FSMC, TITLE 33. COMMERCIAL LAW
Chapter 9: Secured
Transactions
Subchapters:
I:
Real Property Security Investments (§§ 901-920)
II:
Personal Property Secured Transactions (§§ 921-933)
Parts:
I:
General Provisions (§§ 921-927)
II:
Nonjudicial Foreclosure (§§ 928-932)
III: Judicial Foreclosure (§ 933)
Case annotations: - Secured
Transactions
The common law of the United States today concerning secured transactions is the Uniform Commercial Code (UCC), a comprehensive statute covering commercial transactions. Absence in the FSM of any filing requirement to notify others of a security interest, and of a designated place for filing, which provisions are at the heart of the UCC statutory scheme, virtually precludes any judicial attempt to draw heavily on UCC principles in fashioning an approach to secured transactions. Bank of Guam v. Island Hardware, Inc., 2 FSM Intrm. 281, 287 (Pon. 1986).
In considering the law concerning secured transactions, the FSM Supreme Court must look for guidance of the pre-UCC common law and may only declare the existence of such security interests as have been found by other courts to exist in the absence of statutes. Bank of Guam v. Island Hardware, Inc., 2 FSM Intrm. 281, 288 (Pon. 1986).
When a party agrees to create a security interest to secure his debt but then refuses to do what is necessary to vest the other party with statutory or common law lien rights in the property, courts can find that the other party has an equitable lien in property even if statutory or common law lien requirements have not been made. Bank of Guam v. Island Hardware, Inc., 2 FSM Intrm. 281, 290 (Pon. 1986).
Non-possessory equitable liens will not be found to exist against another who had neither actual notice nor reason to know of the existence of the security claim. Bank of Guam v. Island Hardware, Inc., 2 FSM Intrm. 281, 290 (Pon. 1986).
A "general security agreement," without more does not establish a lien under common law or pursuant to any statute in the Federated States of Micronesia. In re Island Hardware, 3 FSM Intrm. 332, 342 (Pon. 1988).
Unless a statute or common law principle expressly says otherwise, disclosure is a prerequisite for making a lien effective against other creditors. In re Island Hardware, 3 FSM Intrm. 332, 342 (Pon. 1988).
Secured transactions within the Federated States of Micronesia remain subject to the policies applied elsewhere prior to the adoption of the Uniform Commercial Code. In re Island Hardware, 3 FSM Intrm. 332, 342 (Pon. 1988).
Property Security Investments
§ 901. Short title.
§ 902. Transfers in trust of real property to secure obligations permitted.
§ 903. Trustee for deeds of trust.
§ 904. Writing and recordation required.
§ 905. Compliance with chapter required for foreclosure.
§ 906. Power of sale - Authorized.
§ 907. Power of sale - Requisites.
§ 908. Power of sale - Eligibility to acquire title to property sold.
§ 909. Reinstatement.
§ 910. Sale under power - Auction required; Time and district designated.
§ 911. Sale under power - Notice requirements.
§ 912. Sale under power - Postponement.
§ 913. Sale under power - Trustee's deed; Purchaser's title.
§ 914. Sale under power - Purchase by trustee in absence of eligible buyer; Fiduciary obligations.
§ 915. Deed of trust - Discharge, reconveyance, and satisfaction.
§ 916. Waste prohibited.
§ 917. Appointment of receiver.
§ 918. Assignment of beneficial interest.
§ 919. District legislature act.
§ 920. Construction with other laws.
This subchapter is known and may be cited as the "Real Property Security Instruments Act of 1977."
Source: COM PL 7-53 § 1; TT Code 1980, 57 TTC 351.
Editor's note: This chapter applies only in districts adopting it as law. See § 919 of this title.
Transfers in trust of any estate in real property may be made to secure the performance of an obligation or the payment of any debt. Real property to secure obligations shall be by deed of trust pursuant to the provisions of this subchapter. Such transfer does not entitle the trustee or beneficiary to the possession of the property, except as herein otherwise provided.
Source: COM PL 7-53 § 2; TT Code 1980, 57 TTC 352.
