Opinion
CASE NO. 02-02887(ESL) ADV. PROC. NO. 02-00113 (ESL)
12-27-2013
IN RE: REDONDO CONSTRUCTION CORPORATION Debtor REDONDO CONSTRUCTION CORPORATION Plaintiff v. PUERTO RICO HIGHWAY AND TRANSPORTATION AUTHORITY Defendant
CHAPTER 11
OPINION AND ORDER (PROPOSED)
This case is before the court upon the Judgment & Mandate issued by the United States Court of Appeals for the First Circuit ("First Circuit") in In re Redondo Constr. Corp. v. P.R. Highway & Transp. Auth. (In re Redondo Constr. Corp.), 700 F.3d 39 (1st Cir. 2012), remanding the instant case to the U.S. District Court for the District of Puerto Rico ("District Court"), and the Order by the District Court returning the case to U.S. Bankruptcy Court for the District of Puerto Rico to determine whether an award of pre-judgment interest is appropriate and, if so, the basis for the award, the applicable rate of interest, and the period of accrual.
Procedural Background
On September 6, 2002, Redondo Construction Corporation ("Redondo") filed a Complaint (Docket No. 1) seeking collection of monies, "legal interest since each claim was made (Docket No. 1, p. 25,) expenses and attorneys' fees against defendant Puerto Rico Highway and Transportation A uthority ("PRHTA"). On August 31, 2009, the bankruptcy court, through Hon. Gerardo A. Carlo, entered a Decision and Order (Docket No. 373) directing PRHTA to compensate Redondo the following amounts:
The Decision and Order was published at Redondo Construction Corporation v. Puerto Rico Highway and Transportation Authority, (In re Redondo), 411 B.R. 61 (Bankr. D.P.R. 2009).
| Project | Principal Amount | Legal Interest | Interest on Application for |
| Las Cumbres Avenue | $4,506,828.29 | 6% from August 10, 2001 | Not awarded |
| Kennedy Avenue | $655,550.19 | 6% from July 18, 1999 | $217,079.49 |
| Ponce-Adjuntas | $2,177,779.94 | 6% from August 10, 2011 | $46,650.60 |
| Rio Grande de Loiza Bridge | $1,258,475.13 | 6% from August 10, 2001 | Not awarded |
| Third Millennium Park | $11,644,758.33 | 6% from December 3, 2000 | Not awarded |
See In re Redondo, 411 B.R. at 64-65.
See In re Redondo, 411 B.R. at 85 and 87.
On September 1, 2009, Redondo filed a Motion for Nunc Pro Tunc Correction of Judgment (Docket No. 375) to correct various typographical mistakes. On September 3, 2009, the court (Lamoutte, B.J.) granted Redondo's Motion for Nunc Pro Tunc and entered an Order Amending Decision and Order and Judgment (Docket No. 376) amending page 59 of the Decision and Order to read "IT IS ORDERED the PRHTA will compensate Redondo for the amount of $1,644,875.03 plus legal interest at 6% from 12/3/2000 for the Project The Third Millennium Park" and page 2 of Decision and Order to read "IT IS ORDERED, ADJUDGED and DECREED that the Puerto Rico Highway and Transportation Authority is liable to Redondo Construction Corporation in the amount of $1,644,875.03 plus legal interest at 6% from 12/3/2000 for the Project The Third Millennium Park".
Upon the retirement of Hon. Gerardo A. Carlo, the case reassigned to the subscribing bankruptcy judge.
On September 4, 2009, PRHTA filed a Motion Requesting Extension of Time to File Objections to Judge's Decision and Order Pursuant to Federal Bankruptcy Rule 9033(B) and (C) (Docket No 379) and on September 9, 2009, Redondo filed an Opposition thereto (Docket No. 381) alleging that the requested extension constituted an attempt to delay the litigation.
On September 10, 2009, the court (Lamoutte, B.J.) entered an Order (Docket No. 383) grating the PRTHA's Motion Requesting Extension of Time. In addition, the court ordered the parties to file briefs in twenty (20) days on whether the final judgment should be set aside and whether the Decision and Order (Carlo, B.J.) (Docket No. 373) should be submitted to the District Court as proposed findings of facts and conclusions of law. The court raised the question concerning the entry of a final order under 11 U.S.C. § 157 since PRTHA had not consented to the entry of a final order or judgment by the bankruptcy court, as ruled by Hon. Gerardo A. Carlo in his Order entered on March 20, 2006 (Docket No. 155).
On September 30 2009, Redondo filed a Motion and Memorandum in Compliance with the Order and to Sustain Judgment (Docket No. 385). Also on September 30, 2009, PRHTA filed an Objection to the Bankruptcy Court's Decision and Order, Issued on August 31, 2009, Pursuant to Federal Bankruptcy Rule 9033 (Docket No. 387) and a Motion in Compliance With Order Regarding Issue of the Entry of a Final Judgment in a Non-Core Proceeding and Requesting to Set Aside Judgment (Docket No. 387).
