his rights with alacrity by filing his initial suit for contribution less than a month after the judgment was entered.  The defense fails.

     Semes' fourth affirmative defense (Gallen's third), makes the allegation that Mid-Pac was validly incorporated, and specifically that "10% of Mid-Pac's authorized capital stock had been paid in at the time of its incorporation."  The court has made the specific finding that these amounts were not paid. Furthermore, the court's prior ruling that Semes and Gallen had violated C.P.A. Reg. 2.7 necessarily disposes of this defense.  It is insufficient as a matter of law.

     Semes' fifth affirmative defense (Gallen's fourth) alleges that the creditors are estopped from denying that Mid-Pac was validly and lawfully incorporated.  This defense is on its face directed toward the dismissed complaint of the creditors, and no evidence made it relevant to Senda's contribution claim.  This affirmative defense fails.

     Semes' sixth affirmative defenses (Gallen's fifth), that of de facto corporation, was disposed of relative to the creditors' complaint in the court's July 22, 1996, ruling on the motion for summary judgment.  As set out in that ruling, since Mid-Pac received its corporate charter on November 20, 1978, it was indisputably a de jure corporation.  Semes, 7 FSM Intrm. at 527.  This fact precludes a de facto corporation defense, and this defense relative to Senda's claim is deficient as a matter of law.

     The Semes' twelfth affirmative defense (Gallen's eighth) alleges that "[i]f Mid-Pac is not to be treated as a de facto corporation, then the Defendants herein were informal partners in a partnership which was dissolved by their withdrawal prior to incurring the obligations complained of."  As just noted, Mid-Pac was a valid corporation.  Its incorporation process was flawed in a way that resulted in a substantial judgment against one of its incorporators, but it does not follow that the relationship among the parties to this lawsuit should therefore be treated as a partnership, formal or informal.  This defense fails.

     Semes' thirteenth affirmative defense (Gallen's ninth) is that they "cannot be bound by the judgment in creditors of MID-PAC vs. AMBROS SENDA, FSM Supreme Court #1989-99 [sic, actual case number 1988-099], in that he was not joined as a party."  This self evident proposition is not a defense to the instant contribution action, which is not an effort to bind either defendant to the judgment in the 1988 case.  The case at bar is a separate cause of action between different parties.  

[8 FSM Intrm. 502]

This purported affirmative defense fails.

     Semes' fourteenth affirmative defense (Gallen's tenth) is that Ambros Senda committed a fraud by signing the false stock affidavit, and that Semes and Gallen did not participate in the fraud because they did not sign the false affidavit.  At trial, no evidence was presented that Senda committed fraud, which must be proved in any event by clear and convincing evidence.  This defense has no merit, and is insufficient as a matter of law.

     Semes' fifteenth affirmative defense (Gallen's twelfth) is directed toward the creditor's complaint.  It alleges that the "Plaintiffs creditor [sic] of Mid-Pac have already prosecuted a Civil Action to conclusion in the FSM Supreme Court against Mid-Pac and in some cases against the defendant."  No evidence at trial made this allegation relevant to Senda's contribution claim.  This purported affirmative defense fails.

     Semes' sixteenth affirmative defense (Gallen's thirteenth) is amorphous at best:  "[t]he result sought by Plaintiff Ambros Senda as against the Defendant Herman P. Semes is contrary to the well established concept of fairness and due process under the Pohnpei State Constitution and common law."  No evidence at trial provided insight as to how Ambros Senda, as a private individual, has violated the due process rights of Gallen.  The defense fails.

     Semes' seventeenth affirmative defense (Gallen's fourteenth) recites that the "Court in the case at bar has stayed proceedings of the creditors of Mid-Pac against the plaintiff, Senda" and that "having obtained such relief, he [Senda] is currently disabled from pursuing the equitable relief he now seeks."  The court has reviewed this voluminous file, and can locate no stay in this matter, although attached as exhibit "C" to plaintiff creditors' fourth motion for attorney's fees, filed on December 4, 1995, is a copy of a November 10, 1995, order in the creditors' lawsuit against Senda, Civil Action No. 1988-099, which recites that "Defendant Ambros Senda's obligation to make further payments is hereby suspended until further notice of the Court."  Since Senda has paid the judgment at issue in this matter in full and seeks contribution based on that payment, the existence of any purported stay in the prior proceeding is immaterial.  The defense is deficient as a matter of law.

