Federal Deposit Ins. Corp. v. P.L.M. Intern., Inc., 87-1435
| Decision Date | 06 November 1987 |
| Docket Number | No. 87-1435,87-1435 |
| Citation | 834 F.2d 248 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, Appellee, v. P.L.M. INTERNATIONAL, INC., et al., Defendants, Appellees. Antonio Melendez and Martha Melendez, Defendants, Appellants. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Rurico S. Diaz-Aponte with whom Hector L. Marquez, Hector R. Ramos and Oreste V. Ramos were on brief for defendants, appellants.
Gabriel Hernandez Rivera with whom Feldstein, Gelpi, Hernandez & Gotay, Thomas A. Rose, Deputy Gen. Counsel, Rae Schupack, Regional Counsel, and John David Ferrer, Counsel, were on brief for plaintiff, appellee.
Before BOWNES and SELYA, Circuit Judges, and CAFFREY, * Senior District Judge.
Defendants-appellants Antonio and Martha Melendez and their conjugal partnership appeal an order of the United States District Court for the District of Puerto Rico entered in accordance with a stipulation for judgment holding them liable as guarantors of a mortgage loan obtained by Vistas de Camuy Development Corporation, Inc. (Vistas) from the Girod Trust Company (Girod). Defendants argue that the substitution of the debtor in the principal loan and pledge agreement extinguished their ancillary obligation, and that even if their obligation survived the modification of the original agreement, a subsequent release relieved them of all liability. Plaintiff-appellee, the Federal Deposit Insurance Corporation (FDIC), counters that no novation occurred and that the release failed to meet the requirements of 18 U.S.C. Sec. 1823(e), which protects the FDIC from agreements tending to defeat or diminish its interests in assets held in its corporate capacity. We agree with the FDIC and affirm the judgment of the court below.
This case arises out of a series of transactions involving Girod and the corporate developers of a housing project called "Urbanizacion Vistas de Camuy." The transactions date to November 13, 1980, when Girod and Vistas entered into an agreement whereby the bank loaned the corporation $538,136.41 to purchase a tract of real estate for the housing project. Vistas executed a mortgage note for $555,000 payable to the bearer on demand and a mortgage deed guaranteeing the note. On the same day, Vistas gave two notes totalling $250,000 to Mr. and Mrs. Luis Gilberto Rivera-Rivera secured by a second mortgage on the property.
Over one year later, on December 31, 1981, Vistas and Girod entered into a second agreement. Girod loaned the corporation a total of $5,800,240 of which approximately $3 million was available on a revolving basis as the maximum outstanding amount. This loan was secured in two ways. First, Vistas executed a mortgage deed amending and amplifying the original mortgage note of $555,000. In that document, Mr. and Mrs. Luis Gilberto Rivera-Rivera agreed that the new mortgage would have priority over the mortgage which guaranteed their notes of November 13, 1980. Second, the principals of Vistas--defendants and Mr. and Mrs. Manuel Molina Godinez--signed a letter of continuing guaranty. The agreement obligated the parties to guarantee all loans for which Vistas was liable up to a maximum liability for each of the parties of $3,015,000. The agreement provided in pertinent part:
This is a continuing guarantee given in order to induce you to enter into, and make loans under a certain Loan and Pledge Agreement ... between you and VISTAS DE CAMUY DEVELOPMENT CORPORATION for the financing of the construction of a housing project in Camuy, Puerto Rico, and this guarantee will not be revoked by the undersigned until such time as the above-mentioned Loan and Pledge Agreement, (as the same may be amended from time to time ... without the the consent of or notice to the undersigned ) and all terms thereof shall have been fully complied with by all parties and the housing project contemplated thereby shall have been fully completed.
(Emphasis added).
The third major transaction involving the Vistas de Camuy housing project took place on February 28, 1983. A second corporate developer, PLM International, signed a loan and pledge agreement with Girod for a principal amount of $8,700,000--with $3,500,000 (later increased to $4,500,000) available on a revolving basis. Girod secured the loan with a third mortgage on the Vistas property. On June 24, 1983, PLM and Vistas executed a deed of sale whereby PLM acquired the encumbered real estate in exchange for the assumption of Vistas' debts incurred in the development project. Work on the housing project continued under the Vistas name.
