9 FSM Intrm.605-608

THE SUPREME COURT OF THE

FEDERATED STATES OF MICRONESIA

TRIAL DIVISION

Cite as FSM Dev. Bank v. Gouland,

9 FSM Intrm. 605 (Chuuk 2000)

[9 FSM Intrm. 605]

FSM DEVELOPMENT BANK,

Plaintiff,

vs.

LARRY GOULAND, JULIA GOULAND,

and YURIE K. GOULAND,

Defendants.

CIVIL ACTION NO. 2000-1000

ORDER GRANTING PARTIAL SUMMARY JUDGMENT

Richard H. Benson

Associate Justice

Decided: December 29, 2000

APPEARANCES:

For the Plaintiff: Ron Moroni, Esq.

P.O. Box 1618

Kolonia, Pohnpei FM 96941

For the Defendants: Wesley Simina, Esq.

P.O. Box 94

Weno, Chuuk FM 96942

* * * *

HEADNOTES

Civil Procedure ) Filings; Civil Procedure ) Motions

When, although a copy has been faxed to the court, a motion has never been filed and when no application for filing by facsimile pursuant to Civil Procedure Rule 5(e) has been made, the motion is not before the court. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 606 (Chk. 2000).

Civil Procedure ) Summary Judgment

A court must deny a motion for summary judgment unless it finds no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The court must view the facts presented and inferences made in the light most favorable to the nonmoving party, and the burden of showing a lack of triable issues of fact belongs to the moving party. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607 (Chk. 2000).

Debtors' and Creditors' Rights; Property ) Mortgages

When loan collateral is in the lender's possession and the borrower has made a reasonable request that the lender liquidate the collateral to preserve its value, the lender should do so; but there is no duty in law requiring the lender to take possession of the collateral and foreclose on property at

[9 FSM Intrm. 606]

the borrowers' request when that property is not in the lender's possession, unless there is a provision in the mortgage requiring it. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607 (Chk. 2000).

Equity ) Laches

Since laches is an equitable defense, it is only available to a defendant when a plaintiff seeks some form of equitable relief. It is not a valid defense to an action brought solely at law. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607 (Chk. 2000).

Contracts ) Forum Selection Clause

Parties can designate by contract a forum in which any litigation is to take place, and such forum selection clauses are presumed valid and will be enforced unless there is a strong showing that it would be unreasonable or unjust or fraud or overreaching is involved. The clause must unambiguously name another forum. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607-08 (Chk. 2000).

Contracts ) Forum Selection Clause

When a forum selection clause names a court that no longer exists, but another court is in all respects its successor, it is expected that the case is meant to proceed in that court absent some valid reason it should not. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 608 (Chk. 2000).

* * * *

COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

On March 8, 2000, the plaintiff FSM Development Bank filed its Motion for Entry of Default Judgment/ Alternative Motion for Summary Judgment. My April 27, 2000, vacated the entry of default, denied the Bank's Motion for Entry of Default Judgment as moot, and directed the Bank to file and serve its answer to the defendants' counterclaim and directed the defendants to file and serve any opposition to the Bank's Alternative Motion for Summary Judgment. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 375, 379 (Chk. 2000). The Bank served its Motion to Dismiss Counterclaims on May 3, 2000. The defendants filed their Opposition to Motion for Summary Judgment and Motion to Dismiss, by Plaintiff on May 19, 2000. The Bank's Motion to Dismiss Counterclaims has never been filed, although a copy was faxed to the court. Nor was an application for filing by facsimile pursuant to Civil Procedure Rule 5(e) made. As such, the plaintiff's Motion to Dismiss Counterclaims is not before me.

