Opposition Brief — Philippine Goods, Inc. v. Wabol

Supreme Court brief1992

Ask Donna

What actually matters in this document.

Text

rok pee

No. 92-255 | OCT 21 W992

| bers: OF THe |

In The ’ =a

Supreme Court of the Hnited States

October Term, 1992

PHILIPPINE GOODS, INC., TRANSAMERICA

CORPORATION and VICTORINO U. VILLACRUSIS,

Petitioners,

CONCEPCION S. WABOL and ELIAS S. WABOL,

Respondents.

Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

BRIEF OF RESPONDENTS

IN OPPOSITION

THEoporE R. MrrcHeti

Counsel of Record

for Respondents

Third Floor, Nauru Building

Post Office Box 2020

Saipan, MP 96950

Telephone: 670/234-9800

$ Gipreme Court, us

—

QUESTIONS PRESENTED FOR REVIEW

1. Whether the legislature of the Commonwealth

of the Northern Mariana Islands had authority, under

§ 402(c) of the CovENANT To EstaBLisH A COMMONWEALTH

OF THE NORTHERN MariANA ISLANDS IN POLITICAL UNION

WITH THE UNITED StaTEs OF AMERICA, P.L. 94-241, 90 Stat.

263, to withdraw appellate jurisdiction of this case from

the Ninth Circuit.

2. Whether the limitation of the right of land own-

ership to persons of Northern Marianas descent, which

is mandated by the Covenant, violates the Fifth

Amendment of the United States Constitution.

3. Whether, if the Commonwealth land ownership

limitations are violative of the United States Constitu-

tion, the Court should nonetheless allow them to stand

because it would be impracticable and anomalous to

invalidate those limitations under the circumstances of

this case.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW........ i

REFERENCE TO OFFICIAL REPORTS. .......... 1

STATEMENT OF JURISDICTION ................ 1

STATEMENT OF THE CASE............5.cc0008: 2

Statement of PUGH oisiiss 00h ine cane coaaceaesacs 2

SUMMARY OF ARGUMENT...................... 3

ARGUMENT . .....<00s0xsansexagdieggaeeee eee 4

I. This Case Arises Under Unusual Circum-

a eer yr re nr ee ae 4

II. The Land Ownership Limitations Which Are

Mandated By § 805 of The Covenant Are Not

Based on a Racial Classifications............. 11

III. The Ninth Circuit Did Not Misapply The Doc-

trine of the 2emdmr CARROE, ccae ss ccccscnctensss 17

IV. Article XII Does Not Violate § 805............ 24

V. This Court Should Not Strike Down the Cove-

nant’s Land Ownership Protections On The

Basis of The Petitioners’ Allegations of

Changed Coneitioeess «os ccncs cnannveus tueeee 27

CONCLANIOUIN « ois cue senueescu ee eee 30

APPENDIX

Appendix A - Opinion, Aldan-Pierce uv.

Mafnas, No. 89-003, slip op.

(S.Ct.N.Mar.Is. July 5, 1991)..... -.la

Appendix B —- Opinion, Ferreira v. Borja, No.

90-047, slip op. (S.Ct.N.Mar.Is.

Fob. 15, Sites ccucivetetceaese 38a

ill

TABLE OF CONTENTS - Continued

Page

Appendix C - Opinion, Yokeno v. Mafnas, No.

91-15745, slip op. (9th Cir.

Re av koa a Seb weaves 80a

Appendix D —- Report of Joint Drafting Com-

mittee on the Negotiating His-

tory of the Covenant, reprinted

in Hearing Before the Senate

Comm. on Interior and Insular

Affairs, July 24, 1975, pp.

ee eee ee ee 99a

Appendix E — Excerpts from ANALYSIS OF THE

CONSTITUTION OF THE COMMON-

WEALTH OF THE NorTHERN Mar-

IANA ISLANDS:

Pages 91-102 (Art. IV).......... 109a

Pages 163-180 (Art. XII)........ 119a

Appendix F -— Excerpts from Section sy SEc-

TION ANALYSIS OF THE COVENANT

TO EsTaBLISH A COMMONWEALTH

OF THE NORTHERN MARIANA

ISLANDS:

Pages 32-39 (Art. IV) ........... 135a

Pages 116-117 (Section 805) ....140a

TABLE OF AUTHORITIES

CASES

Atlantic Coast Line Railroad Co. v. Brotherhood

of Locomotive Engineers, 398 U.S. 281 (1970)..... 2

Bruner v. United States, 343 U.S. 112 (1952)....... 2

City of Richmond v. J. A. Croson Co., __ U.S.

__., 109 S.Ct. 706 (Scalia, J. concurring) ........ 17

Commonwealth of the Northern Mariana Islands

v. Atalig, 723 F.2d 682 (9th Cir. 1984)......... 4,5

De La Rama Steamship Company, Inc. v. United

CE, Se. Gh I TE nk. c cered ebb dekecccss 2

De Rodulfa v. United States, 461 F.2d 1240

I 5.40616 a seek Leon wea eee kee’ 2

Espinoza v. Farah Manufacturing Co., 414 U.S.

aN es as al er 22

Examining Board of Engineers, Architects and

Surveyors v. Flores de Otero, 426 U.S. 572

Be eee Seer ey ere er 18, 19, 20, 23

Factor v. Laubenheimer, 290 U.S. 276 (1980)........ 9

Fortino v. Quasar Co., 950 F.2d 389 (7th Cir.

PEE Soe cue cheues Mane kcuSNad CUR e Gs ane 17, 22

Fullilove v. Klutznick, 448 U.S. 448 (1980) ......... 7

Gale v. Andrus, 643 F.2d 826 (D.C. Cir. 1980)... 5, 8

Hallowell v. Commons, 239 U.S. 506 (1916)......... 2

Harris v. Rosario, 446 U.S. 651 (1980)............. 22

PT SINE i nivncn wbarenuwexeesecwewtecasces passim

TABLE OF AUTHORITIES - Continued

King v. Morton, 520 F.2d 1140 (D.C.Cir. 1975)..... 26

Ex parte McCardle, 74 U.S. (7 Wall.) 506, 19 L.

Sees Pe Cs 6 cca dio, detec ee 2

Metlakatla Indian Community v. Egan, 363 U.S.

Se LOE cies wis ee ves beeeiace: dom eee 1

Morton v. Mancari, 417 U.S. 535 (1974) ........ 8, 16

Ngiraingas v. Sanchez, 495 U.S. __, 110 S.Ct.

SVE Se ek back ces ua eee oe ee 7

Oyama v. California, 332 U.S. 633 (1948).......... 20

People of Saipan v. United States Department of

Interior, 502 F.2d 90 (9th Cir. 1974), cert.

denied, 420 U.S. 1003 (1975) ..................... 8

Regents of University of California v. Bakke, 438

Shady MN ME ak os te ce ol ee ee 17

Reid v. Covert, 354 U.S. 1 (1957).............. 9, 21

Smallwood v. Gallardo, 275 U.S. 56 < , j Bearer 2

Temengil v. Trust Territory of the Pacific Islands,

881 F.2d 647 (9th Cir. 1989)..................... 13

Terrace v. Thompson, 263 U.S. 197 (1923) ......... 20

United States uv. Curtiss-Wright Export Corp.,

eR Oe ee eee 6, 20

United States v. Verdugo-Urquidez, 494 U.S.

259, 110 S.Ct. 1056 (1990)............... 19, 21, 22

Wabol v. Villacrusis, 958 F.2d 1450 (9th Cir.

SOME vb hvvackecouweletpusoaedae eee eee 1

Yokeno v. Mafnas, No. 91-15745, slip op. 10363

COG: Ci, WO SD ne eee 26

Youngstown Sheet & Tube Co. v. Sawyer, 343

AS ee Bs sk ou adh hee kde eee 10

TABLE OF AUTHORITIES - Continued

Page

CONSTITUTIONAL, COVENANT, TREATY AND

STATUTORY PROVISIONS

Constitution of the United States

Aptis ©. OO. Mie Ba bike dik ve eacskesksase ee 7

Cc 8 OS rrr rey te ree 7

PT ee DO eer erer revert er fre 8, 22

CovENANT TO EstTaBLISH A COMMONWEALTH OF THE

NORTHERN MariANA IsLaNps IN Po.iTicAL UNION

WITH THE UNrrepD States or AMERICA, P.L. 94-241,

90 Stat. 263

Constitution of the Commonwealth of the

Northern Mariana Islands

ORI FE x cA shen eh eee oee kee eackoe passim

ROU Ts ee vo peek bene inant to eee 2

United States Public Law 94-241.................. 13

er SG BEES ba bx esi eke ues oc eeeeeia eens 13

Oe ee var o dhs Bac nckknn cee eas Ree eee 13

Trusteeship Agreement, Art. 6, 7 1, 61 Stat.

Ok CRU Bey RRR bk nk cnebcssekeeacaceeues 12, 13

LEGAL PERIODICALS

Clark, Self-Determination and Free-Association

~ Should the United Nations Terminate The

Pacific Islands Trust?, 21 Harv. Int’l L.J. 1

COO: caxkd oak cutnc Oteiacinsl seu 5, 7, 9, 13, 14

Vii

TABLE OF AUTHORITIES — Continued

Page

Laughlin, The Application of the Constitution in

United States Territories: American Samoa, A

Case Study, 2 U.Haw.L.Rev. 337 (1980) ...... 27, 29

A, H. Leibowitz, The Marianas Covenant Nego-

tiations, 4 ForpHaM Int’L L.J. 19 (1980)...5, 6, 8, 9

Note, Inventive Statesmanship vs. The Terri-

torial Clause: The Constitutionality of Agree-

ments Limiting Territorial Powers, 60

Va.L.REv. 1041 (1974)...................20....... 23

K.C. Randall, Foreign Affairs in the Next Cen-

tury (Book Review), 91 Cot.L.Rev. 2097 (1991) ....18

Willens & Siemer, The Constitution of the North-

ern Mariana Islands: Constitutional Princi-

ples and Innovation in a Pacific Setting, 65

me, Tide Bee CIT. ob bo ee. Passim

RESTATEMENTS

RESTATEMENT OF THE FOREIGN RELATIONS

Law OF THE UNITED States 3p

PMN epe as oebareiney teats clei cele cc tasee 10

De eos Se ean o Nh esi a vewks pate ceca 11

De eRe tel tia casas ote se i ce ee 9

WIR ea AA uad ean i caocst nce scc cecilia 6

PW the ackdsvannaveti ore ikkceee ee ae 11

I cb tion hw teal desiedilewe Reco eee ee 10

Vili

TABLE OF AUTHORITIES —- Continued

Page

TExTs

L. HENKIN, CONSTITUTIONALISM, DEMOCRACY, AND

PORE TANI CRE 6 ovo ks db os bcccescccessecess 18

A. H. Leibowitz, Defining Status: A Comprehen-

sive Analysis of United States Territorial

PE I icc ack) kas wonss lakkenatsus passim

D. McHenry, Micronesia: Trust BetrayeD (1975).. 5, 6

LEGISLATIVE MATERIALS

Hearings on S.J. Res. 107 Before the Senate

Committee on Interior and Insular Affairs,

94th Cong., Ist Sess. at 356-496 (1975)....... 7, 14

Hearings on H.J. Res. 549 Before the Subcomm.

on General Legislation of the Senate Comm. on

Armed Services, 94th Cong., Ist Sess. (1976)...... 7

Hearings on H.J. Res. 549 Before the Senate

Comm. on Foreign Relations, 94th Cong., Ist

IG Na cated core E ater Nn cats wal ay 60 7

Hearings Before the Subcomm. on Territorial

and Insular Affairs of the House Comm. on

Interior and Insular Affairs, 94th Cong., Ist

Sess. (Serial No. 94-13) (1975) .......ccccccccceees 7

S. Rep. No. 364, 94th Cong. 2d Sess. (1976)........ 6

S. Rep. No. 433, 94th Cong. 2d Sess. (1976)........ 6

S. Rep. No. 596, 94th Cong. 2d Sess. (1976)........ 6

H. Rep. No. 174, 98th Cong., lst Sess. at 5

CNG Saka Gae tena dinidee saek kes ne ee ees 9

TABLE OF AUTHORITIES ~— Continued

MISCELLANEOUS

1990 U.S. Census (Commonwealth of the North-

ern Mariana Islands) (1990 CPH-6-CNMI)

Were ee os eben. fs, , ck.

Marianas Political Status Commission, SEcrion

By Section ANALYSIS oF THE CovEeNANT (1975)..

Proclamation No. 5564, 51 Fed.Reg. 40, 399

raisins Mesapeicte TT ae

Page

REFERENCE TO OFFICIAL REPORTS

The decision of the Ninth Circuit is reported as

Wabol v. Villacrusis, 958 F.2d 1450, 1455-58 (9th Cir.

1992).

STATEMENT OF JURISDICTION

This Court lacks jurisdiction to review this case on

the merits because the Court of Appeals was divested of

jurisdiction on May 2, 1989, by the Commonwealth

Judicial Reorganization Act. The decision of the Court

of Appeals is wrong on the jurisdictional issue. Pet.App.

11-17.

This case is here because the arrangement between

the Commonwealth judiciary and the federal appellate

courts is similar to that which existed between the

state and federal courts in the transition of Alaska from

territorial to statehood status. Metlakatla Indian Com-

munity v. Egan, 363 U.S. 555, 558-559 (1960) (interim

United States district court “creature of two sover-

eigns” “vested with judicial power of the State” of

Alaska to decide state cases; “termination of the exis-

tence” of the court governed by federal law, but termi-

nation of jurisdiction governed by state law). See,

Br.Opp.App. 109a-119a and 135a-140a.

By virtue of § 402(c)-of the Covenant, the federal

appellate courts, the appellate division of the District

Court, the Ninth Circuit and this Court, are federal

judicial institutions vested with and exercising Com-

monwealth judicial power.

The Commonwealth was allowed to invest the fed-

eral appellate courts with jurisdiction to hear Common-

wealth appeals for as long as it elected to do so.

Br.Opp.App. 103a

“Of course it does not matter that these cases

halve] gone to a higher court. When the root is cut, the

branches fall.” Smallwood v. Gallardo, 275 U.S. 56, 61

41927) (Holmes, J.). Thus, it is the Commonwealth Leg-

islature which has the power to determine the fate of

all Commonwealth appeals, new and old alike. See

Bruner v. United States, 343 U.S. 112 and 117 n. 8

(1952); Ex parte McCardle, 74 U.S. (7 Wall.) 506, 19

L.Ed. 264 (1869); De La Rama Steamship Company,

Inc. v. United States, 344 U.S. 386 (1953); Hallowell v.

Commens, 239 U.S. 506 (1916); and De Rodulfa v.

United States, 461 F.2d 1240, 1251 (D.C.Cir. 1972).

Contrary to the holding of the Court of Appeals, the

Congress lacks authority under Article III to confer

power on the federal appellate courts to hear Common-

wealth appeals. Cf. Atlantic Coast Line Railroad Co. v.

Brotherhood of Locomotive Engineers, 398 U.S. 281, 286

(1970).

STATEMENT OF THE CASE

Statement of Facts

When the lease at issue in this aged case was

executed by Philippine Goods, Inc., Article XII, § 5 of

the Commonwealth Constitution prescribed the follow-

ing plain and simple requirements: (1) 51% of the “vot-

ing shares” of the company must be owned by persons of

Northern Marianas descent, (2) 51% of the directors

must be persons of Northern Marianas descent, and (3)

the lease term could not exceed 40 years, “including

renewal rights.” Pet.App. 74-75.

Philippine Goods missed the ownership minimum

by 1%. Pet.App. 51. The company had three directors,

Maria N. Manalo, Victorino U. Villacrusis and Leonard

C. Villacrusis, two of whom were ineligible. Pet.App. 51.

The board missed the minimum by 1 member. Pet.App.

51.

While the Northern Marianas ownership and con-

trol of the company fell short, the term of the lease was

too long. The lease included a 30 year initial term, plus

a 20 year option, for a total of 50 years..Pet.App. 51.1!

SUMMARY OF THE ARGUMENT

This is a case arising under the international law of

the United States, including the Trusteeship Agree-

ment, the Covenant, and the doctrine of the Insular

Cases. It must be seen in this light in order to correctly

analyze the constitutional issues presented.

The mandate of § 805 of the Covenant that the

Commonwealth must restrict ownership of Common-

wealth land to persons of Northern Marianas descent

for 25 years following termination of the Trusteeship

Agreement is not based on a racial classification.

1 This information is also found at page 4 of petitioners’

brief in somewhat less graphic form. In a sense, the only

reason this case is here is because the management of the

company lacked facility in elementary arithmetic.

In rendering the decision below, the Ninth Circuit

properly and correctly applied the doctrine of the Jnsu-

lar Cases rather than a due process and equal protec-

tion analysis.

Article XII of the Commonwealth Constitution

appropriately implements the land ownership restric-

tion of § 805 of the Covenant. It is neither too restric-

tive nor too relaxed and therefore cannot be challenged -

as violative of § 805.

The validity of Covenant § 805 must be judged as of

the time it was agreed to by the parties, in the light of

the circumstances then existing. Its continuing validity

does not depend on an alleged change in the social and

economic conditions which formed its original basis.

ARGUMENT

This Case Arises Under Unusual International

Circumstances

The Ninth Circuit was right when it noted that: “A

preper understanding of the problem, and our resolu-

tion, requires a brief digression into the relationship

between the Commonwealth and the United States.”

Pet.App. 18. The Ninth Circuit judge who wrote the

seminal decision in Commonwealth of the Northern

Mariana Islands v. Atalig, 723 F.2d 682 (9th Cir. 1984)

began with the same premise. Atalig, 723 F.2d at 684

(“[t]he resolution of issues [involving the Covenant]

requires an understanding of the unique political rela-

tionship between the [Northern Mariena Islands) and

the United States.” The District of Columbia Circuit

aa imeneianatiierateieneiel

was moved to make a similar observation in a case

involving pre-Covenant issues arising under the Trust-

eeship Agreement: “If one fails to appreciate the true

characteristics of this unique relationship for purposes

of this case, it is easy to get lost in the intricacies of

standard administrative law trying to pigeonhole or

label this entity called ‘Micronesia.’ ” Gale v. Andrus,

643 F.2d 826, 830 (D.C.Cir. 1980).2

In sum, the present-day relationship between the

Commonwealth and the United States, based on the

Covenant, began with the victory of the allied forces in

the Pacific over the Japanese in the fall of 1944 in the

battle of Saipan. Three years later the United States

became the administering authority under a United

Nations trusteeship agreement. In 1975, after three

years of negotiations, the Northern Mariana Islands

and the United States executed the Covenant.

