USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1770
GEORGIA PACIFIC CORPORATION,
Plaintiff, Appellee,
v.
PABLO EGUIA & SONS, INC., ET AL.,
Defendants, Appellants.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. Perez-Gimenez, U.S. District Judge]
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Before
Breyer, Chief Judge,
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Coffin, Senior Circuit Judge,
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and Boudin, Circuit Judge.
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Federico Lora Lopez for appellants.
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Manuel Fernandez-Bared with whom Nestor Duran and McConnell
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Valdes were on brief for appellee.
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January 31, 1994
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BREYER, Chief Judge. The sole issue on this
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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
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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
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The defendant rests its "three year" argument
primarily upon two provisions of Puerto Rico's Commerce
Code. The first says:
The liability of . . . commercial
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brokers . . . in the obligations in
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which they take part by reason of their
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office shall prescribe after three
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years.
10 (App. I) L.P.R.A. 1904 (Article 942) (emphasis added).
The second provision says:
Actions arising from drafts shall
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extinguish three years after
maturity . . . .
A similar rule shall be applied to
commercial bills of exchange and
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promissory notes, checks, stubs and
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other instruments of draft or exchange .
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. . .
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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
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which the plaintiff is now suing as a "commercial broker's"
obligation. Rather, that obligation is a guaranty
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obligation, and the defendant, in guaranteeing the debts of
another, acts as a surety, not as a commercial broker. See
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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
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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
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instruments." 5 R. Gay de Montella, Codigo de Comercio
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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
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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
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note" similarly); id. 221 (defining "bill of exchange"
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similarly); id. 362 (defining "check" as a kind of bill of
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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
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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
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(5th Cir. 1987) (citation omitted). This Circuit has held
the same in respect to Puerto Rico's law. See FDIC v.
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Consolidated Mortgage & Fin. Corp., 805 F.2d 14, 20 (1st
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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
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(D.P.R. 1984) (Torruella, C.J.) (same). Barrera, on which
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Consolidated Mortgage relied, noted that Puerto Rico's Civil
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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
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also 10 (App. I) L.P.R.A. 1824 (Article 352 of the
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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
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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,
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Inc. v. Guillermo Ramis, 93 J.T.S. 84 (1993) (applying
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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
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(1941) (same for retail grocer that bought produce from
wholesale grocer); see also Fernando Sanchez Calero,
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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
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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
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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
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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
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Picazo, supra, at 215. But, anomalous or not, we follow the
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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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