Georgia v. Equia

• Court: Court of Appeals for the First Circuit
• Decided: January 31, 1994
• Docket: 93-1770
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT

                                 ____________________

No. 93-1770

                             GEORGIA PACIFIC CORPORATION,

                                 Plaintiff, Appellee,

                                          v.

                          PABLO EGUIA & SONS, INC., ET AL.,

                               Defendants, Appellants.

____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

[Hon. Juan M. Perez-Gimenez, U.S. District Judge]
                                               ___________________

                                 ____________________

                                        Before

                                 Breyer, Chief Judge,
                                         ___________
                            Coffin, Senior Circuit Judge,
                                    ____________________
                              and Boudin, Circuit Judge.
                                          _____________

                                 ____________________

            Federico Lora Lopez for appellants.
            ___________________
            Manuel  Fernandez-Bared  with  whom  Nestor  Duran  and  McConnell
            _______________________              _____________       _________
        Valdes were on brief for appellee.
        ______

____________________

                                   January 31, 1994
                                 ____________________

BREYER,  Chief  Judge.   The  sole  issue  on this
                                ____________

             appeal is whether  a three-year, or a  fifteen-year, statute

             of limitations applies to plaintiff's claims.  We agree with

             the  district court  that  a  fifteen-year statute  applies.

             And,  we  affirm  its  grant  of  summary  judgment for  the

             plaintiff.

                                          I

                                      Background
                                      __________

                       The  parties agree  about all the  relevant facts.

             In 1981, the  plaintiff, Georgia Pacific Corp.,  promised to

             pay  the defendant,  Pablo Eguia  & Sons,  a commission  for

             finding retailers  who would  sell the  plaintiff's bathroom

             tissue in Puerto Rico.  The defendant, as an "inducement" to

             the  plaintiff to enter into the  contract, promised that it

             would  "guaranty"  the retailers'  consequent  "payment[s]."

             And, it entered into a  Guaranty Agreement that spelled  out

             the details.

                       Apparently, over the years,  certain retailers did

             not pay for bathroom tissue that they bought.  And, in 1991,

             the plaintiff brought this diversity action in Puerto Rico's

             federal  district  court  to  collect  on   the  defendant's

             guarantee.    The  only  meaningful  defense  concerned  the

             statute  of limitations.  Defendant argued that a three-year

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statute of limitations applied, in which case (the plaintiff

             concedes) it would bar the  plaintiff's $214,000 claim.  The

             plaintiff argued,  however, that  a different,  fifteen-year

             statute of limitations  applied to its claim,  in which case

             (the defendant concedes) the claim is not time-barred.   The

             district court, finding the fifteen-year statute applicable,

             granted  summary  judgment  for  the  plaintiff.   Defendant

             appeals.   We agree with the plaintiff that the fifteen-year

             statute applies.  

                                          II

                                       Analysis
                                       ________

                       The  defendant  rests  its  "three year"  argument

             primarily  upon  two provisions  of  Puerto  Rico's Commerce

             Code.  The first says:

                            The liability of  . . .  commercial
                                                     __________
                       brokers  . .  .  in  the obligations  in
                       _______                  _______________
                       which  they take part by reason of their
                       ________________________________________
                       office  shall   prescribe  after   three
                       ______
                       years.

             10 (App. I) L.P.R.A.   1904  (Article 942) (emphasis added).

             The second provision says:

                            Actions arising  from drafts  shall
                                                  ______
                       extinguish     three     years     after
                       maturity . . . . 
                            A similar rule shall be applied  to
                       commercial   bills   of   exchange   and
                                    ___________________________
                       promissory  notes,  checks,   stubs  and
                       ________________________________________
                       other instruments of draft or exchange .
                       ______________________________________
                       . . .

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10  (App. I) L.P.R.A.   1908 (Article 946) (emphasis added).

             If either of these provisions applies, the plaintiff's claim

             is barred.