2 That relationship is described in Atalig, 723 F.2d at

684-86; and Gale, 643 F.2d at 828-30. For the Ninth Circuit’s

torical study of United States relations with all of its territo-

ries, as well as a discussion of the Northern Marianas, see A.

H. Letpowirz, Deriwinc Status: A CompreHENSIVE ANALYSIS OF

Unitep States TERRITORIAL RELATIONS (1989) [hereinafter

The Covenant negotiations were conducted by the

President of the United States, acting through his per-

sonal representative with the rank of ambassador, F.

Haydn Williams. McHenry at 103.3 The Northern Mar-

ianas was represented by the Marianas Political Status

Commission, a creature of the Marianas local legisla-

ture. Willens & Siemer at 1381 & n. 32; and Leibowitz

22 n. 8.4

Following conclusion of the negotiations and execu-

tion of the Covenant by the parties on February 15,

1975, the people of the Northern Marianas approved

the Covenant in a plebiscite, hearings were held before

the House Committee on Interior and Insular Affairs,

the Senate Committee on Interior and Insular Affairs,

the Senate Foreign Relations Committee and the Sen-

ate Armed Services Committee, and both houses of the

United States Congress approved the Covenant with a

joint resolution which was adopted March 24, 1976.

Willens & Siemer at 1381 & nn. 33 & 34.5 The result is

3 Under the terms of his appointment Ambassador Wil-

liams had the capacity to conclude an “international agree-

ment” with the Northern Mariana Islands. RestaTeMENT OF

THE FOREIGN RELATIONS LAW OF THE UNITED States 3p, § 311.

4 The Northern Marianas was still part of the Trust Ter-

ritory during this period. It seems reasonable to conceive of

the Marianas District Legislature as having a foreign affairs

capacity comparable to the Continental Congress, prior to the

Declaration of Independence, see United States v. Curtiss-

Wright Export Corp., 299 U.S. 304, (1936), and the Marianas

Political Status Commission as the executive organ to carry

out the negotiations.

5 The congressional deliberations were lengthy, probing

and comprehensive. See S. Rep. No. 364, 94th Cong., Ist Sess.

(1975); S. Rep. No. 433, 94th Cong., Ist Sess. (1975); S. Rep.

eee

wk ede bia 6 2 ice

characterized by Willens & Siemer as “the preconstitu-

tional act by which the people of the Northern Mar-

ianas exercised their right of self-determination and

became a part of the United States.” Willens & Siemer

at 1381. See Clark at 75-78.6

To borrow a phrase from an analogous context, it

would appear that both the President and the Congress

“employed an amalgam of its specifically delegated

powers,” Fullilove v. Klutznick, 448 U.S. 448, 473

(1980), to negotiate, execute and approve the Covenant.

The President employed both his appointments

power and treaty-making authority under Article II,

§ 2, cl. 2 of the Constitution.” The Congress employed

its authority to provide for the “common Defence,” Arti-

cle I, § 8, cl. 1; the Senate exercised its power to give

advice and consent on treaties, Article II, § 2, cl. 2. And,

No. 596, 94th Cong. 2d Sess. (1976); Hearings on S.J. Res. 107

Before the Senate Committee on Interior and Insular Affairs,

94th Cong., 1st Sess. (1975); Hearings on H.J. Res. 549 Before

the Subcomm. on General Legislation of the Senate Comm. on

Armed Services, 94th Cong., Ist Sess. (1976); Hearings on

H.J. Res. 549 Before the Senate Comm. on Foreign Relations,

94th Cong., 1st Sess. (1976); and Hearings Before the Sub-

comm. on Territorial and Insular Affairs of the House Comm.

on Interior and Insular Affairs, 94th Cong., 1st Sess. (Serial

No. 94-13) (1975). See also, Derininc Stratus 530-36.

6 Thus, the Northern Marianas became part of the

United States of its own free will, freely expressed, and not as

an acquired possession like Guam, Ngiraingas v. Sanchez,

495 U.S. __, 110 S.Ct. 1737, 1740 (1990).

7 Leibowitz notes that the § 805 land ownership restric-

tions “may be legally sustainable as a result of the

treaty-making powers of the United States.” Derininc Status

at 103-04.

the Congress as a whole employed its power under the

Territorial Clause, Article IV, § 3, cl. 2.

When the parties came to the bargaining table, the

United States was a “trustee,” People of Saipan uv.

United States Dep’t of Interior, 502 F.2d 90, 96-97 (9th

Cir. 1974), cert. denied, 420 U.S. 1003 (1975), and the

people of the Northern Mariana Islands were its bene-

ficiaries. Cf. Gale, 642 F.2d at 830. This was a relation-

ship akin to that between the United States and the

American Indians. Morton v. Mancari, 417 U.S. 535,

550 (1974) (there is a “unique legal relationship

between the Federal Government and tribal Indians.”);

and Willens & Siemer at 1455-56.

The shared objective of the negotiations was the

accomplishment of two related but distinct goals: One,

to work out the terms on which the Trusteeship Agree-

ment would be terminated by mutual consent of the

trustee and beneficiary (subject to concurrence of the

United Nations) and, Two, to frame the terms of a new,

permanent relationship between the United States and

the Northern Mariana Islands. Leibowitz at 19-22; and

Willens & Siemer at 1374-84. This joint enterprise had

the parties engaged in foreign relations with one

another. On May 28, 1986, the Trusteeship Council of

the United Nations reviewed the result and decided

that the United States had “discharged its obliga-

tions . . . under the Trusteeship Agreement,” and on

Nov. 3, 1986, the Trusteeship was terminated. Procla-

mation No. 5564, 51 Fed.Reg. 40,399 (Nov. 3, 1986).

Once the negotiations were completed and the peo-

ple of the Northern Marianas took steps to approve the

agreement, they were exercising their sovereign rights

of self-determination under international law. Willens

& Siemer at 1379-80; and Clark at 75-78. Once they

approved the Covenant, both they and the United

States were bound, forever, by its terms. Covenant,

Preamble; and Clark at 75 n. 399.

The method employed was “a unique method of

expanding the Union.” Leibowitz at 22. And, it was “the

first United States acquisition of a populated territory

in almost 50 years.” Derininc Status at 520. In another

first: “This was the first time in the history of the

United States territorial affairs t’at the federal gov-

ernment agreed to an unambiguous limitation on its

power.” Leibowitz at 79.

In its discussion of the application of the Insular

Cases doctrine to this case, the Ninth Circuit correctly

referred to the Covenant as part of the “international

obligations” of the United States. Pet.App. 27. The

House Interior Committee referred to the Covenant as

an “agreement between the United States and the terri-

tory which it regards as a treaty-like obligation on the

part of both.” H. Rep. No. 174, 98th Cong., 1st Sess. at 5

(1983) (emphasis added). It is at least the functional

equivalent of an “international agreement” as defined

by international law. REsTaTEMENT OF THE ForEIGN RELA-

TIONS Law oF THE UNnirep States 3p, § 301(1).

Given its form, content, function and purpose, the

@Covenant should be treated as a generic international

agreement — as the equivalent of a treaty — for purposes

of judicial review and when the Court is called upon to

pass on its constitutionality, it should give due defer-

ence to the decisions of the Executive and the Congress.

Factor v. Laubenheimer, 290 U.S. 276, 293-95 (1980).

And, because of the extensive and thoughtful treatment

given all of the issues raised by the Covenant, including

§ 805, this Court can readily ascertain the purposes of

those who made it and approved it.®

Indeed, the extensive involvement of both political

branches of government in the negotiation, review and

the approval of the Covenant qualifies the instrument

for the top tier of Justice Jackson’s famous hierarchy of

the legitimacy of executive actions. Youngstown Sheet &

Tube Co. v. Sawyer, 343 U.S. 579, 635-36 (1952) (concur-

ring opinion) (“When a President acts pursuant to an

express or implied authorization of Congress, his

authority is at its maximum, for it includes all that he

possesses in his own right plus all that Congress can

delegate. In these circumstances, and in these only, it

may be said (for what it may be worth), to personify the

federal sovereignty. If his act is held unconstitutional

under these circumstances, it usually means that the

Federal Government as an undivided whole lacks

power.”)?

Since the land ownership provision of § 805 is sin-

gled out for special treatment in both § 105 and § 501(b)

of the Covenant, there can be no doubt that the parties

to the agreement intended it to be a material part of the

bargain. Thus, a judicial decision striking down § 805

would put the United States in material breach of the

8 See references to hearings and reports collected at n. 4,

supra.

9 Put in Justice Jackson’s terms, Philippine Goods con-

tends that “the Federal Government as an undivided whole

lacks power” to agree to the land ownership restrictions

required by § 805 of the Covenant.

sacar aaiadinemeamniataiied

H |

oe aC ae

wet awd He

ON LL RAD PEE LD REN ELE OG.

Covenant. RESTATEMENT OF THE ForEIGN RELATIONS Law oF

THE UNITED States 3p § 112 (Supreme Court interpreta-

tion binding) and § 335 (definition of material

breach). 10

It is against this background that Philippine Goods

asks this Court to disturb a vital provision of the Cove-

nant, with the possible consequence of destroying the

entire relationship which was founded upon it seven-

teen years ago.

II.

THE LAND OWNERSHIP LIMITATIONS WHICH

ARE MANDATED BY § 805 OF THE COVENANT

ARE NOT BASED ON RACIAL CLASSIFICATIONS

Philippine Goods characterizes the discrimination

in land ownership rights which is mandated by § 805 of

the Covenant as racially based and then insists that an

equal protection, strict judicial scrutiny analysis

applies to the validity of § 805 itself. Pet. 9-11.

To be sure, the Ninth Circuit court, twice, uses the

expression “race-based” in reference to the land owner-

ship restrictions, Pet.App. 1 and 9, but without discus-

sion and without expressly so holding. At the same

time, the court made a detailed and close analysis of

the reasons for both § 805. and Article XII, taken from

1 If such a breach should occur and if the Northern Mar-

ianas elected to take full advantage of it, it is unclear whether

the status of the islands would revert to the Trusteeship, or

some other. What is clear is that the petitioners and all other

persons not of “Northern Marianas descent” would have no

appeal to the United States Constitution. It would no longer

apply, at all.

the negotiating history of the Covenant and the consti-

tutional history of Article XII. Pet.App. 24-27. All of the

court’s discussion was expressed in terms of Justice

Harlan’s “impractical and anomalous” test for finding

the constitutional provisions which do or do not apply

in a given territorial setting, Pet.App. 24, and not in

equal protection terms. The court’s discussion would fit

nicely in the compelling governmental interest section

of an equal protection analysis, but the court correctly

rejected that rule of decision. Pet.App. 27 n. 22. The

court’s analytical approach, based on the Insular Cases,

did not require a specific finding whether § 805 was

based on race or not.

In fact, the distinction on which the land ownership

restrictions is based is not one of race, it is one of

political status, political rights, a special citizenship

status. For the official explanation of the definition

adopted by the Constitutional Convention, see

Br.Opp.App. 126a-131a.

The classification embodied in the term “person of

Northern Marianas descent” is simply one way of refer-

ring to those persons who, under the terms of Article 6,

4 1 of the Trusteeship Agreement, could validly approve

and enter into an agreement like the Covenant. In

other words, it is a way of identifying and referring to

the “peoples concerned” in the phrase “the freely

expressed wishes of the peoples concerned.” Trustee-

ship Agreement, Art. 6, 7 1, 61 Stat. 3301 (April 29,

1947).

The United States was obligated to “promote the

development of the inhabitants of the trust territory

toward self-government or independence” in accordance

with “the freely expressed wishes of the people con-

cerned.” Id.

The “people concerned” were the Micronesians, the

citizens of the Trust Territory. In 1969 the “people con-

cerned,” the Micronesian citizens, as a unified whole,

initiated negotiations with the United States to termi-

nate the Trusteeship. Temengil v. Trust Territory of the

Pacific Islands, 881 F.2d 647, 650 (9th Cir. 1989). When

the United States agreed to separate negotiations with

the Northern Marianas in 1972, the “people concerned”

became the Trust Territory citizens of Northern Mar-

ianas descent who had the political right to vote for

or against the Covenant. Clark at 75; and Willens

& Siemer at 1379-80 & n. 29. See Br Opp. App.

126a-130a.

The members of that group were, in the sense

described, citizens of the Northern Mariana Islands.

The second paragraph of the preamble of United

States Public Law 94-241 recites the same language of

Article 6, J 1. 90 Stat. 263. And the final words of the

resolving clause of the Covenant refers to the approval

of the Covenant by the people of the Northern Mariana

Islands in a plebiscite as “constituting on their part a

sovereign act of self-determination.” 90 Stat. 264. The

negotiating history of the Covenant explains the signifi-

cance of those words this way: “Finally, and fundamen-

tally, this clause of the Preamble recognizes that

approval of the Covenant by the people of the Northern

Marianas will constitute on their part a sovereign act of

self-determination — an exercise of their right freely to

express their wishes for self-government or indepen-

dence and to determine their own political future.” Mar-

ianas Political Status Commission, Szcrion By SEcTION

ANALYSIS OF THE COVENANT, p. 5.1! :

Thus, the classification denoted by the term “per-

sons of Northern Marianas descent” is a political defini-

tion, in the “international sense,” Pet.App. 27. Clark at

75-78. Before deciding to embrace the Covenant the

people of the Northern Marianas were subject to the

Trusteeship. Under the trusteeship they were “wards,”

to be protected and controlled by the United States as

trustee. But they had the right to exercise their free

choice to terminate the Trusteeship Agreement. Willens

& Siemer at 1375-80. These “people” could have opted

for self-government in any form they chose. They could

have decided to declare their independence and the

establishment of their own country. Jd.

Those who had the special franchise to vote for or

against the Covenant were Trust Territory citizens with

cultural, family and historic ties to the Northern Mar-

iana Islands, as distinct from the other Micronesians.

A comment by the leading authorities on the sub-

ject, Howard Willens and Deanne Siemer, confirms this

view:

This reference to ancestral bloodline was not

intended to establish a racial or ethnic basis

for determininy qualification to acquire

land. .. . In essence, the references to Cham-

orro and Carolinian blood are a shorthand

11 The SECTION By Section ANALysis is reprinted in Hear-

ings on S.J. Res. 107 Before the Senate Committee on Interior

and Insular Affairs, 94th Cong., Ist Sess. at 356-496 (1975).

lt eed Le Ae es ee ee

eae ee ee eee eee a ee ee

method of fixing the class of permanent resi-

dents in a particular time frame. Descent

traced from actual ethnic Chamorros or Car-

olinians who were born and lived outside the

Northern Marianas before 1950 would not

qualify a person under article XII as being ‘of

Northern Marianas descent.’

Willens & Siemer at 1391-92 (1977) (emphasis origi-

nal).

This classification of citizens of the Northern Mar-

iana Islands — persons of Northern Marianas descent —

includes persons of at least two distinct ethnic groups —

Carolinian and Chamorro. Derinine Status 521-26. Due

to intermarriage during the pre-war years, there are a

number of “persons of Northern Marianas descent” who

are of Korean, or of Japanese extraction, and from the

post-war period, some who are descendants of American

GIs. There are tens of thousands of Guamanian Cham-

orros who do not qualify. Thousands of Carolinian citi-

zens of the Federated States of Micronesia are

excluded. It necessarily excludes, without regard to

race, creed, color or national origin, all Americans,

Japanese, Koreans, Filipinos, East Indians, American

Indians, Australians, Viennese, Thais, Chinese, Tai-

wanese, Vietnamese and Palauans, to name only those

ethnic and national groups presently represented in the

polyglot population of the Commonwealth.12

This is a group classification similar to that of a

tribe of Indians, or of tribal Indians living on or near a

2 For a listing of most of these categories, see 1990 U.S.

Census (Commonwealth of the Northern Mariana Islands)

(1990 CPH-6-CNMI) Table 90, p. 136.

federally recognized Indian reservation. Morton v. Man-

cari, 417 U.S. 535, 552 (1974). Classifications of this

kind have both an ethnic or racial connotation and a

political connotation, but they are not unconstitutional,

because the benefits allowed are “granted to Indians

not as a discrete racial group, but, rather, as members

of quasi-sovereign tribal entities whose lives and activ-

ities are governed in a unique fashion.” Morton, 417

U.S. at 554.18

As the Ninth Circuit recognized, the motive force

behind the land restrictions, as part of the political

compromise memorialized in the Covenant, was that

the people of the Northern Marianas did not want to

achieve their long-time ambition to become part of the

“American political family” only to become landless

paupers in their new Commonwealth. Pet.App. 25 (“The

land alienation restrictions are properly viewed as an

attempt, albeit a paternalistic one, to prevent the

inhabitants from selling their cultural anchor for short-

term economic gain, thereby protecting local culture

and values and preventing exploitation of the inex-

perienced islanders at the hands of resourceful and

comparatively wealthy outside investors. See Willens &

Siemer, 65 Gero.L.J. at 1406.”).

The United States with its “involvement in the

economic well being of the Marianas, whose economic

strength was below that of the rest of the country,”

Derininc Status at 591, firmly insisted during the nego-

tiations that the land owzership restrictions must be

13 And, like reservation Indians, all Micronesian island

societies tend to be racially homogeneous due to relative geo-

graphical and cultural isolation over time.

included in the Covenant as a mandatory provision. Jd.

at 592. Ambassador Williams insisted that “failure to

carry out that obligation [to restrict land ownership]

may be deemed to constitute a refusal of the Common-

wealth to contribute its fair share to its own develop-

ment and may be taken into consideration in

determining the amount of U.S. [financial] assistance

after the expiration of the first seven-year period.”

DeFininc Status at 592. See, Covenant, § 702.

“Preferring members of any one group for no reason

other than race or ethnic origin is discrimination for its

own sake. This the Constitution forbids.” Regents of

University of California v. Bakke, 438 U.S. 265, 307

(1978). But programs which are not based on race are

not forbidden by the Constitution even if they “have

racially disproportionate impact.” City of Richmond v.

J. A. Croson Co., __ US. —, 109 S.Ct. 706, 736

(Scalia, J. concurring); and see Fortino v. Quasar Co.,

950 F.2d 389, 393 (7th Cir. 1991) (“there is no evidence

of [racial] discrimination here save what is implicit in

wanting your own citizens to run your.foreign subsid-

iary” where there is a “correlation between citizenship

and national origin”).

Thus, this Court ought not to accept Philippine

Goods’ invitation to see the § 805 restrictive policy in

racial terms.

Iil.