The trustee for any deed of trust executed on real property in the Trust Territory may be the housing authority of the district in which the real property is situated.
Source: COM PL 7-53 § 3; TT Code 1980, 57 TTC 353.
A deed of trust can be created, renewed, modified, or extended only by writing and must be recorded with the land commission of the district in which the real property is situated.
Source: COM PL 7-53 § 4; TT Code 1980, 57 TTC 354.
Foreclosure of a deed of trust shall be only by the exercise of a power of sale in accordance with the provisions of this subchapter. This section does not preclude a court from granting equitable relief other than foreclosure.
Source: COM PL 7-53 § 5; TT Code 1980, 57 TTC 355.
Where any transfer in trust of any estate in real property is made to secure the performance of an obligation or the payment of any debt, a power of sale is hereby conferred upon the trustee to be exercised after a breach of the obligation for which such transfer is security.
Source: COM PL 7-53 § 6(1); TT Code 1980, 57 TTC 356(1).
The power of sale shall not be exercised, however, until:
(1) the trustee or beneficiary shall first file for record with the land commission in the district in which the real property is situated a notice of default, identifying the deed of trust by stating the name or names of the trustor or trustors and giving the date of recordation and the location where the same is recorded in the records of the district land commission, and containing a statement that a breach of the obligation for which such transfer in trust in security was made has occurred, and setting forth the nature of such breach and of his election to sell or cause to be sold such property to satisfy the obligation;
(2) a copy of the notice of default and election to sell is personally served or, if personal service is not made despite efforts in good faith, is mailed by registered or certified mail with postage prepaid to the trustor or his successor in interest if such address is known, otherwise to the address of the trust property;
(3) not less than three months shall thereafter elapse; and
(4) after the lapse of the three months, the trustee shall within 60 days thereof give notice of sale, stating the time and place thereof, in the manner, and for a time not less than that, specified in the provisions of this subchapter for exercise of the power of sale in a deed of trust.
Source: COM PL 7-53 § 6(2); COM PL 7-59 § 1; TT Code 1980, 57 TTC 356(2).
Title to any real property in the Trust Territory sold pursuant to exercise of power of sale in a deed of trust shall pass only to a citizen of the Trust Territory or such others as are permitted to hold title to real property in the Trust Territory under the provisions of this code.
Source: COM PL 7-53 § 6(3); TT Code 1980 57, TTC 356(3).
Whenever all or a portion of the principal sum of any obligation secured by deed of trust on real property has, prior to the maturity date fixed in such obligation, become due or been declared due by reason of default in payment of interest or of any installment of principal, or by reason of failure of the trust to pay in accordance with the terms of such obligation or of such deed of trust, or when the trustor voluntarily conveys the property to the trustee, the trustor or his successor in interest in the trust property or any part thereof, at any time under such deed of trust, may pay to the beneficiary or his successor in interest the entire amount then due under the terms of such deed of trust and the obligation secured thereby (including costs and expenses actually incurred in enforcing the terms of such obligation and deed of trust, and trustee's or attorney's fees, as may be awarded by the Court) and thereby cure the default theretofore existing. Thereupon, all proceedings theretofore had or instituted shall be dismissed or discontinued and the obligation and deed of trust shall be reinstated and shall be and remain in force and effect as if no such acceleration had occurred.
Source: COM PL 7-53 § 7; TT Code 1980, 57 TTC 357.
All sales of property under power contained in any deed of trust must be held in the district where said property is situated, and must be made at auction, to the highest bidder, between the hours of 7:30 a.m. and 4:30 p.m.
Source: COM PL 7-53 §
8(1); TT Code 1980, 57 TTC 358(1).
Before the sale of property under power contained in any deed of trust, notice thereof must be given by:
(1) personal service or, if personal service is not made despite efforts in good faith, by mailing a copy of said notice at least 20 days and not more than 60 days before the date of sale by registered or certified mail with postage prepaid to the trustor or his successor in interest if such address is known, otherwise to the address of the trust property;
(2) publishing a copy thereof once a week for at least 20 days before the date of sale in some newspaper of general circulation in the community or district in which the property is situated, or, if there be no such newspaper, by posting such notice for the same period in three public places in the community or district in which the property is to be sold; and
(3) posting a copy of said notice in some conspicuous place on the property to be sold, at least 20 days before date of sale.