                       Unfortunately for the  defendant, neither of these

             provisions applies.   The  first provision  does not  govern

             because, whether or not the defendant acted as a "commercial

             broker," one cannot fairly characterize the  obligation upon
                                                          __________

             which the  plaintiff is now suing as a "commercial broker's"

             obligation.     Rather,   that  obligation  is   a  guaranty
                                                                 ________

             obligation,  and the defendant, in guaranteeing the debts of

             another, acts as a  surety, not as a commercial broker.  See
                                                                      ___

             31  L.P.R.A.     4871  (Article  1721  of  the  Civil  Code)

             (defining surety as "a person  [who] binds himself to pay or

             perform for a third person in case the latter should fail to

             do so").   The fact that the defendant  offered the guaranty

             as  an   "inducement"  to   obtain   an  (exclusive)   sales

             representation arrangement makes no  difference.  One  might

             offer all sorts of promises as inducements to obtain such an

             arrangement -- say, a promise to sell a private home, or the

             family silver,  or a  car.  But,  we should  normally expect

             that the nature of the promise, not the promisor's  motives,

             determines  the  appropriate  prescriptive provision.    One

             would  normally expect,  for example, that  the prescription

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provisions  applicable to  real  estate contracts,  not some

             other  provisions, govern  a promise  to  sell real  estate,

             irrespective of the reason why the  owner wants to sell.  We
                                 ______

             have  found nothing  in the  codes,  commentators, or  cases

             suggesting the contrary.

                       The  second  provision   (referring  to  "drafts,"

             "commercial   bills   of  exchange,"   "promissory   notes,"

             "checks,"  "stubs,"  and  "other  instruments  of  draft  or

             exchange")   does   not   apply   because  its   "three-year

             prescription   bars   actions    arising   from   negotiable
                                                               __________

             instruments."   5  R. Gay  de Montella,  Codigo de  Comercio
             ___________

             Espanol  Comentado 503-04  (1936) (describing  corresponding

             provision  in  Spanish Code  of  Commerce)  (translated, and

             quoted,  in Portilla  v.  Banco Popular  de Puerto  Rico, 75
                         ________      ______________________________

             P.R.R.  94, 119  (1953)) (emphasis  added).   A  "negotiable

             instrument"  is  a financial  instrument  that, among  other

             things, embodies an "unconditional promise or order to pay a

             sum  certain."    19  L.P.R.A.     2  (defining  "negotiable

             instrument[]");  see also  id.    361 (defining  "promissory
                              ___ ____  __

             note" similarly);  id.    221 (defining  "bill of  exchange"
                                __

             similarly); id.   362 (defining "check" as a kind of bill of
                         __

             exchange).   The promise before us --  one of guaranty -- is

             plainly   not  a   negotiable  instrument;  it   is  neither
                       ___

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"unconditional"  (for  it  is  conditioned  on  the debtor's

             default),  nor is it for a "sum certain" (for it promises to

             pay only to the extent the debtor defaults).

                       What, then, is the  proper prescription period for
                                   __

             a  promise of  guaranty under  Puerto Rico  law?   The Fifth

             Circuit,  applying  Louisiana's civil  law system,  tells us

             that "the limitations period that applies in  a suit against

             a surety is normally the same as that which applies to suits

             against the principal  debtor for payment of  the underlying

             debt."   Browning Seed, Inc.  v. Bayles, 812 F.2d  999, 1002
                      ___________________     ______

             (5th Cir. 1987)  (citation omitted).  This  Circuit has held

             the same  in  respect to  Puerto Rico's  law.   See FDIC  v.
                                                             ___ ____

             Consolidated Mortgage  & Fin.  Corp., 805  F.2d 14,  20 (1st
             ____________________________________

             Cir. 1986) (prescription period for guarantee  of promissory

             note given by prescription period for underlying  promissory

             note);  see also  FDIC v.  Barrera,  595 F.  Supp. 894,  898
                     ___ ____  ____     _______

             (D.P.R. 1984) (Torruella,  C.J.) (same).  Barrera,  on which
                                                       _______

             Consolidated Mortgage relied, noted that Puerto Rico's Civil
             _____________________

             Code says  that  the  "obligation[s]"  of  a  surety  (or  a

             guarantor) "expire" at the same time as those of the debtor.