On December 13, 2009, the court (Lamoutte, B.J.) entered an Opinion and Order (Docket No. 389) ruling that the controversy was non-core and that since there was no agreement allowing the bankruptcy court to enter a final judgment, the Decision and Order (Docket No. 389) would be referred to the District Court as proposed findings of fact and conclusions of law. The referral was made on December 23, 2009 (Docket No. 391).
On October 19, 2011, the District Court entered a Judgment and Amended Judgment Nunc Pro Tunc (Docket No. 392) in Civil Case No. 09-2299 (CCC) adopting the bankruptcy court's Decision and Order (Docket Nos. 373 and 374) issued by the Hon. Gerardo A. Carlo.
The case was subsequently appealed to the First Circuit. The First Circuit held that the interest awarded to Redondo was not intended as post-judgment interest, as it began accruing from specified (pre-judgment) dates when it was supposed to have been paid, and nothing suggested that accrual would extend beyond the date of judgment. In re Redondo, 700 F.3d at 42. The First Circuit also ruled that Redondo was entitled to post-judgment interest from the date the judgment was entered to the date PRTHA had deposited the amount of the judgment with the clerk of the court. Id. The amount deposited, however, included interest at 6% for that time period, rather than the lower statutory rate in 28 U.S.C. § 1961. Id. The First Circuit further found that while the bankruptcy court cited Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure as the basis for the interest award, it did not make a finding of obstinacy and, although the bankruptcy court acknowledged that one basis for the interest claim was Article 1061 of the Civil Code of Puerto Rico, 31 L.P.R.A. § 3025, nothing indicated that said interest was awarded. The First Circuit also noted that there was a lack of information regarding the dates of accrual. Thus, the First Circuit remanded the instant case to the District Court with instructions to return it to this court to apply the post-judgment interest from September 30, 2011 to February 17, 2012 at the rate provided in Section 1961 of the Judicial Code, 28 U.S.C. § 1961, and determine: (1) whether an award of pre-judgment interest is appropriate; (2) if such award is appropriate, which is the legal basis for it; and (3) the applicable rate of interest and the period of accrua. Id. at 44.
On January 3, 2013, the District Court entered an Order in Civil Case No. 09-2299 CCC) award the applicable post-judgment interest under 28 U.S.C. § 1961 and correcting he amount awarde for the Ponce-Adjuntas PR 10 project. In addition, the District Court returned the case this court to determine whether an award of pre-judgment interest is appropriate, and if so, the basis for the award, the applicable rate of interest and the period of accrual. See Docket No. 419 (the "Remand Order'').
On March 5, 2013, the court (Lamoutte, B.J.) held a hearing on remand and ordered the parties to file a joint stipulation of facts and memorandums of law in accordance with the First Circuit's mandate. See Docket Nos. 395 (Audio File), 396 (Audio File) and 397 (Minute Entry).
On April 16, 2013, the parties filed a Joint Stipulation of Facts (Docket No. 402) for the five construction projects at issue that included a chart of the relevant timelines for each project:
| Contract/ Project | Date of Execution | Contract Amount | Date of Commencement of work | Original Date of Completion | Date of Substantial Completion | Date Claim was Submitted |
| Ave. Las Cumbres | 05/11/1998 | $6,182,000 | 06/15/1998 | 06/09/99 | 02/24/2001 | 08/21/2001 |
| Rio Grande | 04/11/1996 | $12,250,000 | 04/22/1996 | 04/12/1998 | 04/15/1998 | 03/20/2001 |
| Ave. Kennedy | 10/31/1999 | $12,250,000 | 04/22/1996 | 11/16/1998 | 04/28/1999 | 10/25/1999 |
| Ponce Adjuntas | 10/30/1996 | $21,820,000 | 11/18/1996 | 11/02/1999 | 10/19/2000 | 10/192000 |
| Third Millennium | 11/17/1998 | $21,696,000 | 12/07/1998 | 12/02/1999 | 12/31/1999 | 12/5/2000 |
See Docket No. 402, pp. 6-7.
On May 20, 2013, Redondo filed a Brief in Support of Imposition of P.R. Civil Code Art. 1061 Default Interest (Docket No. 408) averring that it is entitled to pre-judgment interest under Article 1061 of the Civil Code of Puerto Rico, 31 L.P.R.A. § 3025, which should be interpreted in conjunction with Article 1053 of the Civil Code of Puerto Rico, 31 L.P.R.A. § 3017, to establish when a party is considered to be in default of its obligation.
