5ASR3d140

Series: 5ASR3d | Year: () | 5ASR3d140
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CONSTRUCTIVE

SERVICES OF SAMOA, INC., Plaintiff

 

v.

 

SILA POASA and TONY’S CONSTRUCTION,

Defendant.

 

High

Court of American Samoa

Trial

Division

 

CA

No. 62-00

 

July

13, 2001


 

 

[1]

Under the statutory requirements set forth in Title 30 of the American Samoa

Code, corporate entities must conduct an organizational meeting of

incorporators, adopt bylaws, and issue stock certificates.

 

[2]

Corporations are required to prepare guidelines fixing the number of directors

and the manner of their election. 

 

[3]

Corporations are required to maintain a stock book containing the names of all

persons who are stockholders of the corporation, their interests, the amount

paid on their shares, and all transfers thereof.

 

[4]

Where purported corporation had failed to conduct organizational meeting of

incorporators, adopt bylaws, issue stock certificates, prepare guidelines for

electing directors, and maintain accounting books or stock book, court held such

business entity was not a corporation. 

 

[5]

The court may issue a permanent injunction only after full and final trial on

the merits has been conducted and a determination has been made that a judgment

for money damages will provide an inadequate remedy.

 

[6] Where

circumstances indicated that parties shared a personal and business

relationship, managerial authority, and some ownership over business entity,

but entity had failed to properly operate as a corporation, court could treat

entity as a partnership.

 

[7] A

partnership is an association of two or more persons to carry on, as co-owners,

a business for profit.

 

[8] Where

partners mutually agree to dissolve their partnership and to transfer their

interests to one or both of them in return for assumption of certain

partnership liabilities, the mutual promises of the partners constitute the

consideration for the agreement.

 

[9] A

partnership dissolution agreement is valid where it is the product of free and

voluntary action on the part of all the partners, after a meeting of the minds,

and where the agreement has the effect of settling accounts between the

partners themselves.

 

[10]

Where Partnership dissolution agreement divided equipment, assets, claims, and

obligations of the company between the parties, designated how the office was

to be divided, and occurred after twenty days of discussion, and at least four

hours of direct negotiation and consideration of its terms, said agreement

contained adequate consideration and was binding upon the parties.

 

[11]

Injunctive relief was proper where, despite having executed agreement to

dissociate himself from company, party continued to act on behalf of company

and interfere with its activities.

 

[12]

Where written agreement to end business relationship and divide a company was

the only evidence of parties’ intents regarding allocation of the entire range

of assets, liabilities, service work and resources in the company, specific

performance of the agreement was proper.

 

Before

KRUSE, Chief Justice, ATIULAGI, Associate Judge, and SAGAPOLUTELE, Associate

Judge.

 

Counsel:

For Plaintiff, Paul F. Miller

             For Defendant, Katopau

T. Ainu`u

 

OPINION

AND ORDER

 

Plaintiff

Construction Services of Samoa, Inc., (“CSS”) filed a complaint praying for a

permanent injunction to (1) restrain defendants Sila Poasa (“Poasa”) and Tony’s Construction from using the assets and equipment of

CSS, (2) return all assets and equipment to CSS, and (3) pay costs and

attorney’s fees.  Defendants Poasa and Tony’s Construction

filed and answer and counterclaim for specific performance of an agreement

dated March 29, 2000 (“the agreement”), addressing, among other things, the

division of assets and liabilities between CSS and Tony’s

Construction.  Plaintiffs argue that the

agreement is void for lack of consideration.

 

Findings

 

The

evidence presented in this case consisted of the uncertain, contradictory, and

overtly conflicting testimonies of Moru Mane, Sallie

Mane, and Sila Poasa along

with a profound lack of documentary submissions to clarify or at least mitigate

the resultant confusion.  From this

befuddlement, we look for the facts.