The Bank's grounds for summary judgment are that the defendants have defaulted on their $160,000 loan executed through a promissory note dated May 11, 1994. The promissory note was secured by a mortgage on real property executed by Yurie Gouland on May 11, 1994 and by a chattel mortgage, executed on October 20, 1994 by Larry and Julia Gouland, for a 42-foot boat named the "Miss Yuri" and listed attached equipment. It is undisputed that the defendants ceased making payments on the loan and have defaulted on the loan. It is also undisputed that the promissory note and the mortgages all contain acceleration clauses that allow the Bank, in the case of a default, to accelerate the payments so that all unpaid amounts become due and payable.

The defendants raise the equitable doctrine of laches in defense. The factual basis for this summary judgment motion defense (and for the counterclaims in their answer) is that, starting sometime in 1996, the defendants informed the Bank they could no longer make the loan payments and repeatedly requested voluntary foreclosure of the mortgages. The Bank declined to do so. The defendants contend that the Bank was negligent in failing to exercise voluntary foreclosure on the mortgages (the basis of their counterclaims) and that because they were, laches should prevent the

[9 FSM Intrm. 607]

Bank from obtaining judgment for, at least, the penalties and interest accrued since then. The Bank contends, and the defendants concede, that there is no legal precedent in other jurisdictions, or in the Federated States of Micronesia, for this proposition. The defendants, nevertheless, contend that the court is free to fashion its own remedy based on equity and "important public policy." The defendants contend that the court may find that public policy should prevent a governmental entity (the Bank) from discouraging voluntary foreclosure in face of a borrower's repeated requests over a lengthy period of time and allowing penalties and interest to accrue.

"A court must deny a motion for summary judgment unless it finds there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The court must view the facts presented and inferences made in the light most favorable to the nonmoving party, and the burden of showing a lack of triable issues of fact belongs to the moving party." Nanpei v. Kihara, 7 FSM Intrm. 319, 323 (App. 1995) (citing Adams v. Etscheit, 6 FSM Intrm. 580, 582 (App. 1994)).

The essential facts are not disputed. Both mortgages contain provisions allowing the Bank discretion in accelerating the full amount due and thus foreclosing on the properties if the borrowers are in default. Mortgage on Real Property para. 18; Chattel Mortgage § 6. The chattel mortgage also contains a provision whereby any delay by the Bank in exercising any of its rights or remedies does not constitute a waiver of any of the mortgagor's obligations. Chattel Mortgage § 7. There is precedent in other jurisdictions for the proposition that when loan collateral is in the lender's possession and the borrower has made a reasonable request that the lender liquidate the collateral to preserve its value, the lender should do so. See, e.g., Greenberg v. Federal Deposit Ins. Corp., 835 F. Supp. 55, 58 (D. Mass. 1993) (bank not liable for loss of collateral stock value to borrower who defaulted and asked bank to sell stock because borrower did not respond to bank's letter asking him to sign transmittal form for stock and bank had to take other reasonable steps before it could sell stock several months later); Federal Deposit Ins. Corp. v. Webb, 464 F. Supp. 520, 526-27 (E.D. Tenn. 1978) (duty of care of pledgee to exercise reasonable care of collateral in his possession but under no duty to sell collateral declining in value absent reasonable request of pledgor); Farmers State Bank in Afton v. Ballew, 626 P.2d 337, 340 (Okla. Ct. App. 1981) (once bank has taken possession of collateral it must use reasonable care in its custody and preservation, including value, and bank is liable to debtor for any loss occasioned by failure to comply with this requirement). But there is no duty in law or in the defendants' mortgages requiring the Bank to take possession of the collateral and foreclose on property at the borrowers' request when that property is not in the Bank's possession. Cf. Maryland Nat'l Bank v. Traenkle, 933 F. Supp. 1280, 1288 (D. Md. 1996) (although lender required to exercise good faith, lender not obligated to take affirmative actions clearly not required under loan documents).