On May 20, 2013, PRHTA filed a Legal Memorandum Regarding Pre-Judgment Interest (Docket No. 409) arguing that pre-judgment interest under Rule 44.3(b) of the Puerto Rico Rules of Procedure is improper without a previous finding of obstinacy and that it has never acted rashly or obstinately during the course of this litigation (Docket No. 409, p. 15). PRHIA also contends that Redondo never claimed or argued interests under Article 1061 and therefore waived that remedy. Alternatively, PRHTA sustains that if the court awards prejudgment interest under Article 1061, it should not apply the general 6% interest established therein but the lower interest rates established by the Financial Board of the Office of Financial Institutions as provided in the last paragraph of Article 1061. Lastly, PRHTA proposes that the pre-judgment interest should accrue from the date of the judicial mandate of liquidation.
On June 30, 2013, PRHTA filed a Response to Redondo's Brief Regarding Prejudgment Interest (Docket No. 413) restating that Redondo had not previously claimed the award of interest under Article 1061 and, therefore, had waived such remedy. It further reiterates that the proper rate of interest to be applied, if any, should be the one established by the Commissioner of Financial Institutions.
On July 1, 2013, Redondo filed a Reply to PRHTA's Memorandum Regarding Default Interest (Docket No. 415) waiving its right to pre-judgment interest under Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure stating that "P.R. Rule 44.3(b) of Civil Procedure's prejudgment interest does not apply to this case" (Docket No. 415, pp. 2-3). However, Redondo asserts that it had argued the request for pre-judgment interest under Article 1061 of the Civil Code of Puerto Rico and, therefore, had not waived that remedy. Redondo also contends the applicable pre-judgment interest rate is the 6% per annum established in Article 1061. Redondo further argues that the accrual period should begin from the date of substantial completion.
District Court's Remand Order
The District Court returned the instant case to this court to determine whether an award of pre-judgment interest is appropriate, and if so, the basis for the award, the applicable rate of interest and the period of accrual. See the Remand Order (Docket No. 419). To that same extent, in In re Redondo, 700 F.3d at 42-44, the First Circuit ruled and instructed as follows:
When state-law claims (such as the contract claims at issue here) are adjudicated by a fedoral court, pre-judgment interest is normally a matter of state law. In re Redondo, 678 F.3d 115, 125 (1st Cir. 2012).
...
Artie 1061 [of the Civil Code of Puerto Rico] provides for payment of interest "as an [] indemnity for damages, by way of penalty, for default in payment." Rivera v.
Crescioni, 77 D.P.R. 47, 51 (1954); accord P.R. & Am. Ins. Co. v. Superior Court of P.R., 84 P.R. 597, 599 (1962). Default in payment occurs "as of the date in which judicial or extra-judicial demand was made for [payment]." Widow of Vázquez v. Vázquez Cintrón, 85 P.R. 266, 268 (1962) (citing 31 P.R. Laws Ann. tit. 31, § 3017). We cannot determine when such demands were made in this case and whether they correspond to the dates that the bankruptcy court designated for the accrual of interest.
Because uncertainty surrounds the pre-judgment interest award, we remand the case to the district court with instructions to vacate that award and return the case to the bankruptcy court for a determination of whether an award of pre-judgment interest is appropriate, and, if so, the basis for the award, the applicable rate of interest, and the period of accrual.
Applicable Law and Analysis
(A) Waiver of Claims
PRHTA argues that Redondo waived its rights to pre-judgment interest by not claiming hem under Article 1061 of the Civil Code of Puerto Rico prior to the oral arguments at the appellate level before the First Circuit. See PRHTA's Legal Memorandum Regarding Prejudgment Interest (Docket No. 409, p. 18). A review of the record shows otherwise. Redondo expressly requested pre-judgment interest under Article 1061 in its Post-Trial Brief and Memorandum (Docket No. 365, pp. 10 and 27). Moreover, the Decision and Order (Docket Rico. 373) (Carlo, B.J.) considered and discussed both Article 1061 of the Civil Code of Puerto Rico and Rule 44.3 of the Puerto Rico Rules of Civil Procedure as basis for a pre-judgment interest award. See In re Redondo, 411 B.R. at 67, 70 and 83.
The First Circuit has held that pre-judgment interest can be sought in post-trial briefs or motions. See In re Redondo, 678 F.3d at 121-122 (allowing pre-judgment arguments for the first time on post-trial motions reasoning that "elsewise parties would be required to put the cart before the horse and argue about pre-judgment interest before the underlying issues of liability and damages have been resolved"). Thus, the court finds that Redondo preserved the right to claim pre-judgment interest under Article 1061 and did not waive such remedy.
Notwithstanding; Redondo waived pre-judgment interests under Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure when it stated that "P.R. Rule 44.3(b) of Civil Procedure's pre-judgment interest does not apply to this case" (Docket No. 415, pp. 2-3). Thus, Redondo expressly waived all pre-judgment remedies under said Rule. Therefore, the court will not consider any award under Rule 44.3(b).