A.  The

Business of CSS

 

[1-4]

CSS is a company engaging in the business of construction.  Moru and Sallie

Mane claim to have founded it in December of 1996.  According to their testimony, Moru Mane and his friend Peter Larsen (“Larsen”), a

purported engineer who now lives in Hawaii, incorporated CSS in July of

1997.  Named on the

Articles of Incorporation as original board members are Peter Larsen, Sallie

Mane, and Jeanette Sili (“Sili”),

daughter of defendant Sila Poasa.  Since its incorporation, CSS has failed to

conduct itself as corporations are wont to do under the statutory requirements

for corporate entities accorded by Title 30 of the American Samoa Code.  There was no organizational meeting of

incorporators, nor bylaws adopted, nor stock certificates issued.  See A.S.C.A. §§ 30.0118, 30.0119; Donald

Export Trading Co. v. Toko Groceries Distrib., Inc., CA No. 13-77, slip op. at 4 (Trial Div.

1979) (Order Denying Motions For Summary Judgment, entered May 18, 1979).  There were no guidelines fixing the number of

directors or manner of their election.  See

A.S.C.A. §§ 30.0140 and 30.0141. 

Further, CSS failed to maintain books of account of business

transactions, nor even a “stock book containing all the names of all persons

who are stockholders of the corporation, their interests, the amount paid on

their shares and all transfers thereof,” pursuant to A.S.C.A. § 30.0160.  Receipts and records appear to have been left

in utter disarray until retroactively recorded and interpreted by accountant

Victor Stanley in 1999 for tax purposes. 

The corporate status of CSS was, in fact, a fiction. 

 

B.  The

Involvement of Sila Poasa

 

Defendant

Sila Poasa joined CSS in

June of 1998 as general manager of that company, whether by board appointment

or simple agreement between the Manes and himself, we cannot determine.  Previous to that time, from 1997 until about

March of 1998, he worked full-time as a Safety Health Supervisor at Star-Kist

cannery.  Poasa

worked as a general manager for CSS for about six months, between June and

January of 1999, when he became “president of the company,” a title confirmed

by the Manes and Poasa in their testimonies before

the court.  Again, there is no solid

evidence aside from contradictory testimony to confirm whether this ascension

occurred by board resolution or by simple agreement.  Thereafter, Poasa

and Sallie Mane, who calls herself the “secretary-treasurer” of CSS, became

dual signatories on annual tax returns and on the two checking accounts held by

Bank of Hawaii in the name of CSS. 

Before that time, Sallie Mane and Jeanette Sili

were the two signatories on the accounts. 

Both Poasa and Sallie Mane drew biweekly

salaries from CSS.  It is uncertain and

contested by both parties the extent to which Larsen and Sili

were actually involved in CSS.  For

example, Poasa claims that his daughter handled

administration and letters for CSS as secretary of the company even while

attending school in Hawaii, where she would, incredibly, complete payroll and

fax it back. Moru and Sallie Mane, on the other hand,

testify that Sili’s appointment constituted only

nominal deference to their friendship with Poasa, and

represent her work as sporadic, inconsistent and noncommittal.  What is certain, moreover, is that Sili and Larsen appear to have completely withdrawn from

any involvement in CSS by March 2000, if not much earlier.  They were not “removed” from their directorships

by any formal process, but rather seem to have simply lessened their

involvement over time due to geographical circumstance. 

 

By

March 2000, the principal decision-making powers of CSS resided in three

persons: Moru Mane, who was unpaid and titleless ostensibly so as not to decrease disability

payments from the U.S. Marine Corps for back injury; Sallie Mane, secretary and

treasurer; and Sila Poasa,

president and co-signatory on the CSS bank accounts.

 

C.  Ownership

of CSS

 

Due to the lack of records

noted above, no documents exist as to the stock ownership of CSS.  Plaintiffs did enter one document, Exhibit

1A, entitled “Initial Capitals to Start C.S.S. Operation,” but this does not

evidence capitalization despite its misleading title.  It is, rather, a retroactively written list

of items of uncertain meaning, including “Housing rent collected” and “Mr. Mane

Reimbursement for expenses rendered.” 