The property remained in the defendants' hands the whole time. Nothing prevented them from trying to sell all or part thereof and using the money thus obtained to reduce or pay off the loan balance themselves. This would be to the defendants' advantage because in a sale they arranged themselves they would not have to pay, as they would if the property was foreclosed, the Bank's costs of sale and collection and its attorney's fees. Furthermore, I doubt whether laches could be a proper defense in a loan collection case. "Since laches is an equitable defense, it is only available to a defendant when a plaintiff seeks some form of equitable relief. It is not a valid defense to an action brought solely at law."Union Planters Nat'l Bank of Memphis v. Markowitz, 468 F. Supp. 529, 533 (W.D. Tenn. 1979).

The Bank is therefore entitled by law to judgment for the amount outstanding on the promissory note and to foreclosure on the chattel mortgage. The real property mortgage, however, contains a forum selection clause not present in the chattel mortgage or the promissory note. It states: "The foreclosure proceeding shall be brought in the Truk State Court." Mortgage on Real Property para. 19. Parties can designate by contract a forum in which any litigation is to take place, and such forum selection clauses are presumed valid and will be enforced unless there is a strong showing that it would

[9 FSM Intrm. 608]

be unreasonable or unjust or fraud or overreaching is involved. National Fisheries Corp. v. New Quick Co., 9 FSM Intrm. 120, 125 (Pon. 1999). The clause must unambiguously name another forum. Id. Although a court under the name Truk State Court no longer exists, the Chuuk State Supreme Court is in all respects its successor. I conclude that if the FSM Supreme Court is to enforce the real property mortgage it must give effect to the forum selection clause unless the mortgagor, Yurie K. Gouland, were to expressly waive her right to require the Bank to abide by the forum selection it made. Absent that, or some other valid reason, the real property foreclosure must proceed in the Chuuk State Supreme Court, even though this court will determine the amount of the defendants' indebtedness. Any party may submit, within twenty days of entry of this order, any papers, as it is advised, setting forth reasons why I should retain jurisdiction over the real property mortgage foreclosure.

Accordingly, the Bank is granted partial summary judgment. The Bank is entitled to judgment on the outstanding loan balance of $125,706.10 plus accrued interest and reasonable attorney's fees and to foreclosure on the chattel mortgage. The judgment is partial because the defendants have asserted counterclaims which the Bank has not answered or otherwise defended.