THE NINTH CIRCUIT DID NOT MISAPPLY THE

DOCTRINE OF THE INSULAR CASES

Philippine Goods’ arguments under Parts II, III

and V, amount to a complaint against the Insular Cases

doctrine and the way the Ninth Circuit applied that

doctrine to the facts of this case. Pet. 11-28. The Hotel

Nikko Saipan, Inc., amicus curiae, forthrightly urges

the Court to take this case and either overrule the

Insular Cases or hold that they have no application to

the Northern Mariana Islands and the Covenant. At the

same time, both Philippine Goods and Hotel Nikko rely

heavily on this Court’s latter-day application of the

Insular Cases doctrine in Examining Board of Engi-

neers, Architects and Surveyors v. Flores de Otero, 426

U.S. 572 (1976).

However anachronistic the origins of the Insular

Cases doctrine may be, it serves an important role

today in reconciling conflicts which arise between the

national interest and individual rights (of citizens and

aliens) in the conduct of the foreign relations of the

United States, and, it serves the same purpose in

resolving conflicts between United States national

interests and individual rights which arise in the con-

text of this country’s relations with its own off-shore

territorial areas. See, RESTATEMENT OF THE FOREIGN RELA-

TIONS LAW OF THE UNITED States 3p, § 721 (applicability

of individual rights in conduct of U.S. foreign relations)

& Comment b. & Reporters’ Notes 2 & 3 (discussing The

Insular Cases). These problems (and the question of

this Court’s proper role in resolving them) will

undoubtedly persist and if anything become more diffi-

cult of resolution in the 21st Century. See L. Henxm,

CONSTITUTIONALISM, DEMOCRACY, AND FOREIGN AFFAIRS

(1990); and K.C. Randall, Foreign Affairs in the Next

Century (Book Review), 91 Coi.L.Rev. 2097 (1991)

(reviewing Henkin’s book).

SRP stiches als yeaah Meda

sl Fi ea ctiie

As recently as 1990, this Court had occasion to

overrule a Ninth Circuit decision as “contrary to this

Court’s decisions in the Insular Cases, which held that

not every constitutional provision applies to govern-

mental activity even where the United States has sov-

ereign power.” United States v. Verdugo-Urquidez, 494

U.S. 259, __, 110 S.Ct. 1056, 1062 (1990).14

In a concurring opinion, Justice Kennedy raised a

point which is quite probably relevant to this case. He

noted that in “cases involving the extraterritorial appli-

cation of the Constitution, we have taken care to state

whether the person claiming its protection is a citizen,

see, e.g., Reid v. Covert, 354 U.S. 1 (1957), or an alien,

see, e.g., Johnson v. Eisenstrager, 339 U.S. 763 ( 1950).”

United States uv. Verdugo-Urquidez, 494 U.S. ae

110 S.Ct. 1056, 1066 (1990) (concurring opinion). He

acknowledged that the “Government may act only as

the Constitution authorizes, whether the actions in

question are foreign or domestic,” but emphasized that

“this principle is only a first step” in the analysis.

Verdugo-Urquidez, 110 S.Ct. at 1067 (concurring opin-

ion). The next step in the analysis, he reasoned, is

“[t]he question . . . what constitutional standards apply

when the Government acts, in reference to an alien,

within its sphere of foreign operations.” Verdugo-

Urquidez, 110 S.Ct. at 1067 (concurring opinion). Jus-

tice Rehnquist, in dissent, raised the same question in

Examining Board of Engineers, Architects and Sur-

veyors v. Flores de Otero, 426 U.S. 572, 608 (1976)

(dissenting opinion). ‘

14 Amicus Hotel Nikko discusses the Verdugo-Urquidez

decision, Nikko Br. 6-7, but Philippine Goods does not.

Although the record is silent on the subject, it

appears that the owners of Philippine Goods and Trans-

america Corporation are not citizens of the United

States.15 Presumably they are citizens of the Republic

of the Philippines, but in any event they are alien

residents of the Commonwealth.!® As such, a state

could deny the non-citizen owners of Philippine Goods

the right to own land in the United States, under the

authority of Terrace v. Thompson 263 U.S. 197 (1923)

and Oyama v. California, 332 U.S. 633 (1948) (cited in

Examining Board of Engineers, Architects and Sur-

veyors uv. Flores de Otero, 426 U.S. 572, 603 n. 34

(1976)).

After noting that this Court has “not over-

ruled... the so-called Insular Cases,” Justice Kennedy

made this important point:

These authorities, as well as United States v.

Curtiss-Wright Export Corp., 299 U.S. 304

(1936), stand for the proposition that we must

interpret constitutional protections in light of

the undoubted power of the United States to

take actions to assert its legitimate power and

authority abroad.

15 “Philippine Goods is not only a member of the non-

favored racial group for the purposes of Article XII, but also in

the political arena.” Pet. 20. Since Philippine Goods, the com-

pany, is a corporate citizen of the Commonwealth, we take

this to be a reference to the Filipino owners of the company.

16 The owner of amicus Hotel Nikko Saipan, Inc., Japan

Airlines Development Corporation, would also appear to be

an alien, Nikko Br. 1.

Verdugo-Urquidez, 110 S.Ct. at 1067 (concurring opin-

ion). Then, Justice Kennedy quoted Justice Harlan’s

observation in Reid v. Covert that

‘the basic teaching of Ross and the Insular

Cases is that there is no rigid and abstract

rule that Congress, as a condition precedent to

exercising power over Americans overseas,

must exercise it subject to all the guarantees

of the Constitution, no matter what the condi-

tions and considerations are that would make

adherence to a specific guarantee altogether

impracticable and anomalous.’ 354 US., at 74.

Verdugo-Urquidez, 110 S.Ct. at 1067 (concurring opin-

ion) (emphasis added). That is precisely the same con-

curring opinion from which Circuit Judge Poole quoted

as a preface to his analysis of this case in terms of the

Insular Cases doctrine. Pet.App. 24. Justice Harlan

concluded that the analysis under the Insular Cases

doctrine was “analogous, ultimately, to issues of due

process.” Reid, 354 U.S. at 75 (concurring opinion).

[OJne can say, in fact, that the question of

which specific safeguards of the Constitution

are appropriately to be applied in a particular

context overseas can be reduced to the issue of

what process is ‘due’ a defendant in the partic-

ular circumstances of a particular case.

Reid, 354 U.S. at 75 (Harlan, J., concurring).

And this “impracticable and anomalous” test is the

principle which Philippine Goods finds so worthy of

severe condemnation. Pet. 16-19 and 27-28. But, it is

the law and it was applied quite correctly by the Ninth

Circuit in this case.!7 It is a due process clause for use

in resolving conflicts between the United States govern-

ment and individual citizens and non-citizens in the

context of international and territorial affairs.

The Court of Appeals quite correctly gave great

weight to the fact that this question arose in the con-

text of an international agreement. Pet.App. 25-27.

Apart from acknowledging the existence of the Cove-

nant, Philippine Goods and amicus Nikko Hotel, fail to

discuss this crucial element of “the conditions and con-

siderations . . . that would make adherence to” the

equal protection clause “impracticable and anomalous.”

Verdugo-Urquidez, 110 S.Ct. at 1067; and Pet.App. 24.

In an analogous case involving personal rights and

treaty provisions, the Seventh Circuit held that dis-

crimination in favor of Japanese executives on the basis

of citizenship is not forbidden by the Civil Rights Act of

1964 where it stems from a treaty between the United

States and Japan. Fortino v. Quasar Co., 950 F.2d 389,

17 Given the non-racial nature of the favored class and

the “compelling justification for the restrictions,” Pet.App.

26, even if § 805 and Article XII are judged by an equal

protection standard, they pass constitutional muster because

there is a rational basis for their existence. Harris v. Rosario,

446 U.S. 651, 651-52 (1980) (In the exercise of its power under

the Territory Clause of Art. IV, § 3, cl. 2, Congress may treat

Puerto Rico differently from the states so long as there is a

rational basis for doing so.). See also, Willens & Siemer at

1450-57.

;

‘a

393 (7th Cir. 1991) (“The exercise of a treaty right may

not be made the basis for inferring a violation of Title

VII.”). See, also, Espinoza v. Farah Manufacturing Co.,

414 U.S. 86 (1973) (Title VII does not forbid discrimina-

tion on grounds of citizenship).

The Court of Appeals discussed Flores de Otero and

held that not every right subsumed within the equal

protection clause can “ride the fundamental coattails”

of the equal protection clause “into the territories.”

Pet.App. 23 n. 19. That reasoning is a correct applica-

tion of the Insular Cases doctrine to the facts of this

case. Furthermore, the Court of Appeals decision in this

case cannot be “contrary to” this Court’s decision in

Flores de Otero as the petitioners contend, Pet. 11-16,

for the reason that application of the Insular Cases

doctrine must be on a case-by-case basis in order to

“accommodate the unique social and cultural conditions

and values of the particular territory” under consider-

ation. Pet.App. 23 (emphasis added). See Flores de

Otero, 426 U.S. at 599 n. 30; and Note, Inventive States-

manship vs. The Territorial Clause: The Constitu-

tionality of Agreements Limiting Territorial Powers, 60

Va.L.Rev. 1041 (1974). Hence, the Flores holding that

the due process and equal protection guarantees apply

“to residents of Puerto Rico,” Flores, 426 U.S. at 600, is

not controlling precedent for the Northern Marianas

until this Court independently decides that the same

rule should apply to the Northern Marianas. Each terri-

tory is different. Derminc Status.

All of these cases demonstrate the continuing util-

ity of the Insular Cases doctrine. Under those princi-

ples, each case must be decided on the basis of its own

“particular context.” Each particular constitutional

safeguard must be examined in that context, to deter-

mine whether it is “due” under those circumstances.

Given the social, cultural and economic reasons for

restricting the ownership of the land base, Br.Opp.App.

119a-123a (constitutional history); and Br.Opp.App.

140a-141la (negotiating history), there is ample evi-

dence for the Court of Appeals to have found that to

strike down § 805 “would be both impractical and

anomalous in this setting.” Pet.App. 26.

This case was decided correctly.

IV.

ARTICLE XII DOES NOT VIOLATE § 805

As a fall-back position, in a presentation that

detours far beyond the record, Philippine Goods con-

tends that even if § 805 is allowed to stand, Article XII,

as written and as applied by the Commonwealth

Supreme Court, is inconsistent with the terms of § 805.

Pet. 19-27.18

The problem with this argument is that it was

clearly understood and agreed between the parties to

the Covenant that while § 805 mandated implementa-

tion of the land ownership restrictions, it “will be

entirely up to the Government of the Northern Mar-

ianas to determine the precautions which they will take

18 The pending litigation to which amicus Nikko Hotel

refers in its brief, Nikko Br. 1, is the Dela Cruz v. Hotel Nikko

Saipan, Inc. case cited by Philippine Goods in this part of its

brief, Pet. 25.

to prevent their land from being alienated.”

Br.Opp.App. 141a.

Examination of the text and official explanation of

Article XII shows that it is very nicely drawn to accom-

plish exactly the purpose intended, nothing more, noth-

ing less. Pet.App. 74-76 (text of Art. XII); Br.Opp.App.

119a-134a (constitutional history); and Willens &

Siemer at 1405-12.19

On the facts of this case, Philippine Goods cannot

contend that the 40 year maximum term does not rea-

sonably fit the § 805(a) requirement that “long term

interests in real property” be limited to persons of

Northern Marianas descent. (Emphasis added.) See

Pet.App. 26 n. 20. Nor has it argued that 40 years is not

enough time to give it a fair chance at a reasonable

business profit.

The seminal decisions of the Commonwealth

Supreme Court construing and applying Article XII are

standard common law fare for the knowing reader.

Br.Opp.App. 1la-79a. Philippine Goods’ unseemly

attempt, Pet. 21 (“The fear is more than theoretical.”),

to undermine the legitimacy of the Commonwealth

Supreme Court’s sensitive, scholarly, painstaking opin-

ions by suggesting that the court’s judgments (except

for the dissent in Ferreira by special judge King, Pet.

19 Petitioners’ criticism of the increase from 40 to 55

years in the permissible leasehold term, Pet. 26 and 28, is

self-defeating: if the term limit is not severe enough, only the

United States, or a person of Northern Marianas descent,

would have capacity to claim a violation of § 805. Philippine

Goods cannot, in effect, say: because the restriction is too

relaxed, it must be eliminated.

23-24, a native of Indiana who was of course designated

to sit by the Commonwealth Chief Justice) are part of a

larger Commonwealth-wide, racially motivated regime,

Pet. 19-27, bent on depriving a “non-favored racial

group,” Pet. 20, of its constitutional rights is as false as

it is unsupported by the record.

In a recent decision of the Ninth Circuit, the argu-

ment that Article XII is inconsistent with § 805 was

raised and flatly rejected. Yokeno v. Mafnas, No.

91-15745, slip op. 10363, 10375 (9th Cir. Aug. 28, 1992),

Br.Opp.App. 80a, 92a.

In fact, the Commonwealth has an open-door eco-

nomic policy which welcomes investors from anywhere

on earth, including Philippine Goods and amicus Hotel

Nikko Saipan, to full participation in the economic life

of the Commonwealth. Because of the scant local labor

force, the law allows business enterprises to freely

import alien labor to meet its needs. Taxes are low, and,

until the world-wide economic slowdown belatedly

reached the islands, business in all sectors was boom-

ing. There is no discrimination in law or in fact, in

public accommodations of all kinds, and, with the

exception of the land ownership restrictions, everyone

enjoys the full benefit and protection of local and fed-

eral law, with a full-time U.S. Attorney, the F.B.I. and a

federal district court to give added security.2°

20 To see that the Commonwealth Supreme Court is quite

rational and competent, the Court need only peruse its first

two decisions construing § 805 and Article XII, Br.Opp.App.

1a-79a. In all probability, the losing party in one or both of

these cases will seek review here.

THIS COURT SHOULD NOT STRIKE DOWN THE

COVENANT’S LAND OWNERSHIP PROTEC.

TIONS ON THE BASIS OF THE PETITIONERS’

ALLEGATIONS OF CHANGED CONDITIONS

In the Court of Appeals Philippine Goods did “not

contest the compelling justification for the [§ 805]

restrictions. Rather, it attacks only the precision with

which the restrictions operate to further these inter-

ests.” Pet.App. 26. Now, the petitioner insists that

because “[flor better or for worse, during the last 12

years, the NMI has opted to enter the global economy,”

this Court should find, on the basis of the petitioners’

allegations, that it is no longer impractical or anoma-

lous to eliminate § 805 from the Covenant. Pet. 27-28.

The alleged facts are: economic progress, expansion

of the visitor industry, hotel construction,?! legalization

of gambling for Tinian, 20 clothing manufacturing

plants and the importation of workers from abroad who,

as aliens, are not allowed to vote in Commonwealth

elections. Pet. 27-28. The legal support is the decision

in King v. Morton, 520 F.2d 1140, (D.C.Cir. 1975), in

which the court of appeals remanded the case to the

district court for an evidentiary hearing on the question

“whether trial by jury [of an American citizen] in

Samoa would be impractical and anomalous.”22

21 Presumably including amicus’ $100 million Hotel

Nikko Saipan, Pet. 24-25.

2 For a description of the outcome, see Laughlin, The

Application of the Constitution in United States Territories:

American Samoa, A Case Study, 2 U.Haw.L. Rev. 337, 375-76

(1980) (the evidence did not sustain the government).

While it may be appropriate to base a decision on

the constitutional practicality of requiring the right to

trial by jury in Samoa on facts adduced at trial in the

District of Columbia, a similar remand in this case

would put the entire Covenant on trial in the Superior

Court of the Commonwealth of the Northern Mariana

Islands, on Saipan. This is so, because as noted at the

outset, § 805 of the Covenant is a material part of a

complicated, integrated international agreement, each

and every provision of which was the result of extensive

negotiations between the United States and the North-

ern Mariana Islands.

Furthermore, § 805(a), in its terms, requires the

Commonwealth to keep the land ownership restrictions °

in force for not less than 25 years following termination

of the Trusteeship Agreement. Pet.App. 74.28 That was

the deai. This Court cannot revise that provision of the

Covenant. It can only allow it to stand or strike it down.

If it strikes it down, the entire Covenant comes undone

and the parties go back to the bargaining table, or go

elsewhere. The underlying circumstance here is a bilat-

eral international agreement, not a statute nor a form

of criminal procedure. The Court therefore must evalu-

ate the constitutionality of § 805 on the basis of the

record of the negotiating history, the legislative history

of the Covenant’s consideration in the United States

Congress, and such facts as it may judicially notice.

23 That date is Nov. 3, 1986, Pet.App. 19 n. 14. Thus, the

Commonwealth is treaty-bound to leave Article XII on the

books until Nov. 3, 2011.

As for the facts alleged, even if taken as true, they

either support the conclusion that the protection of the

land base is more important than it was in 1970 or they

are irrelevant. See, Pet.App. 26-27: and Laughlin, The

Application of the Constitution in United States Territo-

ries: American Samoa, A Case Study, 2 U.Haw.L.Rev.

337, 367-72 and 381-387 (1980)

Finally, given the prevalence of land transactions

like those challenged in the Article XII cases listed by

the petitioner, Pet. 24-25, in which ineligible buyers use

a Northern Marianas person or a dummy corporation as

a frout, there is reason to believe that Article XII has

been, thus far, successfully circumvented by buyers like

Japan Airlines, the parent company of amicus Hotel

Nikko. Nikko Br. 1.

Indeed, petitioners’ facts demonstrate that Article

XII has neither discouraged foreign investors from tak-

ing a chance on the Commonwealth nor denied them a

fair opportunity to make a reasonable profit with a 40-

year leasehold tenancy. That much time is enough to

justify investment in enterprises ranging from a hole-

in-the-wall jewelry shop to a luxury resort hotel to a

championship golf-course. In reality, the only thing of

substance which Article XII denies the foreign investor

is a chance to reap the enormous profits available to the

fee owner (with a friendly front) in the Commonwealth

real estate market.

CONCLUSION

For the reasons given, this Court should deny the

petition for writ of certiorari.

‘

“7

If, however, certiorari is granted, the Court should

examine the jurisdictional issue first and vacate the

decision of the Court of Appeals.

Respectfully submitted,

THEODORE R. MITCHELL

Attorney for Respondents

APPENDIX

TABLE OF CONTENTS

—- Opinion, Aldan-Pierce uv.

Mafnas, No. 89-003, slip op.

(S.Ct.N.Mar.Is. July 5, 1991)...... la

— Opinion, Ferreira v. Borja, No.