Source: COM PL 7-53 § 8(2); TT Code 1980, 57 TTC 358(2).
Whenever a request in writing signed by both trustor and beneficiary for a postponement of the sale to an agreed date and hour is given to the trustee, the trustee shall thereupon by public declaration postpone the sale to the day and hour so fixed in such request. The sale shall be held at the place originally fixed by the trustee for the sale. In case of postponement, notice must be given by public declaration by the trustee at the time and place last appointed for the sale. No other notice of postponed sale need be given.
Source: COM PL 7-53 § 8(3); COM PL 7-59 § 2; TT Code 1980, 57 TTC 358(3).
(1) The trustee, upon such sale, shall make without warranty, execute, and, after due payment made, deliver to purchaser or purchasers, his or their heirs or assigns, a deed or deeds of the premises so sold which shall convey to the purchaser or purchasers all the title of the trustor in the trust premises, and shall apply the proceeds of the sale thereof in payment, firstly, of the expenses of such sale, together with the reasonable expenses of trust, including attorney's fees as may be awarded by the Court, which shall become due upon any default made by the trustor in any of the payments, and in payment, secondly, of the obligation or debts secured, and interest thereon then remaining unpaid, and the amount of all other moneys with interest thereon agreed to be paid by the trustor. The balance or surplus of such proceeds of sale shall be paid to trustor, his heirs, executors, administrators, or assigns.
(2) A recital in the deed executed pursuant to the power of sale of compliance with all requirements of law regarding filing of notice of default, personal service, or mailing copies of the notice of default, election to sell, and notice of sale to the trustor or his successor in interest, publishing or posting, or both, notice of sale, and personal service or mailing copies of notices shall constitute prima facie evidence of compliance with such requirements and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value and without notice.
(3) Every sale made under the provisions of this subchapter vests in the purchaser the title of the trustor without equity or right of redemption.
Source: COM PL 7-53 § 8(4)-(6); TT Code 1980, 57 TTC 358(4)-(6).
(1) If, at the time and place specified for sale, no buyer appears or is eligible to purchase under the provisions of this code, the trustee shall purchase the property in its own name in trust for and on behalf of the beneficiary, for the remaining unpaid balance of the debt secured by the deed of trust, and may thereupon enter into possession of the property; and such purchase and other evidence of title shall be recorded with the land commission for the district in which the property is situated.
(2) In the event of such a purchase, or acquisition in lieu of foreclosure, the trustee shall in all respects be a fiduciary with respect to such property for the benefit of the beneficiary, and may lease, operate, manage, and sell, or otherwise dispose of the property, under such terms, covenants, and conditions as may be specified by the beneficiary. The trustee and beneficiary of any deed of trust may at any time agree or enter into a trust or holding agreement formalizing the rights, duties, and obligations concerning the property secured by deed of trust, in the event the trustee purchases under the deed of trust under the provisions of this subchapter.
Source: COM PL 7-53 § 8(7); TT Code 1980, 57 TTC 358(7).
(1) A deed of trust must be discharged by an acknowledged certificate signed by the beneficiary, his personal representative, or assigns, stating that the debt secured by the deed of trust has been paid, satisfied, or discharged. Reference shall be made in such certificate to the name or names of the trustor or trustors, the date of recordation, and the location where the deed of trust is recorded in the records of the district land commission.
(2) When any debt secured by a deed of trust has been justly satisfied, the beneficiary of the deed of trust, or his assignee, must execute, acknowledge, and deliver to the trustor or the owner of the land a certificate of discharge of the debt, and, upon notice thereof, the trustee shall execute a full reconveyance of title to the trustor or owner. The beneficiary, his assignee, or personal representative shall deliver to the trustor, his heirs, successors, or assigns, the deed of trust and the note so paid or satisfied.
