BEATRIZ READY MIX INC

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AUTHE
U.S. GOV
INFOR

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

IN THE MATTER OF

BEATRIZ READY MIX, INC., : CASE NO, 08-04457 (SEK)
DEBTOR IN POSSESSION : CHAPTER 11
OPINION AND ORDER
Soon after Beatriz Ready Mix, Inc. sought bankruptcy protection,
it filed a motion to assume the unexpired lease over the locale where
its cement and/or poured concrete manufacturing plant is located. At
the same time, it filed a motion to reject the unexpired
transportation agreement for hauling the raw materials used in this
manufacturing process. The Lessor and the Trucker objected. We held an
evidentiary hearing. When Debtor submitted its case, the Opponents
asked for a judgment on partial findings under F.R.B.P. 7052 & 9014
and F.R.C.P. 52(c), choosing to submit the matter for resolution based
on evidence received at that point.?
We grant the motion for judgment on partial findings for reasons
that follow.
Factual Background
We summarize the agreed facts, adding pertinent ones elicited

from credible testimony of the only witness, Mr. Antonio Joglar, and

* “When a party has finished presenting the evidence and that
evidence is deemed by the trier insufficient the party's position, the
court need not waste time, but, rather, may call a halt to the
preceedings and enter judgment accordingly.” Morales Feliciano v.
Ruildn, 378 F.3d, 42, 59 {i% Cir. 2004).

ICATED
NMENT
ATION
GPO

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admitted documents.’

Back in 1999, José L. Torres, either personally or through one of
his closely held corporations?, (collectively referred to as the
“Seller”), decided to sell his concrete manufacturing business to the
Debtor, (the“Buyer”). Mr. Joglar, an educated and experienced
businessman who at the time also operated two other similar concrete
manufacturing plants, negotiated the terms of the deal for the Debtor,
assisted by counsel. The terms and conditions of the sale were drafted
and executed on the same day, before the same Notary, in three
separate documents identified as: (1) the Asset Purchase Agreement,

(2) the Transportation Agreement, and (3) the Lease Agreement. As
might be expected, each document referred to one of the transaction’s
components, contemplated different considerations, and was executed by
three distinct entities on behalf of the Seller. Each document also
states the parties intended that the three documents be considered
complimentary and interrelated agreements, or components of the one
single transaction, that is, the sale of the business.‘ The components
also contain cross default clauses.° At closing, the Buyer paid $2.5
million, the price set for the purchase of certain assets and good

will. The lease and trucking components would produce a stream of

* Mx. Joglar was Debtor’s President at the time of sale. His son
now runs the business.

* He owns the leasehold together with his wife, and is the
principal, if not sole stockholder of, Concretera Beatriz Inc. and
José L. Ramén Trucking, Inc.

* See the attached exhibit which forms part of this opinion.

5 Ibid.

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payments over the next twenty years, now consisting of a $3,000
monthly lease installment and trucking fees set by the Comisidén de
Servicio Paiblico, a government entity that regulates the hauling in
Puerto Rico.

Eight and a half years later, Debtor was in deep financial
trouble, owing over $400,000 for hauling fees to the Seller. Stating
that it could not satisfy these charges, Beatriz Ready Mix, Inc. filed
this Chapter 11 petition on July 10, 2008, and remains a Debtor in
possession. During August, Debtor filed the motion to assume the lease
stating it did not owe any arrears, and required the site to carry on
with its operations during the reorganization process. This was
followed by Debtor’s motion rejecting the transportation agreement, as
it was unable to satisfy the arrears. Debtor also asserted the
materials could be hauled “by someone else who has a license”,
identified by Mr. Joglar as the truckers providing this service to
their other cement manufacturing plants. The Buyer objected and we
held the mentioned hearing culminating with the request for entry of
judgment under FRCP 7052.

Discussion

We have jurisdiction to resolve the controversies at hand
pursuant to 11 U.S.C. § 1334(b) and 28 U.S.C. § 157(b) {L).

