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Federated States of Micronesia Development Bank v Ifraim [2001] FMSC 64; 10 FSM Intrm. 107 (Chk. 2001) (20 March 2001)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION
Cite as Federated States of Micronesia Development Bank v Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107 (Chk. 2001)

FEDERATED STATES OF MICRONESIA DEVELOPMENT BANK
Plaintiff,

vs.

WANTUS IFRAIM and AKIEKO IFRAIM
Defendants.

CIVIL ACTION NO. 2000-1016

ORDER

Richard H. Benson
Associate Justice

Decided: March 20, 2001

APPEARANCES:

For the Plaintiff:
James P. Woodruff, Esq.
P.O. Box M
Kolonia, Pohnpei FM 96941

For the Defendants:
Camillo Noket, Esq.
Directing Attorney
Micronesian Legal Services Corporation
P.O. Box D
Weno, Chuuk FM 96942

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HEADNOTES

Contracts - Forum Selection Clause
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. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 109 (Chk. 2001).

Contracts - Forum Selection Clause
Because a court by the name Truk State Court had not existed for several years at the time the mortgage was executed and because the Chuuk State Supreme Court was, and is, in all respects its successor, the parties, when they executed the mortgage, understood the phrase "Truk State Court" to mean the Chuuk State Supreme Court. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 109 (Chk. 2001).

Contracts - Forum Selection Clause
There are two types of forum selection clauses - permissive and mandatory. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 109 (Chk. 2001).

Contracts - Forum Selection Clause
A mandatory forum selection clause requires that all litigation between the parties be conducted in the named forum and nowhere else. To be mandatory, a clause must contain language that clearly designates a forum as the exclusive one. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 109 (Chk. 2001).

Contracts - Forum Selection Clause
Forum selection clauses which give a court jurisdiction without clearly making that jurisdiction exclusive are permissive rather than mandatory. A permissive forum selection clause merely allows a chosen forum to exercise personal jurisdiction over the parties but does not bar litigation in another forum and will not alter the presumption in favor of the plaintiff's choice of forum. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 110 (Chk. 2001).

Jurisdiction; Property
In order for a court to have jurisdiction over an action involving real property, particularly an action involving title, the real property must be within that court's territorial jurisdiction. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 110 (Chk. 2001).

Jurisdiction - In Rem
In order for a court to exercise in rem jurisdiction, the thing over which jurisdiction is to be exercised must be physically present in the jurisdiction. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 110 (Chk. 2001).

Courts; Property - Mortgages
Only two courts have jurisdiction over the territory of Chuuk - the Chuuk State Supreme Court and the FSM Supreme Court. A mortgage foreclosure on land in Chuuk therefore could not be in any court other than those two. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 110 (Chk. 2001).

Contracts - Interpretation
It is a well established principle of contract construction that clauses which are knowingly incorporated into a contract should not be treated as meaningless. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 110 (Chk. 2001).

Contracts - Forum Selection Clause
A forum selection clause cannot be interpreted so as to make it meaningless. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 110 (Chk. 2001).

Contracts - Forum Selection Clause
Because only two courts can exercise jurisdiction over land in Chuuk, the only meaningful reason for the inclusion of a forum selection clause in a mortgage would be to make one court's jurisdiction exclusive. Such a forum selection clause can therefore only be interpreted as mandatory; otherwise it would be meaningless. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 110 (Chk. 2001).

Contracts - Forum Selection Clause
When a forum selection clause in a mortgage was not the result of an arm's length transaction, but the bank dictated all the mortgage's terms, which it prepared in a pre-printed form with blanks in which to insert the borrowers' names and addresses, the amount borrowed and at what interest rate, the number and amount of monthly installment payments and their starting date, and the property mortgaged, it would be inequitable to allow the bank to now interpret the forum selection clause so as to make it meaningless. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 110-11 (Chk. 2001).

Contracts - Interpretation
Ambiguity in a contract provision is generally construed against the drafter. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 111 (Chk. 2001).

Contracts - Forum Selection Clause
Ambiguity in a forum selection clause may be construed against its drafter. FSM Dev. Bank v. Ifraim, [2001] FMSC 64; 10 FSM Intrm. 107, 111 (Chk. 2001).

