Bautista Cayman Asset Company v. Terra II MC & P, Inc. et al
Filing
67
OPINION AND ORDER denied 34 Motion for Summary Judgment filed by defendants; granted 41 Motion for Summary Judgment filed by plaintiff. Signed by Chief Judge Gustavo A. Gelpi on 1/9/2020. (mld)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
BAUTISTA CAYMAN ASSET
COMPANY
Plaintiff
CIVIL 17-1520CCC
vs
TERRA II MC & P, INC.; LUIS
ENRIQUE PEREZ PAGAN, his wife
GLORIA VIRGINIA TAÑON ORTIZ
and the conjugal partnership
composed between them; JOSEPH
MCCLOSKEY VAZQUEZ, his wife
STACEY SUAREZ KILEY and the
conjugal partnership composed
between them; MCCLOSKEY,
PEREZ & ASOCIADOS, INC.
Defendants
OPINION AND ORDER
On April 18, 2017, Bautista Cayman Asset Company (“plaintiff” or
“Bautista”) filed a Complaint (d.e. 1) against Terra II MC & P, Inc.; Luis Enrique
Pérez Pagán, Gloria Virginia Tañón Ortiz, and the conjugal partnership
between them; McCloskey Pérez & Asociados, Inc.; and Joseph McCloskey
Vázquez, Stacey Suárez Kiley, and the conjugal partnership between them
(“defendants”), for collection of monies and the foreclosure of mortgages and
other collateral.
Before the Court is plaintiff’s Motion for Summary Judgment (d.e. 41)
filed March 22, 2019 and defendants’ Motion for Summary Judgment (d.e. 34)
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2
filed February 12, 2019. For the reasons set forth below, plaintiff’s Motion is
GRANTED and defendants’ Motion is DENIED.
I.
UNCONTESTED MATERIAL FACTS
The following material facts are uncontested:
1.
Terra II MC & P, Inc. (“Borrower”) is a for-profit corporation
organized and existing under the laws of the Commonwealth of Puerto Rico,
with its principal place of business located at #561, Summit Hills Development,
Guaynabo, PR 00969, and its postal address is P.O. Box 9694, San Juan,
Puerto Rico 00908-0694.
2.
Luis Enrique Pérez Pagán and his wife Gloria Virginia Tañón Ortiz
and the Conjugal Partnership between them are guarantors of the Borrower.
They are of legal age and residents of San Juan, Puerto Rico and their postal
address is P.O. Box 363961, San Juan, Puerto Rico, 00936-3961.
3.
McCloskey Pérez & Asociados, Inc. is a pledgor in connection with
the Borrower’s debt in this case, and it is a for-profit corporation organized and
existing under the laws of the Commonwealth of Puerto Rico, and its postal
address is P.O. Box 9694, San Juan, Puerto Rico, 00908-0694.
4.
Joseph McCloskey Vázquez and his wife Stacey Suárez Kiley and
their Conjugal Partnership are guarantors of the Borrower (jointly with
Pérez-Tañón, the “Guarantors”). They are of legal age and residents of San
Juan, Puerto Rico and their postal address is P.O. Box 19804, San Juan,
Puerto Rico, 00910-1804.
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5.
3
On March 27, 2015, Bautista executed an agreement with the FDIC
through which it acquired certain assets of Doral Bank (“Doral”), including,
among others, the credit relationships between Doral and the defendants at
issue in this suit.
6.
On February 24, 2006, the Borrower executed “Loan Agreement I”
by which Doral provided the Borrower a revolving line of credit in the principal
aggregate amount of $30,207,000, with a peak amount never to exceed
$17,200,000, for the development and construction of 126 detached residential
units of one or two stories in a project known as Terra del Monte I (the
“Project”) (d.e. 1-1).
7.
On January 18, 2008, Doral and the Borrower executed an
amendment to Loan Agreement I in order to: (i) reduce to 78 the number of
units composing the Project; (ii) reduce the aggregate principal amount of the
loan to $27,087,046.17 and increase the loan peak amount to $19,200,000;
and (iii) extend the Maturity Date to July 31, 2009 (d.e. 1-3).
