Federal Deposit Ins. Corp. v. Consolidated Mortg. and Finance Corp.

• Decision Date: 06 June 1986
• Docket Number: No. 85-1822,85-1822
• Citation: 805 F.2d 14
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, Appellee, v. CONSOLIDATED MORTGAGE AND FINANCE CORPORATION, et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 14

805 F.2d 14

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, Appellee, v. CONSOLIDATED MORTGAGE AND FINANCE CORPORATION, et al Defendants, Appellants.

No. 85-1822.

United States Court of Appeals First Circuit.

Heard June 6, 1986.

Decided Nov. 10, 1986.

Jose A. Suro, Santurce, P.R., for defendants, appellants.

Gabriel Hernandez Rivera with whom Feldstein, Gelpi, Hernandez & Gotay, Old San Juan, P.R., was on brief, for plaintiff, appellee.

Before CAMPBELL, Chief Judge, BOWNES, Circuit Judge, and KEETON, ^* District Judge.

LEVIN H. CAMPBELL, Chief Judge.

This is an appeal from a district court judgment holding defendants Consolidated Mortgage and Finance Corporation ("Consolidated"), Urbanizadora Altomar, Inc. ("Altomar"), Urbanizadora Acro, Inc. ("Acro"), Urbanizadora Apriore, Inc. ("Apriore"), Jose A. Suro ("Suro"), and Antonio Amadeo ("Amadeo"), jointly and severally liable to the Federal Deposit Insurance Corporation ("FDIC") under certain promissory notes and letters of guaranty. The notes and letters were executed as part of several loan agreements entered into between defendants and Banco Credito y Ahorro Ponceno ("Banco Credito" or the "Bank"). Consolidated executed the notes and Suro and Amadeo executed letters of guaranty making them jointly and severally liable to the Bank for obligations under the notes. Consolidated received the proceeds from the loans and in turn gave them to the defendant corporations involved in the development of real estate (Altomar, Acro, and Apriore), reserving the right to obtain a commission from this transaction. ¹ The FDIC acquired the notes and letters of guaranty upon becoming the receiver of Banco Credito when the latter failed. The FDIC in its corporate capacity purchased the letters and notes from FDIC-receiver on March 31, 1978, and filed to collect in the district court in 1979. Directing a verdict for the FDIC, the court found defendants liable for $9,810,925.30. Consolidated and Suro alone have appealed.

I.

Defendants-appellants contend that the district court erred in granting FDIC's motion for leave to amend its complaint. This argument has no merit. Rule 15 of the Federal Rules of Civil Procedure requires that motions to amend be liberally granted in the absence of undue prejudice to the opposing party. The amended complaint merely inserted the amount sought by the FDIC; no new theories or causes of action were added. Defendants did not ask for further discovery, or request additional time to prepare for trial. Thus, we do not find that undue prejudice attached to defendants by reason of the leave to amend.

II.

Consolidated argues that the district court erred in rejecting its defense of lack of consideration. It argues that the proceeds of the loans at issue were advanced directly by the Bank to parties (i.e., Altomar, Acro and Apriore, named along with Consolidated as "debtors" in the loan agreements) other than Consolidated itself, although the latter executed the notes. We do not find this argument persuasive because even if Consolidated did not benefit from the proceeds itself, it would be considered as a guarantor of the loans, or as a surety jointly with those other debtors who benefited from the loans, under Carr v. Nones, 98 P.R.R. 230 (1970). In that case the Supreme Court of Puerto Rico ruled that one who binds himself as debtor to a loan without benefiting from it is nonetheless liable as a joint surety. ²

III.

Appellants argue that the district court erred in not allowing the introduction of evidence that would have proven that FDIC's negligence was in part responsible for the losses because it mismanaged the real estate projects for which the loans were being used.

The loan agreements do provide that every disbursement the debtors make in relation to the projects will be controlled by the Bank. The debtors had to submit evidence to the Bank of all payments made to suppliers, contractors, subcontractors, etc., and of the contracts entered into relating to the projects. Likewise, the plats of construction and the viability studies for the construction had to be submitted to the Bank for its approval, as well as any deviation from them in the execution of the projects.