     Semes' eighteenth, nineteenth, and twentieth (Gallen's fifteenth, sixteenth, and seventeenth) defenses respectively are that "the regulations upon which this complaint is based are the fruits of an unconstitutional delegation of legislative [sic] functions and are therefore void;" that "[t]he regulations upon which the complaint is based are illegal and unconstitutional in that they exceed the scope of the authority delegated and are therefore void;" and that "[t]he regulations upon which the complaint are based failed to obtain the degree of `approval' contemplated by 39 FSMC 202 and are therefore void."  These defenses had been abandoned at the time of trial as no evidence or argument was presented on these issues.

     Semes' twenty-first affirmative defense (Gallen's eighteenth) is that of election of remedies, and is directed toward the creditor's complaint.  In that context, this affirmative defense is addressed in this court's decision on the defendants' motion to dismiss or for judgment on the pleadings reported in Mid-Pacific Construction Co. v. Semes (II), 6 FSM Intrm. 180, 183 (Pon. 1993).  This affirmative defense has no relevance to Senda's contribution claim.  It fails.

     Accordingly, all of the identical affirmative defense which both Semes and Senda pled but did not argue fail, the court having dealt with the identical defenses argued by at least one of the parties in part III.C.1. supra.

[8 FSM Intrm. 503]

     3.  The separate affirmative defenses of Semes
     The first of Semes' five, separate, pled affirmative defenses alleged in his amended answer is that "[t]he stock subscription account owed by Defendant to Mid-Pac was assigned in its entirety to Hardware, Inc. of Guam" and that as a result, "Mid-Pac no longer had any claim to or interest in the stock subscription account."  Semes goes on to allege that "[a]ny claim against Defendant [i.e., Semes] based on the stock subscription account, or on alleged deficiencies in the incorporation process arising out of Defendant's stock subscription, is barred by the statute of limitations."  Para. 9-11 of Semes' amended complaint.  No evidence made sense of this.  As a statute of limitations defense to Senda's claim, it is duplicated by Semes' second affirmative defense, of which the court has already disposed.  This affirmative defense fails.

     Semes' next separate defense is affirmative defense number eight.  This "defense" is identical to Semes' counterclaim and is dealt with infra at part III.D.  Rule 8(c) of the FSM Rules of Civil Procedure provides that where "a party has mistakenly designated . . . a counterclaim as a defense, the court, on such terms as justice requires, shall treat the pleading as if there had been a proper designation."

     Semes's ninth affirmative defense is that "[a]ny claim based on debts of Mid-Pac to the Bank of Guam and California Pacific Associates and Kent International is barred by res judicate [sic]."  No evidence was presented to elucidate this allegation.  As a defense, it is deemed abandoned.

     Next is Semes' tenth affirmative defense, which is that the "creditors of Mid-Pac . . . sought and obtained judgments on their claims directly against Mid-Pac or the Plaintiff herein and are barred by res judicate [sic] as to the Defendant herein."  This defense appears directed toward the creditors' dismissed complaint.  As to Senda's contribution claim, it fails.

     Semes' eleventh affirmative defense is that "[t]he benefits Plaintiff did received [sic] and stood to receive from his involvement with Mid-Pac were substantially equivalent to those Defendant received and stood to receive from his involvement with Mid-Pac."  How this allegation is a defense is not apparent.  In any event, the court finds infra at part III.D. that Semes received a substantially greater benefit from Mid-Pac during its business life than did Senda or Gallen.  As an affirmative defense, this allegation fails.

     Lastly, Semes presented at trial a partial affirmative defense, which he did not plead, to Senda's contribution claim.  Plaintiff offered no objection to Semes' evidence on this point.  He urges that three specific judgments which were included in the total amount of the $222,073.36 judgment against Senda should not be included in the total for purposes of determining Senda's contribution share, should the court permit contribution.  The judgment creditors holding these three judgments were among the Mid-Pac creditors on assignment for whose benefit the case against Senda was brought.  These three judgments were in Civil Actions Nos. 1983-001, 1986-092, 1987-028.  Admitted into evidence at trial were copies of judgments in the first two of the cases (defendants' exhibits 5 and 3), and an order in the last (defendants' exhibit 4).  Plaintiff points to the following language in each of these three documents respectively:  "the plaintiff takes nothing against Herman Semes, individually, or any other individual defendant"; "Plaintiff's Complaint against Defendant Herman Semes is hereby dismissed"; and "[j]udgment is limited however to Mid-Pac Construction Co. and judgment is not against Herman Semes personally."  Semes reads this language to mean that he should not be required to contribute toward the judgments in these cases, even though they were included in the total that Senda paid.