8.
On November 3, 2010, Doral, the Borrower, McCloskey Pérez &
Asociados, Inc., and the Guarantors executed an amended and restated loan
agreement pursuant to which the Loan Agreement I was divided into the
following two separate loans: (i) a construction loan with a maximum principal
balance of $13,122,082.00, with a peak amount never to exceed the amount
of $9,407,400 (the “Construction Loan”) under loan number 80-00000460-1;
and (ii) a junior loan with a maximum principal balance of $10,778,242 (the
“Junior Loan”) under loan number 80-00000460-2. The Construction Loan and
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the Junior Loan are pari passu in regard to the security interest securing the
loan and the same are cross-collateralized and cross-defaulted (d.e. 1-4).
9.
The November 3, 2010 amendments to the loan agreements
provided that a Judgment by Consent would be executed for the benefit of the
lenders in the event that the borrowers did not pay the full amount due on the
maturity date of the Construction Loan or Junior Loan (d.e. 1-4).
10.
The Construction Loan bears interest at an annual rate equal to the
prime rate, with a floor of 3.25%, and had a Maturity Date of October 31, 2012.
The Construction Loan provided that 98% of the gross sales, less contract
deposits, of the units of the Project would be remitted to Doral. The Junior
Loan is an interest only loan facility bearing interest at an annual rate equal to
the prime rate, with a floor of 3.25%, and had a Maturity Date of December 31,
2014. (d.e. 1-4).
11.
On October 29, 2012, Doral, the Borrower, and the Guarantors
amended Loan Agreement I as follows: (i) increase the aggregate principal
amount of the Construction Loan to $14,078,219.45; (ii) make available to the
Borrower an additional non-revolving credit line in the aggregate principal
amount of $501,000.00 (the “Construction Line”), which would also be pari
passu with the Construction Loan and the Junior Loan; and (iii) extend the
Maturity Date of the Construction Loan to July 31, 2013. The Construction Line
was intended for construction of three additional units. (d.e. 1-7).
12.
In October 2013, Doral, the Borrowers, the Guarantors, McCloskey
Pérez & Asociados, Inc., as Pledgor, and Doral Recovery II, LLC (as successor
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of Doral), amended Loan Agreement I as follows: (i) reflect that all of Lender’s
rights, title and interest to the referenced loans were transferred to Doral
Recovery II, LLC; (ii) extend the Maturity Date of the Construction Loan and the
Construction Line to January 31, 2015; and (iii) to amend the definition of Loan
Documents to include reference to said amendment.
Pursuant to this
amendment the Guarantors ratified the loan agreement and related
documents, as amended (d.e. 1-9).
13.
Each loan and amendment is evidenced by a promissory note
executed by Borrower in favor of Doral, and subsequently endorsed in favor of
Bautista (d.e. 1-2, d.e. 1-5, d.e. 1-6, d.e. 1-8).
14.
The loan agreements and promissory notes are guaranteed by the
following mortgage notes, among others:
(a) Mortgage Note payable to the order of Doral Financial
Corporation, subsequently endorsed in favor of Bautista, in the principal
amount of $13,000,000, due on demand, executed by the Borrower on
May 24, 2005, and secured by the Deed of Mortgage Number 27
(“Mortgage I”) executed by and between the Borrower and Doral on
May 24, 2005 before Notary Public Francisco Pujol Meneses, in the
principal amount of $13,000,000, constituted over property number 639
recorded in the Registry of the Property of Puerto Rico, First Section of
Caguas, at page 11 of volume 12 of Cayey (hereinafter, the “Property
639”). Mortgage I was subsequently increased in the principal amount of
$3,025,000.00 (“Mortgage Note I-B”), for a new aggregate amount of
$16,025,000 (as increased, also referred to as “Mortgage I”), pursuant
to Deed of Mortgage Number 9 executed by and between the Borrower
and Doral on February 24, 2006 before Notary Public Francisco Pujol
Meneses.