Unexplained, undated, and insufficiently annotated, we find it to be

insufficient proof of capitalization.  We

have thus only the testimonies of the Manes and Poasa

to determine the ownership of CSS.  On

the one hand, the Manes testify that they initially capitalized CSS with

between $20,000 and $55,000 drawn from M.S.M., a sole proprietorship owned by

Sallie Mane, Moru Mane’s 401K investment, and joint

savings.  They further claim to have

invested an additional $50,000 by December 31, 1998.  The Manes claim that Poasa

invested only $250 when CSS was first incorporated, and that he contributed

about $5,000 thereafter, which has been more or less repaid.  On the other hand, in addition to the

undisputed initial $250, Poasa claims to have

contributed $70,000 between December 10, 1997, and December 31, 1998, which was

not repaid.  Without further

documentation, testimony or other evidence for weighing the accuracy of these

assertions, we are unable to render a specific finding of exactly the extent to

which the Manes and Poasa share ownership of CSS,

beyond the finding that both had something of an ownership interest in CSS

through both cash and/or labor contributions.

 

D.  The

Fall-Out

 

It

is clear that Poasa and the Manes were close friends

who entered into a business relationship that went sour.  Accounts differ as to the causes and events

leading up to the deterioration of the relationship and the signing of the

agreement partitioning the assets and liabilities of CSS, but in any case, by

March 29, 2000 all three agreed that Poasa would

leave CSS.  The Manes and Poasa deeply disagree as to how the agreement dated March

29, 2000, came about.  According to the

Manes, Poasa was notified by letter and did attend a

March 9, 2000 meeting to remove him from the position of president of CSS.  They state that Poasa

did not agree to his removal, and in his anger, threatened to prevent CSS from

obtaining government contracts.  Poasa then directed a CSS engineer to prepare an agreement,

and stated that he would resign from CSS and start his own company, Tony’s Construction.

 

On

or about March 29, 2000, the Manes testify that they met with Poasa at Krystal’s Restaurant at the Pago Pago International Airport. 

Sila allegedly presented the agreement at that

time, and begged and cried from 8:30 to 1 p.m. for Moru

Mane to sign the agreement.  Moru Mane said he steadfastly refused to sign the agreement

due to CSS’s liability to other vendors, but ultimately caved in due to

pressure from Sallie Mane, who told him “to please do this because I didn’t

want to see us part like that.”

 

Poasa

contests this version of events, but his testimony is confusing and

inconsistent.  At one point, he testified

that the “owners” of CSS met on March 9, 2000, and again on March 22, 2000, to

“iron out some of the problems we faced during that time frame,” but that at

neither time was his removal as president discussed or voted upon.  At a later point, however, Poasa testified that he and the Manes discussed the

break-up of the company on March 9, March 17, April 4, and April 5, 2000.

 

Poasa

also testified that he negotiated the agreement with Moru

Mane on March 23, 2000, at which time they agreed that, in order to maintain

the friendship, they would split the company in half.  He claims to have left a draft of the

agreement on Moru Mane’s desk for review on March 23,

2000.  Poasa

explains that the March 29, 2000, date on the agreement was when he “finalized”

the agreement for his own signature, which he left on Moru

Mane’s desk on March 30, 2000.  He claims

that Moru Mane “dragged” his signing until April 5,

2000, and until the end, “kept changing his mind on how to go about it.”

 

From

these warring testimonies, and from the substance of the agreement,

undisputedly drawn up by Poasa himself, which

explicitly refers to the “departure” of Poasa and the

“new” formation of Tony’s Construction, we find that

the breakup and separation of Poasa from CSS had been

in a process of negotiation since at least March 9, 2000.  Given the testimonies before us, and given

the face of the agreement, which has handwritten, initialed modifications of

the typewritten terms, as well as handwritten, initialed insertions of

additional terms, it is certain that discussion occurred as to the specific

terms of the agreement, whether for four hours by the Manes’ account or twelve

days by Poasa’s.

