Adria International v. Ferre Development

Decision Date14 November 2000
Docket NumberNo. 00-1526,00-1526
Citation241 F.3d 103
Parties(1st Cir. 2001) ADRIA INTERNATIONAL GROUP, INC., CRISWELL ASSSOCIATES, L.L.C., Plaintiffs, Appellants, v. FERRE DEVELOPMENT, INC., ANGOLA INVESTMENT, INC., MAR CHIQUITA DEVELOPMENT CORP., et al., Defendants, Appellees. Heard
CourtU.S. Court of Appeals — First Circuit

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

[Hon. Juan M. Perez-Gimenez, U.S. District Judge] Mark S. Priver, with Santiago F. Lampon-Gonzalez and Ohashi & Priver on briefs, for appellants.

Etienne Totti-del Valle, with Totti & Rodriguez Diaz on briefs, for appellees.

Before Lynch and Lipez, Circuit Judges, and Garcia-Gregory, District Judge.*

LIPEZ, Circuit Judge.

This case involves a failed real-estate transaction, the defendants' refusal to return a $100,000 deposit given by the plaintiffs for an option to buy a valuable Puerto Rico beach-front property owned by the defendants, and the plaintiffs' lawsuit for breach of contract. On summary judgment, the district court awarded the $100,000 deposit to the defendants. The plaintiffs appealed. We reverse and remand for a trial because of the ambiguity of the agreement between the parties.

I.

Plaintiffs Adria International Group, Inc. and Criswell Associates, L.L.C. are real-estate developers who hoped to build a luxury hotel, condominium units, and golf course on a piece of land on Puerto Rico's north coast known as the Mar Chiquita property. Mar Chiquita was owned by the defendants, Ferre Development, Inc., Angola Investment, Inc., and Mar Chiquita Development Corp. On June 6, 1996, the parties signed a Deed of Option to Purchase the property.

The deed established a purchase price of $7.5 million for Mar Chiquita. The plaintiffs agreed to pay this amount if they were successful in obtaining bond financing from the Puerto Rican government during the time periods specified in the deed. The deed provided for three separate option periods. The first period, described in Article Third (b) of the deed as the "Initial Option Period," gave the plaintiffs a 90-day right to purchase in exchange for a $100,000 deposit to be held in escrow. This period could be extended for an additional 60 days at no additional cost to the plaintiffs.

Article Third (c) of the deed provided for a Second Option Period. It stated that for an additional $100,000, the plaintiffs "shall have the right, at any time prior to the expiration of the Initial Option Period, to extend the Option for an additional term of ninety (90) days to commence on the day after the termination of the Initial Option period (hereinafter referred to as the 'Second Option Period.')" In parallel terms, Article Third (d) of the deed provided for a Third Option Period in exchange for an additional $150,000 deposit.

After signing this agreement on June 4, 1996, the plaintiffs engaged Smith Barney to help them raise the equity they needed to qualify for government bond financing. They also met with representatives of Puerto Rico's tourism department seeking a needed endorsement from the Tourism Development Fund for issuance of the bonds. On September 4, 1996, the initial 90-day option period provided for in Article Third (b) of the deed expired. Adria International and Criswell Associates extended their option to buy for 60 more days until November 4 at no additional cost, as Article Third (b) allowed, because the defendants had not resolved a lawsuit that was clouding Mar Chiquita's title. The litigation soon ended, and plaintiffs received notice of the relevant judgment on September 20.

Over the course of the fall, it became clear that Adria International and Criswell Associates were $6 million short of the equity they needed to secure the bond financing. The Tourism Development Fund said it would not guarantee the shortfall without the backup guarantee of another funding source. Without the help of Smith Barney, the plaintiffs contacted various parties, including professional golfer Chi Ch Rodriguez, in hopes of finding such a guarantor. According to the plaintiffs, Rodriguez committed to send them $200,000, half of which would replace the plaintiffs' deposit for the Initial Option Period and half of which would serve as consideration for the Second Option Period.

The plaintiffs hoped to receive the money from Rodriguez by November 4, the day on which the Initial Option Period expired, but the money did not arrive in time. Instead, Mara Luisa Fuster Zalduondo of the plaintiffs' law firm, McConnell Valdes, wrote a letter on November 4 to the defendants' lawyer, Jose Fuentes Agostini, confirming that the plaintiffs would deliver the $100,000 deposit for the Second Option Period the following day. The defendants orally agreed to meet on November 5 to receive delivery of the second $100,000. Because November 5 was Election Day, the parties then agreed to meet on November 6.