(b) Mortgage Note payable to the holder of the note, later
endorsed in favor of Bautista, in the principal amount of $4,687,530.00,
due on demand, authenticated under Affidavit Number 4,766 of Notary
Public Alfredo Ortiz Almedina (“Mortgage Note II”) and secured by Deed
of Mortgage Number 117 (“Mortgage II”) executed by the Borrower in
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favor of the holder of the Mortgage Note II on May 24, 2005 before
Notary Public Alfredo Ortiz Almedina, in the principal amount of
$4,687,530.00, constituted over Property 639.
(c) Mortgage Note payable to the bearer of the note, or to its
order, subsequently endorsed in favor of Bautista, in the principal amount
of $1,673,122.74, due on demand, authenticated under affidavit number
4929 of Notary Public Alfredo Ortiz Almedina (“Mortgage Note III”) and
secured by the Deed of Mortgage Number 27 (Mortgage III”) executed
by and between the Borrower and Doral on February 24, 2006 before
Notary Public Alfredo Ortiz Almedina, in the principal amount of
$1,673,122.74, constituted over the following properties, and each
responding for the amount set forth below: (i) Property number 3,985
recorded in the Registry of the Property of Puerto Rico, First Section of
Caguas, at page 17 of volume 110 of Cayey (“Property 3,985”) responds
for the amount of $707,859.69; (ii) Property number 1,767 recorded in
the Registry of the Property of Puerto Rico, First Section of Caguas, at
page 1 of volume 31 of Cayey (“Property 1,767”) responds for the
amount of $622,058.41 and (iii) Property number 2,672 recorded in the
Registry of the Property of Puerto Rico, First Section of Caguas, at page
35 of volume 391 of Cayey (“Property 2,672”) responds for the amount
of $343,204.64.
(d) Mortgage Note payable to the order of Doral, subsequently
endorsed in favor of Bautista, in the principal amount of $505,000.00,
due on demand, executed on February 24, 2006 by the Borrower,
authenticated under affidavit number 4,476 of Notary Public Francisco
Pujol Meneses (“Mortgage Note IV”) and secured by Deed of Mortgage
Number 13 (“Mortgage IV”) executed by and between Borrower and the
Lender on February 24, 2006 before Notary Public Francisco Pujol
Meneses, in the principal amount of $505,000.00, constituted over
Property 3,985.
(e) Mortgage Note payable to the order of Doral, subsequently
endorsed in favor of Bautista, in the principal amount of $250,000.00,
due on demand, bearing interest at a fixed rate of 15% per annum,
executed on February 24, 2006 by the Borrower, authenticated under
affidavit number 4475 of Notary Public Francisco Pujol Meneses
(“Mortgage Note V”) and secured by Deed of Mortgage Number 11
(“Mortgage V”) executed by and between Borrower and the Lender on
February 24, 2006 before Notary Public Francisco Pujol Meneses, in the
principal amount of $250,000.00, constituted over Property 2,672.
(f)
Mortgage Note payable to the order of Lender, in the principal
amount of $420,000.00, due on demand, bearing interest at a fixed rate
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of 15% per annum, executed on February 24, 2006 by the Borrower,
authenticated under affidavit number 4474 of Notary Public Francisco
Pujol Meneses (“Mortgage Note VI”) and secured by the Deed of
Mortgage Number 12 (“Mortgage VI”) executed by and between Borrower
and the Lender on February 24, 2006 before Notary Public Francisco
Pujol Meneses, in the principal amount of $420,000.00, constituted over
Property Number 1,767.
(g) Mortgage Note payable to the bearer, subsequently endorsed
in favor of Bautista, in the principal amount of $2,000,000.00, due on
demand, bearing interest at prime rate, executed on January 18, 2008 by
the Borrower, authenticated under affidavit number 30,449 of Notary
Public Manuel Correa Calzada (“Mortgage Note VII”) and secured by
Deed of Mortgage Number 1 (“Mortgage VII”) executed by the Borrower
on January 18, 2008 before Notary Public Manuel Correa Calzada, in the
principal amount of $2,000,000.00, constituted over the following
properties, and each responding for the amount set forth below: (i)
Property number 3,985 responds for the amount of $860,000; (ii)
Property number 1,767 responds for the amount of $740,000 and (iii)
Property number 2,672 responds for the amount of $400,000.