	THE SUPREME COURT OF THE FEDERATED STATES OF MICRONESIA TRIAL DIVISION Cite as FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605 (Chuuk 2000) [9 FSM Intrm. 605] FSM DEVELOPMENT BANK, Plaintiff, vs. LARRY GOULAND, JULIA GOULAND, and YURIE K. GOULAND, Defendants. CIVIL ACTION NO. 2000-1000 ORDER GRANTING PARTIAL SUMMARY JUDGMENT Richard H. Benson Associate Justice Decided: December 29, 2000 APPEARANCES: For the Plaintiff: Ron Moroni, Esq. P.O. Box 1618 Kolonia, Pohnpei FM 96941 For the Defendants: Wesley Simina, Esq. P.O. Box 94 Weno, Chuuk FM 96942 * * * * HEADNOTES Civil Procedure ) Filings; Civil Procedure ) Motions When, although a copy has been faxed to the court, a motion has never been filed and when no application for filing by facsimile pursuant to Civil Procedure Rule 5(e) has been made, the motion is not before the court. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 606 (Chk. 2000). Civil Procedure ) Summary Judgment A court must deny a motion for summary judgment unless it finds no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The court must view the facts presented and inferences made in the light most favorable to the nonmoving party, and the burden of showing a lack of triable issues of fact belongs to the moving party. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607 (Chk. 2000). Debtors' and Creditors' Rights; Property ) Mortgages When loan collateral is in the lender's possession and the borrower has made a reasonable request that the lender liquidate the collateral to preserve its value, the lender should do so; but there is no duty in law requiring the lender to take possession of the collateral and foreclose on property at [9 FSM Intrm. 606] the borrowers' request when that property is not in the lender's possession, unless there is a provision in the mortgage requiring it. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607 (Chk. 2000). Equity ) Laches Since laches is an equitable defense, it is only available to a defendant when a plaintiff seeks some form of equitable relief. It is not a valid defense to an action brought solely at law. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607 (Chk. 2000). Contracts ) Forum Selection Clause Parties can designate by contract a forum in which any litigation is to take place, and such forum selection clauses are presumed valid and will be enforced unless there is a strong showing that it would be unreasonable or unjust or fraud or overreaching is involved. The clause must unambiguously name another forum. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607-08 (Chk. 2000). Contracts ) Forum Selection Clause When a forum selection clause names a court that no longer exists, but another court is in all respects its successor, it is expected that the case is meant to proceed in that court absent some valid reason it should not. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 608 (Chk. 2000). * * * * COURT'S OPINION RICHARD H. BENSON, Associate Justice: On March 8, 2000, the plaintiff FSM Development Bank filed its Motion for Entry of Default Judgment/ Alternative Motion for Summary Judgment. My April 27, 2000, vacated the entry of default, denied the Bank's Motion for Entry of Default Judgment as moot, and directed the Bank to file and serve its answer to the defendants' counterclaim and directed the defendants to file and serve any opposition to the Bank's Alternative Motion for Summary Judgment. FSM Dev. Bank v. Gouland, 9 FSM Intrm. 375, 379 (Chk. 2000). The Bank served its Motion to Dismiss Counterclaims on May 3, 2000. The defendants filed their Opposition to Motion for Summary Judgment and Motion to Dismiss, by Plaintiff on May 19, 2000. The Bank's Motion to Dismiss Counterclaims has never been filed, although a copy was faxed to the court. Nor was an application for filing by facsimile pursuant to Civil Procedure Rule 5(e) made. As such, the plaintiff's Motion to Dismiss Counterclaims is not before me. The Bank's grounds for summary judgment are that the defendants have defaulted on their $160,000 loan executed through a promissory note dated May 11, 1994. The promissory note was secured by a mortgage on real property executed by Yurie Gouland on May 11, 1994 and by a chattel mortgage, executed on October 20, 1994 by Larry and Julia Gouland, for a 42-foot boat named the "Miss Yuri" and listed attached equipment. It is undisputed that the defendants ceased making payments on the loan and have defaulted on the loan. It is also undisputed that the promissory note and the mortgages all contain acceleration clauses that allow the Bank, in the case of a default, to accelerate the payments so that all unpaid amounts become due and payable. The defendants raise the equitable doctrine of laches in defense. The factual basis for this summary judgment motion defense (and for the counterclaims in their answer) is that, starting sometime in 1996, the defendants informed the Bank they could no longer make the loan payments and repeatedly requested voluntary foreclosure of the mortgages. The Bank declined to do so. The defendants contend that the Bank was negligent in failing to exercise voluntary foreclosure on the mortgages (the basis of their counterclaims) and that because they were, laches should prevent the [9 FSM Intrm. 