POHNPEI SUPREME COURT REPORTS
VOL. 1
 
[1 P. S. Ct. R 300]

EIKO AISEK,
Plaintiff

v.

GEORGE WOLPHAGEN, BERNELL EDWARDS
AND OTHERS,
 Defendants

and

GEORGE WOLPHAGEN,
 Plaintiff

v.

EIKO AISEK,
Defendant

Pohnpei Civil Action No. 1-84 and Pohnpei Civil Action No. 120-84 (Consolidated)

Trial Division of the Pohnpei Supreme Court

November 26, 1985

     Consolidated actions. First, action by plaintiff wife and successor to deceased lessee of public land against defendant sub-lessee for breach of sub-lease agreement of May 16, 1876, between deceased lessee and sub-lessee and to avoid a sub-lease agreement between sub-lessee and others in respect of building on the land on the ground that the agreement was without plaintiff's consent; second, action by defendant sub-lessee against plaintiff for breach of the sub-lease agreement between him and deceased lessee; and third, counter-claim by party-defendant against plaintiff demanding payment for goods sold to her on credit by party-defendant on the premises while in

[1 P. S. Ct. R 301]

possession under a sub-lease agreement between party-defendant and defendant. Evidence showed that both the plaintiff and defendant had sub-let the premises without the required express prior written consent of the Government under Article 8 of the Government Lease Agreement and that plaintiff had acquiesced in defendant's breach of sub-lease.

     The Pohnpei Supreme Court, EDWEL H. SANTOS, Chief Justice, held (1) that the sub-leasing of the premises by the defendant sub-lessee to others was violative of Article 8 of the Government Lease Agreement and constituted a breach of the 1976 sublease agreement; (2) that plaintiff lease had acquiesced in the breach by another benefitting from the sub-lease agreement between sub-lessee and others; (3) that the plaintiff lessee herself acted in breach of the Government Lease Agreement in subleasing the premises, after taking possession, to other persons without the express prior written consent of the Government; (4) that the parties being equally at fault in relation to the Government Lease Agreement by committing acts which were illegal in relation to the Agreement, the Court would not enforce the right of either party arising out of an illegal assignment or renting of the premises; (5) that the business transaction between plaintiff lessee and party-defendant was a separate contract and she was liable to pay the value of merchandise purchased and delivered; (6) that as the term of the March 16, 1976, sub-lease agreement was indefinite, the agreement became void as of May 10, 1984 by operation of law in relation to section 5, Art. XIII, of the F.S.M. Constitution, and (7) that all improvements which were immovable made as a result of the said agreement became part of the leased premises, and the property of the plaintiff lessee during the life of the Government lease.

1.    Contracts - Illegality
The well-established general rule is that an agreement which violates a provision of the federal or a state constitution, or a constitutional statute, or which cannot be performed without violating such a provision, is illegal and void (17 Am Jur. 2d: Contracts, Sec. 165)

2.    Public Lands - Lease - Subleasing by Sub-Lessee
Where sub-lessee of Government land without the consent of lessee subleases the premises in violation of Article 8 of Government Lease Agreement which requires that the premises shall not be sub-let or assigned without the express prior written consent of the government, the sub-leasing constitutes a breach of the agreement between the lessee and sub-lessee.

[1 P. S. Ct. R 302]

3.    Public Lands - Leases - Breach of Sub-Lease Agreement by Sub-Lessee - Acquiescence by Lessee
A lessee of public land acquiesces in the breach where he benefits from a sub-lease agreement between sub-lessee and another person where that agreement is in breach of the sub-lease between lessee and sub-lessee.

4.    Contracts - Illegality
At common law a contract i s illegal as performed if, though ex facie lawful, it is statutorily forbidden to be performed by the method that the person responsible has elected to adopt.

5.    Public Lands - Leases - Sub-leases
A sub-lease of Government land which does not comply with the leasing law is illegal.

6.    Public Lands - Leases - Sub-leases
Where lessee and sub-lessee of Government land commit acts not contemplated in the lease agreement between themselves, which acts are illegal in relation to Article 8 of the Government Lease Agreement, they are equally at fault.

7.    Contracts - Breach - Effect
Where the parties to a contract are equally at fault, or stand in pari delicro, the law will leave them where it finds them.

Editorial Note: In the Court's opinion this concept conforms with Pohnpeian custom of "Ke pwurong omw mwer" which literally means . you reap the fruit of your own misdeeds"

8.    Public Lands - Leases - Assignment or Sub-leasing - Rights of Parties
The Court will not enforce the right of either party arising out of an illegal assignment or renting of premises, the subject of a Government Lease which requires that the lessee shall not assign or sub-lease the premises without the express prior written consent of the Government.