(h) Mortgage Note payable to the order of Doral, subsequently
endorsed in favor of Bautista, in the principal amount of $1,500,000.00,
due on demand, bearing interest at a fixed rate of 12% per annum,
executed on July 29, 2005 by the Borrower, and authenticated under
affidavit number 4698 of Notary Public Elaine Villanueva Martínez
(“Mortgage Note VIII”) and secured by Deed of Mortgage Number 101
(“Mortgage VIII”) executed by and between Borrower and the Lender on
July 29, 2005 before Notary Public Elaine Villanueva Martínez, in the
principal amount of $1,500,000.00, constituted over the Property 639.
(d.e. 1-10-1-25, d.e. 1-30).
15. The mortgaged properties are described in the Registry of Property
as follows:
Property 639
RUSTIC: Parcel comprised of 99.9227 cuerdas, equivalent to
392,736.18008 square meters, bordering on the NORTH with the
Estate of Pedro Vázquez, the Estate of Manuel Núñez and
Maximino Zayas, today Rene Flores, Ana Torres, Ramonita Rosa
Ortiz, and Municipal Government of Cayey; on the SOUTH, Parcel
“A” segregated in case number 02LI4-00001-00809, parcel
dedicated to public use and Guavate River; on the EAST, with
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lands of Máximo Zayas, today Esteban Ocasio. Edgardo Palacios,
José Molinary, Emilio Valines, Julio Merced, Edwin Aponte,
Bernardo Soler, Alfredo Meléndez, Enrique Vals, Felix Rivera,
Ruben Torres Rodríguez, Beatriz Creek, and Ramón Orraca; and
on the WEST, lands of Maximo Zayas, Toribio Santiago, Agapito
Reyes, Rafael Vega, Vicente Vélez, Bartolo Vélez, Maria Vélez,
Angeles Hernández, and Pedro Hernández, today, Guavate River,
Cristo La Roca Church, parcel of public use, segregated lot, Hector
Santiago, and Nicolas Peña.
Segregated from this property a parcel of 236,168.142 square
meters, today property number 23,414, according to deed
number 3367, executed in San Juan, Puerto Rico, on October 23,
2007, before Notary Jorge García Soto, on February 12, 2012,
leaving a non-described remnant of 156,568.03808 square meters,
equivalent to 39.8352 cuerdas, on February 1, 2012.
Property Number 639, is recorded at page 11 of volume 12 of
Cayey, Registry of Property of Puerto Rico, First Section of
Caguas. (d.e. 1-38, d.e. 42-1).
Property 3,985
RUSTIC: Parcel of land consisting in 16.50 cuerdas, equivalent to
6 hectares, 51 acres, 78 centiares, located in the Vega Ward of the
Municipality of Cayey, Puerto Rico, and bordering, on the NORTH,
with lands of Juan Orraca; on the SOUTH, with lands of Valeriano
Ortiz, formerly, today Lands Authority of the People of Puerto Rico,
Fermín del Valle, and Aurelio López, formerly, today Lucas De
Jesus Ramos; on the EAST, with Juan Orraca; and on the WEST,
with Juan Orraca.
Property Number 3,985, is recorded at page 17 of volume 110 of
Cayey, Registry of Property of Puerto Rico, First Section of
Caguas. (d.e.1-39, d.e. 42-2).
Property 1,767
RUSTIC: Consisting in 14½ cuerdas, equivalent to 5 hectares,
69 ares, and 20 centiares, in the Las Vegas Ward of Cayey, Puerto
Rico, bordering, on the NORTH, with Maximino Zayas, the People
of Puerto Rico, the Guavate neighborhood road, and lands of the
Estate of Pedro Vázquez and Escolástica Vázquez; on the
SOUTH, with lands of Teresa Aponte and Isaias Cruz, separated
by the Guavate River; on the EAST, with José Nieves Aponte; and
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on the WEST, with lands of Isaias Cruz, separated by the Guavate
River and Valeriano Ortiz.