     Semes' contention is meritless.  Mid-Pac Construction, Inc., was a defendant in each of these

[8 FSM Intrm. 504]

cases.  Senda, on the other hand, was not a party.  Semes does not suggest that Semes' or Senda's liability for violation of C.P.A. Reg. 2.7 is decided in any of these cases.  These facts do not begin to suggest that res judicata prevents Senda from bringing his claim for contribution.  Res judicata "bars any further litigation of the same issues between the same parties or anyone claiming under those parties."  Ungeni v. Fredrick, 6 FSM Intrm. 529, 531 (Chk. S. Ct. App. 1994) (citing 46 Am. Jur. 2d Judgments 394, at 558-59 (1969)).  Semes' claim that he should be relieved for contribution as to these specific judgments is meritless and is denied.

     Accordingly, none of the separate affirmative defenses offered by Semes defeats Senda's claim for contribution.

     4.  The separate affirmative defenses of Gallen

     Gallen alleged two separate defenses in his answer, his seventh and eleventh defenses.

     His seventh defense alleges that Gallen was the only uneducated one of the three incorporators, that he does not read, speak, or write English, that he had no experience in corporate affairs, that he resigned from the corporation shortly after its organization and before any substantial liability was incurred in the name of the organization, and that the balancing of the equities does not support contribution. However Gallen testified that Semes explained to him in Pohnpeian the ramifications of the corporate structure.  No evidence suggested that Gallen went into the venture without being well informed about it.  As to resigning from the corporation, Senda withdrew before Gallen.  Senda's claim for contribution results from the judgment entered against him as a result of the violation of C.P.A. Reg. 2.7.  Gallen, as one of the incorporators, falls within the ambit of that regulation every bit as much as Senda did.  The court is unconvinced that Gallen can interpose his alleged lack of sophistication or education to stave off contribution toward his share of the judgment against Senda.  The issue before the court is to do equity as between plaintiff and the defendants.  Balancing the equities here leads to the conclusion that all three incorporators should bear the burden imposed by their violation of C.P.A. Reg. 2.7, not just Senda, or Senda and Semes, alone.

     Gallen's eleventh affirmative defense is that "there has been a settlement reduced to judgment of claims of the creditors of Mid-Pac against the Defendant, Hatler Gallen for which he is already paying off a judgment."  No evidence was presented on this point.  The defense is abandoned.  Therefore, neither of Gallen's separate defenses insulates him from liability with respect to Senda' claim for contribution.

     With respect to the host of affirmative defenses which populated this case at the time of trial, the court recapitulates as follows.  None of the defenses argued post-trial serves to vitiate Semes and Gallen's liability for equitable contribution. Nor do any of the identical defenses pled by both parties.  None of Semes' five separate, pled affirmative defenses or his one unpled, partial affirmative defense relieves Semes from liability.  As to Gallen, neither of his two separate, pled affirmative defenses preclude his liability.  Hence, both defendants are liable to Senda on his claim for equitable contribution.

D.  Semes' Counterclaims
     As previously noted, Semes based both an affirmative defense and a counterclaim against Senda on the judgments entered against him in this court in Civil Action No. 1988-085, Bank of Guam v. Herman Semes and Kioko Semes, and Civil Action No. 1988-012, California Pacific Associates et al. v. Mid-Pac et al.  He also presented at trial what amounted to a counterclaim for setoff against his contributive share of anything he owes Senda.  He urged that he should receive credit for the amounts he paid by payroll deduction toward his stock subscription.  Although he did not plead this counterclaim

[8 FSM Intrm. 505]

for setoff, plaintiff did not object to its assertion at trial.

     1.  The counterclaim based on the judgments in Civil Action Nos. 1988-085 and 1988-012

     Relative to Civil Action 1988-085, Bank of Guam v. Herman Semes and Kioko Semes, Semes alleged in his eighth affirmative defense (para. 33-36 of the his amended answer) that he is entitled to indemnification for the judgment entered against him; in his counterclaim (para. 76-77 of his amended answer) he merely alleges that Senda "owes" him for the judgment.  The court reads these allegations together as a counterclaim for indemnification.