[1 P. S. Ct. R 303]

9.      Public Lands - Leases - Sub - lease for Indefinite Term - Statutory Prohibition - Effect
Where subsequent changes in the law (Article XIII, Section 5 of the F.S.M. Constitution) provides that an agreement for the use of land far an indefinite term is prohibited; that an existing agreement becomes void five years after the effective date of the Constitution; and that within that time a new agreement shall be concluded between the parties, the March 16, 1976, sub-lease agreement between lessee and sub-lessee, the term of which was indefinite, lost its legal status and became no agreement, when no new agreement was negotiated, on May 10,1984, five years after the effective date of the F.S.M. Constitution.

10.      Leases - Leasehold Premises - Rights of Parties Upon Public Lands - Lease Being Rendered Void - Pohnpeian Concept of Justice
Where sub-lease of Government land otherwise valid between parties has been subsequently by operation of law rendered invalid, and the estimated useful life of building on the land is 15 years or so, and the sub-lessee has benefitted from the sub-lease agreement for a period of approximately nine years (1976-1985), and the building will lose its useful value after six or so years thereafter, it is in accord with Pohnpeian concepts of justice that plaintiff lessee, an old blind lady, begins to enjoy the benefit of her 1976 agreement (Sec. 11, Art .10 of Pohnpei Constitution).

11.      Contracts - Business Transactions - Liability of Purchaser of Merchandise
Where business transaction of buying and selling and maintaining an open account is a contract by itself apart from sub-lease, plaintiff sublessor of a sub-lease rendered void by operation of law is liable to pay the value of merchandise purchase and delivered under that contract.

12.      Public Lands - Leases - Sublease Agreement - Improvements to Premises
Where sub-lease of Government land otherwise valid between parties subsequently becomes void by operation of law all improvements made as a result of said agreement which are immovable become part of leased premises, ant! the lessee named in the Government lease or his successor is the owner of such improvement during the life of the Government lease.

[1 P. S. Ct. R 304]

Counsel for Plaintiff Eiko Aisek: Matt Mix
Counsel for Defendant George Wolphagen: Herbert Gallen
Counsel for Defendant Bernell Edwards: Sungiwo Hadley

EDWEL H. SANTOS, Chief Justice,

FINDINGS OF FACT
1.      William Aisek, deceased, had a Government Residential Lease designated as Kolonia Town Lease No. 28-7-74 covering a lot in Kolonia Town described formerly as Track 70951, and presently as Parcel No. 019-A-10, as shown on Division of Lands and Surveys Plat No. 019-A-00, dated September 11, 1972. The term is 20 years beginning on Jul 1, 1974, and ending on June 30, 1994. On March 16, 197E Defendant George Wolphaghen and William Aisek execute a sub-lease agreement, approved by Bermin Weilbacher the then Deputy District Administrator. The sub-lease agreement provides essentially that defendant George Wolphagen was to build a house and to conduct retail business in the

[1 P. S. Ct. R 305]

latter's Government Lease. George Wolphagen to maintain the building in good repair, paying all utilities and water and to transfer title to the building over to William Aisek 90 days after defendant George Wolphagen shall have found his own lot. William Aisek was not to remove George Wolphagen from the lot. Subsequent to this, William Aisek died, and in TT High Court Probate Action No.78-81, Plaintiff Eiko Aisek was declared as the successor to William Aisek's interest in the above described lease, William Aisek being the husband of Plaintiff Eiko Aisek. William Aisek had executed his promise and George Wolphagen constructed an average size building with concrete floor, tin roof and walls, and operated retail business therein for some time until shortly after he retired from government employment in about 1980.

2.      Sometime prior to November 1981, George Wolphagen rented the building to one Scott Santos to run a retail business. Following that, defendant George Wolphagen and Bernell Edwards entered into an agreement during the latter part of 1981 providing that defendant Bernell Edwards was to lease the building to operate a retail business, and in return

[1 P. S. Ct. R 306]

defendant Bernell Edwards was to pay rent at $100 per month. Bernell Edwards entered and commenced his retail business in November 1981, and paid the monthly rental amount of $100.00. Subsequently, Bernell Edwards found out that the building was not in proper shape (some areas of the roof leaking), and he approached George Wolphagen to negotiate a reduction in the rental rate. George Wolphagen agreed and the monthly rent was reduced to $75.00. This lease agreement was verbal and lasted from November 1981 through January 1984. Plaintiff Eiko Aisek was not a party to this agreement. She however, did not eject nor did she show any intention to eject until in June 1983 when her attorney wrote a letter to Bernell Edwards advising him to terminate any rental payment to George Wolphagen.

