F.D.I.C. v. World University Inc.

• Decision Date: 30 July 1992
• Docket Number: No. 92-1389,92-1389
• Citation: 978 F.2d 10
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, Appellee, v. WORLD UNIVERSITY INC., et al., Defendants, Appellees. Santa Barbara Center Corporation, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 10

978 F.2d 10

23 Fed.R.Serv.3d 1373

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, Appellee, v. WORLD UNIVERSITY INC., et al., Defendants, Appellees.

Santa Barbara Center Corporation, Defendant, Appellant.

No. 92-1389.

United States Court of Appeals, First Circuit.

Heard July 30, 1992.

Decided Oct. 22, 1992.

Norberto Medina-Zurinaga with whom Carlos J. Quilichini and Quilichini, Oliver, Medina & Gorbea were on brief, for appellant.

Jeannette E. Roach, Counsel, F.D.I.C., with whom Ann S. Duross, Asst. Gen. Counsel, Colleen B. Bombardier, Sr. Counsel, Robert D. McGillicuddy, Deputy Sr. Counsel, Larry H. Richmond, Counsel, F.D.I.C., Frank Gotay-Barquet and Feldstein, Gelpi & Gotay were on brief, for appellee.

Before SELYA, CYR and STAHL, Circuit Judges.

STAHL, Circuit Judge.

In this appeal, defendant-appellant Santa Barbara Corporation ("Santa Barbara") challenges the district court's entry of summary judgment in favor of plaintiff-appellee Federal Deposit Insurance Corporation ("the FDIC"). Finding no error in the district court's ruling, we affirm.

BACKGROUND

On September 10, 1975, Santa Barbara obtained a $90,000 loan from Banco Central, a Puerto Rico bank. Santa Barbara used the proceeds of the loan to purchase real property in the municipality of Bayamon, Puerto Rico ("the Bayamon property"). In exchange for the loan, Santa Barbara issued a note in the principal amount of $90,000, payable with interest on demand to bearer. The note was secured with a mortgage on the Bayamon property.

Subsequently, on September 15, 1977, Santa Barbara sold the Bayamon property to International Educational Development Services, Inc. ("International"). The deed of sale reflects that International agreed to pay the $90,000 note and accrued interest "when due." Because International so agreed, it withheld the value of the note from the purchase price paid to Santa Barbara.

The record of this case does not indicate the whereabouts of the Santa Barbara note until June of 1983, when it appears in International's possession in a lawsuit pending in the Puerto Rico Superior Court. See Union Trust Co. v. World Univ., Inc., No. 83-2933 (P.R.Super.Ct. July 6, 1983). In that case, Union Trust Company ("Union"), a federally insured bank in Puerto Rico, sued World University, Inc. ("World"), a Puerto Rico corporation, on a debt. The Puerto Rico Superior Court entered judgment against World. The judgment reveals that International, although not a party to the Puerto Rico Superior Court law suit, pledged Santa Barbara's bearer demand note as a guarantee of payment of World's debt to Union. The judgment also indicates that Union became a holder of the $90,000 note.

In December of 1983, Union was ordered closed and the FDIC was appointed its receiver. Among Union's assets, FDIC-receiver found the facially valid Santa Barbara note. FDIC-receiver then sold the note to the FDIC in its corporate capacity. FDIC-corporate commenced suit against Santa Barbara for payment of the note and moved for summary judgment. Santa Barbara responded with a cross-motion for summary judgment, asserting that the note had been paid by International.

The district court granted the FDIC's motion. In so doing, the court ruled, inter alia, that the FDIC was a holder in due course of a facially valid bearer note and, as such, was entitled to judgment on it as a matter of law. We agree. ¹

DISCUSSION

I. Standard of Review

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Aponte-Santiago v. Lopez-Rivera, 957 F.2d 40, 40-41 (1st Cir.1992). The burden is upon the moving party to "put the ball in play, averring 'an absence of evidence to support the nonmoving party's case.' " Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir.1990) (quoting Celotex, 477 U.S. at 325, 106 S.Ct. at 2554). "The burden then shifts to the nonmovant to establish the existence of at least one fact issue which is both 'genuine' and 'material.' " Id. (citations omitted). In determining whether factual issues exist, we read the record "in the light most amiable to the nonmovants and indulge all reasonable inferences favorable to them." Id.

