In re Farmacias Puerto Rico

556 B.R. 22

In re: Farmacias Puerto Rico, Debtor(s)

CASE NO. 16-03910

United States Bankruptcy Court, D. Puerto Rico.

Signed August 16, 2016

Carlos Rodriguez Quesada, Law Office of Carlos Rodriguez Ques, San Juan, PR, for Debtor.

OPINION & ORDER

Brian K. Tester, U.S. Bankruptcy Judge

Before the court is SF III PR, LLC's (“SF”) Urgent Motion for Immediate Surrender of Farmacias Puerto Rico's Premises [Dkt. No. 25], Debtor in Possession, Farmacias Puerto Rico's (“Debtor”) Reply to Urgent Motion to Surrender Premises [Dkt. No. 46] and additional replies and sur-replies related to the matter. As a result of the above mentioned motions, the court scheduled a hearing for August 10, 2016 [Dkt. No. 57]. At said hearing, the parties were given an opportunity to present their arguments and provide documents.

At the conclusion of the hearing the court took the matter under advisement. In sum, the issue is whether there exists a lease agreement, verbal or otherwise, between SF and Debtor that can be assumed and/or breached.

Although the facts in this case appear to be straightforward, both parties in their written briefs and oral arguments presented confusing and conflicting versions to the court. The relevant facts are thus. Debtor purchased an ongoing business concern on June 30, 2014 from Carmen Leonor Cordova HNC Farmacia y Café Puerto Rico (“Seller”). The business was located on the first floor of Hato Rey Center, 268 Ponce de Leon Avenue, where it remains to this date. Also on June 30, 2014, the lease (“Lease”) held by the Seller with the then owner(s) of Hato Rey Center expired. This Lease was initially entered into on August 25, 1986.¹ On or about July 1, 2014, Debtor took possession of the premises previously occupied by the Seller. On or about July 22, 2014, SF acquired title to Hato Rey Center. On or about November 7, 2015, SF blocked the west side entrance to Debtor's premises. On November 18, 2015, SF delivered to Debtor a letter terminating the Debtors month to month holdover tenancy under the Lease and ordering the surrender of the premises by November 30, 2015, or by December 31, 2015 if Debtor surrendered possession of a specific area of the premises on or before November 21, 2015. The Debtor filed for bankruptcy on May 16, 2016.

SF maintains that Debtor was a party to the Lease pursuant to which it leased the premises. The Lease agreement expired on June 30, 2014, and has not been renewed. Between July, 2014 and November, 2015, the Debtor remained in the premises on a month-to-month holdover basis, pending the conclusion of negotiations with SF. Under this scenario, argues SF, (i) the Lease expired pre-petition and (ii) any holdover tenancy rights were terminated pre-petition. As such, the Debtor has no legal or equitable interest in the continued possession of the premises, the premises are not property of the estate and by extension, not protected by the automatic stay. For this reason the court should compel Debtor to immediately surrender the premises to SF.

Debtor contends that it is not and has never been a party to the Lease that expired on June 30, 2014, and that a separate agreement negotiated with the previous owner of the building was in place as of June 2014. The basic provisions were a five year renewable lease for Suite 03G of the Hato Rey Center building for a rent of $5,500 per month. A bond would be provided by the tenant in the amount of $23,000. Debtor's right to possess the premises upon which the pharmacy and cafeteria operate, stems from that agreement. Debtor stressed in open court at the hearing on August 10, 2016, that this separate agreement was in writing. However, Debtor argues in its Reply brief that the contract was perfected verbally as per the Puerto Rico Civil Code and that it is still in force and assumable by Debtor. This contract, Debtor argues, was breached by SF when the west side entrance to the premises was closed off.

The court first considers SF's averment that Debtor was a holdover tenant under the 1986 Lease.² The court finds this statement to be without merit. It is undisputed that the 1986 Lease expired by its own terms on June 30, 2014. Neither SF nor the Debtor were parties to that Lease, nor has there been any evidence or argument by either party that there was a substitution of the original lessor/lessee from the Lease.^{3 ,4} Additionally, in a subsequent motion⁵ SF argues that it is not bound by the terms of the Lease. SF's reliance on the 1986 Lease is misplaced. It cannot be argued on the one hand that the Debtor is a holdover tenant from an expired lease and as such is bound by its terms with regards to term modifications and notice requirements, and on the other hand argue that the party attempting to enforce this holdover tenancy is not equally constrained by the same lease.

