FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION 2002-035

PEDRONIO WALTER d/b/a PENNY ENTERPRISES

Plaintiffs,

vs.

ARJUN KUMAR DAMAI, and SEWA
INTERNATIONAL DEVELOPMENT INC.,

Defendants.

OPINION

Andon L. Amaraich
Chief Justice

Decided:  September 23, 2004

APPEARANCE:

For the Plaintiff:	Andrea Hillyer, Esq.
P.O. Drawer D
Kolonia, Pohnpei FM 96941

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	HEADNOTES

Interest and Usury; Judgments
A plaintiff is only entitled to a judgment which represents the amount of money he lent to the defendants and the $100,000 in interest he seeks cannot be awarded when it is the product of an unlawful and usurious interest rate.  Walter v. Damai, 12 FSM Intrm. 648, 649 (Pon. 2004).

Civil Procedure  Default and Default Judgment
In a default judgment, the plaintiff cannot be awarded a $2,500 loan fee because it is the subject of a separate promissory note between the plaintiff and the defendants, which the plaintiff did not allege in his complaint.  As a result, it cannot serve as a basis for relief in this litigation.  The same is true of the $4,269.52 in interest on that note that the plaintiff seeks to include in the judgment.  Walter v. Damai, 12 FSM Intrm. 648, 649 (Pon. 2004).

Interest and Usury
A creditor who engages in a usurious credit transaction has no right to collect or receive any interest and this prohibition extends to prejudgment interest.  Walter v. Damai, 12 FSM Intrm. 648, 650 (Pon. 2004).

Costs
When no substantive law or contractual provision would permit the plaintiff to recover the type of costs he seeks, those costs will not be included in the judgment.  Walter v. Damai, 12 FSM Intrm. 648, 650 (Pon. 2004).

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	COURT’S OPINION

ANDON L. AMARAICH, Chief Justice:

This opinion explains the judgment recently entered by this Court in this civil action.

	I.

On July 22, 2002, Plaintiff filed a complaint against the Defendants seeking to recover on a promissory note.  After being served with a copy of the summons and complaint, the Defendants failed to answer or otherwise defend themselves as required under the Rules of Civil Procedure.  Accordingly, the Court entered default against the Defendants on August 15, 2003.  On that same date, the Court also entered summary judgment in favor of Plaintiff as to the Defendants’ liability on the promissory note.  The Court then directed the Plaintiff to submit evidence of its damages so that a final judgment could be rendered in this matter.

In response to that directive, the Plaintiff provided two submissions of evidence of damages.  The first was provided on September 26, 2003.  The second was provided on May 28, 2004.  In these submissions, the Plaintiff requested the Court to enter judgment in his favor in the amount of $550,850.62.  This amount includes:

   (1)	 $250,000.00, which represents the total amount of money Plaintiff lent Defendants under the terms of their promissory note of April 23, 1998.

   (2)	$100,000.00, which represents the amount of interest Defendants were expected to pay according to the terms of April 23, 1998 promissory note.

   (3)	$2,500, which represents a loan fee Plaintiff incurred and Defendants allegedly agreed to pay under a separate promissory note.

   (4)	$4,269.52, which represents certain interest expenses Plaintiff incurred and which Defendants allegedly agreed to pay under a separate promissory note.

   (5)	$188,784.85, which represents the amount of prejudgment interest Plaintiff believes Defendants should pay.

   (6)	$5,296.25, which represents various costs (such as investigative fees) that Plaintiff incurred in seeking to enforce his promissory note.

The Court is of the opinion that Plaintiff is only entitled to a judgment of $250,000, which represents the amount of money he lent to the Defendants.  The $100,000 Plaintiff seeks in interest cannot be awarded because it is the product of an unlawful and usurious interest rate.  See 34 F.S.M.C. §§ 203, 204, 206.  The $2,500 loan fee cannot be awarded to Plaintiff because it is the subject of a separate promissory note between the Plaintiff and Defendants, and the Plaintiff did not allege this promissory note in his complaint.  As a result, it cannot serve as a basis for relief in this litigation.  The same is true of the $4,269.52 in interest Plaintiff seeks to include in the judgment.

Turning to the $188,784.85 the Plaintiff seeks in prejudgment interest, the Court again believes that this amount is properly excluded from the judgment.  34 F.S.M.C. 206 very clearly says that a creditor who engages in a usurious credit transaction “has no right to collect or receive any interest,” and the Court believes that this prohibition extends to prejudgment interest.

With respect to Plaintiff’s request for $5,296.25 in costs, the Court concludes that this amount also should not be included in the judgment.  The Plaintiff has not identified, and the Court’s own research has not uncovered, any substantive law or contractual provision that would permit Plaintiff to recover the type of costs sought by Plaintiff.  Accordingly, the amount will be omitted from the Court’s judgment.

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