Our review of a summary judgment ruling is plenary. Hoffman v. Reali, 973 F.2d 980, 984 (1st Cir.1992). Moreover, we are not limited to the district court's reasoning. Instead, we may "affirm the entry of summary judgment on any independently sufficient ground made manifest by the record." Quintero v. Aponte-Roque, 974 F.2d 226, 228 (1st Cir.1992) (quoting United States v. One Parcel of Real Property, 960 F.2d 200, 204 (1st Cir.1992)).

II. Law to be Applied

As an initial matter, we note that there has been some confusion between the parties to this appeal as to the applicable law. Before the district court, the parties litigated primarily on the basis of Puerto Rico commercial law, but made passing references to federal statutory and common law. As a result, the district court's holding was anchored predominantly in Puerto Rico law.

The FDIC now urges the application of federal law. We have previously stated that federal law applies where, as here, the FDIC sues in its corporate capacity to collect on obligations acquired from the receiver of an insolvent bank. See, e.g., Federal Deposit Ins. Corp. v. Municipality of Ponce, 904 F.2d 740, 745 (1st Cir.1990); Federal Deposit Ins. Corp. v. P.L.M. Int'l, Inc., 834 F.2d 248, 252 (1st Cir.1987). Yet, we have also noted an exception to this rule where the federal question is not raised by the parties. Municipality of Ponce, 904 F.2d at 745. Moreover, we ordinarily will not entertain arguments made for the first time on appeal. See Buenrostro v. Collazo, 973 F.2d 39, 44 (1st Cir.1992) (citing Clauson v. Smith, 823 F.2d 660, 666 (1st Cir.1987)).

Here, however, the issue need not be addressed because, in each regime, the analysis is essentially the same. Under both Puerto Rico law and the hornbook principles that necessarily would inform federal law, the FDIC, as possessor of a bearer note, is a holder of that note. See P.R. Laws Ann. tit. 19, § 381(8) (1989) (" 'Holder' means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof."); U.C.C. § 1-201(20) (1989) (" 'Holder' means a person who is in possession of ... an instrument ... issued or indorsed to ... bearer or in blank."). A holder of a negotiable instrument is entitled to enforce payment in his/her own name. P.R. Laws Ann. tit. 19, § 91 ("The holder of a negotiable instrument may sue

                thereon in his[/her] own name....");  U.C.C. § 3-301 ("The holder of an instrument whether or not [s/]he is the owner may ... enforce payment in his[/her] own name.").   A holder in due course has all the rights of a holder.   See generally P.R. Laws Ann. tit. 19, § 92;  U.C.C. § 3-302(1).   S/he also takes the instrument free from most claims on it and defenses to it.   See P.R. Laws Ann. tit. 19, § 97 ("A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves....");  U.C.C. § 3-305 ("To the extent that a holder is a holder in due course [s/]he takes the instrument free from (1) all claims to it on the part of any person;  and (2) all defenses of any party to the instrument with whom the holder has not dealt except [certain delineated "real" defenses not applicable to the instant case].").  Finally, the maker of a negotiable instrument engages that s/he will pay the instrument according to its tenor at the time of his/her engagement.   See P.R. Laws Ann. tit. 19, § 111;  U.C.C. § 3-413(1)
                

III. Santa Barbara's Arguments

In its effort to counter such authority, Santa Barbara makes five arguments: (1) the FDIC had notice of infirmities in the note; (2) the FDIC tacitly consented to recognize International, and not Santa Barbara, as liable on the note; (3) the note was negotiated to the FDIC an unreasonable length of time after it was made; (4) because the note was not delivered to the FDIC by Santa Barbara, the FDIC cannot enforce it against Santa Barbara; and (5) the note was paid by International. Though Santa Barbara's brief is not entirely clear on this point, the first four arguments appear directed towards challenging the district court's ruling that the FDIC is a holder in due course, while the fifth seems to be asserted as a defense to Santa Barbara's obligation as the note's maker. We address each argument in turn.

A. Notice of Infirmities

Santa Barbara is correct in asserting that notice of defenses or infirmities in a note defeats holder in due course status. See P.R. Laws Ann. tit. 19, § 92 ("A holder in due course is a holder who has taken the instrument under the following conditions: ... that at the time it was negotiated to him[/her] [s/]he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."); U.C.C. § 3-302(1)(c) ("A holder in due course is a holder who takes the instrument ... without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person."). Santa Barbara contends that the FDIC must have been aware of two facts that would have put it on notice that the note was defective: (1) that International simultaneously possessed the note and owned the Bayamon property which secured payment of the note; and (2) that Union only intended to acquire a mortgage over the Bayamon property, not the note itself, in accepting International's pledge on behalf of World in 1983. Santa Barbara's contention fails to withstand factual and legal scrutiny.

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