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COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

The plaintiff, FSM Development Bank, seeks judgment for the amount owed by the defendants, Wantus and Akieko Ifraim, on their promissory note of August 28, 1992, and, in order to satisfy that indebtedness, seeks foreclosure on property the Ifraims mortgaged to secure that promissory note. One defense asserted by the Ifraims was that the FSM Supreme Court lacked jurisdiction over the mortgage foreclosure. An earlier court order determined that the FSM Supreme Court had exclusive jurisdiction over litigation determining the indebtedness on an FSM Development Bank promissory note, and that the FSM Supreme Court may exercise jurisdiction over the resulting mortgage foreclosure, FSM Dev. Bank v. Ifraim, [2001] FMSC 45; 10 FSM Intrm. 1, 4-5, (Chk. 2001), but that the Ifraims' mortgage itself might require that the foreclosure be brought in the Chuuk State Supreme Court, id. at 5-6.

The Bank was given leave to move for reconsideration of that portion of the order that stated that the mortgage foreclosure might have to brought in the Chuuk State Supreme Court. Id. at 6. The Bank has now moved for reconsideration and contends that the mortgage's forum selection clause is merely permissive and allows the FSM Supreme Court to proceed on the mortgage foreclosure.

I. The Forum Selection Clause

The Ifraims' mortgage contains a choice of law and forum selection clause which states: "Any action to foreclose this mortgage shall comply with the provision set forth in section 25, subsections (1) et seq., inclusive, of Truk State Law No. 4-91. The foreclosure proceeding shall be brought in the Truk State Court." Mortgage para. 19. 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. National Fisheries Corp. v. New Quick Co., [1999] FMSC 28; 9 FSM Intrm. 120, 125 (Pon. 1999). The clause must unambiguously name another forum. Id. This mortgage contract has unambiguously named the Truk State Court as the forum for any mortgage foreclosure action. Because a court by the name Truk State Court had not existed for several years at the time the mortgage was executed and because the Chuuk State Supreme Court was, and is, in all respects its successor, I earlier concluded that when they executed the mortgage the parties understood the phrase "Truk State Court" to mean the Chuuk State Supreme Court. Ifraim, 10 FSM Intrm. at 5.

II. Types of Forum Selection Clauses

There are two types of forum selection clauses - permissive and mandatory. Utah Pizza Serv., Inc. v. Heigel, 784 F. Supp. 835, 837 (D. Utah 1992). "A mandatory forum selection clause requires that all litigation between the parties be conducted in the named forum and nowhere else." Id. "To be mandatory, a clause must contain language that clearly designates a forum as the exclusive one." Northern Calif. Dist. Council of Laborers v. Pittsburgh-Des Moines Steel Co., [1995] USCA9 3323; 69 F.3d 1034, 1037 (9th Cir. 1995); see also Utah Pizza, 784 F. Supp. at 838; Thompson v. Founders Group Int'l, Inc., 886 P.2d 904, 910 (Kan. Ct. App. 1994). "[F]orum selection clauses which give a court jurisdiction without clearly making that jurisdiction exclusive are permissive rather than mandatory." Utah Pizza, 784 F. Supp. at 838. A permissive forum selection clause merely allows a chosen forum to exercise personal jurisdiction over the parties but does not bar litigation in another forum and will not alter the presumption in favor of the plaintiff's choice of forum. Council of Laborers, 69 F.3d at 1036-37; Hunt Wesson Foods, Inc. v. Supreme Oil Co., [1987] USCA9 829; 817 F.2d 75, 77-78 (9th Cir. 1987); Utah Pizza, 784 F. Supp. at 837-38.

In New Quick, the parties "agreed to the forum selection clause as part of an arm's length transaction." New Quick Co., 9 FSM Intrm. at 126. The New Quick court concluded that the forum selection clause was exclusive because the clause itself used the language "exclusive jurisdiction" in conjunction with mandatory language whereby the parties consented to a particular court's jurisdiction. Id. at 127. Such language does not appear in the clause at issue. It only contains the mandatory language. Mortgage para. 19 ("The foreclosure proceeding shall be brought in the Truk State Court.").

III. The Mortgage's Forum Selection Clause

The Bank contends that this absence of "exclusive jurisdiction" or "only in" or similar such language means that the mortgage's forum selection clause is merely permissive and allows it to bring the mortgage foreclosure in any court which might have jurisdiction.

