In re Las Colinas, Inc., 71-1047

• Citation: 453 F.2d 911
• Decision Date: 21 December 1971
• Docket Number: No. 71-1047,71-1048.,71-1047
• Parties: In the Matter of LAS COLINAS, INC., et al., Debtors. Appeal of BANCO POPULAR DE PUERTO RICO. In the Matter of Las Colinas, Inc., et al., Debtors, Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

453 F.2d 911 (1971)

In the Matter of LAS COLINAS, INC., et al., Debtors Appeal of BANCO POPULAR DE PUERTO RICO In the Matter of Las Colinas, Inc., et al., Debtors, Appellants.

Nos. 71-1047, 71-1048.

United States Court of Appeals, First Circuit.

Heard November 18, 1971.

Decided December 21, 1971.

Certiorari Denied April 17, 1972.

Vicente Zayas Puig, Hato Rey, P. R. with whom Juan F. Doval and Baragano, Trias, Saldana & Francis, Hato Rey, P. R. were on brief, for Banco Popular De Puerto Rico.

Vigdor Schreibman, pro se, for Las Colinas, Inc., and others.

Before COFFIN, Circuit Judge, VAN OOSTERHOUT^*, Senior Circuit Judge, and STEPHENSON*, Circuit Judge.

Certiorari Denied April 17, 1972. See 92 S.Ct. 1502.

COFFIN, Circuit Judge.

This is the third occasion for us to consider the trials and tribulations of a residential housing development project on the eastern coast of Puerto Rico.¹ In our last review, we remanded the case to the district court to reexamine the evidence and decide whether the debtors in possession of the project, Las Colinas, Inc., and Eastern Shore Development Corporation Las Colinas and their bank, Banco Popular de Puerto Rico, intended credits totalling $1,750,000 to be "revolving", i. e., a maximum exposure within which proceeds of sales of houses would be paid to the bank, releasing like sums for financing of future construction, or a fixed amount to be paid at the due date in one sum. A second issue involved a $2,000,000 mortgage given by Las Colinas to the bank which we found, in view of the circumstances of its execution and the value of pre-existing security for the debt owing the bank, to be grossly excessive and unfair. We therefore also remanded the case for a determination of damages.

The district court, as to the first issue, reviewed the evidence and concluded that the bank had committed itself to revolve the $1,750,000 line of credit. In so doing it found that the bank had accepted a work plan or budget which contemplated the gross expenditure of funds much greater than the line of credit approved, indicating an intent that the credits be turned over as sales proceeds were received and paid to the bank; that a Federal Deposit Insurance Corporation report revealed that the scope of the bank's financing encompassed the entire project rather than the half of the project which the bank contended was its more limited objective—a scope inconsistent with its contention that the credits were to be repaid on completion of half of the houses; and that the bank acknowledged that its advances were to be used for houses in addition to the alleged half-way cut-off. The court also noted the specific testimony of debtors' officials, to which it obviously gave credence, that the financing was to be of a revolving character. The bank makes arguments as to the significance of the work plan or budget, the F.D.I.C. report, the credibility of bank witnesses, and the incredibility of debtors' witnesses, all of which were pertinent at the trial level but fall short of demonstrating to us lack of support for or clear error in the district court's decision.

On the second issue, the determination of damages, the court properly found that the bank, when debtors were about to begin realizing sales from their properties and to be able to replenish the purse that fed them, changed the rules and demanded full payment for all monies advanced, refusing to release any encumbrance on properties to be sold, and thus repudiating the contract. In addition to this credit freeze was the arctic chill of the illegally superimposed $2,000,000 mortgage, forestalling resort to other sources of financing. Accordingly, the court held that the bank could not insist on repayment of the indebtedness of some $1,776,532 due it. But as to the debtors' claim for additional damages in the amount of $2,756,792, the court concluded that cancellation of the debt in the amount of $1,776,532 was enough—"most suitable under the circumstances present."

The court, proceeding Solomonically, noted that the debtors had expressed themselves as "willing to forego their claims for damages in favor of judgment for a dismissal and discharge of the Bank's claim against the Debtors, in its entirety." Debtors now complain that their "alternative" offer was not meant to come into play until there had been a specific finding that their claim for damages was...