The “Seller” objects to the assumption and the rejection. Relying
on contractual clauses, it argues these show the parties intended that
the three documents be considered as components of one, interdependent
transaction or unified deal, that can not be severed for purposes of

assumption and rejection allowed by 11 U.S.C. § 365.

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The “Buyer” claims the contracts are not economically
interdependent, but depict three separate and severable obligations.
Furthermore, contractual clauses seeking to tie these contracts into a
single unified obligation may be overridden under applicable
nonbankruptcy law, or by the paramount equitable powers given to a
bankruptcy court, paving the way for the assumption and concomitant
rejection sought by the reorganizing Debtor.

Both parties agree that the Parole Evidence rule applies here.

A. Applicable nonbankruptcy law and the Parole Evidence Rule.

The parties chose to have coritroversies concerning the
interpretation of documents evidencing the purchase solved according
to the laws of the Commonwealth of Puerto Rico.*® Article 1233 of our
Civil Code provides: |

If the terms of the contract are clear and leave no doubt as

to the intention of the contracting parties, the literal

sense of the stipulations shail be observed.

If the words should appear contrary to the evident intention
of the contracting parties, the intention shall prevail.

31 Laws of P.R. Ann. §3471 (2000).

Our courts have stated that if the provisions of the contract are
clear and unambiguous, its literal terms must be enforced. The courts
must then “refrain from further speculation as to their alleged
contractual intentions.” In re N500L Cages, 517 F. supp. 816, 818
(D.P.R. 1981); Unién de Médicos del CFSE, 2007 TSPR 35 (2007); Luce &

Co. v. Junta de Relaciones de Trabajo, 86 D.P.R. 425 (1962). “The only

* See the exhibit included as part of this opinion and Puerto
Rico v. Residential Partners, S.E., et al., 350 F. Supp. 334, 338 (DPR
2004).

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terms that can considered to be clear are those which in themselves
are sufficiently lucid to be understood in one sense alone, without
leaving any room for doubt, controversies or differences of
interpretation, and without requiring for their understanding any
reasoning or illustration susceptible to change.” Sucesidén Ramirez v.
Tribunal, 81 P.R.R. 347 (1959). As our Supreme Court states, “the
strict mandate of ... art. 1233 obliges us to abide by the literal
meaning of the terms of the contract when ... they leave no doubt as
to the intention of the contracting parties.” Marina Industrial v.
Brown Boveri, Corp., 14 P.R. Offic. Trans. 86, 98 (1983).

If the Parole Evidence Rule applies to a controversy involving
the interpretation of a clear and unambiguous contractual clause, then
that clause cannot be explained or contradicted by evidence extrinsic
to its contents. See Mercado-Garcia v. Ponce Federal Bank, 979 F.2d
890, 894 (1* Cir. 1992) and Rule 69(B), 32 Laws of P.R. Ann. App. IV
R 69(b). Courts have also held that when the parties enter into an
integrated agreement (meaning the agreement specifically states that
all terms and conditions constituting the final intention of the
parties have been included), the document is deemed complete and no
extrinsic evidence may be considered. Nike Int’l., Ltd. v. Athletic
Sales, Inc., 689 F. Supp. 1234, 1244 (D.C.P. 1988); Borschow Hospital
& Medical Supplies, Inc. v. César Castillo, Inc., 882 F. Supp. 236,
240 (D.P.R. 1995).

The Seller argues we can considering only the terms of the
contracts when solving the parties’ intentions on severability of the

deal’s three components. These terms show the parties intended that

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the three documents be considered as portions of one unified
obligation that must be assumed cum onere. Since the documents’
integration clauses and the clauses concerning the parties’s intention
are clear and unambiguous, the Buyer cannot introduce extrinsic
evidence of intent to refute these clauses.

The Buyer claims the three documents “do not make reference to
the economic interdependence among them”. The agreed purchase price
for the assets was paid in full at closing. The consideration
contained in the two other documents are still being paid. These
differences, the Buyer claims, are sufficient to create an ambiguity
as to the intention of the parties. The Buyer also argues the
documents were drafted by Counsel for the Seller. Mr Joglar did not
review these before execution. Consequently, these two circumstances
placed the Buyer at a disadvantage, allowing us to construe any
ambiguity against the Seller.