Property Number 1,767, is recorded at page 1 of volume 31 of
Cayey, Registry of Property of Puerto Rico, First Section of
Caguas. (d.e. 1-40, d.e. 42-3).
Property 2,672
RUSTIC: Unnamed property, located in the Vega Ward of Cayey,
Puerto Rico, consisting in 8.00 cuerdas, equivalent to 31,440.00
square meters. Bordering on the NORTH and EAST, with lands of
Maximino Zayas; on the SOUTH and WEST, with the Guavate
River.
Property Number 2672 is recorded at page 35 of volume 391 of
Cayey, Registry of Property of Puerto Rico, First Section of
Caguas. (d.e. 1-41, d.e. 42-4).
16.
To secure the obligations under Loan Agreement I, the Borrower
and Doral executed pledge agreements in favor of Doral as to each mortgage
note. (d.e. 1-26-1-31).
17.
On November 3, 2010, the Borrower ratified its pledge agreements
regarding Mortgage Note I-A, I-B, IV, V, VI, and VII, and extended its security
interest thereof to cover the obligations under Loan Agreement I.
(d.e. 1-32-1-36).
18.
On February 5, 2008, the Borrower filed before the Department of
State a Financing Statement registered under #2008009289 in favor of Doral,
under Affidavit Number 30,454, in accordance with Chapter 9 of the
Commercial Transactions Act. The Financing Statement covers movable
property relating to Property No. 3,985, Property No. 1,767 and Property
No. 2,672, as detailed therein. (d.e. 1-37).
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19.
10
On February 24, 2006, Pérez-Tañon and McCloskey-Suarez each
executed a “Continuing and Unlimited Guaranty” to jointly and severally
guarantee the payment of all the obligations of the Borrower under the loan
agreements and promissory notes agreements. (d.e. 1-42-1-43).
20.
On January 18, 2008, Pérez-Tañón and McCloskey-Suarez each
executed a “Continuing and Unlimited Guaranty”, jointly and severally
guarantee the payment of all of the obligations of the Borrower under the loan
agreements and promissory notes. (d.e. 1-44-1-45).
21.
On November 3, 2010 Pérez-Tañón and McCloskey-Suarez each
executed an “Amended and Restated Guaranty and Agreement” (“Amended
Loan Agreement”) ratifying the February 24, 2006 guarantees. (d.e. 1-46,
d.e. 1-47).
22.
To further secure the obligations under Loan Agreement I, on
February 24, 2006, the Borrower and Doral executed an “Assignment
Agreement-Option and Sale Agreements” (the “Assignment Agreement I”)
where the Borrower assigned to Doral all of its rights, title and interest in and
to all sale agreements and option agreements detailed in Exhibit A to the
Assignment Agreement I. (d.e. 1-48).
23.
On February 24, 2006, the Borrower and Doral executed an
“Assignment Agreement Permanent Financing Commitment Letter” (the
“Assignment Agreement II”) Pursuant to the Assignment Agreement II, the
Borrower assigned to Doral a continuing lien in all of the Borrower’s right, title
and interest in and to the commitment issued by HF Mortgage Bankers (“HF”)
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and accepted by the Borrower prior to the date thereof to finance the purchase
of certain units of the Project to third parties. (d.e. 1-49).
24.
To secure the obligations under Loan Agreement I, on February 24,
2006, McCloskey-Suárez, as pledgors, the Borrower and Doral executed an
“Assignment of Rights and Security Interest of First Rank Agreement” (the
“Assignment Agreement III”) (d.e. 1-50); Pérez-Tañón, as pledgors, the
Borrower and Doral executed an “Assignment of Rights and Security Interest
of First Rank Agreement” (the “Assignment Agreement IV”) (d.e. 1-51);
McCloskey Pérez & Asociados, Inc., the Borrower and Doral executed an
“Assignment of Rights and Security Interest of First Rank Agreement” (the
“Assignment Agreement V”) (d.e. 1-52); and the Borrower and Doral executed
an “Assignment of Plans and Drawings, Construction Contracts, Permits and
Warranties” (“Assignment Agreement VI”) (d.e. 1-53).
