In re De Manati

• Decision Date: 01 September 1972
• Docket Number: No. B-87-71.,B-87-71.
• Citation: 357 F. Supp. 1253
• Parties: In the Matter of Agregados de MANATÍ, Debtor.
• Court: U.S. District Court — District of Puerto Rico

357 F. Supp. 1253

In the Matter of Agregados de MANATÍ, Debtor.

No. B-87-71.

United States District Court, D. Puerto Rico.

May 24, 1972.

Motion for Reconsideration Denied September 1, 1972.

Otero Suro & Otero Suro, Rodrigo Otero Bigles, San Juan, Puerto Rico, for debtor.

Benjamín Rodríguez Ramon, Hato Rey, Puerto Rico, for Kane Caribbean, Inc.

ORDER GRANTING MOTION TO STRIKE

TOLEDO, District Judge.

This case was commenced upon a petition filed by Agregados de Manatí, Inc., (hereinafter Manatí), on October 22, 1971, intending to be reorganized in accordance with Chapter X of the Bankruptcy Act, Title 11, United States Code, Sections 501-676.¹ After the usual jurisdictional allegations, petitioner asserted that it is engaged in the business of a sand and gravel pit and processing plant; that because of an attachment by one of its secured creditors, Kane Caribbean, Inc., (hereinafter Kane Caribbean) of certain assets indispensable for its business activities, it has ceased operations; that said attachment was the consequence of execution proceedings subsequent to stipulated judgments in repossession suits instituted by such creditor against the debtor, pursuant to the Conditional Sales Act of Puerto Rico, in the Superior Court of Puerto Rico, Arecibo Section, the real creditor thereon not being Kane Caribbean, but its assignee, Machinery Investment Co., Inc., (hereinafter Machinery); that, therefore, the said stipulated judgments were null and void. Manatí prayed for the approval of its petition, the appointment of a trustee or trustees, and the stay of the judicial proceedings formerly referred to.

Simultaneously with such petition, Manatí requested and that every day obtained, an ex-parte order staying Kane Caribbean from further continuing with the execution of such judgments, and specifically staying the public sale of the assets covered by the conditional sales contracts being judicially enforced.

Kane Caribbean, on November 11, 1971, moved to set aside the stay order mentioned and for the dismissal of debtor's petition, alleging that the lessor of debtor's business premises, one Francisco Sánchez, had rescinded the lease contract existing with debtor, who had knowledge thereof on the date of filing its petition, thus not having been filed in "good faith". Movant's motion was supported by a memorandum of the applicable statutory and case law. The debtor, on November 26, 1971, filed an opposition to said motion, supported by the corresponding memorandum.

A few days thereafter Kane Caribbean filed a supplementary brief in support of its aforementioned motion, based on the authority of the judgment entered by this Court in the case of In the Matter of Corporación Hotelera de Puerto Rico (San Jerónimo Hilton), Debtor, 321 F.Supp. 1180 (D.C.1971), which held that opposition by holders of more than two-thirds in amount of secured claims against a debtor, made it unreasonable to expect that a plan of reorganization be effected, and that therefore, the "good faith" requirements of Section 142 of the Act (Section 141 in this proceeding) had not been met. Said creditor further moved under Rule 12(f) of the Federal Rules of Civil Procedure² to strike paragraphs 4, 5 and 7 of debtor's petition to stay suits,³ claiming they contained immaterial and impertinent matter. In its brief accompanying this last motion, Kane Caribbean bottomed its position on the fact that this Court is prevented from opening relitigation of creditor's interest or status as real party plaintiff in the repossession proceedings, firstly because to do so would turn this Court in a court for the review of proceedings of the Superior Courts of Puerto Rico, contrary to Rule 53.1(b) of the Rules of Civil Procedure for the Commonwealth of Puerto Rico, Title 32, Laws of Puerto Rico Annotated; and, secondly, on the doctrine of collateral estoppel by judgment, firmly established in accordance with local and federal case law.

On December 16, 1971, the parties filed a Stipulation of Facts, accompanied by various exhibits and on January 4, 1972, a hearing was held to consider the aforementioned motions, during which the Court heard oral arguments from counsel for both parties. The Court then requested the filing of briefs solely as to the issue of whether the motion to strike filed by Kane Caribbean, as a matter of law, should either be granted or denied.

After having fully read the mentioned briefs and the Stipulation filed by the parties, the Court is fully advised to rule on the premises.