(B) Pre-judgment Interests
"Neither the Bankruptcy Code nor the United States Code contain a general statute granting pre-judgment interest. Therefore, pre-judgment interest is generally subject to the court's discretion depending on the equities of the case". Lassman v. Keefe (In re Keefe), 401 B.R. 520, 526 (B.A.P. 1st Cir. 2009). In In re Redondo, 678 F.3d at 125, the First Circuit ruled that:
[w]hen state-law claims (such as the contract claims at issue here) are adjudicated by a federal court, pre-judgment interest is normally a matter of state law. This case involves disputes between parties based in Puerto Rico over contracts executed and performed there. Those disputes were litigated in Puerto Rico, and the contracts at issue contain Puerto Rico choice-of-law provisions. We must therefore look to the law of Puerto Rico for the substantive rules of decision anent this contract case (and thus for the rule of decision concerning pre-judgment interest).Therefore, the court will analyze the applicability of pre-judgment interests under Puerto Rico law.
In Puerto Rico, pre-judgment interests stem from two separate legal grounds: one is procedural and the other is substantive. Each serves a different purpose and provides different remedies for different conducts. The procedural pre-judgment interest penalty imposed by Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure responds to a party's obstinate conduct during the course of the litigation. See Montañez v. U.P.R., 156 D.P.R. 395, 422-423 (2002) (Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure establishes the pre-judgment interest on the amount of the judgment that shall be imposed on the obstinate party). The substantive pre-judgment interest penalty is governed by Article 1061 of the Civil Code of Puerto Rico and serves as indemnity for damages. See Rivera v. Crescioni, 77 D.P.R. 47, 55-56, 77 P.R.R. 43, 51 (1954) (Article 1061 interest is considered "as an independent indemnity for damages, by way of penalty, for default in payment"). Also see C&A, S.E. v. Rivera González, 2012 PR App. LEXIS 4342 at **31-31, 2012 WL 6692144 at **10-11 (P.R. Ct. of Appeals 2012) (prejudgment interest under Article 1061 is different from the interest afforded under Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure); Bird v. McCloskey, 2005 WL 808333 at *11, 2005 PR App. LEXIS 411 at *31 (P.R. Ct. of Appeals 2005) (distinguishing between prejudgment interests from Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure and Article 1061 of the Civil Code). The application of these two remedies is not mutually exclusive. Redondo is no longer claiming pre-judgment interest on procedural grounds. It only claims prejudgment interest on substantive grounds, that is, under Article 1061 of the Civil Code.
Article 1061 of the Civil Code of Puerto Rico states as follows:
Interest as indemnity for nonpayment of moneyAlthough the official translation of the Article 1061 reads "Interest as indemnity for nonpayment of money" and requires a debtor to be in "default", the original Spanish version of the same Article reads as follows:
Should the obligation consist in the payment of a sum of money, and the debtor should be in default, the indemnity for losses and damages, should there not be a stipulation to the contrary, shall consist in the payment of the interest agreed upon, and should there be no agreement, in that of the legal interest.
Until another rate is fixed by the [Puerto Rico] Government, interest at the rate of six percent (6%) per annum shall be considered as legal. 31 L.P.R.A. § 3025 (emphasis added).
Intereses como indemnización en caso de moraThere is a distinction between "default" and "mora", although in Puerto Rico they are often used interchangeably. The distinction is important because, when interpreting a Puerto Rico statute, Article 13 of the Civil Code mandates that "[i]n case of discrepancy between the English and Spanish texts of a statute passed by the Legislative Assembly of Puerto Rico, the text in which the same originated in either house, shall prevail in the construction of said statute". 31 L.P.R.A. § 13. Also see Esso Standard Oil v. P.R.P.A., 95 P.R.R. 754, 770, 95 D.P.R. 772, 788 (1968) (because the act in controversy was originated in the Puerto Rico Legislature in its Spanish text, interpretation of that text should prevail pursuant to Article 13 of the Puerto Rico Civil Code); In re Pérez Hernández, 487 B.R. 353, 366 fn. 5 (Bankr. D.P.R. 2013) (explaining the legal distinction of an inconsistent translation in a Puerto Rico statute). "Mora" in Latin translates into English as "delay". D.P. Simpson, Cassell's New Latin Dictionary, Func & Wangalls Co., 1960, p. 379. Jose Puig Brutau also defines "mora" as a "delay in the compliance of an obligation". Puig Brutau, Fundamentos de Derecho Civil, Bosch Editorial, Title I, Vol. II, 1985, pp. 412-413 (translation provided). Puig Brutau also distinguishes between a "delay" and a "faulty delay" ("retraso culpable"). Id. at 413. The "faulty delay" can be incurred by the debtor (mora solvendi) or by the creditor (mora accipiendi). Id. There is delay, as opposed to a definite default, when the performance of the obligation is not subject to an absolute essential deadline, that is, when the creditor's interest is not subjected to the performance of the obligation has an effect only in a determinate moment. Id. When there is an absolute essential deadline to comply with an obligation, the delay is equivalent to a "total default". Id. Mora solvendi (debtor's delay), which is subdivided into solvendi ex persona and solvendi ex re, usually requires a demand for compliance ("interpelación") by the creditor. Id. Also see Gema Diez-Picazo Giménez, La mora y la responsabilidad contractual, Editorial Civitas, 1st ed., 1996, pp. 534-538. In Puerto Rico, a delay ("mora") becomes a "default", within its legal context and consequences, pursuant to Article 1053 of the Civil Code, 31 L.P.R.A. § 3017. Thus, the court will analyze the application of Article 1061 of the Civil Code ("mora"/"delay") under the scope of the "default" requirements of Article 1053.
