Cite as Adams v. Island Homes Constr., Inc.,9 FSM Intrm. 530a (Pon. 2000)

[9 FSM Intrm. 530a]

CIVIL ACTION NO. 2000-012

Decided: August 16, 2000

APPEARANCES:

HEADNOTES

Civil Procedure – Dismissal

When matters outside the pleadings are presented to and not excluded by the court, the motion will be treated as one for summary judgment and disposed of as provided in Rule 56. Such consideration of extra-pleading material causes the "conversion" of the motion to dismiss to one for summary judgment, but parties have been allowed to go beyond the question of the complaint's formal sufficiency and introduce affidavits and other matters in conjunction with the Rule 12(b)(6) motion to ascertain whether there is any merit, to the claim, when the extra-pleading material offered by the plaintiffs, as respondents to the motion, tends merely to buttress the complaint's allegations. If the court finds that the complaint's allegations are sufficient to state a cause of action, it will not consider the extra-pleading material, and will treat the motion as titled, i.e., as a motion to dismiss, and not one

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for summary judgment, and denies the motion to dismiss. Adams v. Island Homes Constr., Inc., 9 FSM Intrm. 530a, 530b-30c (Pon. 2000).

Contracts

When the allegations are sufficient to allege an independent, primary, and unconditional promise among the plaintiffs and the defendant bank that the bank would act to bring another's account with the plaintiffs current, and that it would make future disbursements directly to the plaintiffs, it is not a contract of guaranty. If the obligation sought to be enforced is a primary or unconditional promise so that the promisor is primarily liable regardless of the failure of some other party to perform his contractual duty, the conclusion is that the obligation is not a contract of guaranty. Adams v. Island Homes Constr., Inc., 9 FSM Intrm. 530a, 530c (Pon. 2000).

Contracts

A guaranty is an enforceable undertaking or promise on the part of one person which is collateral to a primary or principal obligation on the part of another, and which binds the obligor to performance in the event of nonperformance by such other, the latter being bound to perform primarily. Adams v. Island Homes Constr., Inc., 9 FSM Intrm. 530a, 530c-30d (Pon. 2000).

Contracts – Necessity of Writing

When the leading object of a party promising to pay the debt of another is to promote his own interests, and not to become surety or guarantor, and the promise is made on sufficient consideration, it will be valid, although not in writing. Adams v. Island Homes Constr., Inc., 9 FSM Intrm. 530a, 530d (Pon. 2000).

COURT'S OPINION

MARTIN G. YINUG, Associate Justice:

The court has received and considered the Motion to Dismiss of defendant FSM Development Bank (“the Bank") filed on April 11, 2000, and the plaintiffs' Opposition to Defendants [sic] FSM Development Bank and Island Home Construction [sic] Joint Motion to Dismiss, filed on May 1, 2000. As a point of clarification, the motion to dismiss is not a joint motion, but is filed on behalf of the Bank only.

The Bank's motion is filed pursuant to Rule 12(b) of the FSM Rules of Civil Procedure, and asserts that the complaint should be dismissed for failure to state a claim upon which relief can be granted, Rule 12(b)(6), and for lack of subject matter jurisdiction, Rule 12(b)(1). The second argument is subsidiary to the first, since the Bank's contention is that the complaint does not state a cause of action as to the Bank, and if the Bank is dismissed, diversity jurisdiction under article XI, section 6 of the FSM Constitution will be destroyed, the allegation being that the Bank is an agency of the national government.