607] Bank from obtaining judgment for, at least, the penalties and interest accrued since then. The Bank contends, and the defendants concede, that there is no legal precedent in other jurisdictions, or in the Federated States of Micronesia, for this proposition. The defendants, nevertheless, contend that the court is free to fashion its own remedy based on equity and "important public policy." The defendants contend that the court may find that public policy should prevent a governmental entity (the Bank) from discouraging voluntary foreclosure in face of a borrower's repeated requests over a lengthy period of time and allowing penalties and interest to accrue. "A court must deny a motion for summary judgment unless it finds there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The court must view the facts presented and inferences made in the light most favorable to the nonmoving party, and the burden of showing a lack of triable issues of fact belongs to the moving party." Nanpei v. Kihara, 7 FSM Intrm. 319, 323 (App. 1995) (citing Adams v. Etscheit, 6 FSM Intrm. 580, 582 (App. 1994)). The essential facts are not disputed. Both mortgages contain provisions allowing the Bank discretion in accelerating the full amount due and thus foreclosing on the properties if the borrowers are in default. Mortgage on Real Property para. 18; Chattel Mortgage § 6. The chattel mortgage also contains a provision whereby any delay by the Bank in exercising any of its rights or remedies does not constitute a waiver of any of the mortgagor's obligations. Chattel Mortgage § 7. There is precedent in other jurisdictions for the proposition that when loan collateral is in the lender's possession and the borrower has made a reasonable request that the lender liquidate the collateral to preserve its value, the lender should do so. See, e.g., Greenberg v. Federal Deposit Ins. Corp., 835 F. Supp. 55, 58 (D. Mass. 1993) (bank not liable for loss of collateral stock value to borrower who defaulted and asked bank to sell stock because borrower did not respond to bank's letter asking him to sign transmittal form for stock and bank had to take other reasonable steps before it could sell stock several months later); Federal Deposit Ins. Corp. v. Webb, 464 F. Supp. 520, 526-27 (E.D. Tenn. 1978) (duty of care of pledgee to exercise reasonable care of collateral in his possession but under no duty to sell collateral declining in value absent reasonable request of pledgor); Farmers State Bank in Afton v. Ballew, 626 P.2d 337, 340 (Okla. Ct. App. 1981) (once bank has taken possession of collateral it must use reasonable care in its custody and preservation, including value, and bank is liable to debtor for any loss occasioned by failure to comply with this requirement). But there is no duty in law or in the defendants' mortgages requiring the Bank to take possession of the collateral and foreclose on property at the borrowers' request when that property is not in the Bank's possession. Cf. Maryland Nat'l Bank v. Traenkle, 933 F. Supp. 1280, 1288 (D. Md. 1996) (although lender required to exercise good faith, lender not obligated to take affirmative actions clearly not required under loan documents). The property remained in the defendants' hands the whole time. Nothing prevented them from trying to sell all or part thereof and using the money thus obtained to reduce or pay off the loan balance themselves. This would be to the defendants' advantage because in a sale they arranged themselves they would not have to pay, as they would if the property was foreclosed, the Bank's costs of sale and collection and its attorney's fees. Furthermore, I doubt whether laches could be a proper defense in a loan collection case. "Since laches is an equitable defense, it is only available to a defendant when a plaintiff seeks some form of equitable relief. It is not a valid defense to an action brought solely at law."Union Planters Nat'l Bank of Memphis v. Markowitz, 468 F. Supp. 529, 533 (W.D. Tenn. 1979). The Bank is therefore entitled by law to judgment for the amount outstanding on the promissory note and to foreclosure on the chattel mortgage. The real property mortgage, however, contains a forum selection clause not present in the chattel mortgage or the promissory note. It states: "The foreclosure proceeding shall be brought in the Truk State Court." Mortgage on Real Property para. 19. Parties can designate by contract a forum in which any litigation is to take place, and such forum selection clauses are presumed valid and will be enforced unless there is a strong showing that it would [9 FSM Intrm. 608] be unreasonable or unjust or fraud or overreaching is involved. National Fisheries Corp. v. New Quick Co., 9 FSM Intrm. 120, 125 (Pon. 1999). The clause must unambiguously name another forum. Id. Although a court under the name Truk State Court no longer exists, the Chuuk State Supreme Court is in all respects its successor. I conclude that if the FSM Supreme Court is to enforce the real property mortgage it must give effect to the forum selection clause unless the mortgagor, Yurie K. Gouland, were to expressly waive her right to require the Bank to abide by the forum selection it made. Absent that, or some other valid reason, the real property foreclosure must proceed in the Chuuk State Supreme Court, even though this court will determine the amount of the defendants' indebtedness. Any party may submit, within twenty days of entry of this order, any papers, as it is advised, setting forth reasons why I should retain jurisdiction over the real property mortgage foreclosure. Accordingly, the Bank is granted partial summary judgment. The Bank is entitled to judgment on the outstanding loan balance of $125,706.10 plus accrued interest and reasonable attorney's fees and to foreclosure on the chattel mortgage. The judgment is partial because the defendants have asserted counterclaims which the Bank has not answered or otherwise defended.