90-047, slip op. (S.Ct.N.Mar.Is.

. «= & OR err 38a

— Opinion, Yokeno v. Mafnas, No.

91-15745, slip op. (9th Cir.

as el rere 80a

— Report of Joint Drafting Com-

mittee on the Negotiating His-

tory of the Covenant, reprinted

in Hearing Before the Senate

Comm. on Interior and Insular

Affairs, July 24, 1975, pp.

WR Shee Pr a ek Chk so 0k kh ks 99a

— Excerpts from ANALYSIS OF THE

CONSTITUTION OF THE COMMON-

WEALTH OF THE NORTHERN Mar-

IANA ISLANDS:

Pages 91-102 (Art. IV).......... 109a

Pages 163-180 (Art. XII)........ 119a

— Excerpts from Section By SEc-

TION ANALYSIS OF THE COVENANT

TO ESTABLISH A COMMONWEALTH

OF THE NORTHERN MARIANA

ISLANDS:

Pages 32-39 (Art. IV) ........... 135a

Pages 116-117 (Section 805) ....140a

APPENDIX A

[Filed: July 5, 1991]

IN THE SUPREME COURT OF THE

COMMONWEALTH OF THE

NORTHERN MARIANA ISLANDS

Appeal No. 89-003

Civil Action No. 86-86

MARIAN ALDAN-PIERCE,

Plaintiff/Appellee,

LEOCADIO C. MAFNAS,

Defendant/Appellant.

OPINION

Argued and Submitted July 30, 1990

Counsel for Theodore R. Mitchell, Esq.

Defendant/Appellant P.O. Box 2020

Saipan, MP 96950

Counsel for Donald C. Williams, Esq.

Plaintiff/Appellee: Marcia K. Schultz, Esq.

Carlsmith, Ball, Wichman, Murray,

Case, Mukai & Ichiki

P.O. Box 241 CHRB

Saipan, MP 96950

Counsel for amicus curiae Steven L. Mayer, Esq.

Saipan Bankers Association:! Kent Walker, Esq.

Howard, Rice, Nemerovski,

Canaday, Robertson & Falk

Three Embarcadero Center

7th Floor

San Francisco, CA 94111

BEFORE: DELA CRUZ, Chief Justice, VILLAGOMEZ

and BORJA, Justices.

DELA CRUZ, Chief Justice:

We are presented in this appeal with the issue of

whether the exercise of an option agreement (‘‘option’’)

to purchase real property in the Commonwealth violated

the land alienation restriction of Article XII of the NMI

Constitution (‘‘Article XII’) if persons who are not of

Northern Marianas descent thereby acquired an equitable

fee interest in the land.?

The defendant, Leocadio C. Mafnas (‘‘Mafnas’’),

appeals a summary judgment order compelling specific

performance of the option. Aldan-Pierce v. Mafnas, Civil

Action No. 86-86 (N.M.L. Tr. Ct. Oct. 15, 1986) (judg-

ment). Finding no genuine issue of material fact, the

Commonwealth Trial Court? concluded that the option

The Saipan Bankers Association filed a brief urging affirm-

ance of the trial court decision.

2 article XII — the pertinent portions of which are set forth

in part IV, infra — restricts acquisition of permanent and long-term

interests in real property within the Commonwealth to persons of

Northern Marianas descent.

3 Since renamed the “Superior Court of the Commonwealth

of the Northern Mariana Islands” pursuant to the Commonwealth

Judicial Reorganization Act of 1989, 1 CMC § §3101-3404. See

1 CMC §3201.

rd se

PN a hr ABHOR RRS:

Sd a tie BNP Chm Mere

did not violate Article XII and was, therefore, enforce-

able. Aldan-Pierce v,. Mafnas, 2 CR 855 (C.T.C. 1986).4

A. Procedural and Factual Background

Mafnas, a person of Northem Marianas descent, owns

in fee simple Lot 008 R 25, situated at San Roque,

Saipan. This property contains an area of 8,708 square

meters.

Mafnas and Antonia C. Villagomez (“Villagomez”’) —

who is also of Northern Marianas descent — executed the

option on September 15, 1984. Mafnas agreed to sell ‘‘a

certain portion of Lot No. 008 B 175 to Villagomez or

her designee by warranty deed. The option, which

became effective upon €xecution, was to remain in effect

until July 7, 1985.

The option consideration of $500 was paid to Mafnas

by Brian McMahon (“McMahon”), who is not of North-

ern Marianas descent. As directed by Randall T. Fennell

(“Fennell”) — who is also not of Northern Marianas des-

cent — Villagomez® timely exercised the option by not-

ifying Mafnas in writing that she wished to purchase the

Property. This notice (dated July 6, 1985) requires Maf-

nas to obtain a certificate of title to the property and to

deliver it and a warranty deed to Villagomez, at which

time the purchase price of $10 per square meter would be

paid.

*The court also considered and rejected claims of undue

influence and unconscionability that have not been raised in this

appeal.

>The portion which Mafnas owns is Lot 008 B 25.

S Villagomez was, at the time, employed by Fennell as his

secretary. Fennell and McMahon are attorneys.

Mafnas refused to comply.

Villagomez subsequently assigned her interest under

the option to Marian Aldan-Pierce (‘‘Aldan-Pierce’’), who

filed the present action for specific performance on

March 4, 1986.

In his answer to Aldan-Pierce’s complaint, Mafnas

alleged, inter aha, that Villagomez acted as Fennell and

McMahon’s agent — and that Fennell engaged her as his

agent to acquire for himself and McMahon a permanent

and long-term interest in real property in violation of

Article XII.

B. The Superior Court Ruling

The trial court concluded that Villagomez was Fennell

and McMahon’s agent, and that they had control over her

to (1) direct her to exercise the option, (2) turn over

their purchase money to Mafnas after he executed a war-

ranty deed to her, and (3) record the deed showing fee

simple title in her name. However, the court determined

that once Villagomez subsequently leases the property to

Fennell and McMahon (as they had previously agreed) the

agency relationship will terminate and a lessor-lessee

relationship will commence:

The “control” of the principal over the agent to

which [Mafnas] bases his theory vanishes upon

execution of the lease. There is no substance or

merit to [Mafnas’] argument that the prior agency

or fiduciary relationship continues and supercedes

the lease agreement.

Aldan-Pterce v. Mafnas, 3 CR at 864. Therefore, the

-ourt ruled, the option did not violate Article XII, and

was enforceable.

POL Cal ate Xa is PEs Ma

Mafnas appeals.’

II.

We review a grant of summary judgment de novo.

MPLC v. Kan Pacific Saipan, Ltd., No. 90-014 (N.M.I.

Nov. 21, 1990) (amended opinion). If there is no genu-

ine issue of material fact, the analysis shifts to whether

the substantive law was correctly applied. /d.

The sole issue Mafnas raises on appeal concerns the

constitutional validity of the option. He contends that

when Villagomez exercised the option, Fennell and

McMahon acquired a freehold (equitable fee) interest in

Commonwealth real Property. This, he argues, violates

Article XI1.8

III.

Before reaching the merits, we must address the

threshold question of our jurisdiction.

Aldan-Pierce has moved to dismiss this appeal on the

ground that we lack jurisdiction. She contends that only

the U.S. Court of Appeals for the Ninth Circuit (“Ninth

Circuit”) has jurisdiction to hear the appeal.

’ This appeal was initially taken to the Appellate Division

of the District Court for the Northern Mariana Islands, which

affirmed the trial court ruling. Aldan-Pierce v,. Mafnas, 3 CR

326 (D.N.M.I. App. Div. 1988). Mafnas subsequently appealed

to the Ninth Circuit Court of Appeals. That court granted Mafnas’

motion to dismiss the appeal on March 29, 1990. Mafnas filed an

appeal of the trial court decision with this Court on May 15, 1989.

Part III, infra, discusses the question of our jurisdiction over this

appeal.

8 Mafnas initially raised (but subsequently abandoned) an

issue concerning imposition of a sanction by the Appellate Divi-

sion of the District Court for the Northern Mariana Islands.

We note that this appeal was pending before the Ninth

Circuit on May 2, 1989, the effective date of the Com-

monwealth Judicial Reorganization Act of 1989, 1 CMC

§§ 3101-3404 (“Act”). The Act transferred to this

Court appellate jurisdiction over all Commonwealth cases

pending before both the Appellate Division of the Dis-

trict Court for the Northern Mariana Islands (‘‘Appellate

Division’’) and the Ninth Circuit. 1 CMC §3109(b).

In Wabol v. Villacrusis, No. 89-005 (N.M.I. Dec. 11,

1989), we examined the validity of 1 CMC §3109(b).

We concluded that the statute violated neither the Cov-

enant to Establish a Commonwealth of the Northern

Mariana Islands in Political Union with the United States

of America, reprinted in CMC vol. 1 at B-101 and in 48

U.S.C.A. §1681 note (West 1987) (“Covenant”), nor 48

USC §1694b(c), the federal statute empowering the

Ninth Circuit to hear appeals from Appellate Division

rulings.

Subsequent to our Wabol ruling, the Ninth Circuit

rendered a contrary decision concerning the validity of

1 CMC §3109(b):

[A]lthough the Act by its terms applies retro-

actively to appeals from local trial courts which

were pending in the appellate division of the district

court when it was passed . . . NMI is without power

under the Covenant to divest [the Ninth Circuit] of

jurisdiction over appeals properly filed from a final

order of the appellate divison of the district court

entered before passage of the Act.

Wabol v. Villacrusis, 908 F.2d 411, 419 (9th Cir. 1990)

(amended opinion).

We are faced with the question of whether we should

defer to this decision. For several reasons, we decline to

do so.

First, we note that the appeal of this case to the Ninth

Circuit was dismissed upon Mafnas’ voluntary motion,

The Appellate Division subsequently issued a mandate —

based on its earlier decision? — to the Commonwealth

Superior Court. When challenged on appeal, the man-

date was vacated by the Ninth Circuit, which ruled that

the Appellate Division lacked jurisdiciton over the appeal

after May 2, 1989. Mafnas v. United States District

Court for the Northern Mariana Islands, 919 F.2d 101

(9th Cir. 1990). In its decision, the Ninth Circuit recog-

nized the instant appeal taken by Mafnas to this Court.

Recently, the Ninth Circuit considered an appeal from

our issuance of a writ of prohibition to the Superior

Court! ordering it to disregard the Appellate Division’s

mandate. In that decision, Mafnas v. Superior Court of

the Commonwealth of the Northern Manana Islands,

No. 90-16078 (9th Cir. June 18, 1991) (1991 WESTLAW

102977), the Ninth Circuit dismissed the appeal as moot

because of its earlier decision to vacate the Appellate

Division’s mandate; the court again recognized the

instant appeal to this Court.

Second, we take judicial notice of the fact that the

Ninth Circuit’s ruling in Wabol is the subject of a petition

for reconsideration.

Third, our Wabol ruling has been appealed to the

Nnth Circuit pursuant to Covenant Section 403.1!

9 See n.7, infra..

10 Mafnas v. Superior Court, Orig. Action No. 90-003 (N.M.I.

June 28, 1990).

11 Covenant Section 403 provides that the Ninth Circuit has

jurisdiction over appeals from our decisions involving federal ques-

tions for the first fifteen years of this Court’s existence. See Sab-

lan v. Iginoef, No. 90-008 (N.M.I. Nov. 13, 1990) (order concern-

ing transmittal of appeal to the Ninth Circuit).

That appeal has not been decided. Although the Ninth

Circuit’s Wabol ruling notes that this Court’s decision

need not be accorded full faith and credit (since it is

subject to review by that court) the Ninth Circuit has not

yet reviewed our decision.

Thus, we shall follow our decision in Wabol and con-

sider the appeal in this case. 1 CMC §3109(b). Aldan-

Pierce’s motion to dismiss for lack of jurisdiction is

denied.

lV.

The issue confronting us relates to Covenant Section

805 (“Section 805”), in addition to Article XII. In ana-

lyzing the validity of the exercise of the option, it is neces-

sary to first examine Section 805, which requires that the

Commonwealth regulate the alienation of permanent and

long-term interests in real property to restrict acquisition

of such interests to persons of Northern Marianas descent.

Next, we will examine Article XII to determine how Sec-

tion 805 was implemented. We shall thereafter analyze

the facts of this case to determine whether the trial court

ruled correctly.

A. Section 805

Section 805 provides, in pertinent part:

Except as otherwise provided in this Article and

notwithstanding the other provisions of this Cove-

nant, or those provisions of the Constitution, treaties

or laws of the United States applicable to the North-

ern Mariana Islands, the Government of the North-

ern Mariana Islands, in view of the importance of

the ownership of land for the culture and traditions

of the people of the Northern Mariana Islands, and

in order to protect them against exploitation and to

ee ee

edegmet Eee ticey

ARAL

mA AO MER INA IAT BAH wT S

poe |

promote their economic advancement and self-suffi-

ciency:

(a) will until twenty-five years after the ter-

mination of the Trusteeship Agreement, and may

thereafter, regulate the alienation of permanent

and long-term interests in real property so as to

restrict the acquisition of such interests to per-

sons of Northern Marianas descent... .

(Emphasis added.) !”

“(I]t will be entirely up to the Government of the

Northern Marianas and the people of the Northern Mar-

ianas to determine the precautions which they will take

to prevent their land from being alienated.” Marianas

Political Status Commission, Section-by-Section Analysts

of the Covenant 117 (1975).'8 Definition of the opera-

tive terms and phrases of Section 805 — including “long

term interests in real property,” “acquisition,” and ““per-

sons of Northern Mariana Islands descent” — was left to

the NMI as its responsibility in implementing the pro-

vision. Jd.

B. Article XII

The sole implementing vehicle for Section 805 is

Article XII, which became operative when the NMI

Constitution went into effect on January 9, 1978.

We now examine each of the original provisions!* of

Article XII. Section 1 provides:

12 Covenant Section 105 provides, inter alia, that Section 805

“may be modified only with the consent of the Government of

the United States and the Government of the Northern Mariana

Islands.”’

3 The Marianas Political Status Commission negotiated the

Covenant.

1* Certain provisions of Article XII were amended in 1985,

after the option at issue was exercised. None of the amendments

have bearing upon our analysis.

10a

The acquisition of permanent and long-term ’

interests in real property within the Common-

wealth shall be restricted to persons of Northern

Marianas descent.

Section 2 provides:

The term acquisition used in section 1 includes

acquisition by sale, lease, gift, inheritance or other

means. A transfer to a spouse by inheritance is not

an acquisition under this section. A transfer to a

mortgagee by means of a foreclosure on a mortgage

is not an acquisition if the mortgagee does not hold

the permanent or long-term interests in real prop-

erty for more than five years. !°

DO) we CAE I CARDS EEE Rs ts 0!

a vl 1 oa! cle

Section 3 provides:

Ltn abbiaeiaheter alti te

The term permanent and long-term interests in

real property used in section 1 includes freehold

interests and leasehold interests of more than forty

years!© including renewal rights.

Section 4 provides:

A person of Northern Marianas descent is a

person who is a citizen or national of the United

States and who is of at least one-quarter Northern

Marianas Chamorro or Northern Marianas Carolinian

blood or a combination thereof or an adopted child

of a person of Northern Marianas descent if adopted

under the age of eighteen years. For purposes of

determining Northern Marianas descent, a person

shall be considered to be a full-blooded Northern

Marianas Chamorro or Northern Marianas Carolinian

if that person was born or domiciled in the Northern

i aateeneathteiaeaen erie eT TT ee

ne a ee

15 Extended to ten years by amendment adopted in 1985.

16Extended to fifty-five years by amendment adopted in ;

1985.

lla

Mariana Islands by 1950 and was a citizen of the

Trust Territory of the Pacific Islands before the

termination of the Trusteeship with respect to the

Commonwealth.

Section 5 sets forth requirements for corporations to

qualify as a ‘‘persons of Northern Marianas descent.”

Article XII, §6 provides, in pertinent part, that “[a] ny

transaction in violation of section 1 shall be void ab

initio.”

Clearly, under Article XI only persons of Northern

Marianas descent may acquire permanent and long-term

interests in real property in the Commonwealth. The

only exceptions are (a) transfers to a spouse (who is not

of Northern Marianas descent) by inheritance in certain

circumstances, and (b) transfers to a mortgagee (such as

a bank or lending institution) by foreclosure on a mort-

gage if the mortgagee does not hold an interest in the

property for more than a specified period. Article XII,

§ 2.

In analyzing the option at issue, we will consider the

intent and purpose of Section 805 and Article XII!”

The parties agree that there is no genuine issue of

material fact concerning the constitutionality validity

(or invalidity) of the exercise of the option. We concur.

A review of the affidavits and documents supporting and

7 We note that Alden-Pierce does not challenge the validity

of either provision under the U.S. Constitution. Cf. Wabol v,

Muna, 2 CR 963 (D.N.MLI. App. Div. 1987), in which the Appel-

late Division considered and rejected constitutional challenges to

both provisions.

12a

opposing Aldan Pierce’s motion for summary judgment

confirms that the material facts are not in dispute.

A. The Options.

The idea of an option to purchase or lease the San

Roque property was apparently conceived before August

1, 1980, by Fennell and other persons who are also not

of Northern Marianas descent. Declaration of Randall

T. Fennell (August 27, 1986) (hereafter “Fennell Affi-

davit”’). The record reveals that no fewer than five

options preceeded the option at issue in this appeal.

The first, dated August 1, 1980, was negotiated by

one Howard Luke. Fennell Affidavit at 1. This option,

executed by Mafnas, as “Owner’’, and Luke and Fennell,

as ““Buyers”’, states, in part:

2. Agreement to Sell or Lease. Owner agrees to

convey in fee simple absolute said property, and all

of it, or any portion thereof required by Buyers, to

Buyers, or their designee pursuant to the terms of

this agreement, provided, however, that if at any

time from the execution of this agreement it is not

legal under the laws and Constitution of the Com-

monwealth of the Northern Mariana Islands for

Buyers to hold in fee interest, then Owner agrees to

convey said property in fee simple to any person

designated by Buyers who has the legal capacity to

own said property in fee simple absolute, or to lease

said property to Buyers for as long a term as is

legally permissible.

This option expired, unexercised, on April 30, 1981.'8

18wWe note that Article XI would clearly have been vio-

lated if Mafnas had conveyed his fee interest in the property to

Luke and Fennell under this option.

l3a

A section option was executed on May 1, 1981, by

Mafnas, as “Owner”, and McMahon and Fennell, as

“Buyers.” It is essentially the same as the first option,

containing a paragraph identical to the provision quoted

above. This option expired, unexercised, on October 1%

1981.