Si la obligación consistiere en el pago de una cantidad de dinero y el deudor incurriere en mora, la indemnización de daños y perjuicios, no habiendo pacto en contrario, consistirá en el pago de los intereses convenidos, y a falta de convenio, en el interés legal.
Mientras que no se fije otro por el Gobierno se considerará como legal el interés del seis por ciento (6%) al año. 31 L.P.R.A. § 3025 (emphasis added).
The Supreme Court of Puerto Rico has interpreted Article 1061 to mean that "in the absence of ... an express agreement the only interest which the principal of a loan accrues, after maturity of the obligation, is the legal interest at the rate of six percent per annum from the date on which the debtor is in default". Piovanetti Antonsanti v. Vivaldi Pacheco, 80 P.R.R. 108, 113-114, 80 D.P.R. 108, 114 (1957). Also see In re Redondo, 700 F.3d at 43, citing Viuda de Vázquez v. Vázquez Cintrón. 85 P.R.R. 266, 268, 85 D.P.R. 279, 283 (1962) (default in payment occurs "as of the date in which judicial or extra-judicial demand was made for payment"); De la Torre v. Navajas, 34 D.P.R. 442, 446 (1925) (upholding a judgment that condemned a party to pay legal interest at 6% in a collection of moneys suit from the date of extra-judicial demand); Reyes v. Banco Santander de P.R., 583 F. Supp. 1444, 1447 (D.P.R. 1984) ("According to the Civil Code, persons obliged to deliver or to do some act, are in default from the moment the creditor demands the fulfillment of the obligations, judicially or extrajudicially ... The non-payment results in the assessment of legal interest, under [31 L.P.R.A. §] 3025, in absence of a stipulation to the contrary, because the obligation was one to pay a sum of money").
Article 1061 is rooted in Civil Law. See Republic Sec. Corp. v. Puerto Rico Aqueduct and Sewer Authority, 674 F.2d 952, 958 (1st Cir. 1982). Its purpose is the following:
The creditor of a sum of money who claims an indemnity because of a delay in payment is not required to prove that such delay caused him a detriment; he has the right to receive interest for the delay "without being required to justify any loss." The reason for this is that he who expects his money on a certain day always suffers a detriment when he must wait for payment. Money being a fruitful thing, easy to place, the creditor is always deprived of the revenue of his capital. Id. at 958, citing Planiol, M., Treatise on the Civil Law, Vol. 2, Part 1265 (Louisiana State Law Institute trans. 11th ed. 1939, at pp. 158-159).An award of pre-judgment interest under Article 1061 of the Civil Code does not require a determination of temerity or obstinacy. See Atlas Roofing Contractors, Inc. v. Sistema
Universitario Ana G. Méndez, 2011 WL 2117552 at *15, 2011 PR App. LEXIS 727 at *38 (P.R. Ct. of Appeals 2011); Bird v. McCloskey, 2005 WL 808333 at * 11, 2005 PR App. LEXIS 411 at *3 Moreover, pre-judgment interests under Article 1061 may be awarded even when they have not been claimed in the complaint. See Fuentes v. Hull Dobbs Co., 88 P.R.R. 544, 553, 88 D.P.R. 562, 571 (1963); Bird v. McCloskey, 2005 WL 808333 at *11, 2005 PR App. LEXIS 411 at *31.