Source: COM PL 7-53 § 9; TT Code 1980, 57 TTC 359.
No person who has transferred in trust any estate in real property as security for the performance of an obligation or the payment of any debt may do any act which will substantially impair the beneficiary's security.
Source: COM PL 7-53 § 10; TT Code 1980, 57 TTC 360.
(1) At any time after the filing of a notice of breach and election to sell real property under a power of sale contained in a deed of trust, the trustee or beneficiary of the deed of trust may apply to the High Court for the district in which the property is located for the appointment of a receiver of such property.
(2) A receiver shall be appointed where it appears that real property subject to the deed of trust is in danger of substantial waste, or that the income therefrom is in danger of being lost, or that personal property subject to the deed of trust is in danger of being lost, removed, materially injured, or destroyed, or that the property is or may become insufficient to discharge the debt which it secures.
Source: COM PL 7-53 § 11; TT Code 1980, 57 TTC 361.
Any assignment of the beneficial interest under a deed of trust may be recorded at the land commission of the district in which the land is situated, and from the time the same is filed for record all persons are deemed to have constructive notice of the contents thereof.
Source:COM PL 7-53 § 12; TT Code 1980, 57 TTC 362.
This subchapter shall apply to a district by a bill adopting this subchapter, and upon its enactment by the district legislature, becoming law.
Source: COM PL 7-53 §
13; TT Code 1980, 57 TTC 363.
Insofar as the provisions of this subchapter are inconsistent with the provisions of any other law, the provisions of this subchapter shall be controlling.
Source: COM PL 7-53 § 14; TT Code 1980, 57 TTC 364.
Property Secured Transactions
Parts:
I:
General Provisions (§§ 921-927)
II:
Nonjudicial Foreclosure (§§ 928-932)
III: Judicial Foreclosure (§ 933)
§ 921. Application of subchapter.
§ 922. Definitions.
§ 923. Obligations of creditor and debtor in exercise of rights.
§ 924. Unauthorized destruction, removal, or use of property.
§ 925. Remedies if creditor fails to comply with subchapter.
§ 926. Waiver of provisions of subchapter.
§ 927. Rights of creditor subject to foreclosure only by procedures of subchapter.
This subchapter shall apply to any agreement, regardless of its form, which is intended to give rights in personal property, including houses on land not owned individually or entirely by the party or parties purporting to give an interest in the house, as security for the performance of any obligation. Such agreements include, among others, pledges, conditional sales agreements, chattel mortgages, and leases under which ownership of personal property is to pass upon completion of the terms of the lease. Notwithstanding the foregoing, this subchapter shall not apply to any agreement creating rights in intangible personal property as security for the performance of any obligation under any loan from the National Government to a State of the Federated States of Micronesia.
Source: TT Code 1966 § 279(a); TT Code 1970, 57 TTC 1; TT Code 1980, 57 TTC 1; PL 9-136 § 1.
(1) "Creditor" as used in this subchapter shall include any creditor, seller, lessor, or other person having rights in the property as security under an agreement subject to this subchapter.
(2) "Debtor" as used in
this subchapter shall include any debtor, buyer, lessee, or other person
having an equity in the property under an agreement subject to this
subchapter.
Source: TT Code 1966 § 279(b),(c); TT Code 1970, 57 TTC 2; TT Code 1980, 57 TTC 2.
Editor's note: Subsections rearranged in alphabetical order in the 1982 edition of this code.
Both the debtor and the creditor have an obligation to exercise their rights in the property in good faith and with regard for the rights of the other. Each must use reasonable care in the custody and preservation of the property while in his possession.
Source: TT Code 1966 § 279(d); TT Code 1970, 57 TTC 3; TT Code 1980, 57 TTC 3.
Prior to completion of performance of all the terms of the agreement to be performed by the debtor, whoever maliciously or with intent to defraud shall injure, destroy, or conceal the property, or remove it without the consent of the creditor from the district, if any, where the agreement provides that it is to be used, or shall sell, mortgage, or otherwise dispose of the property under claim of full ownership, shall be guilty of a misdemeanor and upon conviction thereof shall be imprisoned for a period of not more than six months, or fined not more than $100, or both.