A third option was executed on April 7, 1982, again

by Mafnas, as “Owner”, and McMahon and Fennell, as

“Buyers.” Except for the dates, it is essentially the same

as the first and second options. This option expired,

unexercised, on June 7, 1982.

A fourth option was executed on July 13, 1983, by

Mafnas, as “Owner,” and Fennell as “Buyer.” This

option was for a forty-year lease.!9 It expired, unexer-

cised, on July 12, 1984.

A fifth option — again, to lease the property — was

executed by Mafnas, as “Owner,” and Villagomez, as

“Buyer,” on July 7, 1984, before the fourth option

had expired. Other than a difference in consideration

and a reduction in the area to be leased, this option was

essentially the same as the fourth option. It expired,

unexercised, on July 7, 1985.

A sixth option — executed on September 15, 1984,

before the fifth option expired — is the option the exer-

cise of which is at issue. This option enabled Villagomez

to purchase Mafnas’ fee interest to the entire property.

As noted above, Villagomez exercised the option on July

6, 1985, a day before it was to expire.

According to the option, Villagomez may assign all or

any part of her rights, duties, and obligations. She

19 We note that had Mafnas leased the property to Fennell

under this option, Article would not have been violated.

eee

l4a

assigned her rights to Aldan-Pierce on January 13, 1986,

“for $10.00... and other good and valuable considera-

tion....” Excerpts of Record at 8.

B. The Affidavits

According to Villagomez:

2.In 1984, I was approached by Mr. Brian

McMahon and Mr. Randall Fennell, who asked if I

would be interested in holding title to property in

San Roque owned by Leocadio Mafnas.

3. Under my agreement with Mr. Fennell and

Mr. McMahon, they would provide the money for an

option agreement between me and Mr. Mafnas. If

the option was exercised, they would provide the

money to purchase the property. I, in return, would

grant them a lease for the maximum term permitted

by law for minimal consideration.

Affidavit of Antonia C. Villagomez (July 25, 1986)

(hereafter “Villagomez Affidavit’’).

According to Fennell, he and Mafnas (who was advised

by a “Mr. Magofna’”’) negotiated the option at issue. Fen-

nell Affidavit at 2. Fennell also stated that he and

McMahon had an oral agreement with Villagomez (and

subsequently with Aldan-Pierce) to “provide the money

for the land purchase in return for a lease for the maxi-

mum length allowed by law.” Jd. “Ms. Villagomez left

negotiation of the options to Mr. McMahon and I.” /d.

McMahon echoed Fennell’s statement regarding their

agreement with Villagomez. Declaration of Brian T.

McMahon (Aug. 27, 1986) (hereafter ‘McMahon Affi-

davit”).

. indies

15a

According to Mafnas, “both Mr. Fennel] and Mr.

McMahon|[ ] made it clear to me that the... Option

Agreement, although it was to be executed by Antonia

C. Villagomez, was for the sole benefit of Mr. Fennell

and Mr. McMahon.” Affidavit of Leocadio C. Mafnas

(hereafter “Mafnas Affidavit”) at 2 (Oct. 7, 1986). He

further stated that McMahon personally paid him the

$500 consideration for the option. Jd. 7°

“I am not, nor have I ever been, a ‘passive agent,

engaged and controlled by Attorney Fennejl . . .’ as

alleged [by Mafnas] ....” Declaration of Marian Aldan-

Pierce (Aug. 27, 1986) (hereafter “Aldan-Pierce Affi-

davit”). She also stated:

6. I have agreed with Randall Fennell and Brian

McMahon that, if I prevail in this action, I will lease

them the subject property for the maximum length

provided by law. They in return have agreed to pro-

vide the funds to exercise the option. I will retain

the fee ownership.

Aldan-Pierce Affidavit at 2.

At the summary judgment hearing, the trial court

allowed Aldan-Pierce to file a reply memorandum to Maf-

nas’ memorandum in opposition by the following day,

but made no mention of permission to file supplemental

affidavits. Aldan-Pierce v. Mafnas, Civil Action No. 86-86,

Transcript of Proceedings at 29 (October 8, 1986). None-

theless, after the hearing Aldan-Pierce filed three supple-

mental affidavits in addition to her reply memorandum.

It is not clear whether the trial court considered these

post-hearing affidavits in rendering summary judgment,

there being no reference to them in its memorandum

16a

opinion. The court apparently did not act upon Mafnas’

motion to strike the supplemental affidavits.

The supplemental affidavits were evidently introduced

to prove that the oral agreement between Aldan-Pierce

and Fennell and McMahon did not require Aldan-Pierce

to hold or convey title to the property pursuant to their

instructions. “Under our agreement, they receive a lease,

but other than that what I do with the title is my busi-

ness.” Supplemental Affidavit of Marian Aldan-Pierce

(Oct. 9, 1986) (hereafter “Aldan-Pierce Supplemental

Affidavit’’).

VI.

Since the material facts are not in dispute, we must

determine whether the law was correctly applied below.

Kan Pacific Saipan, Ltd., supra.

We begin by noting that Fennell and McMahon —

neither of whom are of Northern Marianas descent?! —

may not legally acquire “permananent and long-term

interests in real property within the Commonwealth.”

Article XII, §1. Persons who are not of Northern Mari-

anas descent are prohibited from acquiring such inter-

ests by “sale, lease, gift, mheritance or other means.” |

Article XII, §2. Any transaction violating the constitu- |

tional restriction is void ab inttto — void from the begin-

ning, as if it had never occurred. Article XII, §6.

a oe oe ae re

20 Although untimely filed, this affidavit was considered by

the trial court when it ruled upon Aldan-Pierce’s motion for sum-

mary judgment. Aldan-Pierce v. Mafnas, 2 CR at 858-59.

21 This point is not at issue.

17a

A. “Freehold Interests” under Article XII

The “permanent and long-term interests” restricted

from acquisition by persons who are not of Northern

Marianas descent “includes freehold interests and lease-

hold interests of more than fifty-five years ....” Article

XII, §3.22 “Freehold interests are all types of ownership

or title — fee simple, fee tail, and life estate... .” Com-

mittee on Personal Rights and Natural Resources, Report

to the [First NMI Constitutional] Convention, Commit-

tee Recommendation No. 8: Restrictions on Land Alien-

ation at 7 (November 11, 1976).23 A “freehold” is:

An estate in land or other real property, of uncer-

tain duration; that is, either of inheritence or which

may possibly last for the life of the tenant at the

least (as distinguished from a leasehold) ....

An estate to be a freehold must possess these two

qualities: (1) Immobility, that is, the property must

be either land or some interest issuing out of or

annexed to land; and (2) indeterminate duration, for

if the utmost period of time to which an estate can

endure be fixed and determined, it cannot be a

freehold.

Black’s Law Dictionary 598 (5th ed. 1979). “An equit-

able estate is considered, to all intents and purposes, as

a legal estate.” 31 C.J.S. Estates §5 (1964). An equita-

ble interest of indeterminate duration is encompassed

within a freehold interest.24 The absence of any language

22 As noted in part IV B, infra, prior to 1985 this provision

specified maximum leasehold interests of forty years.

231¢ necessary, in construing constitutional provisions we

will consult legislative history. Camacho v. Northern Marianas

Retirement Fund, No. 90-007 (N.M.I. Sept. 21, 1990).

24 This interpretation comports with the apparent intent of

Section 805 in restricting acquisition of “interests” in real prop-

erty: [footnote continued ]

18a

excluding such interests from the restriction in Article

XII leads us to conclude that they are within the restric-

tion,

On its face, the option at issue provides that a person

of Northern Marianas descent will acquire title to the

property if it is exercised. Mafnas argues that although

Villagomez’ name appears on the option, she (and now

Aldan-Pierce, as her assignee) will acquire only bare legal

title to the property, should he transfer his title. He con-

tends that Fennell and McMahon have already acquired

an equitable fee interest in the property, in violation of

Article XII. This occurred, he asserts, when Villagomez —

acting as an agent-trustee — acquired the equitable fee

interest upon exercise of the option.

Initially, we must determine whether Villagomez

acquired such an interest.

B. Acquisition of Equitable Fee by Optionee

“An option to purchase property is a contract wherein

the owner, in return for valuable consideration, agrees

with another person that the latter may buy property

[N]ormal usage of the term in American law would cover

any right to use or derive profit from land for any period of

time. Thus, not only ownership and leases are covered;

equitable interests, of the sort possessed by the beneficiary

of a trust... would... appear to be reached.

Office of Transition Studies and Planning, Briefing Papers for the

Delegates to the Northern Marianas Constitutional Conventioh,

Briefing Paper No. 12: Restrictions on Land Alientation at 19-20

(1976). See also Sorenson v. City of Bellingham, 496 P.2d 512,

514 (Wash. 1972) (‘‘[f] reeholders are owners of either a legal or

equitable title to real estate”); 31 C.J.S. Estates §1 (the term

“interest” as applied to property “may include both legal and

equitable rights’’).

19a

within a specified time upon expressed terms and condi-

tions.” Mohr Park Manor, Inc. v. Mohr, 424 P.2d 101,

104 (Nev. 1967), appeal after remand, Mohr Park Manor,

Inc. v. Bank of Nevada, 490 P.2d 217 (Nev. 1971).

“{S]o long as it remains unaccepted, [an option] is a

unilateral writing lacking mutual elements of a contract,

but when accepted by [an] optionee, an executory con-

tract, which is mutually binding on the parties, arises.”

Id. at 105; see also Anderson v. Overland Park Credit

Union, 643 P.2d 120 (Kan, 1982). “[W] hen the optionee

has made his election and the contract has ceased to be

an option and has ripened into a mutually enforceable

bilateral contract, it becomes subject to specific perform-

ance.” Bobo v. Bigbee, 548 P.2d 224, 229 (Okla. 1976).

The optionee becomes the owner of an equitable interest

in the land. Phillips v. Tetzner, 53 A.2d 129 (Pa. 1947);

Commonwealth v. Gerlach, 159 A.2d 915 (Pa. 1960).?5

Thus, when Villagomez exercised the option, she

acquired an equitable interest in the property. Phillips,

supra. *®

25 An equitable conversion occurs

when a contract for the sale of real property becomes bind-

ing upon the parties. The purchaser is deemed to be the

equitable owner of the land and the seller is considered to

be the owner of the purchase price. This, because of the

maxim that equity considers as done that which was agreed

to be done.

Harrison v. Rice, 510 P.2d 633, 635 (Nev. 1973). “Equitable

conversion does not occur on the date of an option contract

because such a contract is not subject to specific performance on

that date, but where the option has been exercised, there is a con-

version.” 18 C.J.S. Conversion §6 (1990).

26 an assignee of an optionee may enforce vested contract

rights. Beran v. Harris, 205 P.2d 107 (Cal. Dist. Ct. App. 1949).

Thus, as Villagomez’ assignee, Aldan-Pierce may enforce the

vested right that arose after the option was exercised.

20a

We now consider whether the record supports Mafnas’

contention that Villagomez acted for Fennell and

McMahon through an agency-trust relationship.

C. The Agency-Trust Relationship

Agency

An agent is a person who agrees to act for and is sub-

ject to the control of another. Repeki v. MAC Homes

(Saipan) Co., Ltd., No. 90-002 (N.M.I. Mar. 14, 1991)

quoting Restatement (Second) of Agency §§1, 14

(1958).2”. An agency relationship must be based on

an agreement between the parties. Repeki, supra. An

agency relationship may exist “although the parties did

not call it agency and did not intend the legal conse-

quences of the relation to follow.” Restatement (Sec-

ond) of Agency §1, Comment b.

“The existence of an agency relationship is generally

a question of fact to be determined by the trier of fact.”

Repek:, slip op. at 14. However, the existence of such

a relationship is a question of law where the material

facts from which it is to be inferred are not in dispute.

Id. at 15. The material facts from which Mafnas urges

that an agency relationship can be inferred were not in

dispute. Accordingly, this issue presents a question of

law which we review de novo. Id.

27Two or more persons may act jointly to engage and

authorize an agent to act on their behalf. Restatement (Second)

of Agency §20, Comment f. Common law rules expressed in the

Restatements are pertinent to our analysis under 7 CMC §3401,

which provides that such rules “shall be the rules of decision in

the courts of the Commonwealth, in the absence of written law

or local customary law to the contrary....”

2la

Aldan-Pierce contends that she jis not Fennell and

McMahon’s agent — that their agreement is actually an

entrepreneurial venture akin to a partnership,”8

Despite Aldan-Pierce’s protestations to the contrary,

the trial court was correct in concluding that her pre-

decessor Villagomez was Fennel] and McMahon’s agent.

Villagomez agreed to act at their direction, and did so

when she signed the option on September 15, 1984, and

exercised it on July 6, 1985. See Dixon v. Huggins, 495

S.W.2d 621 (Tex. Ct. App. 1973) (party purchasing

Property with payor’s knowledge, permission and money

was payor’s agent in transaction).

As Villagomez’ successor, Aldan-Pierce assumes the

role of agent.

As noted above, the trial court ruled that the agency

relationship will terminate the moment Aldan-Pierce

leases the property to Fennell and McMahon, and a

constitutionally permissible lessor-lessee relationship

will be established. Aldan-Pierce contends that (even

accepting that she is currently Fennell and McMahon’s

agent) the ruling is correct. Because of our analysis

below, we do not need to consider the question of

precisely when the agency relationship will terminate.

That is because Aldan-Pierce acts as Fennell and Mc-

Mahon’s trustee.

Trust

A. Resulting Trust

“Where a transfer of property is made to one person

and the purchase price is paid by another, a resulting

trust arises in favor of the person by whom the purchase

28 This contention is examined in part VII B, infra.

22a

price is paid, except as stated in § §441, 442, and 444.”

Restatement (Second) of Trusts §440 (1959).*° “Prop-

erty that is purchased by an agent in his own name, but

with the principal’s money, is held in trust for the benefit

of the principal.” Dixon, 495 S.W.2d at 625; see also

89 C.J.S. Trusts §114 (1955).

The trustee of a resulting trust holds only the naked

legal title for the benefit of the person furnishing the con-

sideration, Ohio State Life Ins. Co. v. Unton Properties,

52 N.E.2d 542, 543 (Ohio Ct. App. 1943), who holds the

equitable interest.*!

29This rule is based upon an inference that “the purchaser

does not intend that the transferee should have the beneficial

interest in the property, but that the purchaser himself shall have

the beneficial interest.” Jd., Introductory Note to Topic 4 at

391. “The rule of equity is that when property is taken in the

name of a grantee who did not advance the consideration, there is

a presumption that the grantee holds the legal title subject to the

equitable ownership of the person who advanced the considera-

tion.” Richards v. Richards, 489 P.2d 928, 930 (Wa. App. 1971);

see also Becchelli v. Becchelli, 508 P.2d 59 (Ariz. 1973). It is

important to note that a resulting trust may arise regardless of

whether the transferee is the agent of the purchaser. See, e.¢.,

United States v. District of Columbia, 596 F.Supp. 725 (D.Md.

1984) (in dispute over ownership of hospital property, although

U.S. took title to property, District of Columbia was entitled to

resulting trust because it paid purchase price and Congress intended

it to have equitable interest); Lewis v. Spitler, 403 A.2d 994 (Pa.

Super. Ct. 1979) (party who provided acquaintance with part of

sum used to acquire property entitled to partial resulting trust in

property).

301f the agent wrongfully takes title in his own name, the

agent may hold the property upon a constructive trust for his

principal. See Restatement of Restitution § 190 (1937).

Stary) egal and equitable ownership of property may be

vested in different persons, especially in situations where a ques-

tion of trusts arises.” Hereford Land Co. v. Globe Industries,

Inc., 387 S.W.2d 771, 775 (Tex. Ct. App. 1965).

ea eee See

oe! oma

er. Se ee, |?

Sorat

23a

“Within the rule that a resulting trust arises in favor of

the one paying for a conveyance to another, a ‘convey-

ance’ includes any transfer of title, legal or equitable... .”

89 C.J.S. Trusts §118; See McClellan v, Beatty, 53

N.E.2d 1013 (Ind. App. 1944); rehearing denied 55

N.E.2d 327 (Ind. App. 1944) (equitable title held by

vendee under executory land sale contract subject to

resulting trust in favor of payor). Thus, since Villagomez

(and now Aldan-Pierce, as her assignee) has acquired an

equitable interest in the property, unless any exception

applies a resulting trust for this interest has arisen in favor

of the persons who provided the option consideration,

Fennell and McMahon.”

The exceptions cited in Restatement (Second) of

Trusts §440 preclude a resulting trust if the payor:

(1) manifests an intention that no trust should arise

($441), (2) purchases the property in the name of a

relative “or other natural object of bounty” (§442),

or (3) purchases the Property to accomplish an illegal

purpose (§444).

We will initially consider the last two exceptions.

Neither Villagomez nor Aldan-Pierce are “natural

object[s] of bounty” to Fennell or McMahon:

The rule stated in this Section is applicable where

the payor and transferee respectively are in the

relation of husband and wife; father and child;

mother and child; father-in-law and son-in-law;

grandparent and grandchild. . . . It applies also

where the payor stands in loco parentis to the

transferee; that is, where the payor whether or not

32 The record is unclear as to whether the option consider-

ation belonged to both Fennell and McMahon. In light of our

ultimate decision in this case, this question is academic.

24a

related to the transferee has assumed to act in the

place of a parent of the transferee.

Id. §442, Comment a. Fennell and McMahon are not

related to Villagomez or Aldan-Pierce, and their social

or professional association with them are insufficient

to trigger this exception.

With respect to the third exception — purchase in

the name of another to accomplish an illegal purpose —

closer analysis is necessary. An analogy may be drawn to

case law from jurisdictions in which it is (or was form-

erly) illegal for aliens to acquire land. Land acquired by

an alien is subject to forfeiture:

In such States the equitable interest of an alien

beneficiary of a trust of land is likewise subject to

forfeiture. . . . [I] f an alien pays the purchase price

for land and at his direction the land is transferred

to another under such circumstances that a resulting

trust would arise if the payor were not an alien, a

resulting trust arises in favor of the alien, and his

interest is subject to forfeiture....

Id., §444, Comment f. Thus, unless and until an alien’s

equitable interest is ruled invalid in a judicial proceeding,

a resulting trust in real property in the alien’s favor is

valid. Jsaacs v. DeHon, 11 F.2d 943 (9th Cir. 1926).