As part of their response to the motion to dismiss, the plaintiffs have attached an agreement dated October 8, 1997, among various of the parties and a letter dated January 13, 1998, from the plaintiffs' counsel to the Bank's counsel. Civil Rule 12(b) provides that where "matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Such consideration of extra-pleading material causes the "conversion" of the motion to dismiss to one for summary judgment. 5 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1366, at 675 (1969). While it is true that "since the promulgation of the federal rules most courts have allowed the parties to go beyond

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the question of the complaint's formal sufficiency and to introduce affidavits and other matters in conjunction with the Rule 12(b)(6) motion to ascertain whether there is any merit, to the claim," id. at 676, the extra-pleading material offered here by the plaintiffs, as respondents to the motion, tends merely to buttress the complaint's allegations. This is not a case where the extra-pleading material is offered by movant in order to demonstrate that the substance of the claim is devoid of merit – as Wright and Miller note, "in the typical case, it is the movant who seeks to bolster his Rule 12(b)(6) motion, and perhaps secure the benefits of a summary judgment, by causing the conversion." Id. at 677. As the court finds that the allegations of the complaint are sufficient to state a cause of action, the court does not consider the extra-pleading material. The court therefore treats the motion as titled, i.e., as a motion to dismiss, and not one for summary judgment. For the reasons below, the motion to dismiss is denied.

The Bank contends that the only arguable cause of action the complaint states against it is that the Bank orally undertook liability for the future and past debts of defendant Island Homes Construction, Inc. ("IHCI") stemming from an apartment construction project known as the Panasang project. The Bank had originally provided the financing for the project. The Bank urges that plaintiffs' cause of action is one on a guaranty, and as such falls within the Pohnpei Statue of Frauds of 1980, Pon. S.L. No. 2L-38-80. Under that statute, a guaranty must be in writing to be actionable. Because there was no written instrument evidencing the Bank's undertaking to pay IHCI's indebtedness, the Bank asserts that the complaint should be dismissed.

In response, plaintiffs emphasize that the Bank financed the project; that the Bank participated in a meeting with the plaintiffs and the other defendants in which it agreed to make loan disbursements directly to the plaintiffs in return for plaintiffs' agreement to continue supplying materials for the project; and that IHCI, with notice to the Bank, assigned the loan disbursements to the plaintiffs. Plaintiffs contend that as opposed to a guaranty, the Bank made an independently enforceable promise to the plaintiffs to make payments directly to them, and that as such, this agreement was outside the statute of frauds. According to the plaintiffs, this promise primarily served the Bank's own interest in insuring that the project was completed, and not any interest of IHCI's.

The complaint alleges in pertinent part that

[a]t a meeting on or about September 23, 1997, attended by Defendant Paulus Perman, the Construction Engineer, representative(s) of Defendant Island Homes Construction, Inc., representative(s) of Defendant FSM Development Bank, and plaintiffs it was agreed that Plaintiffs would resume allowing Defendant Island Homes Construction, Inc., to purchase materials for the Panasang Project on open account; Defendant FSM Development would bring the Project account with Plaintiffs up to. date utilizing Development Bank loan funds; and Defendant FSM Development would disburse funds for future payments of materials directly to Plaintiffs.

Complaint ¶ 15. These allegations are sufficient to allege an independent, primary, and unconditional promise among the plaintiffs and the Bank that the Bank would act to bring IHCI's account with the plaintiffs current, and that it would make future disbursements directly to the plaintiffs. "[I]f the obligation sought to be enforced is a primary or unconditional promise so that the promisor is primarily liable regardless of the failure of some other party to perform his contractual duty, the conclusion is that the obligation is not a contract of guaranty." 38 AM. JUR. 2D Guaranty § 3 (1968) (footnote omitted). Unlike the promise to pay as alleged at paragraph 15 of the complaint, a guaranty "is an enforceable undertaking or promise on the part of one person which is collateral to a primary or principal obligation on the part of another, and which binds the obligor to performance in the event of nonperformance by such other, the latter being bound to perform primarily." Id. § 2 (1968) (footnotes omitted). Also, as previously noted, the plaintiffs argue that it was in the interest of the Bank, which had provided

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financing for the project, to see that the project was completed. "[W]here the leading object of a party promising to pay the debt of another is to promote his own interests, and not to become surety or guarantor, and the promise is made on sufficient consideration, it will be valid, although not in writing." 72. AM. JUR. 2D Statute of Frauds § 192 (1974).

Accordingly, the motion to dismiss is denied. Pursuant to Civil Rule 12(a), the Bank will file its answer within 10 days of the date hereof.