FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 1996-1000

MARK MAILO,
Plaintiff,

vs.

PENTA OCEAN INC. and CHUUK STATE
GOVERNMENT,
Defendants.

MEMORANDUM OF DECISION

Richard H. Benson
Associate Justice

Hearing and Decided:  April 18, 1997
Memorandum Entered:  July 31, 1997

APPEARANCES:

For the Plaintiff:	Hans Wiliander
P.O. Box 389
Weno, Chuuk FM 96942

For the Defendant:	Fredrick L. Ramp, Esq.
(Penta Ocean Inc.)	P.O. Box 1480
Kolonia, Pohnpei FM 96941

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HEADNOTES

Contracts - Third Party Beneficiary
A third person may, in his own right and name, enforce a promise made for his benefit even though he is a stranger both to the contract and to the consideration.  This concept, originally an exception to the rule that no claim can be sued upon contractually unless it is a contract between the parties to the suit, has become so general and far-reaching in its consequences as to have ceased to be an exception, but is recognized as an affirmative rule, generally known as the third-party beneficiary doctrine.  Mailo v. Penta Ocean Inc., 8 FSM Intrm. 139, 141 (Chk. 1997).

Contracts - Third Party Beneficiary; Contracts - Interpretation
The determining factor as to the rights of a third-party beneficiary is the intention of the parties who actually made the contract.  The question whether a contract was intended for the benefit of a third person is generally regarded as one of construction of the contract.  The parties' intention in this respect is determined by the terms of the contract as a whole, construed in the light of the circumstances under which it was made and with the apparent purpose that the parties are trying to accomplish.  Mailo v. Penta Ocean Inc., 8 FSM Intrm. 139, 141 (Chk. 1997).

Contracts - Third Party Beneficiary
When the third-party beneficiary is so described as to be ascertainable, it is not necessary that he be named in the contract in order to enforce the contract.  Mailo v. Penta Ocean Inc., 8 FSM Intrm. 139, 141-42 (Chk. 1997).

Contracts - Third Party Beneficiary
Where a contract is made especially for the benefit of a third person he may enforce it directly against the promisor.  Mailo v. Penta Ocean Inc., 8 FSM Intrm. 139, 142 (Chk. 1997).

Contracts - Third Party Beneficiary
An intended third party beneficiary may enforce a settlement agreement not to seek further compensation from the third party even though not all the compensation agreed to has been paid when the settlement agreement clearly contemplated that the compensation might be tardy and provided a remedy for such an occurrence.  Mailo v. Penta Ocean Inc., 8 FSM Intrm. 139, 142 (Chk. 1997).

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COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

The plaintiff's settlement offer, although accepted by defendant Penta Ocean Inc., having been withdrawn, this action came before me on defendant Penta Ocean's Motion for Summary Judgment and its Motion to Amend Answer to Assert Cross Claim Against Defendant State of Chuuk and to Amend Affirmative Defenses.  After oral argument on April 18, 1997, I granted summary judgment for the defendant Penta Ocean Inc.  The other motion then became moot.  Judgment was entered by the clerk the same day.  I write now to memorialize the reasons given from bench.
This case arose from the improvement of the Weno Commercial Dock facilities and approaches.  The State of Chuuk contracted with Penta Ocean Inc. to accomplish this task, part of which involved dredging the approaches to the commercial port facilities.  The plaintiff, Mark Mailo, alleged that during this project certain submerged tideland owned by him was dredged without his written permission.  He therefore filed this suit against Penta Ocean Inc. and the State of Chuuk on January 25, 1996.

Defendant Penta Ocean's summary judgment motion was brought on the ground that it had been absolved of all liability to Mark Mailo for its dredging by a settlement agreement between Mailo and the State of Chuuk, executed on July 28, 1995.  The agreement recites that it came about as result of the dredging of "privately owned adjacent reef" in conjunction with the Weno Commercial Dock improvement project.  By the agreement's terms, Mailo agreed to "waive[] all claims that he may have [had] arising from the dredging of said reef" and the state agreed to compensate Mailo with 1500 cubic yards of coral sand and cash compensation of $30,000 payable in 90 days with a monthly penalty charge thereafter if still unpaid.  The agreement concluded with:  "4.  This Agreement constitutes the entire compensation settlement to the Reef Owner and all obligations shall be binding upon and benefits shall inure to the Parties' heirs, assigns, representatives, or successors."  Mailo countered that the settlement agreement could not prevent him from suing Penta Ocean because Penta Ocean was not a party to it.

I ruled that the agreement did bind Mailo because the settlement agreement between Mailo and the State of Chuuk is a contract and Penta Ocean was the intended third party beneficiary of the contract.

[A] third person may, in his own right and name, enforce a promise made for his benefit even though he is a stranger both to the contract and to the consideration.  This concept, originally an exception to the rule that no claim can be sued upon contractually unless it is a contract between the parties to the suit, has become so general and far-reaching in its consequences as to have ceased to be an exception, but is recognized as an affirmative rule, generally known as the third-party beneficiary doctrine.

17A Am. Jur. 2d Contracts § 435, at 458 (1991) (footnotes omitted).  "[T]he determining factor as to the rights of a third-party beneficiary is the intention of the parties who actually made the contract."  Id. § 440, at 463.

The question whether a contract was intended for the benefit of a third person is generally regarded as one of construction of the contract.  The intention of the parties in this respect is determined by the terms of the contract as a whole, construed in the light of the circumstances under which it was made and with the apparent purpose that the parties are trying to accomplish.

Id. § 441, at 464 (footnotes omitted).

The parties' written agreement obviously intended to relieve Penta Ocean of liability for the dredging.  Not only does the agreement state that the "Reef Owner heretofore waives all claims that he may have arising from the dredging of said reef" but it also concludes with the statement that the agreement "constitutes the entire compensation settlement to the Reef Owner."  The agreement clearly intended that Penta Ocean benefit from Mailo's promise to waive any further compensation because those sections are preceded in the agreement by the statement that:  "IT IS AGREED:  1.  The Government (and the Contractor) shall compensate the reef owner in the following manner . . . ."  The parties agreed at oral argument that the term "the Contractor" can only refer to Penta Ocean.  When the third-party beneficiary is "so described as to be ascertainable, it is not necessary that he . . . be named in the contract in order to" enforce the contract.  17A Am. Jur. 2d Contracts § 454, at 477 (1991).

Penta Ocean was thus an intended third party beneficiary to Mailo's promise to waive "all claims that he may have arising from the dredging" in the settlement agreement between the State of Chuuk and Mark Mailo.  "[W]here a contract is made especially for the benefit of a third person he may enforce it . . . directly against the promisor."  Union Oil Co. of Calif. v. Hunt, 111 F.2d 269, 276 (9th Cir. 1940).  Therefore Penta Ocean may enforce Mailo's promise to waive any further compensation not included in the agreement.

Although the state has not yet paid the cash compensation called for in the agreement, in this case that is not a defense to Penta Ocean's enforcement of the settlement agreement.  That is because the agreement clearly contemplated that the state might be tardy in meeting its obligation and provided as the remedy for such an occurrence that a monthly penalty charge would accrue on "the amount due and not paid."

I accordingly granted Penta Ocean's summary judgment motion, and per my order the clerk entered judgment.

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