We adopt the principle set forth in Jsaacs. A resulting

trust in real property in the Commonwealth in favor of a

person who is not of Northern Marianas descent is valid,

unless the equitable interest held for them in trust is

declared, in a judicial proceeding, to be violative of Art-

icle XII. If the equitable interest is ruled violative of

Article XII, the underlying transaction through which the

SN ee

25a

person who is not of Northern Marianas descent acquired

the interest becomes void ab initio.*> Article XII, §6.

Accordingly, the third exception to the presumption

of a resulting trust does not apply in this case.

The first exception — Restatement (Second) of Trusts

$441 (a resulting trust will not arise if the payor mani-

fests an intention that no trust should arise) — is, at first

glance, potentially applicable. However, according to

official commentary to this provision:

Where a transfer of property is made to one person

and the purchase price is paid by another, the infer-

ence that a resulting trust was intended is rebutted if

it appears that the payor intended that the trans-

feree should have the beneficial interest in the prop-

erty transferred. This is the case where it appears

that the payor intended to make a gift of the prop-

erty to the transferee (see $447), or to make a loan

of the purchase price to the transferee. See §445,

So also, no resulting trust arises where the purchase

price was paid to discharge a debt or other obliga-

tion owed by the payor to the transferee. See

§ 446.

Id., Comment a. There is no evidence in the record that

Fennell and McMahon intended to make a loan of the

purchase price to Villagomez, or that the money was paid

to discharge a debt or other obligation.

Did Fennell and McMahon intend to make a gift of

the property to Villagomez? In fact, the record indicates

331n most U.S. jurisdictions prohibiting acquisition of land

by aliens, only the state may bring proceedings to divest the alien

of his property. See, €.g., Isaacs, supra. This is not the case in the

NMI. When the issue has been properly raised, violations of

Article XII may be addressed in Proceedings involving only private

Parties,

26a

that prior to exercise of the option, the pair manifested

an intention to retain an equitable interest of mdetermin-

ate (i.e., uncertain) duration. Villagomez’ affidavit sup-

ports this conclusion. At the very least, it is clear that

Fennell and McMahon intended to retain an equitable

interest limited to a leasehold for the maximum period

permitted under Article XII. For the reasons stated

below, Fennell and McMahon could not make a gift of

this interest to Villagomez or Aldan-Pierce at the time of

or subsequent to their acquisition of it.

To explain why this is so, it is necessary to state our

ultimate decision in this case.

Today we rule that a resulting trust has arisen in favor

of Fennell and McMahon for a constitutionally imper-

34The record indicates that there may have been an ulterior

motive for acquiring title in Villagomez’ (or Aldan-Pierce’s) name:

to obtain a constitutionally impermissible interest in real property

under the appearance of compliance with Article XII. According

to official commentary to Restatement (Second) of Trusts § 441:

Among the factors which are or may be of importance in

determining whether or not the payor manifested an inten-

tion to make a gift of the property to the transferee, are (1)

declarations as to his intention made by the payor before or

at the time of or subsequent to the transfer; (2) the relation-

ship between the payor and the transferee; (3) whether the

transferee is an individual or a corporation, and if a corpora-

tion whether it is a charitable corporation; (4) the relative

financial positions of the payor and the transferee; (5)

whether a gift by the payor to the transferee would be

improvident; (6) the presence or absence of any probable

reason for taking title in the name of the transferee other

than to give him the beneficial interest.

Id., Comment b (emphasis added). “It is easier to find a manifest- :

ation of intention to make a gift [to rebut the presumption of a

resulting trust] where no probable reason for taking title in the

name of a transferee exists other than to give him the beneficial

interest than it is where such reasons exist.”’ /d.

27a

missible interest in real property. Since this challenged

acquisition violates Article XII, we declare it invalid.

Because Article XII, §6 provides that transactions

underlying impermissible acquisitions of real property are

void ab initio, our decision “springs back” to September

15, 1984, when the option (the underlying transaction)

was executed. Fennell and McMahon are thus retro-

actively divested of their constitutionally impermissible

interest. Thus, they could not (and may not now) make

a gift of that interest to Villagomez or Aldan-Pierce.

In short, they had (have) nothing to give.

Accordingly, because of principles set forth in the

Restatement (Second) of Trusts and because of the oper-

ative effect of Article XII, no exception applies in this

case to rebut the presumption of a resulting trust. Des-

pite Aldan-Pierce’s contention to the contrary, such a

trust has arisen in favor of Fennell and McMahon.*®

B. Resulting Trust for Limited Interest

Aldan-Pierce cites authority for the proposition that

a resulting trust may be rebutted in part. She contends

that although Fennell and McMahon may have acquired

an equitable interest in real property in the Common-

wealth, their interest is limited to a constitutionally per-

missible leasehold.

Fennell and McMahon disclaim any intention to take

more than a leasehold for fifty-five years, the maximum

interest they may legally acquire under Article XII.

354 resulting trust may arise even though the party to be

charged as trustee “may never have agreed to the trust and may

have really intended to resist it.” Shepard v. Dougan, 76 P.2d

442, 445 (Idaho 1937); see also Hawe v. Hawe, 406 P.2d 106

(Idaho 1965).

niente

28a

They contend that the underlying fee will remain with

Aldan-Pierce.

It is, in fact, possible for a payor to acquire a lease-

hold interest in real property through a resulting trust.

According to pertinent authority:

Where a transfer of property is made to one person

and a part of the purchase price is paid by another,

a resulting trust arises in favor of the person by

whom such payment is made in such proportion

as the part paid by him bears to the total purchase

price, unless he manifests an intention that no

resulting trust should arise or that a resulting trust

to that extent should not arise.

Restatement (Second) of Trusts §454. A relevant ilius-

tration of this principle is afforded in Byers v. Doheny,

287 P. 988 (Cal. Dist. Ct. App. 1930).9° In Byers, a

payor provided one-quarter of the purchase price for a

parcel of real property under an agreement that he would

be entitled to a leasehold interest. According to the

Byers court:

If the parties had expressly agreed that the plaintiff

would pay $25,000 for the leasehold interest and

the defendant $75,000 for the land subject to the

lease, the title to be taken in defendant’s name,

then, upon the consummation of the transfer, the

defendant would undoubtedly hold title to the

leasehold interest in trust for the plaintiff. This is

in effect what the parties actually did, and the con-

clusion follows that the defendant holds title to

the leasehold interest in trust for the plaintiff.

Id., 287 P. at 992.

36 see also 5 A. Scott The Law of Trusts §454.4 (3rd Ed.

1967).

29a

As noted above, the record in this case indicates that

Fennell and McMahon intended to retain an equitable

interest of indeterminate duration. It is plain that they

paid the entire option consideration. They also clearly

intend to pay the entire purchase price. Villagomez

paid nothing, and Aldan-Pierce is to pay nothing. This

being so, the principle set forth in Restatement (Second)

of Trusts § 454 is inapplicable.

The resulting trust that has arisen in favor of Fennell

and McMahon is thus not rebutted in part.*” They have

acquired an equitable interest of indeterminate duration

in real property in the Commonwealth.

Agency-Trust

“An agency is not a trust.” Restatement (Second) of

Trusts §8.

Agencies and trusts resemble each other in many

respects, in that both are relations of trust and con-

fidence, but their points of difference are marked.

An agent is ordinarily not the owner of property for

the benefit of his principal, while a trustee always

holds the title to property for his cestui que trust.

37 We recognize that commentary to Restatement (Second)

of Trusts §441 implies that it may be possible under some cir-

cumstances to limit a resulting trust to a leasehold interest despite

the fact that a transferee acquiring legal title did not pay any of

the purchase price. /d., Comment f. (See illustrations 1 and 2 —

limitation to resulting trust in life estate. We note that a life

estate is a freehold interest.) We are unable to find any case

authority on point. Regardless, if this common law principle

applied in the NMI, Article XII would effectively be nullified. We

cannot presume that Article XII ‘‘is a vain effort, or a nullity”

and must interpret it to give it effect. Adav. Sablan, No. 90-006,

slip op. at 13, n.18 (N.M.I. Nov. 16, 1990), quoting Levy v. Kim-

ball, 465 P.2d 580, 583 (Haw. 1970) (noting rule of statutory

construction). Therefore, this principle does not apply in the

NMI.

30a

Kuck v. Sommers, 100 N.E.2d 68, 75 (Ohio Ct. App.

1950) (emphasis in the original). “‘An agent undertakes

to act on behalf of his principal and subject to his con-

trol... a trustee as such is not subject to the control of

the beneficiary, except that he is under a duty to deal

with the trust property for his benefit in accordance with

the terms of the trust and can be compelled by the bene-

ficiary to perform his duty.” Restatement (Second) of

Trusts §8, Comment b.

On the other hand, “[o]ne who has title to property

which he agrees to hold for the benefit and subject to

the control of another is an agent-trustee and is subject

to the rules of agency.” Restatement (Second) of

Agency §14B (1958). Aldan-Pierce is in the unusual

position of occupying this dual relationship with Fennell

and McMahon. See Dixon, supra (agent purchasing prop-

erty in his own name with principal’s money held prop-

erty in trust for benefit of principal).

One duty imposed under the rules of agency applies

to agents holding title:

Unless otherwise agreed, an agent who holds the

title to something for the principal is subject to a

duty to the principal to use reasonable ae in the

protection of the title which he so holds, to act in

accordance with the directions of the principal, to

use it only for the principal’s benefit, and to trans-

fer it upon demand or upon the termination of the

agency.

Id. §423.°8 As set forth below, elements of this duty are

also required of a trustee of a resulting trust.

38 see also Moon v. Phipps, 411 P.2d 157 (Wash. 1966):

Loyalty is the chief virtue required of an agent. ... This

loyalty demanded of an agent by the law creates a duty in

[footnote continued ]

3la

D. The Duty of the Trustee of a Resulting Trust

“The trustee of a resulting trust, like the trustee of an

express trust, is in a fiduciary relation to the beneficiary.”

Restatement (Second) of Trusts, Introductory Note to

Topic 1 at 326. “The trustee of a resulting trust . . . is

ordinarily under a duty merely to convey the property

to the beneficiary or in accordance with his directions.”

Id. at 325.

“A resulting trust . . . is always a passive or dry trust,

a mere holding of the title for the benefit of another, as

the law, in creating a resulting trust in any one who takes

title without paying the consideration, never imposes on

such grantee any duties or responsibilities as to its man-

agement or control or disposition, except... to reconvey

to the cestui que trust or at his direction.” Shelton v.

Harrison, 167 S.W. 634, 638 (Mo. Ct. App. 1914).%9

However, the trustee is also “bound not to sell or incum-

ber the property to the injury of the person for whose

benefit the trust [is] presumed to arise.” Millograv v.

Zacharias, 165 P. 977, 978 (Cal. Dist. Ct. App. 1917).

Aldan-Pierce insists that she is under no duty to hold

or dispose of title to the property subject to Fennell

and McMahon’s wishes. “Under our agreement, they

the agent to deal with his principal’s property solely for his

principal’s benefit in all matters connected with the agency.

411 P.2d at 161, citing Restatement (Second) of Agency §387.

39 See also Seabury v. Costello, 26 Cal.Rptr. 248, 251 (Cal.

Dist. Ct. App. 1962) (‘‘[t]he duties of a resulting trust are not

active; a resulting trustee merely holds legal title for the bene-

ficiary and, at a proper time, is bound to make a proper convey-

ance’’); Laing v. Laubach, 43 Cal.Rptr. 537, 539 (Cal. Dist. Ct.

App. 1965) (‘‘[t]he trustee has no duties to perform, no trust to

administer, and no purpose to carry out except the single one of

holding or conveying according to the beneficiary’s demands’’).

32a

receive a lease, but what I do with the title is my busi-

ness.” Aldan-Pierce Supplemental Affidavit. This is a

misconception based on the assumption that a resulting

trust in an equitable interest of indeterminate duration

has not arisen. In fact, under the principles noted above,

Aldan-Pierce is restricted in what she may do with title

to the property. Shelton, supra; Millograv, supra.

“A resulting trust terminates if the legal title to the

trust property and the entire beneficial [i.e. equitable]

interest become united in one person.” Restatement

(Second) of Trusts §410.”

If a trustee of a resulting trust transfers the trust

property to the beneficiary or at his direction, the

resulting trust terminates .. . If the beneficiary of

a resulting trust has the entire beneficial interest in

the trust property, he can at any time compel the

trustee to transfer the trust property to him and

thus terminate the resulting trust.

Id., Comment b.*!

VO.

As noted above, Mafnas contends that Fennell and

McMahon have acquired an equitable fee interest in the

property through Villagomez. We agree.

40«This result is a necessary consequence of the vesting of

both legal and equitable titles in the beneficiary, because there

is no longer any purpose in keeping the trust relationship alive.”

Zakaessian v. Zakaessian, 161 P.2d 677, 679 (Cal. Dist. Ct. App.

1945).

4] Refusal on the part of a trustee of a resulting trust to

reconvey title to the beneficiary is a breach of trust and gives the

beneficiary a cause of action against the trustee. Seabury, supra,

33a

A. Fennell and McMahon’s Equitable Fee Interest

Villagomez acquired an equitable interest in the prop-

erty when she exercised the option on July 6, 1985.

Phillips, supra. As payors of the option consideration,

Fennell and McMahon actually own this interest under

a resulting trust. McClellan, supra.*? Since Fennell and

McMahon’s equitable interest is of indeterminate (i.e.,

uncertain) duration it is a freehold interest.

If we were to affirm the trial court judgment com-

pelling Mafnas to convey legal title, Aldan-Pierce would

acquire only that: naked legal title. Ohio State Life Ins.

Co., supra. Fennell and McMahon would continue to

hold their freehold interest, with the right to compel

Aldan-Pierce to convey legal title to them or to whom-

ever they chose, at a time of their choosing. Shelton,

supra; Millograv, supra.

Since Fennell and McMahon are not of Northern Mari-

anas descent, their acquisition of a freehold interest in

the property violated Article XII. The underlying trans-

action — the option executed on September 15, 1984 —

is thus void ab initio. Article XII, §6.

B. The “Other Means” of Acquisition in Article XII

In this case, a freehold interest in Commonwealth real

property was acquired by persons who are not of North-

em Marianas descent through a trustee who is of such

*2-The term “owner’’, as applied to real property, includes

“any person who has an equitable right to, or interest in, land.”

73 CJ.S. Property §25 (1983). “The equitable ownership is

regarded in equity as the real ownership. The cestui que trust

[trust beneficiary] is the beneficial and substantial owner, and,

in the consideration of a court of equity, is actually seized of the

freehold.”’ Illinois National Bank of Springfield v. Gwinn, 61

N.E,2d 249, 254 (Ill. 1945),

CO ee

34a

descent. This is one of the “other means” of acquisition

prohibited by Article XII, §2: “[t}he term acquisition. . .

includes acquisition by sale, lease, gift, inheritance or

other means.” (Emphasis added.) The constitutional

restriction would be undermined if persons who are not

of Northern Marianas descent could acquire a prohibited

interest via a trust relationship.** The only interests such

persons are permitted to acquire are leaseholds of not

more than fifty-five years. Article XII, §3. No other

exceptions are permitted to the restriction in Article

XII, §1. “For purposes of constitutional interpretation,

the express mention of one thing implies the exclusion

of another which might logically have been considered

at the same time.” State ex rel. O’Connell v. Slavin, 452

P.2d 943, 946 (Wash. 1969) (additional exception to

constitutional restriction not permitted).

If a resulting trust in real property in the Common-

wealth has arisen in favor of a person who is not of

Northern Marianas descent, it is subject to being

declared invalid in a judicial proceeding if the equitable

interest held for them in trust violates Article XII.

bad 2 Seminar on the Law of Real Property Acquisition in

Mexico, 12 Ariz. L.R. 265, 285-86 (1970) (aliens unable to acquire

title to real property in Mexico may acquire beneficial title in

property through trust only upon approval of the Mexican gov-

ernment). This article was noted in Office of Transition Studies

and Planning, Briefing Papers for the Delegates to the Northern

Marianas Constitutional Convention, Briefing Paper No. 12:

Restrictions on Land Alientation (1976).

44 Apart from certain inheritence rights and transfers pur-

suant to a mortgage foreclosure. Article XII, §2, See part IV B,

infra,

45 We note that such a trust may be rebutted by clear evi-

dence that the money used to purchase the property was a valid

gift, loan, or payment to discharge a debt or other obligation.

Restatement (Second) of Trusts § §445, 446, 447.

35a

In this case, evidence supporting a constitutionally

permissible trust is absent.

We are not saying that Aldan-Pierce — a person of

Northern Marianas descent — may not legally acquire in

her own name a “permanent or long-term interest[ ] in

real property within “he Commonwealth.” Article XII,

§1. Rather, we are saying that Fennell and McMahon —

persons who are not of Northern Marianas descent — may

not acquire such interests indirectly through her or any

other persons of Northern Marianas descent via a trust

relationship.

We are not persuaded of the accuracy of Aldan-Pierce’s

claim that her agreement with Fennell and McMahon is

an entrepreneurial partnership, whereby she provides

“legal capacity” and Fennell and McMahon provide Cap-

ital. The record does not support this contention. Even

if we accepted it, we are not convinced that the framers

of the NMI Constitution intended that acquisition of

property under such an agreement would be permissible

under Article XII.

We are, however, concerned with the possibility that a

decision in favor of Mafnas may “unleash chaos into the

Northern Marianas land title system and economy.”

Appellee’s brief at 43.4 We note that our ruling might

pose problems for land title researchers, who must now

ascertain whether a conveyance of the sort we rule invalid

in this case has occurred in the chain of title of tracts of

Commonwealth real property. An infirmity may not be

immediately apparent in land records. We also note

amicus’ concern that our decision may create difficulties

with respect to loans secured by real property, title to

which may be constitutionally tainted.

46 Amicus makes a similar claim.

36a

Though these difficulties are troublesome, they do not

permit us to disregard the mandate of Article XII and

permit the trust relationship that has arisen in this case to

remain in force. “It is not for the court to engraft an

exception where none is expressed in the [state] consti-

tution, no matter how desirable or expedient such an

exception might seem.” O’Connell, 452 P.2d at 946.

We are duty-bound to give effect to the intention of the

framers of the NMI Constitution and the people adopt-

ing it. Cobb v. State by Wantanabe, 722 P.2d 1032

(Haw. 1986).*’

Vil.

Based on the foregoing analysis, we hold that the exer-

cist of the option at issue violated Article XII. Fennell

and McMahon acquired a constitutionally impermissible

interest in real property in the Commonwealth when the

option was exercised on July 6, 1985. Accordingly, the

underlying transaction became void ab initio, effective

Septeber 15, 1984, when it was executed. Article XII,

§ 6.