We find the words used in the tie-in clauses in all three
documents are clear. The contractual language expressing the parties’
intent is not murky, or obscure. These expressions undoubtedly state
the parties intended that the three documents complement each other,
depicting the components of one single business transaction.

It is improbable that an experienced, educated businessman, who
owned an operated two similar concrete manufacturing plants, and who
was represented by counsel, would sign documents involving millions of
dollars without first contributing his views, reading the final drafts
and discussing the terms with his attorney. Therefore, we reject the

Buyer’s version of this event.

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As to the Buyer’s argument concerning the lack of economic
interdependence of the three components, it is just as likely for us
to view the sale’s price as consisting of a down payment furnished by
the $2.5 million for the value of the assets and good will component,
followed by a stream of payment over the next twenty years, provided
by the lease installments and hauling fees components.

Hence, we find the preponderance of the credible and admissible
evidence here shows the tie-in clauses in the three documents
demonstrate the parties’ true and unequivocal intent once they reached
a meeting of the minds. These tie-in clauses clearly show the three
contracts express the true intent of the parties: that is, the
documents are but components of a single, interdependent, unified
business transaction, and that the parties never intended us to
consider the documents as three individual, separate, self-standing
and severable contracts.

B. Tie-in and cross default clauses under Federal Bankruptcy law.

“Leasehold interests [and executory contracts] are governed in
bankruptcy by section 365 of the Code, which provides, in pertinent
part, that the trustee, subject to court approval, may assume or
reject any executory contract or unexpired lease of the debtor.”
Matter of Village Rathskeller, Inc., 147 B.R. 665, 671 (Bankr.
S.D.N.¥, 1992).’ “It is axiomatic that an executory contract generally
must be assumed cum onere. [cit. omitted] A debtor cannot simply

retain the favorable and excise the burdensome provisions of an

7 Although this section refers to the duties of a trustee, a
debtor in possession may exercise the rights of a trustee serving ina
chapter 11 case, pursuant to 11 U.S.C. § 1107 (a).

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those expressly rendered unenforceable by the Bankruptcy Code, see,
e.g., 11 U.S.C. § 365(e) (1), or those that are designed to thwart
bankruptcy policies, are vulnerable. [cit. omitted]. In limited
circumstances, however, a court may exercise equitable discretion to

refuse to enforce a provision where ‘there is no substantial economic

would preclude the bankruptcy estate from realizing the intrinsic
value of its assets.'” (cit. omitted} In re Kopel, 232 B.R. 57, 63-64
(Bankr. E.D.N.Y. 1999). “However expansive the bankruptcy court’s
power may be to protect the property interests of debtors-in-
possession, it does not extend to enlarging the rights of a debtor
under a contract or rewriting its terms.” (cit. omitted) In re EES
Lambert Associates,62 B.R. 328, 336 (Bankr.N.D.I11. 1986). “... [T]he
judge must look at the totality of the circumstances in order to do
equity.” (cit. omitted) Village Rathskeller, 147 B. R. at 472.

Both parties acknowledge our decision involves a two-step
analysis. First, we determine whether the tie-in clauses may be
excised, and then we address the enforcement of the cross-default
clauses.

As we understand Buyer’s view, these tie-in clauses thwart its
reorganization, as the hauling component has become economically
burdensome. The cost of maintaining the leasehold is feasible and
retaining this asset is essential to the reorganization process. Our
equitable powers under bankruptcy law allow us to excise the tie-in

clauses in the lease and trucking documents, as these separate

8

agreement. [cit. omitted] Only certain contractual provisions, such as

detriment to the [non-debtor counterparty] shown and where enforcement

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contracts are not economically interdependent and are therefore,
severable.

Mr. Joglar testified that the Debtor is unable to cure the
trucking arrears. However, at this juncture, there is no evidence to
substantiate this bald statement. There is also no evidence that shows
these related truckers can indeed haul the raw materials at affordable
rates facilitating Debtor’s reorganization.