             31 L.P.R.A.    4951  (Article 1746 of  the Civil  Code); see
                                                                      ___

             also  10  (App. I)  L.P.R.A.     1824  (Article 352  of  the
             ____

             Commerce Code) ("obligations" of a surety "continue in force

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until  .  . .  the  complete  termination  of the  principal

             contract which is secured").  And, from that fact, the court

             reasoned that  the same prescription period normally applies

             as well.

                       Consistent with  this rule, defendant, in  a post-

             argument brief,  now seems  to acknowledge  that its  appeal

             succeeds or fails depending upon whether or not an action on

             the underlying debts guaranteed, those of the retailers, are

             themselves  time-barred.   That being  so,  its appeal  must

             fail.  That is because the Supreme Court of Puerto Rico  has

             held,  at least  twice, that  the  prescription period  that

             applies to  a reseller's  promise to pay  a supplier  is the

             Civil  Code's  fifteen-year  "catch  all"   provision  --  a
                            ____________

             provision that applies to "personal" actions for which other

             codes  specify  "no  special  term  of  prescription."    31

             L.P.R.A.    5294 (Article 1864); see Ramallo Bros. Printing,
                                              ___ _______________________

             Inc.  v.  Guillermo  Ramis, 93  J.T.S.  84  (1993) (applying
             ____      ________________

             fifteen-year "catch  all" provision  to advertising  company

             that bought, for  resale to its clients, business  cards and

             the like  from a printer);  Davila v. Torres, 58  P.R.R. 880
                                         ______    ______

             (1941)  (same for  retail grocer  that  bought produce  from

             wholesale  grocer);   see  also  Fernando   Sanchez  Calero,
                                   ___  ____

             Institutions  of  Business  Law 448  (13th  ed.  1988) ("The
             _______________________________

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prescriptive term of  the seller's right to pay[ment]  . . .

             in the  sale for  resale is .  . . fifteen  years . .  . .")

             (citation  omitted)  (translation supplied  in  Supplemental

             Appendix);  Luis Diez Picazo, Prescription in the Civil Code
                                           ______________________________

             214(1964)(same)(translation suppliedinSupplementalAppendix).

                       In reaching this conclusion, the  Supreme Court of

             Puerto  Rico has rejected  one other  prescription provision

             that we  have not yet  mentioned, namely a provision  in the

             Civil Code that sets a three-year prescriptive term for

                       the payment  . .  . to  traders for  the
                       value  of goods sold  to others  who are
                       not  traders, or  who,  being such,  are
                       engaged in a different trade.

             31 L.P.R.A.   5297 (Article  1867).  This provision does not

             apply  here because supplier and retailer are both "traders"

             and  both are  engaged in  the same,  not in  a "different,"

             trade.   See Davila,  58 P.R.R. at  884 ("The  trade [i]n  a
                      ___ ______

             specific [commodity]  is the  same whether  at wholesale  or

             retail . . . .").  

                       It may seem somewhat anomalous, as the Puerto Rico

             Supreme  Court itself has noted, that the limitations period

             applicable to  merchants  in the  same business  is so  much

             longer than that applicable to those in different businesses

             or to non-traders.  See Ramallo  Bros., 93 J.T.S. at 86 ("We
                                 ___ ______________

             are dealing with  a situation which strays from  the guiding

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observation  that,   as  a  general   rule,  the  mercantile

             prescriptive terms  are much  shorter than  in the  civil in

             keeping  with  the  peculiar   demands  of  the   commercial

             traffic.")  (citations  omitted).     It  may  be,   as  one

             commentator suggests, that same-business traders tend to pay

             their bills to each other less promptly than do others.  See
                                                                      ___

             Picazo, supra, at 215.  But, anomalous or not, we follow the
                     _____

             Supreme Court  of Puerto Rico, which follows the language of

             the Code.

                       For these reasons, this action is not time-barred.

             There being no other significant  legal issue before us, the

             judgment of  the district  court, requiring  payment of  the

             guaranteed amounts, is

                       Affirmed.
                       ________

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