3.      Plaintiff Eiko Aisek has an open account at defendant Bernell Edwards' store with a balance of $215.11 as of January 8, 1984; said account is due and payable.

4.      The Trust Territory High Court in its Civil Action No. 78-81 (In the Matter of the Estate of William Aisek) recognizes the existence of a written agreement between deceased William

[1 P. S. Ct. R 307]

 Aisek and George Wolphagen, dated March 16, 1976.

5.      After Bernell Edwards moved out in January 1984, Elko Aisek took possession of the building and rented the same, on a mutual agreement, to Clara Shoniber, who also operated a retail business therein. For several months, Clara Shoniber leased the building and vacated the building after finding a business location at the former Government Freezer Plant, on the waterfront in Kolonia.

6.      After Clara, Eiko Aisek leased the same building to Maketo Robert, an attorney from Truk, who pays rent at the rate of 200.00 per month.

CLAIMS
     This action was brought by plaintiff Eiko Aisek alleging that defendant George Wolphagen had breached the agreement of March 16, 1976 by allowing defendant Bernell Edwards to lease the building on Parcel No. 019-A-10, without the consent of plaintiff, and that the lease agreement between George Wolphagen and Bernell Edwards was void. In response, defendant George Wolphagen charges that plaintiff breached the March 16, 1976,

[1 P. S. Ct. R 308]
 
agreement by taking possession of the building, ousting defend George Wolphagen therefrom, leasing the building to some other persons without George Wolphagen's consent and modifying 1 structure of the building. George Wolphagen brought a separate action (CA No. 120-84) naming Eiko Aisek as the only defend Those cases are consolidated by order of this Court.

     Defendant Bernell Edwards was joined as a party-defendant and filed a counter-claim against plaintiff demanding that E Aisek pays her debt in the amount of $215.11 plus interest of ! from January 1984. Bernell Edwards also filed a cross-claim against his co-defendant George Wolphagen alleging that a vc, lease agreement between him and George Wolphagen was e excuted and performed, that if he and George Wolphagen were h liable to plaintiff, that judgment be had against defendant George Wolphagen.

OPINION
     The basic issue for determination is "whether there wa; breach of the March 1976 sub-lease agreement, and if so by whom.

     The agreement of March 1976 between William Aisek/Eiko

[1 P. S. Ct. R 309]

Aisek and George Wolphagen is a sub-lease agreement and it did receive the written approval of the government as required by the applicable law then in effect. The applicable law was Article 8 of the Government Lease Agreement which provides as follows:

"11. ART. 8. SUBLEASE, ASSIGNMENT AND TRANSFER

The Lessee (William Aisek/Eiko Aisek) shall not sub-lease transfer, or assign any interest in the Premises or in any improvement thereon or in this lease agreement without the express prior written consent of the Government..."

     [1] The sub-leasing of the building to Scott Santos and to Bernell Edwards by George Wolphagen was not the object of the 1976 agreement. Additionally, they did not comply with Article 8 supra, and therefore are illegal.

     [2-3] The well-established general rule is that an agreement which violates a provision of the federal or a state constitution, or of a constitutional statute, or which cannot be performed without violating such a provision, is illegal and void. 17 Am Jur 2d. Contract, S. 165.

     The sub-leasing of the premises by George Wolphagen to Scott Santos as well as to Bernell Edwards was violative of Article

[1 P. S. Ct. R 310]

8 above, and constitutes a breach of the 1976 agreement. However, evidence clearly shows an act of acquiescence in the subleasing transactions between George Wolphagen and Scott Santos, and Bernell Edwards on the part of Eiko Aisek and her son Pilliem Aisek, both of whom had established open accounts at Bernell Edwards' store and had in essence benefitted from the sub-lease agreement.

"Acquiescence is some act, not deliberately intended to ratify a former transaction known to be voidable, but recognizing the transaction as existing, and intended, in some extent at least, to carry it into effect, and to obtain or claim the benefits resulting from it." Black's Law Dictionary, 1979 Ed.

     Plaintiff Eiko Aisek, however, after Bernell Edwards vacated the premises, (Facts 5 & 6) took possession and rented same to Clara Shoniber and to Maketo Robert, subsequently. All such transactions were done without the consent of George Wolphagen as well as the Government.