The November 6 meeting was held at the offices of McConnell Valdes. In attendance were Ricardo Hernandez-Morales, the general manager of defendant Ferre Development Inc.; Jose Fuentes, the defendants' lawyer; William T. Criswell, IV, representing plaintiffs Adria International and Criswell Associates; and Harry O. Cook and Samuel Cespedes, the plaintiffs' lawyers. At the meeting, Criswell told Hernandez that the money from Rodriguez still had not arrived, but that he hoped to receive it within the next ten days. Hernandez expressed his disappointment. The parties then negotiated over the terms of a two-week extension of the plaintiffs' option. In lieu of the missing $100,000 deposit from Rodriguez, Criswell offered the approximately $1 million fee that his principals would have owed Smith Barney if they had succeeded in securing financing for the deal.1

The parties' new agreement was set forth in a letter drafted quickly by Cespedes, one of the plaintiffs' lawyers, so that Criswell could catch a flight to Europe. The letter was headed "Re: Deed of Option to Purchase Mar Chiquita Properties." It said in full:

Dear Mr. Hernandez:

In connection with the aforementioned deed (the "Deed"), we hereby request an extension of the Initial Option Period, as such term is defined in Article Third (a) of the Deed, through midnight of November 20, 1996. If you agree with this option period extension, please signify so by signing in the space provided below. Your acceptance of this extension does not modify any future option periods contemplated in the Deed.

In consideration for the aforesaid extension, Purchaser shall pay to Sellers by certified or bank manager's check a sum equal to the fee that would otherwise have been paid to Smith Barney for the sale of limited partnership interests.

Cordially yours,

//s William T. Criswell

After reviewing the letter with Fuentes in private for a few minutes, Hernandez signed it. The meeting quickly adjourned.

Over the next two weeks, the plaintiffs continued to seek funding from Rodriguez. That money did not materialize. On November 20, Cook sent a letter to Hernandez terminating the plaintiffs' option to buy because the government bonds had not been approved. The plaintiffs asked Hernandez to direct the escrow agent to return the $100,000 they had deposited in June for the Initial Option Period. On December 11, Fuentes replied to Cook in a letter that accused Adria International and Criswell Associates of acting in "bad faith," thus "waiv[ing] any possible right under the Deed . . . to request a return of the initial deposit."

On February 15, 1997, the plaintiffs sued for return of the $100,000 deposit. The defendants cross-claimed for the $1 million fee. On July 23, 1998, the plaintiffs moved for summary judgment, arguing that the November 6 letter extended the Initial Option Period and was supported by adequate consideration. The plaintiffs contended that because the parties agreed in the letter to extend the Initial Option Period until November 20, that period had not expired before the plaintiffs terminated their option, entitling them to reclaim their deposit. On July 24, 1998, the defendants moved for summary judgment on their counter-claim, making two alternative arguments. First, the defendants argued that the November 6 agreement to extend the Initial Option Period was invalid because it was not supported by consideration. Second, they argued that if the agreement was supported by consideration, the plaintiffs breached it by refusing to pay the $1 million fee, which was not contingent on completion of the land purchase, contrary to the plaintiffs' assertion.

On November 24, 1999, the district court found for the defendants on the $100,000 claim. The court found that the November 6, 1996 letter was clear on its face, and that the letter demonstrated the parties' intent to extend the Initial Option Period until November 20, 1996. The court found, however, that this extension was not supported by consideration, and as a result the November 6 letter was not a valid contract. Thus the parties had failed to extend the Initial Option Period, entitling the defendants to retain the $100,000 deposit that the plaintiffs did not reclaim before that period expired.

The court also granted the plaintiffs' motion for summary judgment on the defendant's $1 million counter-claim for the fee "that would otherwise have been paid to Smith Barney." The defendants argued that payment of the fee was not contingent on completion of the land transaction. The court found that payment of the fee was contingent. The defendants did not appeal this ruling.

II.

We review an award of summary judgment de novo. Wightman v. Springfield Terminal Ry. Co., 100 F.3d 228, 230 (1st Cir. 1996). Summary judgment is appropriate in the absence of a genuine issue of material fact, when the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). Cross-motions for summary judgment do not alter the basic Rule 56 standard,...

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