Each of these
agreements served to pledge the collateral defined therein in favor of Doral.
25.
On November 3, 2010, the Borrower ratified Assignment
Agreements I, II, IV, and IV and extended its security interest thereof to cover
the amended obligations. (d.e. 1-54-1-57).
26.
The Federal Deposit Insurance Corporation (the “FDIC”) and
Bautista signed an Assignment and Assumption Agreement whereby Bautista
acquired certain credit facilities as part of Doral Bank’s receivership
proceedings, including the Assignment Agreements
I-VI and
their
corresponding Ratifications, the Guaranties, the Financing Agreements, the
Mortgage Notes, the Mortgages, the Pledge Agreements, the Ratification
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Agreements, the Financing Statement and the Real Estate Collateral.
(d.e. 42-7).
27.
Defendants defaulted in that they failed to pay the amount due on
the maturity dates of the Construction Loan and Junior Loan under the
2010 Amended Loan Agreement (d.e. 42-7).
28.
On June 13, 2016, Bautista sent a Notice and Declaration of Events
of Default to the Defendants stating that they had not complied with their
obligations under the Financing Agreements. Bautista demanded full payment
of the outstanding amounts within ten (10) days, that is, by June 23, 2016.
Borrowers did not make any payment. Bautista declared all of the obligations
under the Financing Agreements as immediately and automatically due.
(d.e. 1-58).
29.
The Borrower remains in default (d.e. 42-7).
30.
The amount due on the loans as of February 26, 2019 is
$24,898,205.56, calculated as follows:
Junior Loan: $10,778,241.64 for principal, plus $5,555,575.65 for
accrued interest, $66,230.07 for late fees, $889,803.73 for default
interest and $26,610.00 for insurance, for a total of $17,316,461.09.
Construction Loan: $4,229,944.95 for principal, plus $832,247.15 for
accrued interest, $34,281.64 for late fees, $2,136,065.27 for legal
expenses and $349,205.46 for default interest, for a total of
$7,581,744.47. (d.e. 42-7).
II.
RULE 56 STANDARD FOR SUMMARY JUDGMENT
The Court may grant a movant’s motion for summary judgment when “the
pleadings, answers to interrogatories, and admissions on file together with the
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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 Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986); NASCO, Inc. v. Pub. Storage, Inc., 29 F.3d 28 (1st Cir. 1994). “In
this context, ‘genuine issue’ means that the evidence about the fact is such
that a reasonable jury could resolve the point in favor of the non-moving party
[and] ‘material’ means that the fact is one that might affect the outcome of the
suit under the governing law.” United States v. One Parcel of Real Property,
Etc., 960 F.2d 200, 204 (1st Cir. 1992). Therefore, a factual issue is material
if it is relevant to the resolution of a controlling legal issue raised by the motion
for summary judgment. U.S. Fire Ins. Co. v. Producciones Padosa, Inc.,
835 F.2d 950, 953 (1st Cir. 1987).
Once the party moving for summary judgement has established an
absence of material facts in dispute, and that he or she is entitled to judgement
as a matter of law, the “party opposing summary judgment must present
definite, competent evidence to rebut the motion.” Méndez-Laboy v. Abbott
Lab., 424 F.3d 35, 37 (1st Cir. 2005) (quoting Maldonado-Denis v.
Castillo-Rodríguez, 23 F.3d 576, 581 (1st Cir. 1994)).
III.
DISCUSSION
The plaintiff and defendants have filed dueling Motions for Summary
Judgment. The parties agree that the Amended Loan Agreement (d.e. 1-4) is
valid and that defendants failed to repay the loans in full on their determined
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Maturity Dates. As there is no dispute as to the material facts, only the
following issues of law remain: (1) whether judgment by consent is plaintiff’s
sole remedy under the contract; and (2) whether defendants have materially
defaulted such that they are not entitled to release from personal liability.1
A.