But even assuming this shows the Bank, and later the FDIC, was "managing" the projects, appellants have offered nothing tending to show that either the Bank or the FDIC was negligent in what it did. They point to two documents that, according to them, support their argument. We have examined them and find nothing in that respect. Appellants further argue that they have other documents that the district court did not allow to be introduced as evidence, that sustain their contention. However, appellants failed to make an offer of proof showing the contents and materiality of these alleged documents and, therefore, did not place the court in a situation to evaluate the validity of this counterclaim. Fed.R.Evid. 103(a)(2). We need not, therefore, address the issue of whether the counterclaim was separately barred by 12 U.S.C. Sec. 1823(e) (1983). FDIC v. La Rambla Shopping Center, Inc., 791 F.2d 215 (1st Cir.1986).

IV.

Appellants argue the district court erred in failing to apply the shorter three-year statute of limitations of Puerto Rico's Commerce Code to the loans in question. Art. 946 of the Commerce Code of Puerto Rico, P.R.Laws Ann. tit. 10, Sec. 1908 (1976). In order for the limitations period of the Commerce Code to apply, the loans must be of a commercial nature. To establish this, it is necessary that one of the parties to the loan be a merchant and that the loan proceeds have been devoted to commercial transactions. Art. 229 of the Commerce Code of Puerto Rico, P.R.Laws Ann. tit. 10, Sec. 1651 (1976); Pescaderia Rosas v. Lozada, 85 J.T.S 52 (June 28, 1985). If the loans do not meet both of these requirements, the 15-year statute of limitations of Article 1864 of the Civil Code of Puerto Rico applies. P.R.Laws Ann. tit. 31, Sec. 5294 (1968). Here, while appellants themselves presented little information on the subject, the undisputed facts of record all point unequivocally to the commercial nature of these loans.

Appellants initially moved for summary judgment on the ground the complaint was time-barred. The district court denied the motion after first holding an evidentiary hearing addressed to the statute of limitations issue. In an opinion following the hearing, the court concluded that,

(1) Jose Suro's liability as guarantor of the loans was not time-barred because the letters of guaranty which he executed provided that they would remain in force until the Bank was notified in writing of their revocation (and, implicitly, there was no evidence of such notification).

(2) Defendants failed to carry their burden of proving that the loans were of a commercial nature.

(3) It was unnecessary for the court to decide whether or not the loans were commercial, either because some of the notes were executed ³ less than three years before the FDIC's acquisition of Banco Credito's claim ⁴ or because they were later acknowledged by the debtors.

At trial appellants sought to argue the commercial nature of the loans, but the district court did not allow them to, stating that in denying summary judgment the court had concluded that the debtors were not merchants, and that was the law of the case. However, the undisputed evidence of record precludes any conclusion other than that the loans were commercial.

In FDIC v. Barrera, 595 F.Supp. 894, 899 (D.P.R.1984), the United States District Court for the District of Puerto Rico held that it was sufficient to fulfill the requirements of Article 229 of the Commerce Code of Puerto Rico, that a corporation was devoted to the business of developing or building for others who, in turn, sold or leased the housing units to the public; and that the funds from the loan executed by the corporation were used exclusively in connection with said business. We believe the court in Barrera correctly stated the law of Puerto Rico in this regard.

The situation here is basically like that described in Barrera. The corporations which were parties to these loan agreements and notes were all developers and business entities involved in the construction and mortgage businesses. Consolidated's borrowings from the Bank were used to purchase and construct housing projects. Insofar as Consolidated was in the business of lending money for profit, its status as a merchant could also be derived from that fact. Martinez Val, Derecho Mercantil, at 422-23 (1979); Pescaderia Rosas v. Lozada, 85 J.T.S. 52 (June 28, 1985). Accordingly, we hold that the three-year statute of limitations fixed by Article 946 of the Commerce Code applies.

V.

The district court took the view that it made no difference if the Code of Commerce's three-year statute of limitations applied because the defendant corporations repeatedly acknowledged their obligations during the relevant time period, starting the statute to run anew from each acknowledgment. The court indicated that all of the loans as to which the statute of limitations would have run when the FDIC acquired the notes were acknowledged either before or after the acquisition by the FDIC. Different legal standards, however, apply to acknowledgments made before and after acquisition. If the purported acknowledgment took place after the FDIC acquired the notes (e.g., assuming the Bank's claim had not by then been cut off by the local statute of limitations, see note 4, supra ), the effect of any alleged acknowledgment would be determined by federal law. FDIC v. Cardona, 723 F.2d at 136. See 28 U.S.C. Sec. 2415(a) (1983). But if any alleged acknowledgment occurred before FDIC's acquisition of the notes, Puerto Rico law alone would determine its sufficiency. Here the critical question is whether the notes were acknowledged under Puerto Rico law so as to keep the Bank's claims alive until the FDIC acquired them....