The Commonwealth Trial Court’s summary judgment

granting specific performance is REVERSED, and the

case is REMANDED for entry of judgment in favor of

Mafnas.*®

47 Our interpretation of Article XII should be conclusive.

See, e.g., American Federation of Labor v. Watson, 327 U.S.

582, 66 S.Ct. 761, 90 L.Ed. 873 (1946) (interpretation of state

constitution by state courts conclusive in U.S. Supreme Court

review).

48 We note that if a property transaction is rendered void as

violative of Article XII, an equitable remedy may be available to

a possessor of property who constructed improvements under the

good-faith (but erroneous) belief that they held clear title or a

valid leasehold. Repeki, supra.

37a

Entered this 5th day of July, 1991.

/s/ Jose S. Dela Cruz

JOSE S. DELA CRUZ, Chief Justice

/s/ Ramon G. Villagomez

RAMON G. VILLAGOMEZ, Associate Justice

/s/ Jesus C. Borja

JESUS C. BORJA, Associate Justice

38a

APPENDIX B

[Filed February 18, 1992]

IN THE SUPREME COURT OF THE

COMMONWEALTH OF THE

NORTHERN MARIANA ISLANDS

Appeal No. 90-047

Civil Action No. 86-796

DIANA C. FERREIRA,

Plaintiff/Appellant,

ROSALIA MAFNAS BORJA, et al.,

Defendants/Appellees.

OPINION

Argued March 12, 1991

Counsel for Carlsmith Ball Wichman

Plaintiff/Appellant: Murray Case Mukai & Ichiki

P.O. Box 241 CHRB

Saipan, MP 96950

Counsel for Theodore R. Mitchell

Defendants/Appellees: P.O. Box 2020

Saipan, MP 96950

39a

BEFORE: DELA CRUZ, Chief Justice, BORJA, Justice,

and KING, Special Judge.

BORJA, Justice:

Diana C. Ferreira (hereafter Diana), a person of

Northern Mariana Island descent (hereafter NMI descent),

filed a quiet title action against defendants Rosalia Maf-

nas Borja, Isidora Mafnas Salas, and Isabel Mafnas Santos

(hereafter Mafnas sisters). The Mafnas sisters were the

sellers of three parcels of land to Diana. The lots are

described as Lot Nos. 008 B 22, 23, and 24, containing

a total area of 21,182 square meters, more or less. The

Mafnas sisters filed an answer denying ownership in Diana

and affirmatively stating that the acquisition of the land

by Diana violated Article XII of the NMI Constitution.

Both parties filed motions for summary judgment.

The trial court granted summary judgment in favor of

the Mafnas sisters holding that the acquisition of the land

by Diana violated Article XII of the NMI Constitution.

Diana appeals. We affirm the decision of the trial

court,

FACTS

The series of transactions at issue in this case com-

menced with a 1980 Partnership Agreement (hereafter

Agreement). James and Bobbi Grizzard (husband and

wife) (hereafter the Grizzards) and Frank F. and Diana

C. Ferreira (husband and wife) (hereafter the Ferreiras)

executed this Agreement. The sole purpose of the part-

nership was to purchase “for sale, lease and development

the property described above as part of Lot 008 B

10....” Agreement, Article One.!

I The partnership agreement deals with only one piece of

property. However, appellant’s brief, at page 14, acknowledges

[footnote continued }

40a

The Grizzards would contribute $41,000 to the part-

nership. Frank F. Ferreira would contribute “all amounts

needed for surveying, subdividing, legal fees, and account-

ing services to the partnership, such services being of

the approximate amount of Nine Thousand Dollars

($9,000.00).” Agreement, Article Four.

In Article Four, also, it is provided that Diana,

as a citizen of Northern Mariana descent will pur-

chase the property described .. . with the $41,000

contributed by [the Grizzards]. Upon the purchase

of the described real property, [Diana] will execute

a lease of the real property to the partnership, for

the maximum period of time allowed by law, being

forty (40) years and to include a “‘change of law”

provision for purchase in fee simple absolute should

the law change with the consideration for this pro-

vision being the $41,000 paid in hand and the mut-

ual promises contained in this agreement. In addi-

tion, the lease will contain a provision for the pur-

chase of improvements put on the land by the lessee.

Diana acquired fee title but she never granted the part-

nership the short-term leases required by the Agreeement.

Instead, Diana used additional funds from James Griz-

zard to acquire two additional adjacent parcels, taking

fee title in herself. The three parcels were purchased for

about one hundred thousand dollars ($100,000).

that the other two properties were acquired using funds from the

Grizzards. Appellant states also that Diana used the real estate

expertise of Frank in acquiring the properties. While it may be

true that she relied on Frank’s expertise in the purchase of the

properties, there is nothing in the record that indicates that Frank’s

expertise was part of the consideration accepted by the Mafnas sis-

ters in conveying their interests. Consequently, such a fact is

irrelevant as to the issue of who furnished the consideration for

the purchase of the properties.

4la

On March 25, 1988, in a document entitled, ‘“‘Quit-

claim, Release of Claims, and Assignment,” Nansay

Micronesia, Inc. acquired the Grizzards’ interests in the

three parcels of land, and all other rights they had under

the Agreement. The consideration paid for all the Griz-

zards’ interests was one million one hundred thousand

dollars ($1,100,000). On the same day, Nansay Micro-

nesia, Inc. assigned the interests it acquired from the -

Grizzards to the Ferreiras.

Also on March 25, 1988, Diana entered into an agree-

ment to lease with Nansay for fifty-five years. The con-

sideration for the agreement to lease was the assignment

by Nansay Micronesia, Inc. of its interests in the three

parcels of land and in the Agreement to the Ferreiras.

Concurrently, Diana agreed to convey her fee simple

interest in the three parcels of land to Ana Little for

$60,000. :

ISSUES PRESENTED

1. Whether the trial court committed reversible error

in granting summary judgment in favor of the Mafnas

sisters where the record before it presented multiple

genuine issues as to material facts, by weighing conflict-

ing evidence of record, resolving material factual dis-

putes without trial and assessing the credibility of depo-

sition evidence without having heard testimony. |

2. Whether the trial court committed reversible error

in concluding that the Grizzards and Frank Ferreira

acquired a constitutionally impermissible interest in

NMI land when Diana purchased the land from the

Mafnas sisters.

3. Whether, as applied to this case, Article XII of the

Constitution of the Northem Mariana Islands violates

i ea

42a

Diana’s right to equal protection of the laws as guar-

anteed her by the Fourteenth Amendment to the Con-

stitution of the United States.

STANDARD OF REVIEW

A grant of summary judgment is reviewed de novo.

If there is no genuine issue of material fact, the analysis

shifts to whether the substantive law was correctly

applied. Commonwealth Ports Authority v. Hakubotan

Saipan Enterprises, Inc., No. 90-005 (N.M.I. Aug. 8,

1991). If an incorrect substantive law was applied, the

appellate court should, in its de novo review, determine

if the result is correct under a different theory. Ross v.

Communications Satellite Corp., 759 F.2d 355 (4th Cir.

1985); 10 C. Wright, A. Miller, & M. Kane, Federal Prac-

tice and Procedure: Civil 2d §2716 (1983). The evidence

and inferences are viewed in a light most favorable to the

non-moving party. Cabrera v. Heirs of De Castro, No.

89-018, 1 N.Mar.I. 102 (June 7, 1990).

ANALYSIS

Summary Judgment and Article XII

We will address the first two issues jointly since a dis-

cussion of one requires a discussion of the other.

Our analysis starts with the pertinent constitutional

provision. Article XII, as amended in 1985, is as follows:

ARTICLE XII

Section 1: Alientation of Land.

The acquisition of permanent and long-term inter-

ests in real property within the Commonwealth shall

be restricted to persons of Northern Marianas des-

cent.

43a

Section 2: Acquisition.

The term acquisition used in section ] includes

acquisition by sale, lease, gift, inheritance or other

means.

Section 3: Permanent and Long-Term Interests

in Real Property.

The term permanent and long-term interests in

real property used in Section 1 includes freehold

interests and leasehold interests of more than

fifty-five years including renewal rights... .

Section 4: Persons of Northern Marianas

Descent.

A person of Northern Marianas descent is a per-

son who is a citizen or national of the United States

and who is of at least one-quarter Northern Marianas

Chamorro or Northem Marianas Carolinian blood

or a combination thereof or an adopted child or

a person of Northern Marianas descent if adopted

while under the age of eighteen years. For purposes

of determining Northern Marianas descent, a person

shall be considered to be a full-blooded Northem

Marianas Chamorro or Northern Marianas Carolinian

if that person was born or domiciled in the Northern

Mariana Islands by 1950 and was a citizen of the

Trust Territory of the Pacific Islands before the

termination of the Trusteeship with respect to the

Commonwealth.

Section 5: Corporations.

A corporation shall be considered to be a person

of Northern Marianas descent so long as it is incor-

porated in the Commonwealth, has its principal

place of business in the Commonwealth, has direct-

ors one-hundred percent of whom are persons of

Northern Marianas descent and has voting shares

(i.e. Common or preferred) one-hundred percent of

44a

which are actually owned by persons of Northern

Marianas descent as defined by Section 4. Minors,

as defined by applicable laws of the Commonwealth,

may not be eligible to become directors of a corpor-

ation. No trusts or voting by proxy by persons not

of Northern Marianas descent may be permitted.

Beneficial title shall not be severed from legal title.

Section 6: Enforcement.

Any transaction made in violation of section 1

shall be void ab initio. Whenever a corporation

ceases to be qualified under Section 5, a perman-

ent or long-term interest in land in the Common-

wealth acquired by the Corporation after the

effective date of this amendment shall be immed-

iately forfeited without right of redemption to the

government of the Commonwealth....

Commonwealth Code, vol. 1, pp. B-334 & B-335.

For a person to succeed in a cause of action alleging

a violation of Article XII, certain material facts have to

be clearly present and undisputed. These facts are:

1. An acquisition of NMI land;

2. The acquisition is a permanent and long-term

interest;

3. The acquisition was made by a person who is not

of NMI descent.

To determine if the above necessary facts exist in

this case, we must answer the question of whether the

long-term and permanent interest acquired by Diana

from the Mafnas sisters in Lot Nos. 008 B 22, 23, and

24 was, as a matter of law, a constitutionally impermis-

sible acquisition by the Grizzards.

45a

The following facts appear from the record:

1. Diana is a person of NMI descent;

2. The partnership of the Grizzards, Frank Ferreira

and Diana is not recognized in the constitution as a per-

son capable of owning a permanent and long-term inter-

est in Commonwealth real property;

3. The Grizzards and Frank Ferreira are not persons

of NMI descent;

4. Diana acquired in her name the properties from the

Mafnas sisters with funds provided entirely by the Griz-

zards; and

5. The properties were acquired in furtherance of a

partnership agreement between the Grizzards and the

Ferreiras, dated October 21, 1980.

The above facts are undisputed material facts. These

undisputed material facts are sufficient for purposes of

a summary judgment proceeding involving a claim that

Article XII of the NMI Constitution was violated.

The disputed genuine issues of material fact that Diana

claims with regard to “control” over an agent are not

relevant. The issue of control was discussed by the trial

court in its agency analysis. As we discuss later, com-

mon law principles of trust are dispositive. The other

disputed issue of material fact raised by Diana deals with

the claim of ownership to the properties. Again, as we

will note later, Diana cannot raise a genuine issue of fact

by refuting in her deposition what is stated in the Agree-

ment.

As we stated earlier, where there is no genuine issue of

material fact, the analysis then shifts to whether the cor-

rect substantive law was applied, bearing in mind that the

evidence and inferences are viewed in a light most favor-

46a

able to the non-moving party. Cabrera v. Heirs of De

Castro, supra.

The trial court, in its grant of summary judgment, con-

cluded that Diana’s acquisition of Lot Nos. 008 B 22, 23,

and 24 from the Mafnas sisters ‘‘violated Article XII,

Section 1 of the Constitution and is void ab initio under

Section 6 thereof.” Ferreira v. Borja, C.A. No. 86-796,

‘Order Re Motion and Cross-Motion for Summary Judg-

ment” at 28 (Super. Ct. Sept. 13, 1988). We initially

examine this conclusion in view of the substantive law

applied by the trial court. Commonwealth Ports Auth-

ority v. Hakubotan Saipan Enterprises, Inc., supra. If

the incorrect substantive law was applied, we then must

determine if the result is correct under a different theory

of law. Ross v. Communications Satellite Corp., supra;

10 C. Wright, A. Miller, & M. Kane, Federal Practice and

Procedure: Civil 2d §2716 (1983).

The trial court applied principles of agency in arriv-

ing at its conclusion. Whether Diana is in fact an agent

of the Grizzards and Frank is not dispositive. What is

dispositive is whether Diana’s acquisition of the proper-

ties, using funds provided entirely by the Grizzards,

resulted in the acquisition by persons not of NMI des-

cent of an impermissible interest in Commonwealth real

property. The issue is whether the acquisition by Diana

resulted in the acquisition by the Grizzards and Frank

Ferreira of an equitable fee interest in Commonwealth

real property and, therefore, the transactions violates

Article XII.

The trial court erroneously applied agency principles

in reaching its judgment. It is the law of trust that gov-

em since only through trust principles may one acting

as an agent acquire a fee interest. But although the

47a

substantive law applied was incorrect, the judgment

is correct. The result we reach in applying principles

of trust is the same as the trial court’s result in applying

principles of agency.

An appellate court has an obligation to determine if

the judgment or order of a trial court is correct even if

the wrong ground or reasoning was used. In re the

Estate of Dela Cruz, No. 90-023, slip op. at 13. n.10

(N.M.I. Feb. 7, 1991); Ross v. Communications satellite

Corp., supra; Proctor v. State Farm Mut. Auto Ins. Co.,

675 F.2d 308 (D.C. Cir. 1982), cert. denied, 459 U.S.

839 (1982).

In Restatement (Second) of Trusts §440 (1959), it

is stated that, “Where a transfer of property is made to

one person and the purchase price is paid by another,

a resulting trust arises in favor of the person by whom the

purchase price is paid, except as stated in § § 441, 442,

and 444.” See also Aldan-Pierce v. Mafnas, No. 89-003,

slip op. at 21 (N.M.I. July 5, 1991).

Is Diana a trustee for the Grizzards under a resulting

trust theory? The answer is yes.

Disregarding the exceptions for the moment, what we

have here is a transfer of three parcels of land to Diana

with the entire purchase price being paid by the Griz-

zards. This creates a resulting trust under Section 440 of

the Restatement (Second) of Trusts in favor of the one

paying the purchase price. When Diana acquired the lots

from the Mafnas sisters, Diana held bare legal title to the

properties, and the Grizzards held equitable title. ‘The

trustee of a resulting trust holds only the naked legal

title for the benefit of the person furnishing the consid-

eration . . . who holds the equitable interest.” Aldan-

Pierce v. Mafnas, supra, at 22. (Citation and footnote

omitted.)

48a

In Aldan-Pierce v. Mafnas, supra, we held that

If a resulting trust in real property in the Com-

monwealth' has arisen in favor of a person who is

not of Northern Marianas descent, it is subject to

being declared invalid in a judicial proceeding if the

equitable interest held for them in trust violates

Article XII.

Id. at 34. (Footnote omitted.)

The most crucial evidence against Diana is the partner-

ship agreement. This document not only establishes that

Diana was never meant to be the fee simple absolute

owner of the properties, but also dispels any exception

to a resulting trust.

The undisputed facts show that the partnership among

the four was former to buy and sell or lease property.

Each partner had a role. Diana was to purchase and hold

title. The Grizzards were to provide the purchase money.

Frank was to provide real estate expertise. Each per-

formed their respective partnership roles.

The question is whether Diana possesses both legal and

equitable titles to the properties, or whether she is hold-

ing title in trust for the benefit of all the four partners. If

the latter, did the three partners not of NMI descent

acquire an equitable fee simple interest in the properties?

If so, such violates Article XII.

The Agreement clearly shows that Diana was to hold

title to the properties for the benefit of the partnership.

Agreement, Articles One and Four. There are three pro-

visions in the Agreement that conclusively show that

Diana was holding title for the benefit of the partnership.

The first provision is in Article Four. It states that any

lease agreement to the partnership must include a

“change of law” provision. The article defines “change

49a

of law” as meaning that the partnership (i.e., Diana,

Frank, and the Grizzards collectively) will purchase the

land in fee simple absolute should the law change with no

addition consideration. Second, Article Four also states

that Diana, or whoever is the lessor at the end of the

lease period, must purchase the improvements placed on

the land by the partnership, or whoever is the lessee then.

And third, Article Five(3) provides that if Diana with-

draws from the partnership for any reason, she must con-

vey her right, title and interest in the land to a person of

NMI descent, to be designated by the partnership.

These provisions establish an intent that Diana would

obtain fee simple title, but subject to the partnership

restrictions. She must convey her fee simple interest if

1) there is a change in the law, or 2) she decides to with-

draw from the partnership. The consideration for her

interest in the event of a change in law is the “mutual

promises contained in this agreement.” The considera-

tion to be paid for her interest in the event she withdraws

from the partnership “‘are the mutual promises contained

in this agreement and one dollar ($1.00) to be paid in

hand.” She is restricted in what she may do with her title

to the properties. And if none of the two conveyance

possibilities arise, she must purchase the improvements

placed on the premises by the lessee at the end of the

lease term.

Diana, James Grizzard, and Frank Ferreira disputed, in

their depositions, that Diana was to obtain anything less

than a fee simple absolute interest. However, these

refutations do not prohibit a court from granting sum-

mary judgment. See United States v. Kasuboski, 834

F.2d 1345 (7th Cir. 1987). A party cannot circumvent

summary judgment by later refuting what he or she

initially admitted.

50a

This is not a situation where a party to the Agreement

is attempting to clarify or explain an ambiguous provis-

ion in the Agreement. What we have is a situation where

parties to the Agreement are attempting to dispute what

is clearly and unambiguously stated in the Agreement.

This cannot, and should not, be allowed. Otherwise, the

rule for summary judgment would be meaningless.

In Aldan-Pierce v. Mafnas, supra, at 34, n. 45, we

noted that, “a trust may be rebutted by clear evidence

that the money used to purchase the property was a

valid gift, loan, or payment to discharge a debt or other

obligation.” In this case, we have no such clear evidence.

Article Four of the Agreement shows that Diana was not

to obtain title as a gift or loan, or to discharge a debt or

other obligation. She acquired title because she was a

person of NMI descent. She acquired title with cove-

nants that she will relinquish her title upon the happen-

ing of certain events. And if those specific events did not

occur, her title was encumbered with the obligation to

purchase any improvements placed on the premises by

any lessee.