Next, we reject Debtor’s view concerning the economic
interdependency of the contractual components. As we have explained,
the sales price can be viewed as a $2.5 million immediate payment, and
a stream of payments produced by leasehold installments and hauling
revenues over the next twenty years.

Furthermore, most of the cases cited by the Buyer involve cross-
default clauses in franchises with multiple lease contracts, where a
Debtor seeks to reject locales that are burdensome, and retain those
that are productive. The facts before us are distinguishable. We are
not considering multiple leases with tie-in and cross-default clauses
needed to operate a business under a franchise agreement. Debtor here
cannot manufacture and sell its cement without the raw materials,
whereas a franchisee in bankruptcy can reorganize without leasing a
particular locale.

Nor are we persuaded to waive the strict compliance with the tie-
in clauses by the Buyer’s reliance on In re UAL Corporation, 346 B.R.
456 (Bankr. N.D. Ill., 2006). There, the bankruptcy court was asked to
find a cross-default clause conditioning the assumption of the

unexpired airport terminal lease and use agreement, to debtor’s

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10
performance under separate agreements to make payments of certain
bonds, unenforceable. The court reasoned there were no economic
considerations linking the unexpired lease and use agreement to the
separate bond payment agreements. Therefore, there was no basis for
enforcing the cross-default clause. Id. 471i. The transaction at hand
consists of the saie of an entire business. The nature of this
transaction is quite different from the transactions before the
bankruptcy court in Illinois. Unlike UAL, supra, here, we are faced
with excising two express links in the deal’s components: the tie-in
clauses and the cross-default clauses. The three documents or
components of the purchase before us show the deal involved all the
integral parts of the concrete making business. In UAL, supra, the
Court considered the lease and payment agreements of bonds. While the
payment agreements facilitated the City of Chicago’s obligation to pay
for terminal improvements at O’Hare Airport used by the reorganizing
airline, these agreements were not integral parts of UAL’s business.

in synthesis, we find that consistent with the Buyer’s intention
of acquiring the entire business, it obtained the business’ three
interdependent components: its assets and good will, the leasehold and
certain other equipment, and the means for hauling the needed raw
materials. These are the integral parts of the sale’s price which the
Buyer expects to receive. Consequently, all these circumstances show
the deal’s components are not free-standing agreements, but portions
of a single integrated transaction that Buyer/Debtor must assume cum
onere.

Because Debtor has not met its initial burden of showing by a

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preponderance of the admissible evidence that the components of the
deal are severable, we shall enter judgment by separate document
denying its motions to assume and reject the components in question

under FRBP 7052.

SO ORDERED, in San Juan, Puerto Rico, on February 3, 2009.

Up .
S DE Ss
U.S. /Bankruptcy Judge

11

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INTENT OF THE PARTIES THAT THE AGREEMENTS ARE INTERRELATED CLAUSE

ASSET PURCHASE AGREEMENT
EXHIBIT 1

TRANSPORTATION AND USE OF
CONCRETE MIXER TRUCKS AGREEMENT
EXHIBIT 2

LEASE AGREEMENT
EXHIBIT 3

Page 2

WHEREAS: The appearing parties
also, as a basic part of the
instant agreement, have other
complementary businesses agreed
to which are interrelated, be
it directly or through other
persons or corporate entities
which are under their control,
to wit: the leasing of the
lands where the Concrete Mixer
is located; the transportation
of the cement and aggregates
needed to manufacture mixed
concrete and the exclusive use
of the concrete mixer trucks;
therefore, the intent of the
parties for this contract is
that it be subject and
conditioned to the execution
and compliance of the
complementary agreements
described herein, as stated
below within this contract
(from now on known as the
‘Complementary

[sic] Contracts”).