In the instant case, the dates of substantial completion for each project and Redondo's extra-judicial demands for payment to PRHTA were stipulated as follows:
| Project | Date of substantial completion | Date of extra-judicial demand (Date claim was submitted) |
| Ave. Las Cumbres | February 24, 2001 | August 21, 2011 |
| Rio Grande | March 15, 1998 | March 20, 2001 |
| Ave. Kennedy | March 28, 1999 | October 25, 1999 |
| Ponce-Adjuntas | October 19, 2000 | October 19, 2000 |
| Third Millennium | December 31, 1999 | December 5, 2000 |
See Docket No. 402, pp. 6-7 (Joint Stipulation of Facts). Redondo, however, argues that PRHTA's default in these projects goes further back than the stipulated dates of extra-judicial demand. It sustains that Article 1061 must be read in conjunction with Article 1053 of the Civil Code, which states as follows:
Default; demand of creditorRedondo contends that "there is default without the need to for a demand for payment, when the contract provides for a term for payment" (Docket No. 408, p. 28). Accordingly, Redondo claims to have achieved substantial completion of these projects between April of 1998 and February of 2001 and that in all of them, the final inspection was made also between those dates, except for the Rio Grande de Loiza, where, although PRHTA was supposed to conduct said inspection on September 10, 1998, it does not have evidence of its final inspection. See Docket Nos. 408 (Redondo's Brief), p. 31, and 402 (Joint Stipulation of Facts), pp. 6-7. Redondo avers that PRHTA accepted the projects but refused to settle or liquidate them within the deadlines established by Sections 105.16(b) and 109.09 of the Standard Specifications for Road and Bridge Construction of 1989 (the "Blue Book"). Redondo then argues that its right to receive payment was triggered under Section 109.09, which states that:
Persons obliged to deliver or to do something are in default from the moment when the creditor demands the fulfilment of their obligation, judicially or extra-judicially.
However, the demand of the creditor, in order that default may exist, shall not be necessary:
(1) If the obligation or law declares it expressly.
(2) If by reason of its nature and circumstances it may appear that the fixing of the period within which the thing was to be delivered or the service rendered was a determinate cause to constitute the obligation.
In mutual obligations none of the persons bound shall incur default if the other does not fulfill or does not submit to properly fulfill what is incumbent upon him. From the time one of the persons obligated fulfills his obligation the default begins for the other party. 31 L.P.R.A. § 3017.
When the final acceptance of the project has been made as provided in Article 105.16, the Engineer will prepare the final estimate of the work performed. If the Contractor approves the final estimate or files no claim or objection to the quantities therein, within 30 days of receiving the final estimate, the Authority will process the estimate for final payment. However, final payment will not be made until the Contractor has filed with the Authority the consent of the surety to payment of the final estimate and satisfactory evidence by affidavit, or as otherwise required by the that requires the Authority to make the final settlement or liquidation of the work and, if accepted by the contractor, to process the same for payment within 30 days after receipt of the final settlement.Redondo concludes that because Section 109.09 of the Blue Book establishes a deadline for payment, the exception provision of Article 1053(1) applies and therefore no demand for payment was required to activate PRHTA's default. Thus, Redondo seeks Article 1061 interests from the dates of substantial completion for each project, rather than from the dates of extra-judicial demands. The court is not moved by Redondo's argument under Article 1053(1).
In the instant case, the obligations between the parties arise from the Standard Specifications for Road and Bridge construction of 1989 (the "Blue Book"), which the parties stipulated constitutes the contract between them. See ¶ 25 of the Joint Stipulation of Facts (Docket No. 402, p. 7).
The dates for substantial completion were stipulated by the parties in the Joint Stipulation of Facts (Docket No. 402, pp. 6-7).
As further discussed in this Opinion, the court is persuaded by Redondo's arguments under the last paragraph of Article 1053. See pp. 16 et seq.
The main requirement to trigger default obligations under Article 1053 is the demand for payment ("interpelación"). See Valcourt v. Iglesias, 78 P.R.R. 598, 606, 78 D.P.R. 630, 637 (1955) (Special Separate Opinion by Justice Belaval explaining that "in the absence of an express stipulation by the parties, the maturity of an obligation does not produce default by mere delay or tardiness without default"). For default to be triggered without an express demand for payment under Article 1053(1), it must be expressly stated in the contract or legal statute that after the date of maturity, nonpayment will be considered default. See José R. Vélez Torres, Derecho de Obligaciones, San Juan, Interamerican University School of Law, 1997, p. 261. Therefore, "the debtor's default cannot be made to depend on the time the obligation matures." Valcourt v. Iglesias, 78 P.R.R. at 608, 78 D.P.R. at 639. As put by Justice Belaval after making a thorough analysis of default in obligations:
Summing up, [Articles] 1053, 1054, 1061, 1062 and 1127 of the Civil Code of Puerto Rico [31 L.P.R.A. §§ 3017, 3018, 3025, 3026 and 3177] should not be construed in the sense that the debtor incurs default immediately upon maturity of a civil obligation, regarding the Code does not provide otherwise or the contracting parties have not stipulated otherwise.
The mere delay in the performance of an obligation is a legal situation different from "a special state of default". For mere delay to become a default, it is necessary to make demand on the debtor by the judicial or extra-judicial means available at law. Valcourt v. Iglesias, 78 P.R.R. at 612[].