Source: TT Code 1966 § 279(e); TT Code 1970, 57 TTC 4; TT Code 1980, 57 TTC 4.
(1) If the creditor fails to comply with this subchapter, disposition of the property may be ordered or restrained in a civil action in Court on such terms and conditions as the Court deems best.
(2) If the property has been taken or disposed of by the creditor other than in accordance with this subchapter, the debtor may recover his actual damages, if any, and in no event less than one-fourth of the sum of all payments which have been made under the agreement, with interest at six percent a year.
Source: TT Code 1966 § 279(f); TT Code 1970, 57 TTC 5; TT Code 1980, 57 TTC 5.
No act or agreement of the debtor before or at the time of the making of the agreement, nor any provision or statement by the debtor in such agreement, shall constitute a valid waiver of the provisions of this subchapter; except, that the agreement may stipulate that if the debtor is in default for 20 days or more, the creditor may take the property without notice.
Source: TT Code 1966 § 279(g); TT Code 1970, 57 TTC 6; TT Code 1980, 57 TTC 7.
The rights of the debtor under an agreement subject to this subchapter may only be foreclosed after default by one of the methods set forth in this subchapter.
Source: TT Code 1966 § 279(h)(1); TT Code 1970, 57 TTC 7; TT Code 1980, 57 TTC 7.
§ 928. Taking of property in possession of debtor.
§ 929. Notice of foreclosure of property in possession of creditor.
§ 930. Public auction required where debtor has paid half of principal.
§ 931. Creditor's options where debtor has not paid half of the principal.
§ 932. Redemption during retention period.
If the property is in the possession of the debtor:
(1) If the agreement provides that the creditor may take the property if the debtor is in default for 20 days or more and the debtor is so in default, the creditor may take possession of the property without notice if this can be done without breach of the peace. If the creditor does so, he shall retain the property for 20 days within the district where he took possession of it, during which period the debtor may redeem the property as provided below; thereafter, if the property has not been so redeemed, the creditor may hold the property as his own subject to the provisions of section 930 of this part.
(2) If the agreement does not contain the provision for taking without notice referred to in the preceding subsection, the creditor shall, not more than 40 nor less than 20 days prior to the taking, cause written notice to be given to the debtor of the property on account of default of the debtor. The notice shall state the default and the period at the end of which the property will be taken. This notice may be given personally to the debtor or by leaving it at his usual place of abode or of business with some person not less than 18 years of age and of sound mind then residing or employed there, and, if the person with whom the notice is left states he is unable to read it, by also orally explaining the substance of it to him, if practical, in a language understood by him, otherwise in a language generally understood in the locality.
(3) If after such notice the debtor does not perform the obligations in which he has made default before the day set in such notice for taking, the creditor may take possession of the property if this can be done without breach of the peace.
(4) Unless the property can be taken without a breach of the peace either under subsections (1) or (3) of this section, the foreclosure shall proceed thereafter only by a civil action in the Court under the judicial foreclosure provisions of this chapter. Nothing herein shall be construed to authorize a violation of the criminal law.
(5) Nothing in this section shall affect the right of a creditor to proceed under sections 1405 and 1406 of title 6 of this code simultaneously with action in accordance with this section nor shall anything herein limit the discretion of the Trial Division of the High Court to order a sale authorized by section 1406 of title 6 of this code on such terms or notice, if any, as it deems best.
Source: TT Code 1966 § 279(h)(1)(A); TT Code 1970, 57 TTC 51; TT Code 1980, 57 TTC 51.
If the property is in the possession of the creditor:
(1) Not more than 40 nor less than 20 days prior to foreclosing on the property, the creditor shall cause written notice to be given to the debtor of the creditor's intention to foreclose. The notice shall state the default and the period at the end of which the property will be foreclosed. This notice may be given in the manner provided in subsection (2) of section 928 of this part.
