CNMI govt found liable to pay hardware store

The Superior Court has found the CNMI government liable to pay Rota Hardware for the materials allegedly intended for the renovation of the Emergency Management Office in Rota.

Associate judge Juan T. Lizama ordered the CNMI government to pay Commercial Trading of Saipan Inc., owner of Rota Hardware, for the principal sum of $12,847.41 and attorney’s fees in the collection of this debt.

The government, however, is not liable for interest, Lizama said in his order issued Thursday.

“[Commercial Trading’s] failure to request a purchase order for the transactions was in keeping with local business practices, and should not render it liable for losses resulting from a transaction with one who had apparent or inherent authority to bind the government,” the judge said.

Lizama said having learned of the transaction shortly after it occurred, and having failed to remedy the situation, the government is “estopped from asserting that it cannot be bound by Dimas A. Hocog’s actions.”

Court records show that Hocog, acting on behalf of the government, arranged for the purchase of materials allegedly intended for the Rota EMO renovation.

Hocog did not follow government regulations requiring him to obtain a purchase order or contract prior to the sale, obtain the signatures of the appropriate government authorities, and provide for progress billings to be submitted to the government.

Commercial Trading allegedly delivered the materials in March 1996. The materials were allegedly received by Hocog and LC Enterprises, the general contractor for the project.

An October 1996 letter from Hocog to Jimmy Cruz, president of Rota Hardware, thanks Cruz for supplying the materials in the absence of a purchase order. The letter acknowledges that the EMO owes Rota Hardware $12,847.41 for the materials, and requests additional time for payment.

The letter was written on the stationary of the Division of Procurement and Supply and copied to Robert Guerrero, at that time the Saipan EMO director.

An August 1997 letter from Guerrero to Hocog requests records pertaining to any contract bids and the selection of Rota Hardware as the vendor.

A statement of accounts dated Nov. 2, 1999, indicates a balance due of $12,847.41 plus $7,271.63 in interest.

In 2000, Commercial Trading sued the government. Hocog intervened and asked that the government provide for his defense.

Commercial Trading then filed an amended complaint to include Hocog. The government answered the lawsuit and filed a cross-claim against Hocog, who did not file an answer to either party’s claim.

In May 2003, Commercial Trading asked for the entry of default judgment against Hocog. The following month, a default judgment awarded Commercial Trading $24,508.38.

In March 2004, the government applied for default judgment against Hocog, who filed an answer to the cross-claim.

Hocog died on Aug. 17, 2005, and was substituted by his estate in the lawsuit.

At the November 2006 trial, the former deputy EMO director testified that no renovation of the EMO building in Rota had ever occurred.

The EMO deputy director stated that Sen. Paterno Hocog’s Jan. 14, 2005, testimony regarding the occurrence of the renovation was inaccurate.

The deputy director testified that the EMO building was destroyed by a typhoon, and that the government did not submit a claim to the Federal Emergency Management Office for the materials.

In his order, Lizama said Hocog did not have the actual authority to bind the government because he failed to follow the regulations applicable to a government contract with a third party.

Lizama said that, rather than informing Commercial Trading that Hocog’s actions had been unauthorized, the government asked Hocog to provide records of the transaction.

“This action took place almost a year after the original transaction. There is no record of any further action taken by the government,” he said.

The judge pointed out that the government’s inaction allowed Commercial Trading to believe that Hocog had apparent authority to bind the government.

“The risk of loss from an agent’s disobedience falls on the principal because agents are fiduciaries trusted and controlled by the principal who generally act to benefit the principal,” he said.

Lizama said the government employed Hocog to act on its benefit.

“The agent disobeyed a government regulation. Nevertheless, it is more appropriate to subject the government to liability than to place the loss on a third party who was following customary business practices for Rota,” he noted.

Lizama said the government knew that Commercial Trading had made a sale to the government’s ostensible agent, and that it had transferred $12,847.41 worth of materials.

“The government, aware of the bill and the interest accumulating on the bill, did not take the necessary steps to remedy the situation,” he said.

The judge said there is conflicting evidence to the effect that Hocog, rather than the government, retained the materials.

“The issue is whether plaintiff was harmed by the government’s failure to remedy the situation. Because this liability is based on harm rather than benefits, unjust enrichment is not the correct basis for assessing the government with liability,” he pointed out.