Opinion
Civil No. 18-1409(DRD)
09-27-2019
IN RE: CHASE MONARCH INTERNATIONAL INC., Debtor Chase Monarch International Inc., Appellant, v. Cherif Medawar Monsita Lecaroz Arribas, Trustee, Appellee.
Hector F. Figueroa-Vincenty, El Bufete del Pueblo, PSC, Nelson Robles-Diaz, Nelson Robles-Diaz Law Offices P.S.C., San Juan, PR, for Appellant. Solymar Castillo-Morales, Goldman Antonetti & Cordova, for Appellee.
Hector F. Figueroa-Vincenty, El Bufete del Pueblo, PSC, Nelson Robles-Diaz, Nelson Robles-Diaz Law Offices P.S.C., San Juan, PR, for Appellant.
Solymar Castillo-Morales, Goldman Antonetti & Cordova, for Appellee.
BANKRUPTCY APPEAL
OPINION AND ORDER
DANIEL R. DOMINGUEZ, U.S. DISTRICT JUDGE
Pending before the Court is Debtor's appeal from an order issued on June 10, 2019 related to a Bankruptcy Petition (Case # 17-06841) before U.S. Bankruptcy Judge Brian K. Tester, denying Appellant's Motion for Reconsideration . The Court rules that the bankruptcy order object of the appeal is CONFIRMED .
I. FACTS
In 2008, Defendant-Appellee Cherif Medawar [hereinafter, referred to as "Medawar" or "Appellee"] and his wife purchased a property in Old San Juan, which, approximately three years later, they decided to turn the property into a guest house [hereinafter referred to as "the guesthouse" or "Monastery Arts Suites"]. The guesthouse started operating in December of 2015. (See Docket No. 45 at 20). Two years later —on September 5, 2017— Plaintiff-Appellant Chase Monarch International [hereinafter, referred to as "Chase" or "Appellant"] and Medawar executed a Leasing Contract with Option to Purchase, in which Medawar agreed to replace the guesthouse's prior management for Chase. In turn, Chase would "take possession" of the guesthouse. (Docket No. 37 at 21). During the time these events occurred, Puerto Rico was already on hurricane watch due to the trajectory of Hurricane Irma at the time.
The parties further agreed that a reduced payment of $7,000 would be paid on the first day of each month until December 2017. After this six-month discounted rental payment, the rate would increase to $12,000 dollars per month. (See Id ). The contract also stated that after the fifth of each month, Chase would be charged an additional $100 for every day that passed. (See Id ). If on the eleventh day of the month, Chase still had not made the monthly payment, Medawar would "have the right to terminate the leas[ing agreement] and take over the property without further notice." (See Id ).
On September 20, 2017, Hurricane Maria struck the island. Although the hurricane caused mass destruction, Monastery Arts Suites did not suffer a significant amount of structural damage and was one of the first buildings in Old San Juan to restart business. (See Id at 34). During this time, the first month's rent payment was due, and on October 23, 2017 —upon learning that Chase was receiving income— Medawar sent Chase a "notice requesting compliance with the terms of the lease agreement within the next seven days" via email. (See Id at 23). Due to Chase's failure to comply with the payment, on October 31, 2017, Medawar sent Chase a letter terminating the leasing agreement. (See Docket No. 37 at 23).
On November 14, 2017, Chase filed a Voluntary Petition under Chapter 11 of the United States Bankruptcy Code, and on January 24, 2018, the Bankruptcy Court issued its Opinion and Order, ordering Chase to surrender the premises of "Monastery Arts Suites". (See Id at 25). On February 10, 2018, Chase presented a Motion for Reconsideration , requesting that the Bankruptcy Court apply the rebus sic stantibus doctrine. The Bankruptcy Court a quo denied said motion on June 10, 2018. This appeal followed.