Judgment by Consent
Defendants claim that plaintiff’s sole remedy under the Amended Loan
Agreement is to file a judgment by consent in the Court of First Instance of
Puerto Rico, and that summary judgment in their favor and dismissal are
therefore warranted (d.e. 34). Defendants rely on the following language to
support their position:
(a) . . . If Borrower is unable to pay the entire amount of the
Construction Loan on the Maturity Date Construction, then
Borrower hereby agrees that the Real Property-Terra del Monte
I will be transferred in to the Lender or Lender’s designee on said
date pursuant to a consent judgment in an ordinary foreclosure
process. To facilitate the rights of the Lender, Borrower will
execute within 30 days from the Closing Date a consent judgment
regarding the final voluntary disposition of the Real Property-Terra
del Monte I to be prepared by Lenders counsel; which consent
shall be signed by Borrower and its counsel and the Lender and its
counsel, and after all parties have signed the consent judgment,
said document shall be sealed and held in escrow by Lender.
Borrower and the Guarantor hereby agree that if on the Maturity
Date Construction Loan the Construction Loan is not paid in full,
including any accrued non-default interest, the Lender shall be
entitled to file with the court of first instance with competent
jurisdiction over the matter the aforementioned consent judgment
without any further notification to or consent from either Borrower
and/or Guarantors.
1
Defendants have failed to challenge the amount due on the loans alleged by plaintiffs,
$24,898,205.56, instead relying solely on the argument that plaintiff’s only remedy is Judgment by
Consent and that defendant is entitled to release and discharge of liability (d.e. 45, para. 22).
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...
(d) Judgment by Consent. As indicated in either Section 2.07(a)
or 2.07(b) hereof, the Borrower and Guarantors agree that in
each instance under Section 2.07(a) or 2.07(b), as applicable, to
request the applicable Court of First Instance in the
Commonwealth of Puerto Rico, by way of a Motion to Inform
Settlement Agreement and Request for Judgment by Consent
(“Estipulación Transaccional y Solicitud de Sentencia por
Consentimiento” or “Borrower Consent Judgment”) to enter
judgment incorporating the terms and conditions of this Amended
Loan Agreement . . .
(d.e. 1-4 § 2.07, “Payments”).
Contrary to defendants’ arguments, the language of Section 2.07 does
not suggest that the Lender is required to file the Judgment of Consent if
Borrow cannot make full payment on the date of maturity. The stated intent of
the consent judgment is “[t]o facilitate the rights of the Lender,” and the Lender
“shall be entitled” –not required– to file the Judgment of Consent. Section 2.07
imposes duties on the borrower and guarantor, but not the Lender. This
language suggests that Judgment by Consent is not plaintiff’s sole remedy, but
may be exercised at his discretion.
Plaintiff points to further evidence that its remedies are not limited by the
Amended Loan Agreement, and asks the Court to grant summary judgment in
its favor. Plaintiff cites the following provisions:
Upon the occurrence of an Event of Default, Lender may take any
one or more or all of the following actions:
(i)
Declare the outstanding principal balance of the
Promissory Note No. 1, Promissory Note No. 2 and all
other Obligations, plus accrued interest thereon and all
fees and costs, if any, to be immediately due and
payable.
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(ii)
Terminate this Agreement and all of Lenders’
obligations hereunder and thereunder, including the
obligation of Lender to make additional advances
hereunder or thereunder and accelerate in full or in
part any and all obligations or indebtedness
thereunder.
(iii)
Exercise all rights and remedies provided by
applicable law, this Agreement, the other Loan
Documents and any and all other documents,
instruments and agreement executed by Borrower
in favor of Lender.
[…]
(d.e. 1-4, § 6.02, “Remedies”) (emphasis added)
If any such Event of Default occurs, Lender shall be entitled to
exercise any and all rights and remedies including, without
limitation, foreclosure against the collective collateral for the Loans
in any order and in any combination as Lender shall desire, it being
expressly understood and agreed by Borrower that the collateral
securing any part of the Loans is collateral for either the
Construction Loan and the Junior Loan. Nothing in this
Agreement shall limit the rights and remedies of Lender
against Borrower after the occurrence of an Event of Default
under the [sic] any loan documents.
