Contract provision violating Article XII struck down

The Commonwealth Supreme Court, in a unanimous decision, deemed unconstitutional the practice of collecting rent beyond a 55-year period, holding that such a practice violates Article XII of the CNMI Constitution and ordering that such provisions must be removed from contracts. The rest of the contractual provision—forgiveness of a third party debt by allowing one party to repay another party’s debt, which could then be recouped with interest—was left intact.

The case arose from a contractual dispute between Jing Yu Guan Stephanson and Vincente I. Teregeyo. Stephanson agreed to repay Teregeyo’s loan from the Small Business Administration. In exchange, Teregeyo agreed to repay Stephanson plus interest, either directly or by allowing her to collect rent from a property he owned. Article XII of the Commonwealth Constitution does not allow persons of non-Northern Mariana Islands descent to hold property rights beyond fifty-five years. Stephanson is not a person of NMI descent. The Supreme Court held that assigning the right to collect rent constitutes a property right, and, accordingly, determined that the assignment violated the Commonwealth Constitution. However, using the standards set forth in Diamond Hotel Co., Ltd. v. Matsunaga, the Supreme Court ruled that, because the parties had agreed that any illegal portion of the contract could be severed, and because the assignment of the right to collect rent was one of two ways the debt could be repaid, the clause could be severed from the rest of the contract. With the offending clause removed, the Supreme Court determined that the agreement could stand.

The Supreme Court also held that Stephanson’s promise to forgive a third party debt was adequate consideration for her repayment of Teregeyo’s Small Business Association loan, for which she would be re-compensated with interest. The Supreme Court remanded the attorney’s fees issue to the Superior Court to be re-determined to include the costs of the appeal.

The Supreme Court opinion was issued by Justice Alexandro C. Castro, Chief Justice Robert J. Torres, Jr. of the Guam Supreme Court and former Commonwealth Supreme Court Justice Jesus C. Borja, sitting as pro tem justices.[B][I] (PR)
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