(2) If after such notice the debtor does not perform the obligations in which he has made default before the day set in such notice for foreclosure, the creditor may hold the property as his own subject to the provisions of section 930 of this part.
Source: TT Code 1966 § 279(h)(1)(B); TT Code 1970, 57 TTC 52; TT Code 1980, 57 TTC 52.
(1) If the debtor, at the time of the taking or of the foreclosure under this subchapter, has paid at least one-half of the principal due under the agreement, the creditor shall sell the property at public auction in the district where it was at the time of the taking or foreclosure, such sale to be held not more than 90 days after the taking or foreclosure. The creditor shall give to the debtor not less than 10 days' written notice of the sale in the manner provided in subsection (2) of section 928 of this part, which notice shall not be given until the expiration of the 20 days retention period provided for in subsection (1) of section 928 of this part, if the taking was made under such subsection. The creditor shall also give notice of the sale by posting in at least three conspicuous places within the district where the property is to be sold at least five days before the sale and shall make an honest attempt to obtain a fair value at the sale and, provided he does this, may himself bid for the property at the sale.
(2) The proceeds of the sale shall be applied:
(a) to the payment of the reasonable expenses thereof;
(b) to the payment of the reasonable expenses of taking, keeping, and storing the property;
(c) to the satisfaction of the balance due under the agreement.
(3) Any sum remaining after the satisfaction of such claims shall be paid to the debtor. If the proceeds of the sale are not sufficient to defray the reasonable expenses thereof and also the reasonable expenses of taking, keeping, and storing the property and the balance due under the agreement, the creditor may recover the deficiency from the debtor or anyone who has succeeded to the obligations of the debtor.
Source: TT Code 1966 § 279(h)(1)(C), (D); TT Code 1970, 57 TTC 53(1), (2); TT Code 1980, 57 TTC 53(1), (2).
If the debtor, at the time of the taking or of the foreclosure mentioned above, has not paid at least half of the principal due under the agreement, the creditor shall have the option of:
(1) notifying the debtor in the manner provided in subsection (2), section 928 of this part of his election to retain the property as his own without obligation to account to the debtor, and the debtor shall then be discharged of all obligations under the agreement; or
(2) selling the property in the manner provided in subsection (1) of section 930 of this part and applying the proceeds as provided in subsection (2) of section 930 of this part, with the same right to recover any deficiency as therein provided.
Source: TT Code 1966 § 279(h)(1)(E); TT Code 1970, 57 TTC 53(3); TT Code 1980, 57 TTC 53(3).
(1) During the 20 days' retention period provided for in subsection (1), section 928 of this part, and at any other time before the creditor has disposed of the property or before the debtor's obligation has been discharged under section 931 of this part, the debtor may redeem the property by tendering fulfillment of all obligations due under the agreement up to the date of the tender as well as all the expenses reasonably incurred by the creditor in taking, keeping, and storing the property and in arranging for the sale, and upon so doing shall become entitled to take possession of the property and to continue in the performance of the agreement as if no default has occurred.
(2) Upon written demand given by the debtor in the manner provided for notice in subsection (2), section 928 of this part, the creditor shall furnish to the debtor a written statement of the sum due under the agreement and the expenses of taking, keeping, and storing and in arranging for the sale. For failure to furnish such a statement within a reasonable time after demand the creditor shall forfeit to the debtor five dollars and shall also be liable to him for all damages suffered because of such failure.
Source: TT Code 1966 § 279(h)(1)(F); TT Code 1970, 57 TTC 53(4); TT Code 1980, 57 TTC 53(4).
§ 933. Civil action for foreclosure authorized.
The creditor may bring a civil action for foreclosure in such manner as the Court may order. If the creditor starts foreclosure under the provisions of part II of this subchapter, he may abandon that at any point and proceed by a civil action. After proper service on the defendant or defendants, the Court may order foreclosure in such manner as it deems will best protect the rights of the parties.
Source: TT Code 1966 § 279(h)(2); TT Code 1970, 57 TTC 101; TT Code 1980, 57 TTC 101.