(d.e. 1-4, § 12.17, “Cross-Collateral/Cross Default”) (emphasis added).
These provisions explicitly state that plaintiff’s remedies are not limited
to a consent judgment in the event of default. An “event of default” under the
contract includes the “failure of Borrower . . . to make any principal or interest
payment when due” (d.e. 1-4, § 6.02, “Events of Default”). The failure to pay
the balance of the loan on its maturity date clearly falls under this definition,
and defendants admit they have failed to make such payment.
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The Court finds that plaintiff’s remedy is not limited to filing a consent
judgment in the Court of First Instance, and that plaintiff is entitled to exercise
any of the remedies listed in Section 6.02.
B.
Release
The Court must next determine whether defendants are entitled to
release from liability pursuant to Section 2.07 of the Amended Loan
Agreement:
(b) . . . Provided that (i) the Borrower or Guarantors do not bring
any new action, cause of action, judgment, suit or claim against the
Lender or its officers, directors, shareholders, agents,
representatives, successors and assigns and attorneys (the
“Lender Related Parties”) based on the Amended Loan Agreement
or Loan Documents; (ii) the Borrower and Guarantors do not file
from Bankruptcy protection prior to that date which is 120 days
after the Release Date; (ii) the Borrower or Guarantors take no
actions to contest this Amended Loan Agreement, the
Borrower Consent Judgment, or the foreclosure sale or
process; (iv) the Borrower and Guarantor are not in Material
Default, and (v) as long as Borrower and Guarantors comply with
all the terms and conditions set forth herein, including the
agreement for an expedited foreclosure process, and take no
action in violation or breach of any other agreements with Lender,
then on the Release Date, and in compliance with all of the terms
hereof, all amounts due and owing under the Loan Documents, will
be deemed paid in full and Borrower shall have no further liability
hereunder. On the Release Date and upon of satisfaction and
compliance with all if the terms and conditions of the instant
Amended Loan Agreement, the Lender shall release and discharge
the Guarantors from any and all liability for the Loan, and their
obligations under the respective Guaranties (except with respect
to any environmental liability that may exist), respectively. Such
release and discharge shall be evidenced by the execution of
Release Agreements (collectively the “Release Agreements”) in the
form of Exhibits D(1) and D(2) hereto . . . Until the Release Date,
Guarantors shall remain liable to Lender for all amounts due and
owing under the Loan Documents.
(d.e. 1-4 § 2.07).
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Defendants argue that they are entitled to a release and discharge from
further liability under this provision once a foreclosure sale is conducted.
However, defendants have taken actions to contest the Amended Loan
Agreement and the foreclosure process, which disqualifies them from release
and discharge under 2.07(b). Specifically, in their Answer (d.e. 30) defendants
raised the affirmative defenses that plaintiff has caused damage requiring
offset; that defendants are excused from compliance with the Amended Loan
Agreement; that plaintiff failed to mitigate its damages; and that the foreclosure
action is barred by the statute of limitations. In addition, defendants sought
summary judgment to dismiss plaintiff’s foreclosure action (d.e. 34). As
defendants have violated the conditions listed at Section 2.07, the Court finds
they are not entitled to release and discharge under the Amended Loan
Agreement.
IV.
CONCLUSION
Having considered defendants’ Motion for Summary Judgment (d.e. 34)
and Statement of Material Facts (d.e. 33) filed February 12, 2019 and plaintiff’s
Opposition (d.e. 39) and Opposing Facts (d.e. 40) filed March 22, 2019
(d.e. 39), the Motion is DENIED.
Having considered plaintiff’s Motion for Summary Judgment (d.e. 41) and
Statement of Material Facts (d.e. 42) filed March 22, 2019 and defendants’
Opposition (d.e. 46) and Opposing Facts (d.e. 45) filed April 12, 2019; the
CIVIL 17-1520CCC
19
Motion is GRANTED. Judgment shall be entered in favor of the plaintiff by
separate order.
SO ORDERED.
At San Juan, Puerto Rico, on January 9, 2020.
S/GUSTAVO A. GELPÍ
Chief United States District Judge
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