On April 17, 1983, Girod, Vistas, PLM, defendants, and Mr. and Mrs. Manuel Molina-Godinez executed an agreement releasing Vistas, the defendants, and the Molina-Godinezes from all obligations in relation to the Vistas de Camuy development. While common practice in Puerto Rico requires one to "pick up a note"--i.e., to physically retrieve a note upon discharge--the defendants did not demand the return of their letter of guaranty nor did they pick it up. The guaranty remained in the active collateral file of Girod, without any notation of cancellation.
The final transaction involving the Vistas project occurred on November 15, 1983, three years after the commencement of the development. PLM cancelled the mortgage guaranteeing the notes held by Mr. and Mrs. Luis Gilberto Rivera-Rivera, leaving Girod as the sole holder of a mortgage on the encumbered land.
The FDIC became involved in the transaction almost one year later. The Secretary of the Treasury of the Commonwealth determined that Girod was in unsound financial condition. Pursuant to P.R. Laws Ann. tit. 7, Sec. 201 (1982), the Secretary closed the bank, assumed its management and administration for purposes of liquidation, and appointed the FDIC as receiver, 12 U.S.C. Sec. 1821(e), on August 16, 1984. Three days later, the FDIC, in its corporate capacity, entered into a purchase and assumption agreement whereby it acquired some of the assets of Girod--including the mortgage executed by Vistas and the continuing letter of guaranty executed by defendants.
The FDIC filed the instant action in February 1985. The complaint named PLM as debtor on certain promissory notes due Girod, Vistas as maker of the mortgage note pledged to Girod, and defendants as guarantors of the Vistas mortgage obligations. The court entered a default judgment against PLM and Vistas; the mortgage was foreclosed and the encumbered land sold pursuant to a judicial sale. Meanwhile defendants answered the complaint, 1 and asserted the release as an affirmative defense. Defendants moved for summary judgment which the district court denied. In an opinion and order dated March 10, 1987, the court held that (1) no novation occurred releasing defendants from their obligations under the guaranty agreement, and (2) the release failed to meet the criteria of 12 U.S.C. Sec. 1823(e) and thus could not be enforced against the FDIC. The parties subsequently filed a stipulation for judgment in the principal amount of $3,015,000 plus interest and costs which the district court approved. The stipulation reserved the defendants' right to appeal.
Defendants argue that the February 28, 1983 loan agreement between PLM and Girod constituted a novation which extinguished both the obligation of Vistas and the ancillary guaranty. They contend that this novation released them of all liability. The FDIC characterizes the agreement differently: the loan and pledge agreement was the third and final step in a series of transactions by which Girod financed the Vistas de Camuy housing project, and as such, that agreement further encumbered the real estate and obligated PLM in addition to Vistas, without affecting any prior agreements executed to secure previous loans.
The Civil Code of Puerto Rico establishes stringent requirements for novation. While defendants correctly note that the extinction of a principal obligation also extinguishes all accessory obligations, P.R. Laws Ann. tit. 31, Sec. 3245 (1968), not every modification of an agreement produces extinction. See Francisco Garraton, Inc. v. Lanman & Kemp-Barclay & Co., 559 F. Supp. 405, 407 (D.P.R. 1983) ( ) (citing Warner Lambert Co. v. Superior Court, 101 P.R.R. 527, 544, 545 (1973)). The Civil Code requires that the extinction of one obligation by another either be expressly declared or compelled by the incompatibility of the two agreements. See P.R. Laws Ann. tit. 31, Sec. 3242 (1968); Francisco Garraton, 559 F. Supp. at 407 ( ) (citing G. & J., Inc. v. Dore Rice Mill, Inc., 108 D.P.R. 89, 96 (1978)); Colon & Cia., Inc. v. Registrar, 88 P.R.R. 64, 82 (1963) (same).
In the present case, neither prerequisite for novation exists. The February 28 agreement does not expressly state an intention to extinguish previous obligations. Nor does that agreement so completely contravene prior obligations as to necessitate novation. Although the substitution of the debtor may sufficiently modify an obligation so as to cause novation under Puerto Rico law, see P.R. Laws Ann. tit 31, Sec. 3241 (1968) (), the substitution--absent an express declaration of novation--must meet the high standard of complete incompatibility. Yet rather than working a radical change in the nature of the underlying obligations, the agreements at issue here complement and build upon one another. At oral argument, defendants conceded that the effect of the ...
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