The Spanish version of the Opinion reads as follows:
Resumiendo: los Arts. 1053, 1054, 1061, 1062, 1127 del Código Civil de Puerto Rico [31 L.P.R.A. §§ 3017, 3018, 3025, 3026 and 3177] no deben ser interpretados en el sentido que tan pronto vence una obligación de naturaleza civil, sobre la cual no se haya dispuesto otra cosa por el mismo Código, o ne se haya pactado otra cosa por los contratantes, el deudor incurre en mora.
El mero retraso en el cumplimiento de una obligación es una situacion de derecho distinta al "estado especial de mora". Para que el mero retraso se convierta en mora, se requiere la intimación del deird or los medios judiciales o extrajudiciales reconocidos en derecho. 78 D.P.R. at 644.
Redondo also contends "there is default without the need to for a demand for payment ... when the party fulfills his (her) obligation" (Docket No. 408, p. 28). Redondo avers that that pursuant to the last paragraph of Article 1053 of the Civil Code, PRHTA entered in default when Redondo substantially completed the 5 projects. According to Redondo, substantial completion constitutes the fulfillment of its part of the mutual obligation and that "[f]rom the time one of the persons obligated fulfills his obligation the default begins for the other party". 31 L.P.R.A. § 3017.
A mutual obligation, also called bilateral or reciprocal, is one where both parties have interrelated duties. See Municipio v. Vidal, 63 D.P.R. 370, 375 (1945). In other words, both contracting parties are creditors and debtors to one another. See Puig Brutau, Fundamentos de Derecho Civil Tomo I, Vol. II, Ed. Bosch, Barcelona, 1976, pp. 118-119. Article 1544 of the Civil Code of Puerto Rico defines a contractor agreement as a "lease of works or services" where "one of the parties binds himself to execute a work or to render a service to the other for a specified price." 31 L.P.R.A. § 4013. A "lease of works or services" constitutes a mutual obligation. See Constructora Bauzá, Inc. v. García López, 129 D.P.R. 579, 592 (1991), citing Albaladejo, M., Comentarios al Código Civil v compilaciones forales, Tomo XX, Vol. 1, Jaén, Ed. de Derecho Unidas, 1980, p. 98; Berríos Rojas, C, Apuntes sobre el contrato de construcción, 13 Rev. Jur. U. Int. 461, 463 (1978-79). The owner of the project has the obligation to pay as agreed and the contractor has the obligation to perform and deliver the project as agreed. See Manuel Albaladejo, Derecho Civil II, Derecho de Obligaciones Vol. II, Los contratos en particular y las obligaciones no contractuales, 10th ed., 1997, Bosch, Barcelona, pp. 286 et seq.; Miguel A. Del Arco y Manuel Pons, Derecho de la Construcción, Ed. Hesperia, 1980, pp. 41-43.
In Master Concrete Corp. v. Comp. de Fomento Recreativo, 152 D.P.R. 616. 630 (2000), the Supreme Court of Puerto Rico ruled that in lease of works or sercice like the one in the instant case, when the contractor reaches the "substantial completion" of the project, it is entitled to payment minus the cost of repair of the imperfections. Therefore, when the contractor substantially completes the project, it fulfills its obligation under the contract and has upon that moment the right to be paid. Id. at 628-629. The Supreme Court of Puerto Rico also considered the equitable doctrine of unjust enrichment in reaching its conclusion. It reasoned that the unjust enrichment in favor of the owner to receive a substantially completed construction without paying for it must be prohibited. Id. at 629-630.
The court adopts the reasoning in Master Concrete Corp, and applies the same to the instant case, concluding that Redondo's substantial completion of the projects triggered the exception of the demand for payment provided in Article 1053 of the Civil Code to activate PRHTA's default. Also see José R. Vélez Torres, Derecho de Obligaciones, San Juan, Interamerican University School of Law, 1997, p. 262. As a result, PRHTA became in default upon the following stipulated dates:
| Project | Date of substantial completion |
| Ave. Las Cumbres | February 24, 2001 |
| Rio Grande | March 15, 1998 |
| Ave. Kennedy | March 28, 1999 |
| Ponce-Adjuntas | October 19, 2000 |
| Third Millennium | December 31, 1999 |
See Docket No. 402, pp. 6-7. The court finds that in the instant case, the default by PRHTA became effective upon the stipulated dates of substantial completion.
PRTHA argues that Article 1061 provides that the 6% pre-judgment interest is only applicable "[u]ntil another rate is fixed by the [Puerto Rico] Government" and that on October 25, 1988, the Commissioner of Financial Institutions adopted Regulation No. 78-1 ("Regulation No. 78-1") which establishes interests in final and binding judgments. PRTHA therefore contends that Regulation No. 78-1 supersedes the 6% established in Article 1061. See Docket No. 409, ¶ 53-57, pp. 25-26. The court is not moved by such argument.