II. JURISDICTION
We have appellate jurisdiction over this case pursuant to 28 U.S.C. § 158(a)(1) and Fed. R. Bankr. P. 8001(a). "An order dismissing a motion for reconsideration is final if the underlying order is final and together the orders end the litigation on the merits." Rodriguez v. Banco Popular de Puerto Rico (In re Rodriguez) , 516 B.R. 177, 182 (1st Cir. BAP 2014) (citing Garcia Matos v. Oliveras Rivera (In re Garcia Matos) , 478 B.R. 506, 511 (1st Cir. BAP 2012) ). The merits of this appeal were decided by a final order and the denial of the reconsideration by the Bankruptcy Court. Hence, the District Court has jurisdiction. Moreover, the appeal was timely filed.
III. STANDARD OF REVIEW
We evaluate the bankruptcy court's findings of fact pursuant to the "clearly erroneous" standard of review and its conclusions of law de novo. Grella v. Salem Five Cent Sav. Bank , 42 F.3d 26, 30 (1st Cir.1994) ; see also Fed. R. Bank. P. 8013 ; Palmacci v. Umpierrez , 121 F.3d 781, 785 (1st Cir. 1997). We may reverse the bankruptcy court's dismissal of this proceeding for failure to comply with the legal framework of Local Rule 56(c) only if it was a clear abuse of discretion. See Top Entrn't Inc. v. Ortega , 285 F.3d 115, 117 (1st Cir. 2002) ; Damiani v. Rhode Island Hosp. , 704 F.2d 12, 17 (1st Cir. 1983). An abuse of discretion presents itself "when a material factor deserving significant weight is ignored, when an improper factor is relied upon, or when all proper and no improper factors are assessed, but the court makes a serious mistake in weighing them." Bushav v. McDonnell (In re Bushay) , 327 B.R. 695, 701 (1st Cir. BAP 2005) (citing Indep. Oil & Chem. Workers of Quincy, Inc. v. Procter & Gamble Mfg. Co. , 864 F.2d 927, 929 (1st Cir. 1988) ).
IV. ANALYSIS
Appellant argues that the Bankruptcy Court erred in denying its Motion for Reconsideration . Specifically, Appellant claims that the, Bankruptcy Judge erroneously applied the doctrine of Casera Foods, Inc. v. E.L.A , 108 P.R. Dec. 850, 8 P.R. Offic. Trans. 914 (1979) and should have instead decided the case under the rebus sic stantibus doctrine, as applied in BPPR v. Sucn. Talavera , 174 P.R. Dec. 686 (2008). (Docket No. 34 at 7). Furthermore, Appellant contends that the method of delivery that Appellee used failed to comply with the notification clause agreed upon in the contract because Appellee had used only one of the two methods mentioned in the contract. (Id ). In contrast, Appellee argues that the rebus sic stantibus doctrine does not apply because Appellant does not meet all of the requirements necessary to be covered by the doctrine. Appellee also contends that the method used to send the notice to cure and terminate the contract complies with the terms set forth in clauses § 5 and § 7 of said contract. (Docket No. 37 at 40).
This Court adopts the expressions of the First Circuit in Rolon-Alvarado v. Municipality of San Juan , 1 F.3d 74, 77 n.1 (1993) :
First Circuit Local Rule 30.7 provides in pertinent part that, ‘[w]henever an opinion of the Supreme Court of Puerto Rico is cited in a brief ... [and] does not appear in the bound volumes in English, an official, certified or stipulated translation thereof with three conformed copies shall be filed." In this instance, the parties have cited several such cases without supplying translations. [This Court] reminds litigants of their obligations under Local Rule 30.7 and forewarns the bar that, in the future, [this Court] will insist upon strict observance of the rule.
See Docket No. 45 for Certified Translation.
A. The Rebus Sic Stantibus Doctrine
Under Puerto Rico law, the rule that governs contracts is based upon the principle of pacta sunt servanda , which emanates from Section 2994 of the Puerto Rico Civil Code, 31 P.R. Laws § 2994. It is well known that, so long as a contract is in accordance with the principles of good faith, use, and law, the stipulations agreed upon by the parties are binding and must be complied. There are certain situations, however, in which this contractual principle may be bypassed and the courts can resolve the situations based on the principles of equity and good faith. Sucn. Talavera , 174 P.R. Dec at 694 ; See also Docket No. 45 at 7. One of these instances is the rebus sic stantibus doctrine, through which a change of circumstance merits the review of the contractual obligations stipulated between the parties. Id . For this remedy to be applicable, the party seeking the remedy must meet the following requirements, namely:
Section 2994 of the Puerto Rico Civil Code states that: "[o]bligations arising from contracts have legal force between the contracting parties, and must be fulfilled in accordance with their stipulations." 31 P.R. Laws § 2994 (2015).