     The facts adduced at trial do not point to an indemnification claim, but rather to a colorable claim for contribution from Senda to Semes for any amounts Semes paid on the judgment, since Semes claimed that the debt underlying the judgment against him was actually the debt of Mid-Pac.  "In the case of indemnity the defendant is liable for the whole damage springing from contract, while in contribution the defendant is chargeable only with a ratable proportion founded not on contract but upon equitable factors measured by equality of burden." Symons v. Meuller Co., 526 F.2d 13, 16 (10th Cir. 1975).  Semes offers nothing to support the contention that Senda should be wholly liable for the two judgments. Under a contribution theory, just as Senda is seeking contribution from Semes and Gallen toward the debts of Mid-Pac that he has paid, so Semes would be entitled to contribution from Senda for Senda's fair share of any amounts that Semes has paid on any Mid-Pac debts.

     Judgment in Civil Action No. 1988-085, Bank of Guam v. Herman and Kioko Semes, was rendered against Semes based on a personal guaranty that he had signed guaranteeing a loan to Island Hardware, Inc., ("Island Hardware") in the amount of $60,553.00, which according to Semes was a subsidiary of Mid-Pac. The complaint in Civil Action No. 1988-085 was admitted into evidence as defendants' exhibit 8, while the stipulated judgment against Herman Semes entered in that case on April 4, 1989, was admitted as plaintiff's exhibit "H." Semes contended that the proceeds of the loan that he guaranteed were actually used "for the benefit of" Mid-Pac.  He assumes therefore that his debt on the guaranty was a debt of Mid-Pac.

     Semes also moved into evidence over no objection from plaintiff a copy of the complaint in yet another case, Civil Action No. 1987-015, Bank of Guam v. Mid-Pac Construction Company, Inc.  The subject of this complaint is the same loan that is the subject of Civil Action No. 1988-085, and the complaint alleges, at paragraph 5, that both Semes personally and Mid-Pac guaranteed the loan.  The same note in the amount of $60,553.00 and dated April 2, 1986 is attached to the complaints in both cases.  Attached to the complaint in the 1988-085 case is a continuing guaranty that bears only the signatures of Herman P. Semes and Kioko Semes as guarantors.  Attached to the complaint in the 1987-015 case is a copy of the second page only of the same continuing guaranty showing, again, only Herman Semes and Kioko Semes as guarantors.

     Semes failed to demonstrate that his indebtedness resulting from the guaranty should be considered a debt of Mid-Pac such that he is entitled to equitable contribution from Senda towards it.  Judgment in the 1988-085 case was entered only against Semes.  The complaint in the 1987-015 case, though it names Mid-Pac as defendant, is positively insufficient as a matter of law, and the court hardly need say this, to establish that the debt owed on the guaranty is the debt of Mid-Pac.
 
     Further, the existence of the parent/subsidiary relationship between Island Hardware and Mid-Pac, without more, does not make Mid-Pac liable for a debt of Island Hardware.  "Under ordinary circumstances, a parent corporation will not be held liable for the obligations of its subsidiary."  Japan Petroleum Co. (Nigeria) Ltd. v. Ashland Oil, 456 F. Supp. 831, 838 (D. Del. 1978).  No evidentiary foundation supported Semes' conclusion that the loan proceeds were used "for the benefit of" Mid-Pac.  

[8 FSM Intrm. 506]

Presumably a loan to a wholly owned subsidiary will result in some benefit to the parent corporation.  By no means, however, is the mere fact of the loan to a subsidiary sufficient to confer liability for the loan on the parent.  Hence, Semes did not establish, based on the evidence that he presented at trial, that the judgment rendered against him on the guaranty of the loan to Island Hardware, Inc., is actually a debt of Mid-Pac.  He has not demonstrated the existence of a common burden as between himself and Senda.  Biffle, 239 F.2d at 606.  Semes is not entitled to contribution from Senda toward his indebtedness on his guaranty of the loan to Island Hardware.