 

E.  The

Agreement

 

The

agreement dated March 29, 2000 and uncontrovertedly

signed by Moru Mane, Sallie Mane, and Poasa provides for the “division of the assets, liabilities

and associated resources of [CSS], between CSS and Tony’s

Construction, preceding the departure from CSS of Sila

Poasa to run the newly formed company, Tony’s Construction as follows.”  (emphasis

added).  The agreement then lists

equipment to be distributed between the two companies, and divides

responsibilities for two ongoing projects of CSS between the two

companies.  The agreement designates CSS

as responsible for the Poloa Village Road project,

and states that the construction of an Amanave water

tank for the American Samoa Power Authority (“ASPA”) would be “constructed by Tony’s Construction under CSS contract” where “all debt

incurred for said project and all proceeds derived from this project will be

transfer [sic] to Tony’s Construction.”  A later-inserted term, handwritten and

initialed, provides that either party can use “any equipment needed to

complete” either project “free of charge by either party.”

The

agreement sets forth certain assets and liabilities to remain with CSS,

including “all accounts currently receivable by CSS,” office furniture and

fittings.  As for a shop building belonging

to CSS valued by both parties at $50,000 that is built upon the property of Sila Poasa adjacent his personal

residence, this was to “remain with Tony’s

Construction and will use [sic] by CSS until CSS has a suitable

building available for them” (italics indicate handwritten, inserted,

initialed terms).

 

Thus,

on its face, the agreement provides for the severance of Poasa

from CSS, and lists a division of assets, liabilities and projects between the

company of CSS, signed for by Moru Mane, and the company

of Tony’s Construction, signed for by Poasa.

 

F.  The

Aftermath of the Agreement

 

Soon

after the agreement was signed, complications arose.  Tony’s Construction

continued to build the Amanave water tank project

with equipment it claims to have obtained from CSS according to the agreement,

but encountered difficulties obtaining at least two pieces of equipment,

resulting in delays and additional costs of construction.  It appears that Moru

and Sallie Mane at some point failed to recognize the validity of the

agreement, and thereafter refused to release the equipment described therein to

Tony’s Construction, either for the Amanave project or otherwise.  Poasa, on his part,

seems to have taken records from the CSS office that he refuses to return, and

claims to have access to the office as part owner of the company.

 

Problems

also occurred with respect to the bank accounts held by CSS, for which Sallie

Mane and Poasa are co-signatories.  After the agreement was signed, Sallie Mane

was unable to utilize the CSS accounts at the Bank of Hawaii.  She testifies that Poasa

had put the CSS checking accounts on hold, and instructed the bank to prevent

her from opening another account for CSS. 

Unable to purchase materials to sustain an ongoing project or to do payroll

for CSS’s workers, Sallie Mane testifies that she unsuccessfully attempted to

open two more accounts under CSS with herself and Moru

Mane, her husband, as signatories.  The

Bank of Hawaii, according to Sallie Mane, instructed her to close the new accounts

and speak with Poasa. 

The Manes’ complaint, filed in the name of CSS, is largely based on the

constriction of their business activity as a result of Poasa’s

alleged meddling.

 

Sila

Poasa’s testimony on this point is flatly

self-contradictory.  At one point, he

stated that he put the CSS accounts on hold on March 31, 2000 because he

suspected that Moru Mane was not going to “pay and

follow through” with the agreement.  At a

later point, Poasa claims that the Bank of Hawaii

rather than himself “froze” the CSS bank

accounts.  In another instance, Poasa claims not to have known of his removal as President

of CSS until March 31, 2000 when he called the bank to “find out why [his]

signature had been removed.”  On the

other hand, Poasa also undisputedly drafted and

signed the agreement establishing “departure from CSS of Sila

Poasa.”

 

Only

two clear facts emerge from this testimony regarding the parties’ attempts to

effectuate the agreement.  First, Sallie

Mane could not utilize the CSS bank accounts without the signature of Poasa, either due to his interference or to the Mane’s

failure to comply with the formal requirements for changing signatories on

corporate accounts.  Second, Poasa has not yet acknowledged that he has “departed” CSS,

and so may tend to conduct himself as a representative of that company.