     [4]George Wolphagen and William Aisek/Eiko Aisek recognized in 1976 the legal requirement of having the government approving in writing the sub-lease agreement of March 16, 1976. Neither George Wolphagen, nor Eiko Aisek sought government prior written approval in the sub-leases they each executed along

[1 P. S. Ct. R 311]

with Scott Santos and Bernell by George Wolphagen and with Clara Shoniber and Maketo Robert by Eiko Aisek. The method they each selected to enter into and to perform the unauthorized leases is forbidden. It is said at common law that a contract is illegal as performed if, though ex facie lawful, it is statutorily forbidden to be performed by the method that the person responsible has elected to adopt. Cheshire and Fifoot, Law of Contract, 3rd Australian Edition. Butterworths, 1974, at p. 366.

     [5-6] These sub-leases of the premises in question did not comply with the leasing law, above cited and therefore are illegal, and they breach the 1976 agreement. For the reasons stated both plaintiff Eiko Aisek and defendant George Wolphagen are equally at fault, in relation to the 1976 agreement. Both committed an act which was not contemplated in the 1976 agreement, and which is illegal in relation to Article 8 of the Government Lease Agreement.

     [7] Most courts follow the rule that where two parties to a contract are equally at fault, or stand in pari delicti, the law will leave them where it finds them. Wilder mfg. Co. v. Corn Products Ref. Company, 236 US 165, 59 L. Ed 520, 35 S Ct 398; 17 Am Jur 2d. Contract Sec. 221.

[1 P. S. Ct. R 312]

     [7] These foreign concepts conform with the Pohnpeian custom of "Ke pwurong omw mwer"; and therefore I see no harm in applying the common law concept of contract where it facilitates what is known and practiced in our custom.

     [8] What it means here is that the Court will not enforce the right of either party arising out of an illegal assignment or renting of the premises, the subject of Lease Number 28-7-74.

     What then becomes the status of the March 16, 1976, Agreement in view of the subsequent changes in the law?

     [9] The relevant change in the law is found in Article XIII, Section 5 of the FSM Constitution which reads:

An agreement for the use of land for an indefinite term is prohibited. An existing agreement becomes void 5 years after the effective date of this Constitution.Within that time a new agreement shall be concluded between the parties."When the national government is a party, it shall initiate negotiations.

     The provision of the agreement which appears indefinite as to term is found in paragraphs 2, 3 and 4 of the agreement which reads:

2.      George Wolphagen promised that he will convey title to the business building (he) erected on William Aisek's residential lot when George Wolphagen shall have found his own business lot in Kolonia Town, approved by the Governor (PLA Board of Trustee).

3.      William Aisek shall not remove George Wolphagen's building from William Aisek's lot until George Wolphagen shall find a different lot

[1 P. S. Ct. R 313]

within Kolonia Town.
 
4.      William Aisek shall begin to exercise right of ownership to the building in question 90 days after George Wolphagen shall have found and received government approval of his own business lease lot in Kolonia Town."

     The agreement between George Wolphagen and William Aisek upon its approval by the District Administrator became legally valid as an agreement to sublease government land pursuant to laws then in effect.

     The state of affairs relating to dealings in public land drastically changed beginning January 1, 1977, when Ponape District Law 4L-69-76, (the Public Lands Act of 1976) established the Ponape District Public Lands Authority, now Pohnpei Public Lands Authority, and authority over public lands transferred from the Trust Territory of the Pacific Islands to the Ponape Public Lands Authority. The authority to approve leases of public lands was transferred prom a onion officer (District Administrator) to a 9-member Board of Trustees. As a result, whatever guarantee the then Deputy District Administrator Bermin Weilbacher may have in approving or causing the approval by the government of a prospective lease agreement to George Wolphagen, in order for George Wolphagen to be able to perform his promise becomes an

[1 P. S. Ct. R 314]

uncertainty. George Wolphagen has no authority over the Board of Trustees of Pohnpei Public Lands to approve a lease to him so that he can perform his part of the bargain in his agreement with William Aisek, now Eiko Aisek. It could take the government one day, one week, one year, or one hundred years to grant George Wolphagen a lot in Kolonia Town. Or there would be no lot available at all in Kolonia Town. George Wolphagen's own testimonial that since 1976, he did submit 4 applications to the Land Offices, the fourth application being submitted to the present Public Lands Authority in 1984. None of these applications received favorable consideration. The building is deteriorating due to age and could become valueless by the time George Wolphagen ever gets to find, and the government grants him a lot to lease in Kolonia Town. Whether the government will grant George Wolphagen a lot is highly speculative, given the scarcity of public lands available for lease in Kolonia Town at present, coupled with increased applicants-competitors competing to obtain government lots for leases.