Puerto Rico's Act No. 78, enacted on July 11, 1988, amended former Rule 44.3 of the Puerto Rico Rules of Civil Procedure, 32 L.P.R.A. Ap. III R. 44.3 (1979), to delegate onto the Office of the Financial Institutions Commissioner the authority to implement the necessary regulation to establish the pre-judgment and post-judgment interests afforded in Rule 44.3, which had until then provided a fixed interest rate of 12%. See Gutierrez Calderón v. A.A.A., 167 D.P.R. 130, 136-140 (2006) (explaining the purpose of Act No. 78 enacted on July 11, 1988 and its effect on Rule 44.3 of the Puerto Rico Rules of Civil Procedure); Section 1 of Regulation 78-1; Article 2 of Puerto Rico's Act No. 78 enacted on July 11, 1988, p. 360. Regulation No. 78-1 only governs the pre-judgment interest afforded in Rule 44.3 of the Puerto Rico Rules of Civil Procedure, not the one afforded in Article 1061 of the Civil Code. Therefore, the court concludes that the 6% per annum is the applicable interest rate for pre-judgment interest under Article 1061. Also see C&A, S.E. v. Rivera González. 2012 PR App. LEXIS 4342 at **31-31, 2012 WL 6692144 at ** 10-11 (applying the legal interest afforded in Article 1061 at the rate of 6% per annum).
PRHTA also attempts to avoid the application of Article 1061 of the Civil Code alleging that it was not obliged to pay Redondo any amount whatsoever because, pursuant to Section 109.09 of the Blue Book, at the times Redondo demanded extra-judicial payments (i.e. the dates of extra-judicial demand in the chart above), it had not provided the documentation regarding the consent of the surety payment of the final estimate and evidence that all its indebtedness had been fully paid or secured. Thus, PRHTA argues that Redondo does not comply with the extrajudicial demand requirement of Article 1061 of the Civil Code. See ¶¶ 58-67 of PRHTA's Legal Memorandum Regarding Pre-judgment Interest (Docket No. 409, pp. 27-33). The court is not persuaded by that argument in light of the applicability of the exception to such requirement afforded in Article 1053 of the Civil Code for mutual obligations. That is, the application of Article 1053 proceeds ipso jure. In addition, even if PRHTA's contention is correct, in Rnglada Anglada v. Club Cala de Palmas, 23 P.R. Offic. Trans. 311, 320, 123 D.P.R. 339, 347 (1989), the Supreme Court of Puerto Rico held that "not every failure to comply with a mutual obligation will have the effect of terminating the contract". "The requirement that the unfulfilled obligation must be the principal one serves a higher interest, in keeping with the principle of good faith that prevents abuse in the exercise of rescissory actions, that promotes the fulfillment of contracts, and that prevents that, by a lesser breach of the contract, one of the parties may release himself from the obligation, either because he is no longer interested or because the contract does not suit him anymore". 23 P.R. Off. Trans, at 321, 123 D.P.R. at 348. Moreover, in Master Concrete Corp., the Supreme Court of Puerto Rico analyzed a similar requirement in a construction agreement that had not been complied with by the contractor and rejected the notion that noncompliance with that requirement implied non-payment for the contractor. 152 D.P.R. at 633. Following the reasoning in Ramírez Anglada and Master Concrete Corp., this court finds that Redondo's alleged breach of contract, even assuming in arguendo its veracity, does not constitute a principal obligation that warrants the rescinding or termination of the contract as to pre-judgment interest. Id. Therefore the court is not moved by PRHTA's argument, especially since both parties have stipulated the substantial completion dates (Docket No. 402, p. 6-7) that entitle Redondo to payment.
Consequently, Redondo is entitled to pre-judgment interest to be calculated at a 6% interest per annum with an accrual period starting from the stipulated dates of substantial completion until PRHTA's final payment on the principal of the principal amounts for each project.
Conclusion
Upon the District Court's Remand Order (Docket No. 419), the court finds that Redondo is entitled to 6% pre-judgment interest under Article 1061 of the Civil Code of Puerto Rico, 31 L.P.R.A. § 3025, with an accrual period starting from the stipulated dates of substantial completion until PRHTA's final payment on the principal of the principal amounts for each project.
So recommended.
In San Juan, Puerto Rico, this 27th day of December, 2013.
Certification
Because the court has previously found that the instant adversary proceeding is non-core (Docket Nos. 155 and 389), then it must refer the instant Opinion and Order as proposed findings of fact and conclusions of law for the District Court to review and enter a final order. Hence, the court hereby orders the Clerk of the Bankruptcy Court to certify this proposed Opinion and Order to the District Court in Civil Case No. 09-2299 (CCC).
_________________
Enrique S. Lamoutte
United States Bankruptcy Judge
I hereby attest and certify that the foregoing document is a true and exact copy of the of the original on file in my offfice, and in my legal custody.
CLERK, U.S. BANKRUPTCY COURT
DISTRIC OF PUERTO RICO
By ___________ Deputy