     The plot thickens, however.  Reference is made in the latest decision in the 1988-099 case, Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 664, 671 (App. 1996) to certain releasing creditors:  "At least one, and probably three, of the judgment creditors have affirmatively released or waived any right to collect the judgments they have obtained."  It appears probable that Bank of Guam is one of the releasing creditors, although the court has not been able to obtain confirmation of this.  Specifically, it appears that Bank of Guam has released its claim which was reduced to a default judgment in the 1987-015 case, Bank of Guam v. Mid-Pac.  A review of the file discloses that a default judgment was entered against Mid-Pac on July 6, 1987.

     How does the fact of any purported release of the Bank of Guam's claim against Mid-Pac based on the default judgment in the 1987-015 case affect Semes' counterclaim for equitable contribution from Senda?  The court concludes that it has no effect.  The most that may be said about the allegations of the complaint in the 1987-015 case, when compared to the allegations in the 1988-085 case, is that they ostensibly establish between Mid-Pac and Semes respectively the relationship of one released and one non-released coguarantor, an arguable basis for contribution as between Mid-Pac and Semes.  Commercial Credit Corp. v. Sorgel, 274 F.2d 449, 466-67 (9th Cir. 1959), cert. denied, 364 U.S. 834, reh'g denied, 364 U.S. 897 (1960).  Any such discussion would have implications for Senda, given his joint and several liability (along with Semes and Gallen of course) for all Mid-Pac debts.  But the court will not make the leap of faith that Mid-Pac was a coguarantor with Semes on the $60,553.00 Bank of Guam loan.  The judgment taken in the 1987-015 case against Mid-Pac was by default, and was certainly not an adjudication on the merits.  Indeed, the signature page of the guaranty attached to both complaints would seem to point in the direction of nonliability, since Mid-Pac did not sign the guaranty.  Further, Semes, as the last remaining original director at the time the Mid-Pac went out of business in 1986, would seem to have been in the best position to prevent the default judgment entered against Mid-Pac on July, 1987.  Finally, viewing the facts realistically, it was also in Semes' interest for judgment to be entered by default against Mid-Pac on essentially the same debt upon which judgment had been entered against him.  These factors, considered in the light of equity, lead to the conclusion that the release of the judgment in the 1987-015 case does not advance any claim by Semes for contribution from Senda toward the judgment entered against Semes on his personal guaranty in the 1988-085 case.

     As to Civil Action No. 1988-012, California Pacific Associates et al. v. Mid-Pac et al., Semes presented no evidence entitling him to contribution or other relief. The claim is denied.

     Accordingly, Semes is not entitled to contribution from Senda for any amounts that he paid or will pay on the judgments rendered against him in this court in Civil Action No. 1988-085 and Civil Action 1988-012.

     2.  The counterclaim based on the stock subscription agreement

     Semes contended at trial that the full amount of the $22,452.48 he paid to Mid-Pac to meet his stock subscription should be set off against Senda's claim for contribution in the event the court permitted contribution.  He did not explain why the entire amount should be set off.

[8 FSM Intrm. 507]

     The court notes that were it to permit such a setoff, it would be along the same lines as the court orders Semes to pay Senda as discussed at part III.E. infra: Semes would be entitled to offset one third of $22,452.48, or $7484.16, against what he must pay as his contribution toward the judgment that Senda paid.  This is for the simple reason that in the absence of any hard accounting evidence, the only equitable conclusion is to assume that but for Semes' payment toward his stock subscription, the amount of Mid-Pac's debts after all the dust had settled would have been greater by the amount of $22,452.48, which is the amount Semes paid.  Of this increased amount of Mid-Pac debt, Semes should have to pay one third, with the other two-thirds coming from Senda and Gallen.  Since Semes has paid the entire amount (by payroll deduction), he should be entitled to recapture one third, not the entire amount, from Senda.

     However, the court is not persuaded that equity dictates that Semes is entitled to any setoff relative to his stock subscription.  He fulfilled the terms of the stock subscription by paying for his subscribed shares by payroll deduction, whereas the other incorporators did not meet their subscriptions.  But of the three incorporators liable for the debts of Mid-Pac, he received by far and away the most benefit from the corporation.  Working part time at most, he was paid more than $400 biweekly from the time of Mid-Pac's incorporation in November of 1978 until the Mid-Pac ceased doing business in 1986.  Excluding the partial years of 1978 and 1986, Semes would have received a salary for the seven full years from 1979 through 1985 of well over $70,000.  In contrast, during the period from November of 1978 until he left Mid-Pac in 1981, Gallen worked full-time for a bi-weekly salary described as being over $300 every two weeks, which for the full years of 1979 through 1980 would have been approximately $15,000.  Senda, as secretary/treasurer, received no benefit by way of salary.  Viewed equitably, these facts do not suggest that any amount that Semes paid on his stock subscription should be taken into consideration in determining Semes' contributive share of the judgment paid by Senda.  Semes' claim in this respect is denied.

