Garita Hotel Ltd. Partnership v. Ponce Federal Bank

UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT

No. 97-1293

GARITA HOTEL LIMITED PARTNERSHIP d/b/a
GARITA HOTEL CORPORATION,

Plaintiff, Appellant,

v.

PONCE FEDERAL BANK,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Daniel R. Dominguez, U.S. District Judge]

Before

Boudin, Circuit Judge,

Gibson,* Senior Circuit Judge,

and Pollak,** Senior District Judge.

Eric A. Tulla with whom Rivera Tulla & Ferra was on brief for

appellant.
J. Anthony Downs with whom A. Lauren Carpenter, Goodwin, Procter

& Hoar, Harold D. Vicente and Vicente & Cuebas were on brief for

appellee.

September 5, 1997

*Hon. John R. Gibson, of the Eighth Circuit, sitting by designation.
**Of the Eastern District of Pennsylvania, sitting by designation.

Per Curiam. In the district court, Garita Hotel claimed

that Ponce Federal Bank had unconditionally contracted to

lend Garita $6 million for the expansion, renovation and

operation of a hotel complex in Carolina, Puerto Rico, and

that the bank breached that contract when it refused to

advance funds unless Garita obtained a casino license. The

district court, acting after a remand from this court, Garita

Hotel L.P. v. Ponce Fed. Bank, 958 F.2d 15 (1st Cir. 1992) ,

granted summary judgment to Ponce Federal. Garita's appeal

to this court followed.

We review the district court's grant of summary judgment

de novo, drawing reasonable inferences in Garita's favor.

Grenier v. Vermont Log Bldgs., Inc., 96 F.3d 559, 562 (1st

Cir. 1996). On the record before the district court, most of

the undisputed facts strongly suggested that approval of the

casino license had been an understood condition of the loan.

Garita's main argument to the contrary rests on an alleged

oral statement to Garita representatives, by a Ponce Federal

agent in September 1986, that the bank had "approved" the

loan. Internal bank documents arguably corroborate the

making of this statement.

Under Puerto Rico law, a commercial contract must be

corroborated, and this requirement extends not just to the

existence of an agreement but also to its essential terms.

Vila & Hnos, Inc. v. Owens Ill. de Puerto Rico, 17 P.R.

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Offic. Trans. 987, 997-1000 (1986). The district court

invoked this requirement, holding that there was certainly no

corroboration for the claim that the bank had agreed to make

the loan unconditionally and without regard to the approval

of the casino license. On appeal, Garita argues that the

loan agreement should not have been classified as a

commercial contract.

A Puerto Rican statutory provision defines a loan as

commercial if (1) at least one party is a "merchant" and (2)

the loan proceeds "are destined to commercial transactions."

10 L.P.R.A. 1651; see id. 1001 (defining merchant).

Here, where an established bank proposed to extend a sizable

loan to an experienced hotel and casino management company

for the purpose of renovating and operating a luxury hotel-

casino complex, we agree with the district court that

whatever contract the parties may have formed is commercial

in nature under Puerto Rican law. See FDIC v. Consolidated

Mortgage & Fin. Corp., 805 F.2d 14, 18 (1st Cir. 1986).

Garita contends that the loan was not commercial because

it was extended for a purpose (hotel renovation) that

differed from Garita's traditional business (hotel

management). It is true that courts have found noncommercial

transactions where borrowed funds were used for personal

purposes, see, e.g., FDIC v. Martinez Almodavar, 671 F. Supp.

851, 868-70 (D.P.R. 1987); or where the loan was apparently

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made for largely personal reasons, see, e.g., Barcel & Co.

v. Olmo Reyes, 48 P.R.R. 239, 241-42 (1935). But any loan

agreement between Garita and Ponce Federal was for the

clearly commercial purpose of real estate development. See

Consolidated Mortgage, 805 F.2d at 18.

Garita also relies on FDIC v. Francisco Investment

Corp., 638 F. Supp. 1216 (D.P.R. 1986), rev'd on other

grounds, 873 F.2d 474 (1st Cir. 1989). There, the district

court held that a loan to a corporation controlled by

doctors, who borrowed the money to buy all the shares of an

incorporated nursing home, intending to operate it as a

hospital or other medical facility, was not commercial. This

court had no occasion to resolve the issue. Francisco, 873

F.2d at 476.

Francisco rested heavily on the notion that medical

practice was inherently not a "commercial" endeavor within

the specialized meaning of section 1651, Francisco, 638 F.

Supp. at 1218-19, a notion that has little application to a

hotel and casino company proposing a new hotel and casino

venture. There is some language in Francisco arguably more

helpful to Garita, but that language may itself be in some

tension with Puerto Rico case law indicating that a loan may

be "commercial" even though the planned use of funds differs

from the borrower's historical business. See, e.g., Vila &

Hnos, 17 P.R. Offic. Trans. at 990, 995-96 (corporation

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engaged in transportation of sand and stone sought financing

to purchase property capable of supplying these materials).

Thus, we agree with the district court that the loan

agreement in this case was a commercial contract for which

corroborating evidence was required as to the existence of

the agreement and its essential terms. Nothing in the record

corroborates Garita's contention that Ponce Federal agreed to

a loan regardless of government approval of the planned

casino. Summary judgment was properly granted.

Affirmed.

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