The exceptions to a resulting trust, as cited in Restate-

ment (Second) of Trusts §440, do not apply. These

exceptions arise if the payor: (1) manifests an intention

that no trust should arise (§441), (2) purchases the

property in the name of a relative “or other natural

object of bounty” (§442), or (3) purchases the property

to accomplish an illegal purpose (§444). See also Aldan-

Pierce v. Mafnas, supra, at 23.

There is no manifestation of an intention that no trust

should arise. The Agreement makes it clear that a trust

was contemplated. Agreement, Articles Four and Five.

Diana is to purchase the property and then lease it to the

5la

partnership with a provision that if the law changes, the

partnership obtains fee simple title at no additional con-

sideration. She must purchase the improvements, if there

is no change in the law, at the end of the lease term.

Finally, she must transfer her interest if she ever decides

to leave the partnership. It is clear that Diana’s Co-part-

ners (who are not of NMI descent) have, through Diana’s

deed, acquired an equitable interest of indeterminate

duration. This is not a situation where the non-NMI

descent would be obtaining a constitutionally permissible

interest. If the NMI descent was purchasing land with

money totally provided by a non-NMI descent but it is

clear that the intent in the transaction was that the non-

NMI descent would only obtain a 55 year lease, or less,

and the fee interest would be in the NMI descent, then

the constitutional prohibition would not be violated.2

The Grizzards did not provide the funds for the pur-

chase of the properties in the name of a relative or other

natural object of bounty. Diana is not a relative of the

2 This hypothetical was also not the situation in the Aldan-

Pierce case. We stated in Aldan-Pierce that “the record in this

case indicates that Fennell and McMahon intended to retain an

equitable interest of indeterminate duration.” Aldan-Pierce v.

Mafnas, supra, at 28.

We disagree with the dissent’s interpretation regarding foot-

note 37 in Aldan-Pierce. See, infra, pp. 22-23. Footnote 37 was

inserted under the discussion of a resulting trust being rebutted in

part. Aldan-Pierce was arguing that, since Fennell and McMahon

disclaimed any intention to take more than a leasehold for fifty-

five years, the resulting trust is rebutted. Footnote 37 was inserted

to show that the exception noted in Comment f of §441 of the

Restatement (Second) of Trusts does not apply in the Common-

wealth if the disclaimer occurs after the unconstitutional act. ~

That is, a person cannot violate the constitution now, and then

later attempt to correct the violation by saying that all that was

intended was a constitutionally permissible interest.

52a

Grizzards. There is nothing in the record establishing

that she is a natural object of their bounty.

Aldan-Pierce v. Mafnas, supra, at 23-24, discussed the

third exception, i.e., a purchase to accomplish an illegal

purpose.

At first blush, it appears that this exception may be

applicable in this case. If the partnership agreement was

entered into to accomplish an illegal purpose, there can

be no resulting trust under §444.

However, in analyzing Article XII, this Court has con-

cluded in the Aldan-Pierce case that a violation of Article

XII does not occur until and unless a court declares a

transaction to be violative of Article XII. Therefore,

there can be no automatic illegal purpose under Article

XII. A court must first declare a transaction to be uncon-

stitutional.

In adopting the principles set forth in Jsaacs v. De Hon,

11 F.2d 943 (9th Cir. 1926), the Aldan-Pierce Court held

that

A resulting trust in real property in the Common-

wealth in favor of a person who is not of Northern

Marianas descent is valid, unless the equitable inter-

est held for them in trust is declared, in a judicial

proceeding, to be violative of Article XII. If the

equitable interest is ruled violative of Article XII,

the underlying transaction through which the person

who is not of Northern Marianas descent acquired

the interest becomes void ab initio. Article XII,

§6. |

(Footnote omitted.) We affirm such analysis and holding

on this exception. Only a court of competent jurisdic-

tion can determine if an acquisition of land violates

Article XII of the NMI Constitution. Prior to such

EE Piatt alt SEE Ea OND ts Soda igs IS! a cea he WER Se Sols bbl by SET:

“ ee

Sat el

53a

judicial determination, the resulting trust is valid. This

exception does not apply.

Equal Protection

Diana’s argument on this issue must fall.2 Her brief,

at 58. n.47, correctly notes that this argument was made

to the United States Court of Appeals for the Ninth Cir-

cuit and was rejected. See Wabol v. Villacrutsis, 908

F.2d 411 (9th Cir. 1990).* There is no equal protection

violation under the NMI Constitution, or the United

States Constitution.

CONCLUSION

Based on the above, the conveyances from the Mafnas

sisters to Diana violated Article XII of the NMI Constitu-

tion. The Grizzards acquired a constitutionally imper-

missible interest in real property in the Commonwealth

when the conveyances were made. Such conveyances

were void from the date they were executed.

The grant of summary judgment is hereby AFFIRMED.

/s/ Jose S. Dela Cruz

Jose S. Dela Cruz

Chief Justice

/s/ Jesus C. Borja

Jesus C.- Borja

Justice

3We disagree with the Mafnas sisters that this issue may not

be raised on appeal since it was not raised in the trial court. This

issue falls within one of the three exceptions noted in Camacho v,.

Northern Marianas Retirement Fund, No. 90-007, 1 N.Mar.]I. 131

(Sept. 21, 1990). The exception is that “the issue is only one of

law not relying on any factual record... .” Id, at 135-136.

*We note that we are agreeing only with the analysis of the

Ninth Circuit on this issue.

iii le

54a

KING, Special Judge (Dissenting):

I can readily agree with the Court’s conclusion that

some of the rights which James and Barbara Grizzard

and Frank Ferreira sought to obtain in the San Roque

land constituted permanent and long term interests in

land. I accept also the majority’s conclusion that the

form of arrangement under which a person not of North-

ern Marianas descent (hereatter a ‘“‘non-NMD”’) attempts

to acquire control over, and a beneficial interest. in, land

in the Commonwealth is not dispositive. Thus, we are

also in agreement that acquisition of any long term or

permanent insterest, whether legal, equitable or contract-

ual, and whether held individually or through ownership

of some form of business enterprise such as a partner-

ship or corporation, falls within the constitutional pro-

hibition. I therefore concur that the transaction between

the Grizzards, Frank Ferreira and Diana Ferreira was

violative of article XII of the NMI Constitution and was

void ab initio.

Despite these important agreements however, I have

serious misgivings about the Court’s use of the resulting

trust doctrine in this context and I find the ultimate

conclusion unnecessarily and dangerously disruptive of

economic and private property interests in the NMI.

Because of the importance of article XII to the people

and jurisprudence of the NMI, my reasons are set out

here fully.

I. The Resulting Trust Doctrine

The keystone of the Court’s analysis in this opinion,

and in the recent case of Aldan-Pierce v. Mafnas, No.

89-003 (N.M.I. July 5, 1991) is the resulting trust doc-

trine. For the following reasons, I do not believe this

doctrine is being properly applied by the Court.

55a

A. Nature and Purpose of the Doctrine.

The resulting trust doctrine is merely an analytic tool

designed for the limited purpose of assisting courts to

sort out the equities and relative rights between one who

has furnished funds and one who holds the legal title as

a result. G. Bogert, Trusts §170 (6th ed. 1987) (here-

after, “Bogert, Trusts”).

The court’s attempt here to use the doctrine for the

wholly unfamiliar purposes of determining whether

article XII of the Constitution of the NMI has been vio-

lated and for enforcing the constitutional prohibitions

against the parties who have provided funds for the pur-

chase of land necessarily rips the resulting trust doctrine

from its moorings. The attempt therefore is inherently

suspect.

B. Key Principles

Predictably, this novel effort has forced the Court to

ignore or modify key aspects of the doctrine, and thereby

to transmogrify the resulting trust doctrine itself.

1. A resulting trust is to be invoked for the one who

pays — The resulting trust doctrine creates a trust “‘in

favor of the person by whom the purchase price is

paid ....” Restatement (Second) of Trusts, §440

(1959). Bogert, Trusts §35 at 128.

The Mafnas sisters did not pay the purchase price,

but instead sold their property to Diana Ferreira and

accepted payment from her. To permit sellers of land

to invoke the resulting trust doctrine is unprecedented.

To permit them to do so against the supposed benefic-

iaries of the doctrine in order to deprive those benefic-

iaes of any interest in the land they paid for, is a per-

verse misapplication of the doctrine.

56a

2. A resulting trust is not to be declared for an illegal

purpose — If the payment of funds and the agreement

between the payor of the purchase price and the person

who becomes the titleholder, are intended to accom-

plish an illegal or unconstitutional purpose, courts refuse

to declare a resulting trust. Restatement (Second) of

Trusts §444 (1959); Bogert, Trusts § $48 and 74.

If the Grizzards and Frank Ferreira were to have asked

this Court to declare the existence of a resulting trust as

against Diana Ferreira their attempt to obtain the “con-

stitutionally impermissible interest,” slip op. at 18.

necessarily would have been rejected. Since the payors

are barred, there is simply no basis for declaration of a

resulting trust.

3. Illegal purpose does not furnish standing to third

parties — Some courts have had occasion specifically to

consider the relationship between the law of trusts and

statutory or constitutional prohibitions against land

ownership by certain persons. The general rule is that

such a prohibition precludes equitable as well as legal

interests. “If an alien has no capacity to take the legal

title to land, he has no capacity to become beneficiary

of a trust of land.” Restatement (Second) of Trusts

§ 119, comment b (1959).

The lone exception occurs in a few states in the

United States when land acquired by aliens is subject to

forfeiture to the state. In those states, if the circum-

stances are such “that a resulting trust would arise if

the payor were not an alien, a resulting trust arises in

favor of the alien, and his interest is subject to for-

feiture to the State.” Restatement (Second) of Trusts

§444, comment f.

ial

57a

This limited right of the government to bring about

forfeiture of an alien’s claim through declaration of a

resulting trust has not been extended to private parties.

See Bogert, Trusts §74 at 268 n.10, citing Kyodo Nishi

v. Downung, 21 Cal. App.2d 1, 67 P.2d 1057 (1937).

See also People v. Fujita, 215 Cal. 166, 8 P.2d 1011

(1932).

Refusal to permit private parties to invoke a result-

ing trust to the detriment of the beneficiary of such a

trust is based upon sound and long standing principles

of equity.

Equity will never raise a resulting trust in favor of an

alien .... To raise the trust, thereby forfeit the

estate, would be to commit the offense, and make

the alien bear the penalty... . [E] quity will never

raise a mere resulting trust for an alien, that it may

be forfeited . . . it will not profess to benefit, when

it designs to destroy.

Hubbard v. Goodwin, 3 Leigh (30 Va.) 492, 512 (1887).

See also Isaac v. Dehon, 11 F.2d 943, 944 (9th Cir.

1926). (“If the plaintiffs are aliens, appellant is in no

position to take advantage of this circumstance. No one

but the sovereign has any right to complain of a trust in

real estate in favor of an alien disqualified to hold title.’’)

4. Intention of parties must be considered — The

resulting trust doctrine is an “intent enforcing” doctrine

designed to uphold the actual intent of the parties.

Bogert, Trusts §74 at 269. See also Restatement (Sec-

ond) of Trust §441 (1959); Jd., comment f; cf. Isaac v.

Dahon, 11 F.2d 943.

Yet, the Court in Aldan-Pierce, slip op. at 29, n.37,

suggested that the resulting trust doctrine would apply

in the NMI solely on the basis of the payment of the

58a

purchase price by non-NMDs, regardless of the intentions

of the parties.

5. Limited reach. — Since trust rights and obligations

arise out of the relationships among the settlor, the

trustees and the beneficiaries, the rights of third parties

outside the trust normally are unaffected by the trust.

Bogert, Trusts §§154 and 165. See also Restatement

(Second) of Trusts §287 (1959). In this case, the Court

uses the resulting trust doctrine in conjunction with the

constitutional prohibition. This combination expands

dramatically the impact of a resulting trust, apparently

reaching the interests of subsequent bona fide purchasers

who acquired the land from or through Diana Ferreira.

B. Logic and Analysis.

Inevitably, this effort to employ resulting trust anal-

ysis to determine the scope of article XII of the Con-

stitution and to enforce the prohibitions has lured the

Court into errors of logic and analysis, including circular

reasoning! and unjustified adoption of legal fictions,?

in addition to mere misuse of the resulting trust doctrine

itself.

1 For example, the Court in Aldan-Pierce ostensibly was

employing resulting trust analysis to determine whether the Con-

stitution had been violated. Yet the basic principle that a resulting

trust may be limited by agreement of the parties was swept aside

on grounds of constitutional necessity. ‘Regardless, if this com-

mon law principle applied in the NMI, Article XII would effect-

ively be nullified. We cannot presume that Article XII is a vain

effort, or a nullity’ and must interpret it to give it effect ....

Therefore, this principal does not apply in the NMI.” Slip op. at

28-29, n.37.

26 A] violation of Article XII does not occur until and

unless a court declares a transaction to be violative of Article XII.

Therefore, there can be no automatic illegal purpose under Article

XII. A court must first declare a transaction to be unconstitu-

tional.”’ Slip op. at 16.

59a

The Court in Aldan-Pterce, slip op. at 29, n.37, said it

would apply the doctrine without regard to the inten-

tions of the parties. This would transform the constitu-

tional prohibition, placing in peril any joint venture in

which land is acquired by funds furnished bymon-NMDs.

A broad array of possible short term and temporary

arrangements would be barred while other transactions

identical in substance but different in form would be

permitted. Such fixation on the form rather than sub-

Stance of transactions would be, I submit, entirely arti-

ficial and would bear no relationship to the constitutional

restrictions upon alienation or to their underlying pur-

poses,

The majority opinion in this case indicates that the

intentions of the parties will be considered. Slip op. at

14 and 15 n.2. This is a step in the right direction.

Still, to do extent we do consider intention, the value

of the resulting trust doctrine as a tool of analysis in

article XII cases is diminished. Calling the rights of

non-NMDs equitable interests by virtue of a resulting

trust, rather than simply labeling them contractual

rights, does not advance analysis. We are still faced with

the difficult and exacting tasks of examining transactions

on a case by case basis, defining with precision the scope

of the article XII prohibitions, and determining whether

the interests acquired by non-NMDs, be they legal or

equitable title or be they contractual rights, are pro-

hibited permanent or long term interests in Common-

wealth land.

3 Article XII, section 2 of the Constitution provides as

follows: “The term acquisition used in section 1 includes acquisi-

tion by sale, lease, gift, inheritance or other means.” (Emphasis

added).

Thus, the form of the acquisition and of the interest itself

is not dispositive. This Court has noted that the term embraces

[footnote continued]

60a

Properly applied, the resulting trust doctrine also is

not an apt tool for article XII issues because it may

easily be evaded. Parties may avoid the doctrine simply

by agreeing expressly that no resulting trust will arise

from their transaction or relationship or by casting the

advance of funds for purchase of the land as a loan.

Restatement (Second) of Trusts §441.

In essence the resulting trust doctrine as used here is

a “‘red herring,” which has diverted the Court’s atten-

tion from the real issues and pertinent sources of law.

A primary issue in this case is whether the particular

transaction involving the Grizzards and the Ferreiras vio-

lates article XII of the NMI Constitution. Resolution of

this issue should turn upon the language of article XII,

the underlying constitutional policies, and the under-

standing of the parties.

Instead of focusing upon the sources of legal guidance

established by the people of the Commonwealth of the

Northern Mariana Islands however, and carefully consid-

ering the agreements among the parties, the Court has

looked far back to an obscure doctrine of the law of

trusts which emerged from the mists of midieval England.

Finally, perhaps the most damning criticism of the use

of the resulting trust doctrine in this case is that it has

caused the Court to disregard completely another critical

issue. The Court has simply assumed, based upon its

finding of a resulting trust, that the sale of land by the

Mafnas sisters to Diana Ferreira is part of the transac-

tion to be declared void. As discussed at greater length

acquisition of equitable interests through trusts. Aldan-Pierce,

slip op. at 17. The term also presumably includes contractual

rights whereby a party acquires contro] over the use or disposi-

tion of land.

6la

infra, pages 37 to 46, the meaning of the term “trans-

action” in article XII, section 6 of the Constitution is of

far too great importance to constitutional jurisprudence

in the NMI to be resolved without direct consideration,

II. Article XII of the Constitution of the NMI

Any governmental attempt, in a free society employ-

ing a free enterprise form of economic system, to prevent

certain categories of persons from acquiring specified

interests in land is inherently delicate and inevitably

will present the court with complex issues. It would be

futile here to attempt to provide a single solution which

would purport to solve all of the problems that may

arise.

However, there are certain key principles which should

be kept in mind as the Court addresses article XII.

A. Key Principles

1. Full enforcement required — First, it is important

to recognize that restrictions on the alienation of land

have uniformly been regarded as crucial to the “culture

and traditions of the people of the Northern Mariana

Islands,” to their protection “against exploitation” and

“to promote their economic advancement and self-suffic-

iency.”’ Covenant §805.

Section 805(a) of the Covenant for twenty-five years

mandates, and thereafter authorizes, the government of

the NMI to “regulate the alienation of permanent and

long-term interests in real property so as to restrict the

acquisition of such interests to persons of Northern

Marians Islands descent.”

The delegates to the Northern Mariana Islands Con-

stitutional Convention, in implementing section 805 of

—_—_———

62a

the Covenant, made clear their own view that they

regarded the restrictions as necessary —

to protect the culture and traditions of the people

of the Northern Mariana Islands, to promote the

political growth needed in the first critical years

of the Commonwealth, to accomplish the political

union with the United States with a minimum of

cultural and economic dislocation, and to provide

the stability needed to survive in the family of

nations.

Analysis of the Constitution of the Commonwealth of

the Northern Mariana Islands approved by the Delegates

to the Northern Mariana Islands Constitutional Conven-

tion on December 6, 1976, at 164-65. Thus, this Court

quite properly feels an obligation to accept and enforce

the spirit of the constitutional prohibition against non-

NMD acquisition of permanent and long-term interests

in Commonwealth land. As the Court has said, the fact

that “troublesome” difficulties may arise does ‘not

permit us to disregard the mandate of Article XII.”

Aldan-Pierce v. Mafnas, slip op. at 36.

2. Reconciliation necessary — As we recognize the

importance of article XII however, it is equally crucial

to bear in mind that article XII is but one of numerous

provisions, and must be reconciled with the other pro-

visions, in the Constitution of the NMI. Nowhere is it

written that arti

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.