E.  Manner of Contribution
     The court next considers on what basis to order contribution.  Equity dictates a clear answer.  It was the understanding of both Gallen and Senda that any corporate profits were to be split evenly three ways.  Semes testified essentially to the same thing, that profits were to be according to the percentage of stock ownership set out in the affidavit.  Ultimately, this was to be 25,000 shares each to Senda, Semes, and Gallen.  The parties are also all jointly and severally liable under C.P.A. Reg. 2.7 for the entire amount of the debts of Mid-Pac.  In this sense they are equally liable for the full amount of Mid-Pac's debt.  These considerations point to a three-way, equal division of the judgment of $222,073.36 rendered against Senda in Civil Action No. 1988-099 as the fair and equitable one.  Semes and Gallen are each liable to Senda for one third that amount.

     Plaintiff offers the argument that defendants should contribute in proportion to the parties' stock ownership when the company ceased doing business.  At that point, Senda and Gallen had their original shares of 1000 and 5,100 respectively, while Semes had accumulated, through payroll deductions, a total of 22,432 shares.  A total of 28,532 shares were outstanding.  Plaintiff suggests contribution according to the formula of 1000/28,532 of the total debt for Senda; 5,100/28,532 for Gallen; and 22,432/28,532 for Semes.  Hence, Semes would end up paying 78.6% of the debt, the lion's share.  Plaintiff urges that this equitable, because it more accurately reflects the participation of parties in the corporation.

     The court is unconvinced.  Semes' stock accumulation does not change the fact that the C.P.A. Reg. 2.7 imposes the same degree of liability on all incorporators, nor does it change the fact that the parties' plan from the beginning was to share profits equally.  The major burden of Mid-Pac's debts has thus far been borne by Senda.  Shifting the major portion of the burden onto Semes would not do

[8 FSM Intrm. 508]

equity.  Balancing the equities favors a three way, equal split of the debt burden.

     The last issue relative to the contribution claim is that of interest.  Senda paid the judgment, but had to borrow the money to do so.  He borrowed the money from the Bank of Guam in the name of Ambros and Company, Inc., in order to obtain a favorable interest rate of 2% over the prime rate, which at relevant times was 8%.  Had he taken out a personal, consumer loan, he would have paid interest at 15%.  Senda seeks contribution from defendants towards his interest expense under the theory that the interest was an actual expense to Senda. Alternatively, Senda asks for interest on the theory that had Senda paid the debt from his own resources, he would have been entitled to interest for the period during which he was deprived of the use of those funds.

     "A person who has discharged more than his proportionate share of a duty owed by himself and another. . . and who is entitled to contribution from the other . . . is entitled to reimbursement . . . limited to the proportionate amount of his net outlay properly expended."  Restatement of Restitution 85 (1937).  All indications from the evidence are that the interest expense incurred by Senda was part of "his net outlay properly expended."  He did not have the money to pay the judgment, but was able to borrow it.  By obtaining loans in the name of his corporation, he got a lower rate of interest, and saved money.  This conduct was responsible and reasonable.  Defendants should contribute toward Senda's interest expense.

     With the respect to the particulars of the loan obtained by Senda to discharge the judgment against him, the court adopts Senda's proposed findings of fact thirty-two through thirty-eight inclusive.  Final payments on the loan were to be made post-trial, the court does not have a precise figure for the interest amount. However, since this is an action for declaratory relief, the court finds that Semes and Senda are each liable for one third of the interest expense actually incurred and paid by Senda on the money that he borrowed to pay the $222,073.36 judgment.  Since Senda actually obtained a loan in a total amount of $227,000 to pay the judgment, the parties will in their calculations exclude any interest paid that is attributable to the difference between the judgment and loan amount.

IV.  Conclusion
     The court declares the liability of the defendants Herman Semes and Hatler Gallen with respect to the judgment of $222.073.36 entered against Ambros Senda on December 19, 1990, in Civil Action No. 1988-099 to be as follows.