     The term of William Aisek's Residential Lease runs from July 1, 1974, through June 30, 1994, with an option to renew for an

[1 P. S. Ct. R 315]

additional 5 years, (See Article I of Lease Number 28-7-74 re: T-70951 Parcel 019-A-10). There are approximately eight years remaining on the lease. There is no clear indication that George Wolphagen will ever find and the Government to grant him a lot in Kolonia within the next eight or nine years remaining on the lease of the lot upon which the building in question stands. Plaintiff has performed her promise; defendant has benefitted from plaintiff's performance of the agreement since 1976. However, defendant George Wolphagen has applied to lease public lands only four times up to 1984: all four applications received no favorable consideration by the government. The uncertainty of the term of the agreement of March 1976 thus becomes too great to be doubted.

     Given these circumstances, I hold that the term of the agreement, as related to George Wolphagen's promise, is indefinite, within the meaning of Section 5 of Article XII I of the Constitution of the Federated States of Micronesia.

     Our FSM Constitution makes void the agreement of March 1976 between William Aisek/Eiko Aisek and George Wolphagen five years after the effective date of the FSM Constitution. The FSM

[1 P. S. Ct. R 316]

Constitution took effect on May 10, 1979, hence five years thereafter falls on May 10,1984. Within the five years grace period the parties were invited to execute anew agreement to comply with the Constitutional mandate.

     No effort was exhibited by defendants George Wolphagen and Bernell Edwards who had been benefitting from the 1976 agreement to negotiate with plaintiff for a new agreement, despite the receipt by defendants of a letter sent on behalf of plaintiff Eiko Aisek in June 1983, advising defendant Bernell Edwards to stop making further payment to George Wolphagen.

     The March 16, 1976 agreement, thus, on May 10, 1984, lost its legal status, and became no agreement. The building became part of the leased premises, hence the property of lessee.

     [10] It is estimated that the building in question has a useful life of 15 or so years. Defendant George Wolphagen has benefitted therefrom as the result of the 1976 sub-lease agreement fora period of approximately nine years (1976-1985). The building will lose its useful value after six or so years from now. It is thus in accord with the Pohnpeian concepts of justice that plaintiff Eiko Aisek, an old blind lady, begins to enjoy the benefit of her 1976

[1 P. S. Ct. R 317]

agreement. ( Sec. 11, Art. 10 of Pohnpei Constitution).

CONCLUSION
     [11-12] 1. George Wolphagen is guilty of breaching the 1976 agreement by further sub-leasing the building to Scott Santos and to Bernell Edwards up to January 18.1984. Elko Aisek acquiesced in this undertaking and is equally guilty.

     2. Eiko Aisek breached the 1976 agreement by subleasing the building to Clara Shoniber and to Maketo Robert up to May 9, 1984.

     3. The Court will not enforce the right of either party in relation to the breaches of the 1976 agreement inasmuch as they (George Wolphagen and Eiko Aisek) are equally at fault.

     4. A business transaction such as an open account, as is seen here (Eiko Aisek buying merchandise from Bernell Edwards' on credit), is a contract by itself and Eiko Aisek is liable to pay the value of merchandise purchased and delivered.

JUDGMENT
It Is ORDERED, ADJUDGED, and DECREED as follows:

[1 P. S. Ct. R 318]

1.     Defendant George Wolphagen and Plaintiff Eiko Aisek were equally guilty of breaching the term of their March 16, 1976 sub-lease agreement re: Kolonia Town Lease No. 28-7-74, and the Court will not enforce any right in relation to each of the parties.

2.      The sub-lease agreement of March 161976, became void as of May 10, 1984, by operation of law (Sec. 5 Art. XIII, FSM Constitution) and all improvements made as a result of said agreement and which are immovable became part of the leased premises. The lessee named in the Kolonia Town Lease Number 28-7-74, or his successor is the owner of such improvement during the life of Lease No. 28-7-74.

3.      Defendant Bernell Edwards is awarded judgment against plaintiff Eiko Aisek for goods bought on credit in the amount of $215.11 plus 9% interest per annum, said interest to commence accruing from the date of this judgment. Each party bears his own cost.
                                                                                                                                                                                                                                                                                                           
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