 

Discussion

 

A.  Permanent

Injunction

 

[5]

CSS requests a permanent injunction against Poasa and

Tony’s Construction from using its assets and

equipment, and to return all of its assets and equipment.  A.S.C.A. § 43.1302 allows this Court to issue

a permanent injunction only after “full and final trial on the merits”, and

“determination that a judgment for money damages will inadequately remedy the

complained of [sic] wrong.”  A party

requesting injunctive relief must thus show that it would succeed on the merits

of the case, and that money damages are an inadequate remedy.  See, e.g.,

Thompson v. Toluao, 24 A.S.R. 2d 127, 132 (Land

& Titles Div. 1993); Intervisual Commc’n Inc. v. Volbert, 975

F. Supp. 1092, 1104 (N.D. Ill. 1997).

 

1. Success on the Merits

 

To

claim the assets and equipment at issue, CSS must first prove to the court that

it is the true owner of the assets and equipment currently held and used by Tony’s Construction. 

This, in turn, depends on the validity of the agreement providing for

the division of CSS and the transfer of those items to Tony’s

Construction.

 

(a)  Dissolution

of Partnership

 

[6]

That the Manes and Poasa shared a personal and

business relationship, managerial authority, and some ownership over CSS is

certain.  That CSS substantially failed

to operate as a corporation is also certain. 

We now look to circumstantial evidence, and find it appropriate to

consider CSS as a partnership for the purpose of interpreting the dissolution

agreement.  See Johnson v. Coulter,

28 A.S.R. 218, 219 (Trial Div. 1995) (when there is no written partnership

agreement between the parties the court may look to circumstantial evidence to

determine the presence or absence of a partnership).

 

[7]

We look to the definition of partnership offered by traditional common law, as

well as by the Uniform Partnership Act, which has been adopted by all states

except Louisiana, and has not yet been adopted by this Territory.  The common law definition widely used is “a

contract of two or more competent persons to place their money, effects, labor,

and skill, or some or all of them, in lawful commerce or business, and to

divide the profit and bear the loss in certain proportions.”  Black’s

Law Dictionary 1120 (6th ed. 1990); see also 59A Am. Jur. 2d, Partnership § 3.  Although obviously the Manes and Poasa did not execute a partnership contract, but attempted

to formalize CSS as an empty corporation with the intention of avoiding

liability, their conduct in placing their money together for profit, and in

probably withdrawing those profits without benefit to the corporation, makes

them seem to this Court more a partnership than a corporation.  This is confirmed by the modern definition

offered in the Uniform Partnership Act

§ 6(1), accepted by all common law states, which defines partnership as “[a]n

association of two or more persons to carry on, as co-owners, a business for

profit.”  See also Black’s Law Dictionary 1120 (6th ed.

1990).

 

In

this light, the March 29, 2000, agreement between Poasa

and Moru Mane, also signed by Sallie Mane, can be

viewed as a dissolution agreement formed by the mutual agreement of all

partners to CSS.  Such a construction is

confirmed by the words of the agreement. 

The title line states: “This agreement is made between Moru Mane of [CSS] and Sila Poasa, both of [CSS] and Tony’s

Construction.”  Thus, in the title line, Moru Mane is recognized as a representative of CSS, and Poasa as of both CSS and Tony’s

Construction.  However, the title

paragraph goes on to reference the departure of Poasa

from CSS, and the body of the agreement refers to Poasa

as of Tony’s Construction only.  Specifically, the headings for the columns

listing the division of plant and equipment refer to “CSS (Moru)”

and “Tony’s Construction (Sila).”  Furthermore, the signature lines show that

where Moru Mane signed after the designation “For

CSS”, Poasa signed after “For Tony’s

Construction.”  Poasa’s

mention in the title paragraph of the agreement as “both of [CSS] and Tony’s Construction” is thus adjectival of his status before

signing the agreement, and his signature as “For Tony’s

Construction” indicates the legal effect of dissolving Poasa’s

relationship with CSS.  We thus find,

based on the explicit words of the agreement, that the

intended effect of the contract was to dissolve the partnership-like business

venture of CSS.

 

(b)

Consideration

 

[8-10]

CSS, or rather the Manes, claim that Poasa did not

provide consideration for the agreement. 

However, where partners mutually agree to dissolve their partnership and

to transfer their interests to one or both of them in return for assumption of

certain partnership liabilities, the mutual promises of the partners are the

consideration for the agreement.  Pejsa v. Bridges, 213 P.2d 473, 475

(Ariz. 1950); see also John D.