"Contracts are perfected by mere consent, and from that time they are binding, not only with regard to the fulfillment of what has been expressly stipulated, but also with regard to all the consequences which, according to their character, are in accordance with good faith, use, and law." 31 P.R. Laws § 3375. In similar respect, Section 3451 of the Civil Code of Puerto Rico also states that "[c]ontracts shall be binding, whatever may be the form in which they may have been executed, provided the essential conditions required for their validity exist." 31 P.R. Laws § 3451 (2015).
(1) The basic unforeseeability test, which implies a question of fact dependent [sic] on each case's circumstances.
(2) That there be an extraordinary difficulty. An aggravation of conditions to such degree that performance would be much more burdensome for the promisor. This does not have to reach the extraordinary stage in which such difficulty would be confounded with impossibility to perform, which is another question of fact on [sic] which no general rules can be easily given.
(3) That risk not be the determining cause of the contract, as in the case in aleatory contracts.
(4) That there be no fraudulent acts by any of the parties, since the effects of the supposed offenses and quasi-offenses are specifically predetermined by law.
(5) That the contract be an installment contract or one projected into the future, so that it have [sic] a certain duration, since such problem does not exist with contracts which are to be immediately performed or those which have been performed already.
(6) That the change of circumstances be subsequent to the execution of the contract (since it would otherwise be incompatible with the very concept of unforeseen event) and that it be permanent to a certain degree (an element which is also necessarily concomitant with the required extraordinariness of the change).
(7) That there be a petition by the interested party.
Casera Foods, Inc. , 108 P.R. Dec. at 856, 8 P.R. Offic. Trans. at 921.
The Court notes that the doctrine of rebus sic stantibus is an extraordinary remedy "which should be employed only in exceptional instances requiring a judicious and scrupulous moderating judicial discernment." Id. at 857, 8 P.R. Offic. Trans. at 922 (emphasis added). See also Medina & Medina v. Country Pride Foods, Ltd. , 631 F.Supp. 293, 298 (1986) ("[Rebus sic stantibus ] is, however, an extraordinary remedy to be applied only in extreme circumstances."). Furthermore, the remedy can only proceed should the party invoking meets every one of the requirements transcribed above. Casera Foods, Inc. , 108 P.R. Dec. at 857, 8 P.R. Offic. Trans. at 922. If any one of the requirements is not met, the remedy is inapplicable. Id .
B. Applicability of the rebus sic stantibus doctrine
The Bankruptcy Court declined to apply the rebus sic stantibus doctrine to this case as the Appellant did not comply with the doctrine set forth in Casera Foods, Inc . Appellant Chase, however, claims that the Bankruptcy Court erred in applying Casera Foods, Inc. and should have instead followed the holding outlined in BPPR v. Sucn. Talavera .
108 P.R. Dec. 850, 8 P.R. Offic. Trans. 914 (1979).
174 P.R. Dec. 686 (2008).
Chase claims this case presents an extraordinary circumstance that merits the application of the rebus sic stantibus doctrine due to the unforeseeable nature of Hurricane Maria. (Docket No. 34 at 7). As this Court has previously stated, this doctrine is an extraordinary remedy, only to be used in exceptional circumstances ; the party seeking its applicability must meet all seven requirements. The Court need not go beyond the first requirement. It is well known that hurricanes are a common occurrence in the Caribbean. Therefore, a hurricane "may be reasonably anticipated, thus allowing people to make last minute arrangements." De la Cruz v. Toro Sintes , 112 P.R. Dec. 650, 657, 12 P.R. Offic. Trans. 811, 820 (1982). Although the events of Hurricane Maria were devastating and unfortunate, this Court is of this opinion that a natural disaster such as this one is not unforeseeable. Further. The contract has no exception to payment due to the passing of a hurricane through the island.
See Casera Food, Inc. 108 P.R. Dec. at 857, 8 P.R. Offic. Trans. at 922 (1979).