     1.  Senda is entitled to contribution from each of the defendants in the amount of one third of the judgment of $222,073.36.  Each defendant is therefore liable to Senda in the amount of $74,024.45.

     2.  At such time as Senda receives back any funds resulting from the release of claims by three creditors of Mid-Pac7, the contributive share of each defendant will be reduced by one third of the amount returned to Senda.

     3.  Semes and Gallen are each liable to Senda for one third of the total amount of interest which attached to $222,073.36 of the loan of $227,000 which he obtained to discharge the judgment in full.  Since Senda actually obtained a loan in a total amount of $227,000 to pay the judgment, the parties

[8 FSM Intrm. 509]

will in their calculations exclude any interest paid that is attributable to the difference between the judgment and loan amount
 
     4.  All defenses raised by Semes in his amended answer and Gallen in his answer, or that the defendants raised at trial, or that they argued post trial are dismissed.  Semes' partial defense relative to the three judgments in Civil Action No. 1983-001 (Hardware, Inc., of Guam v. Mid-Pac Construction Co., Inc., et al.); Civil Action No. 1986-092 (Trust Territory Social Security System Board v. Semes, et al.); and Civil Action No. 1987-028 (Rodrigo Sanchez et al. v. Mid-Pac Construction Co. and Herman Semes) is also dismissed.

     5.  Semes' counterclaim based on the judgments entered against him in Civil Action No. 1988-085 (Bank of Guam v. Herman Semes and Kioko Semes) and Civil Action No. 1988-012 (California Pacific Associates and Kent International v. Mid-Pac Construction Co. et al.) is dismissed.  Semes' counterclaim based on his payment of his stock subscription is also dismissed.

     6.  Plaintiff's motion to add Ambros and Company, Inc., as a party plaintiff is granted, and the caption is amended accordingly.

     A separate judgment issues herewith.

*    *    *    *
 
Footnotes:
 
1.  These regulations are found at 1 FSM Regulations at 5-36

2.  This complaint was subsequently dismissed by stipulation on November 20, 1997, leaving only the claims and counterclaims among Senda, Semes, and Gallen.

3.  Per the stock affidavit, articles of incorporation, and by-laws, it appears that Mid-Pac's full name is Mid-Pac Construction Company, Inc.

4.  The court will use the term "affirmative defense" in relation to all of the affirmative matter pled by defendants, since that is the term that defendants themselves use.  Some of defendants' affirmative defenses are specifically enumerated in Rule 8(c), but most are not, and therefore fall within Rule 8(c)'s residuary clause.  See note 6, infra.

5.  Although the instant affirmative defenses are of a different stripe from those in at issue in Berman, there are nevertheless Rule 11 implications with respect to some of them.  For example, and as discussed infra at part III.D., three of the affirmative defenses alleged by both Semes and Gallen in the answer to Senda's amended complaint are directed facially to the creditors' complaint (as opposed to Senda's contribution claim), which was subsequently dismissed, and no evidence at trial made these relevant to Senda's claim.  Hence, per Rule 11, there was no "good ground to support" these defenses relative to Senda's claim.

     Were original counsel still in this case, the court would call them to answer for the regrettable state of these pleadings as of trial.  However, in light of the overall complexity of this case, and six years out from the time the defenses were pled by counsel different from present counsel, the court will carry this discussion no further.

6.  The court has been unable to locate any authority directed to the specific proposition whether failure to argue an affirmative defense in closing arguments, whether written or oral, constitutes a waiver, but this would seem unlikely.  Issues raised in pleadings are not waived by a party's failure to discuss them in briefs.  In re Morrison, 69 B.R. 586, 589 n.9 (Bankr. E.D. Pa. 1987).  The court concludes that the defendants did not waive their pled affirmative defenses solely by virtue of the fact that they did not argue them.  However, this is a different issue from the merits of the affirmative defenses themselves, discussed infra at part III.B., subsections 2-4.

7.  See the finding on this point by the trial court in the 1988-099 case, Mid-Pacific Constr. Co. v. Senda, 7 FSM Intrm. 371, 375, numbered paragraph 8 (Pon. 1996).  The appellate division left this finding undisturbed in Senda v. Creditors of Mid-Pacific Constr. Co., 7 FSM Intrm. 664, 671 (App. 1996).