This mortgage is on real property. In order for a court to have jurisdiction over an action involving real property, particularly an action involving title, the real property must be within that court's territorial jurisdiction. See, e.g., 20 Am. Jur. 2d Courts §§ 121, 122 (1965) (an n affecaffecting title, right of possession, or some interest in real estate is local and not transitory in nature because it depends on jurisdiction in rem ove thing which is directly involved in the decision); 59 C.J. C.J.S. Mortgages § 615a ) ("mortgage on land mand may be foreclosed only in a court of the state or territory in which the property is situated"). In this respect it is similar to an action - because in order for a court to exercise in rem jurisdiction, the thing over which jurisdiction is to be exercised must be physically present in the jurisdiction. See Moses v. M.V. Sea Chase, [2001] FMSC 56; 10 FSM Intrm. 45, 51 (Chk. 2001); Kosrae v. M/V Voea Lomipeau, [2000] FMSC 31; 9 FSM Intrm. 366, 370 (Kos. 2000); In re Kuang Hsing No. 127[1995] FMSC 5; , 7 FSM Intrm. 81, 82 (Chk. 1995). The real property covered by this mortgage is on the island of Weno in the State of Chuuk. Only two courts have jurisdiction over the territory of Chuuk - the Chuuk State Supreme Court and the FSM Supreme Court. A mortgage foreclosure on land in Chuuk therefore could not be in any court other than those two.

If the forum selection clause were to be read as the Bank insists it should, it would be meaningless and redundant - it would be the same as if it had not been included in the mortgage. "It is a well established principle of contract construction that clauses which . . . are knowingly incorporantd into a contract should not be treated as meaningless." Sterling Forest Assocs., Ltd. v. Barnet-Range Corp., 840 249, 4th Cir. 1988) (forum selection clause cannot be interpreted so as to make it meat meaninglningless). Because only two courts can exercise jurisdiction over land in Chuuk, the only meaningful reason for the inclusion of this forum selection clause in the mortgage would be to make the "Truk State Court's" jurisdiction exclusive. This mortgage's forum selection clause can therefore only be interpreted as mandatory; otherwise it would be meaningless.

Additionally, this mortgage, unlike the contracts in the cases cited by the Bank and unlike the New Quick contract, was not the result of an arm's length transaction. The Bank dictated all the terms, which it prepared in a pre-printed form with blanks in which to insert the borrowers' names and addresses, the amount borrowed and at what interest rate, the number and amount of monthly installment payments and their starting date, and the property mortgaged. It would be inequitable to allow the Bank, which dictated the forum selection clause's inclusion in the mortgage, to now interpret the clause so as to make it meaningless. The Bank contends that the forum selection clause insertion was the result of a former counsel's faulty legal advice that the Truk State Court was the only court that could exercise jurisdiction. (But if only that one court could exercise jurisdiction, it would not have been necessary to insert a forum selection clause at all.) Why the Bank may have insisted on inserting the clause is unimportant. The relevant point is that the Bank did insist on its insertion.

IV. Ambiguous Forum Selection Clauses

Furthermore, even if the Bank's current interpretation of the forum selection clause did not make it meaningless, it would still be proper to place the mortgage foreclosure in the Chuuk State Supreme Court. The Bank drafted the mortgage. It drafted the forum selection clause and insisted upon its inclusion in the pre-printed mortgage. The Bank now wishes to construe the clause as permissive despite the presence of the mandatory language "shall." This would imply some ambiguity in the clause. Ambiguity in a contract provision is generally construed against the drafter. Bank of the FSM v. Bartolome, 4 FSM Intrm. 182, 185 (Pon. 1990). This includes forum selection clauses. See, e.g., Caldas & Sons, Inc. v. Willingham, [1994] USCA5 810; 17 F.3d 123, 128 (5th Cir. 1994) (ambiguity to be construed against drafter as a permissive forum selection clause); Hunt Wesson Foods, 817 F.2d at 78 (if forum selection language were ambiguous it would construed as permissive against drafter who argued it was mandatory); Utah Pizza, 784 F. Supp. at 838 n.1. Construing this forum selection clause against its drafter (who now insists the clause is merely permissive) would result in a conclusion that it is a mandatory clause.

V. Conclusion

The mortgage contract accordingly places this mortgage foreclosure in another forum - the Chuuk State Supreme Court. The Bank's prayer for foreclosure of the mortgaged real property is therefore dismissed.