See also Bocanegra Nieves v. Lopez Perez , T.C.A. 1, 8 (2005), 2005 WL 2705957, which states:
The passing of a hurricane through the island is foreseeable. There is a hurricane season every year on this island and, although an atmospheric phenomenon does not strike us every year, it is expected to happen at any moment. Furthermore, compliance with the contract was not extremely difficult nor onerous, indeed the obligation remained unaltered. The only change, accepted by both parties, was the loss of electrical and communication services for [about a month]. The [appellant] cannot take advantage of the situation created after the passing of the hurricane to fail to comply with the leasing contract. (Translation ours).
This, coupled with the fact that one of the clauses of the leasing agreement between Chase and Medawar related to natural disasters such as this one , forces this Court to conclude that Chase does not comply with the requirements set forth in Casera Food, Inc. v. E.L.A. Therefore, the Court holds the Bankruptcy Court's determination is affirmed.
Clause 15 of the Lease states that "[i]f the leased Premises become damaged by natural disasters, such as hurricanes or earthquakes, or becomes subject to condemnation or expropriation by the central or municipal government or any of its agencies, Tenant will not claim any compensation from the Landlord for termination of this Contract."
108 P.R. Dec. 850, 8 P.R. Offic. Trans. 914 (1979).
C. Applicability of BPPR v. Sucn. Talavera
Chase also argues that Medawar's actions created a state of defenselessness — parallel to that in BPPR v. Sucn. Talavera —making that case applicable to the case at bar. This argument falls short.
The Bankruptcy Court limited its comments to simply stating that no error was committed. (Docket No. 1-3 at 5).
In BPPR v. Sucn. Talavera , Banco Popular de Puerto Rico [hereinafter, BPPR] and Mrs. Talavera's husband executed a Leasing Contract with Option to Purchase for a lot that he owned in Puerto Rico. Upon his death, Mrs. Talavera, by this time at an elderly stage and living in Texas, sent BPPR a letter stating, inter alia , that she has no knowledge of her husband's business deals and requesting advice on how to minimize the amount of property taxes she paid in Puerto Rico. BPPR paid no mind to this request, continuing the accorded monthly payments. After her death, BPPR decided to execute the option to purchase and consigned the allotted amount in the Court of First Instance (at this time, the allotted price was well below the lot's worth in the housing market). The Estate of Talavera claimed that the rebus sic stantibus doctrine applied, and the Supreme Court of Puerto Rico held, in a pertinent part, that a court of law can intervene to modify a contractual obligation based on the principle of good faith when not doing so would create a situation of grave injustice. 174 P.R. Dec. 686 (2008).
BPPR v. Sucn. Talavera is materially different from the instant case. Firstly, the Supreme Court of Puerto Rico decided that case based on the principles of equity, fairness, and good faith. Second, the Appellant's arguments in BPPR v. Sucn. Talavera stem from the bad faith of Banco Popular de Puerto Rico against Rita Talavera, an elderly woman who had absolutely no knowledge regarding the housing market and who was taken advantage, creating a situation of grave injustice.
Id.
See Id at 712 ; Docket No. 45 at 22, which states:
[W]e are not limited to examining the facts from the [Appellant] [of the rebus sic stantibus doctrine], since equity allows us to mitigate the severity of the general rule's application to a particular case if by applying the clear letter of the law or the clear text of the contract causes an unusual and unfair result.
The facts of the case herein are completely different. Chase is a financial institution that has experience with contractual obligations and the repercussions that come with failing to comply with the terms agreed upon. Furthermore, it has already been established that when Chase's representatives entered into the leasing contract with Medawar, the entire island was on hurricane watch due to the imminent threat of Hurricane Irma. Chase cannot claim that it was in a "state of defenselessness. Therefore, the Court affirms the Bankruptcy Court's decision.
Cf . Id at 714 ; Docket No. 45 at 24 ("Ms. Talavera's state of defenselessness was patently and clearly established...")
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V. CONCLUSION
The Court hereby AFFIRMS the bankruptcy court's Order dated June 10, 2019. Accordingly, Chase's appeal from Bankruptcy Court is DENIED .