Having discarded the concept of a holdover tenancy, the court turns next to examine the likelihood of a verbal agreement between the parties. Under the laws of Puerto Rico, a contract is valid when it is “not contrary to law, morals, or public order.” Colon v. Blades, 717 F.Supp.2d 175, 184 (D.P.R.2010) (quoting Soc. de Gananciales v. Vélez & Asoc., 145 D.P.R. 508, 516–17 (1998) ) (citing Puerto Rico Civil Code § 1207 (P.R. Laws Ann. tit. 31, § 3372 (1990)). A verbal contract much like a written contract is valid and enforceable. Colon v. Blades, 570 F.Supp.2d 204, 210 n. 7 (D.P.R.2008) (citing Morales v. Hosp. Hermanos Meléndez, Inc., 447 F.Supp.2d 137, 142 (D.P.R.2006) ). Therefore, a contract, regardless of its type, “has three elements: consent, a definite (and legal) object, and consideration.” Citibank Global Mkts., Inc. v. Rodríguez Santana, 573 F.3d 17, 24 (1st Cir.2009) ; see also Muñiz– Olivari v. Stiefel Lab., Inc., 496 F.3d 29, 35 (1st Cir.2007).

“Consent is shown by the concurrence of the offer and acceptance of the thing and the cause which are to constitute the contract.” Marrero–García v. Irizarry, 33 F.3d 117, 122 (1st Cir.1994) (citing P.R. Laws Ann. tit. 31, § 3401 ). Under Puerto Rico law, the consent of the contracting parties is an essential element of a contract. P.R.Laws Ann., tit. 31, § 3391. “Consent is shown by the concurrence of the offer and acceptance of the thing and the cause which are to constitute the contract.” P.R.Laws Ann. tit. 31, § 3401. Hence, an offer standing by itself will not establish the presence of a binding contract. Gonzalez Rodriguez v. Fumero, 38 P.R.R. 497, 504, 507–08 (1928). Rather, in order to have a contract, acceptance must be made of that offer. P.R.Laws Ann. tit. 31, § 3401. SF argues that the fact that it accepted monthly payments after the Lease expired is insufficient, by itself, to constitute consent to a new lease agreement.

To bolster this claim, SF cites to Velez v. San Miguel, 68 D.P.R. 575, 577 (1948), which held, in relevant part, that without circumstances evidencing a different intent, the mere fact that monthly payments were accepted would not create a new lease.⁶ However, the facts in the captioned case are to the contrary. During the period of time that Debtor was making monthly payments to SF, there were ongoing negotiations and discussions in an attempt to agree to the material terms and conditions of a lease agreement between the parties. This renders the holding of Velez inapplicable to our facts and allows this court to conclude that SF's acceptance of the monthly payments by Debtor did in fact create the consent to a month to month verbal lease agreement.

The object of the contract on the other hand includes “[a]ll things, even future ones, which are not out of the commerce of man ...” and “[a]ll services not contrary to law or to good morals....” P.R. Laws Ann. tit. 31, § 3421 ; see also Bianchi–Montana v. Crucci–Silva, 720 F.Supp.2d 159, 166 (D.P.R.2010). Similarly, consideration “encompasses almost any motivation a person might have for entering into a binding agreement.” P.R. Elec. Power Auth. v. Action Refund, 483 F.Supp.2d 153, 158 (D.P.R.2007) (citing Garita Hotel Ltd. P'ship v. Ponce Fed. Bank, F.S.B., 954 F.Supp. 438, 449 (D.P.R.1996) ). Thus, “[i]n order for a contract to have valid consideration, the contract must be a bargained-for exchange in which there is a legal detriment of the promise or a corresponding benefit to the promisor.” P.R. Elec. Power Auth. v. Action Refund, 472 F.Supp.2d 133, 137–38 (D.P.R.2006) (citing Neuhoff v. Marvin Lumber & Cedar Co., 370 F.3d 197, 201 (1st Cir.2004) ). “A contract is made upon a ‘consideration’ when something is done, foreborne, suffered, or undertaken by one party at the request of another, which is made the foundation of the promise of that other.” P.R. Elec. Power Auth. v. Action Refund, 472 F.Supp.2d at 137–38.

Upon the sale of Hato Rey Center to SF, Debtor was already in possession of the premises. Payments for rent where made by Debtor and accepted by SF for several months, and according to the proffers made by the parties and the documents received by the court, the parties were in communication negotiating a written lease contract. This arrangement began prior to SF's acquisition...