Calamari and Joseph M. Perillo, The Law of Contracts

§ 4.1 (4th ed. 1998); Restatement

(Second) of Contracts § 4.1 (1981). 

In Pejsa, partners entered into a

dissolution agreement whereby one partner paid three other partners between $1

and $3,000 to assume all right, title, interest, claims and demands of the

partnership.  213 P.2d

at 474.  As in this case, the

partner assuming the business from the others sued to dissolve the agreement

for lack of consideration.  Id.  The court ruled there to be no failure of

consideration where there was an absence of allegations of fraud, deceit or

coercion in procuring the agreement of dissolution, where the agreement was the

product of a “free and voluntary action on the part of all the partners after a

meeting of the minds the effect of which was to dissolve the partnership in the

manner agreed upon” and where the agreement had the effect of settling accounts

as between the partners themselves.  Id. at 475-76.  The March 29, 2000 agreement between the Manes

for CSS and Poasa for Tony’s

Construction involves a much more balanced set of promises for promises than Pejsa.  It

divides the equipment, assets, claims, and obligations of the company between

the Manes and Poasa, and designates how the office is

to be divided.  The agreement occurred

after twenty days of discussion and at least four hours of direct negotiation

and consideration of the terms of the agreement.  The agreement contains, therefore, mutual

promises which we are bound to give credence to in this litigation.

 

(c)

Coercion

 

None

of the legal documents submitted claim any fraud, deceit, or coercion.  However, during testimony, the Manes implied

that they were unduly coerced into signing the agreement—Sallie Mane due to Poasa’s tears, and Moru Mane due

to his wife’s exhortations.  The Manes

may have been moved by grief, guilt, sadness or despair, but nowhere does the

evidence indicate that they were forced or otherwise limited in their clear and

abiding capacities to reason and choose in entering into the agreement.  The Court adjudicates intent, not emotional

motivation.   Furthermore, the Court

perceives through the testimonies, that rational deliberation was indeed

invested in the terms of dissolution.

 

2. Adequate Legal

Remedy

 

Having

consideration, the agreement is valid and enforceable.  As such, CSS’s claim for its assets and

equipment, based on the invalidity of the agreement, does not succeed on the

merits.  Furthermore, none of the

equipment supplied, liabilities, buildings or projects claimed by CSS are

non-compensable.  Indeed, at trial, CSS

presented evidence as to the value of most of the materials claimed.  Since the request for injunctive relief

against Poasa for use and return of these assets and

equipment does not succeed on the merits, and is fully compensable in pecuniary

terms, injunctive relief is therefore not available.  A.S.C.A. § 43.1302.

 

[11]

As to CSS’s request for injunctive relief against Poasa

for continuing to act on behalf of CSS, and for interfering with its

activities, we find that this claim for relief succeeds on its merits.   A falling-out occurred between the parties,

a severance agreement was reached, Poasa is no longer

employed by or related to CSS, and yet he continues to represent himself as

such. 

 

Money

cannot relieve CSS of any damage done to CSS through Poasa’s

holding himself out to third parties as an agent of CSS, where he has no actual

authority to do so.  We therefore grant

the permanent injunction barring Poasa from holding

himself out as a representative of CSS.

B.  Specific

Performance

 

[12]

Poasa and Tony’s

Construction counterclaim for specific performance of the agreement.  We have found the agreement to be supported

by consideration and to be valid. 

Specific performance is appropriate in a case such as this, where a

written agreement to end a business relationship and divide a company is the

only evidence of parties’ intents regarding allocation of the entire range of

assets, liabilities, service work and resources in the company.  As ruled in Pejsa,

“[w]hen partners dissolve the partnership relation, whatever its character, and

put their agreement in writing, that writing measures the rights and

obligations of the parties.”  Pejsa,

213 P.2d at 475 (citations omitted). Money damages clearly do not

resolve allocation issues in the dissolution of a partnership-like business

venture.  Specific performance of the

agreement is therefore granted.

 

Order

 

Judgment

will accordingly enter (1) permanently enjoining Poasa

from holding himself out as a representative of CSS, and, (2) decreeing

specific performance of the parties’ agreement dated March 29, 2000.

 

It

is so ordered.

 

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