In accordance with the Stipulation of Facts filed by the parties herein, Kane Caribbean as vendor and Manatí as vendee, executed conditional sales contracts for the acquisition by Manatí of certain machinery and equipment for use in its sand and gravel operation in Ciales, Puerto Rico. It appears from such Stipulation that after the said contracts had been assigned by Kane Caribbean to Machinery, the debtor Manatí, defaulted in its payments, thus causing the devolution of said contracts from Machinery to Kane Caribbean, (see Exhibits A and C of the Stipulation of Facts) and that proceedings for the re-possession of the machinery sold were instituted by Kane Caribbean against Manatí before the Superior Court of Puerto Rico, Arecibo Section. After said proceedings had been filed, the parties then entered into stipulations, made a part of the Stipulation of Facts filed herein as Exhibits B and D, under which the parties stipulated that a re-possession order be issued for the return to Kane Caribbean of the properties covered in mentioned contracts and that the said order was to be stayed upon agreement of the parties, in order to give the debtor the opportunity to pay its debts in accordance with the schedule of payments. It was also agreed that default by debtor would cause an immediate execution of the repossession orders, and it was finally stipulated that the judgments to be entered approving such stipulations would be final and unappealable ". . . from the moment same is pronounced and it will constitute a release and final settlement of the controversies existing between the parties". Judgments were entered approving such stipulations on May 6, 1971. In no occasion during the aforementioned steps taken before the Superior Court of Arecibo did Manatí raise the issue of Kane Caribbean's title to institute such proceedings. To the contrary, to all appearances, it always accepted as its secured creditor Kane Caribbean and no other company.

From the Stipulation of Facts filed, it also appears that as a consequence of further defaults by Manatí, including issuance to Kane Caribbean of a check without funds (Paragraph 7 of the Stipulations of Facts), Kane Caribbean was compelled to move for the execution of the judgments and the public sale of the personal properties encumbered in its favor. In no occasion between May 6, 1971, in which the judgments were entered, and October 26, 1971, which was the date for the first public sale of the mentioned properties, did Manatí question Kane Caribbean's title as its secured creditor nor otherwise filed before any court in Puerto Rico proceedings to set aside such judgments, upon any grounds whatsoever. It was not until this Chapter X was filed before this Court on October 22, 1971, that Manatí raised for the first and only time, the issue that Machinery and not Kane Caribbean was the real party in interest in such proceedings and consequently that the judgments entered in Kane Caribbean's favor before the Superior Court of Arecibo, were null and void, and allegedly obtained by a fraudulent representation concerning title to the conditional sales contract enforced thereupon.

It appears from the conditional sales contracts executed by Manatí as vendee, back on April 1970, containing the assignment to Machinery, that Kane Caribbean remained liable to its assignee for defaults in payment by Manatí.⁴ Moreover, on March 4 and 9, 1971, Machinery gave notice to Kane Caribbean of its desire to put an end to Manatí's repeated defaults, to the extent of returning to Kane Caribbean ". . . the original contracts covering Agregados de Manatí, Inc.'s equipment" (Stipulation of Facts, Exhibits I-A and I-B). The stipulated facts further show that Manatí dealt simultaneously with each one of those companies, without any preconception whatsoever that it may have been dealing with any one at odds with the other, as to the interest in the contracts in question. See, for example, from the Stipulation of Facts, both inclusive, Exhibits J to N, this last one in particular, and compare the same with Paragraph 6 of the mentioned Stipulation, showing payment by Manatí directly to Kane Caribbean, notwithstanding the assignment to Machinery.

The Court is of the opinion that the debtor had the opportunity to set aside the stipulated judgments, if it believed them to be in any manner objectionable, in the local courts of Puerto Rico. According to Rule 49.2 of the Rules of Civil Procedure for the Commonwealth of Puerto Rico,⁵ it could have also stayed the execution of the judgments in question, pursuant to Rule 56.1 of such Rules.⁶ Moreover, if as the debtor asserts in its brief, it discovered the alleged fraud ". . . . after it had been induced to enter into stipulations for judgment with a party which was not the real party in intent", (page 8 of its brief) it could have also moved for a new trial under Rule 48 of the Rules of Civil Procedure for the Commonwealth of Puerto Rico.⁷ Neither did debtor resort to this rule.

All the aforementioned circumstances, support our findings that Kane Caribbean's standing as real party in interest in the enforcement of the conditional sales contracts has already been adjudicated, and that even though we may, as a matter of law, have power to go beyond the findings of the Superior Court of Puerto Rico, as a matter of equitable principle we should refrain from doing so. This is the tenor of the case law...