Page 2

WHEREAS: The appearing parties
also, as a basic part of the
instant agreement, have other
complementary businesses agreed
to which are interrelated, be
it directly or through other
persons or corporate entities
which are under their control
or under the control of their
shareholders, to wit: the
purchase of certain assets
related to the Concrete Mixer
and the lease of the lands
where the Concrete Mixer is
located; therefore, it is the
intent of the parties that this
agreement be subject and
conditioned to the execution
and compiiance of the
complementary agreements
described herein, as stated
below within this contract.

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INTENT OF THE PARTIES THAT THE AGREEMENTS ARE

AND CROSS-DEFAULT CLAUSE

INTERRELATED

ASSET PURCHASE AGREEMENT
EXHIBIT 1

TRANSPORTATION AND USE OF

LEASE AGREEMENT

CONCRETE MIXER TRUCKS AGREEMENT EXHIBIT 3

EXHIBIT 2
Page i5 Page 9 Page 32
16, Complementary Agreements: The rest | 12. The rest cf the terms and TWENTY FOUR (24): COMPLEMENTARY
of the terms and conditions of the conditions of this agreement are CONTRACTS:

purchase object of this present
agreement are reflected in the
complementary agreements which are
part of this transaction, to wit:

a. Lease Agreement executed this
Same Gate between the Buyer and Mr.
Jose Luis Ramon Santos and Margarita
Mejias Leon.

b. Transport and Use of Concrete
Mixer Trucks Agreement, executed on
this same date between the Buyer and
Jose Luis Ramon Trucking, Inc.

Both appearing represent and
guarantee to each other that the
intention of both parties is that the
negotiation and the fulfillment of the
aforementioned Complementary
Agreements and this contract for
purchase of assets are intimately
interrelated and that any breach on
the part of the Buyer concerning the
terms and provisions of any of the
Complementary Agreements shall be
understood and interpreted, for all
pertinent legal purposes, as breach of
this contract.

reflected in the complementary
agreements which form part of this
transaction, to wit:

a. Lease Agreement entered into
on this same date between Beatriz
Ready Mix and Mr. Jose luis Ramon
Santos and Ms. Margarita Mejias Leon.

b. Asset Purchase Agreement,
entered into on this same date between
Beatriz Ready Mix and Concretera
Beatriz, Inc.

Both appearing parties represent
and guarantee to each other that the
intent of both parties is that the
negotiation and the fulfillment of the
aforementioned Complementary
Agreements and this contract for
purchase of assets are intimately
interrelated and that any breach on
the part of Beatriz Ready Mix
concerning the terms and provisions of
any of the Complementary Agreements
shall be understood and interpreted,
for all pertinent legal purposes, as
breach of this contract.

a) The other terms and conditions of
the lease agreement which is the
object of this document, are reflected
in the complementary contracts which
form part of this transaction, to wit:

i) Asset Purchase Agreement
granted on this same date and entered
into between the Lease Holder and
Concretera Beatriz, Incorporated.

ii} Exclusive Contract for
Transportation of Aggregates granted
on this same date between Lease Holder
and Jose Luis Ramon Trucking, Inc.

lili) Preferent Lease Agreement
for Concrete Mixer Trucks, granted on
this same date between the Lease
Holder and Jose Luis Ramon Trucking,
Inc.

b) Both appearing parties are
represented and guarantee to each
other that the intention of both
parties is that the negotiation and
compliance of the aforementioned
Complementary Contracts and this lease
agreement are intimately related and
that any non-compliance on the part of
the Lease Holder concerning the terms
and provisions of any of the
Complementary Contracts shall he
understood and shall be interpreted,
for all pertinent legal purposes, as a
breach of this lease agreement.

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CROSS-DEFAULT CLAUSE

ASSET PURCHASE AGREEMENT
EXHIBIT 1

TRANSPORTATION AND USE OF
CONCRETE MIXER TRUCKS AGREEMENT
EXHIBIT 2

LEASE AGREEMENT
EXHIBIT 3

Page 10, Paragraph 8

(v) That it is obligated to
comply fully with the
Complementary Agreements and
that any breach of the latter
shall be understood to mean a
breach of this present
contract.

Page 17, Paragraph 12
Twelve(12): Termination due to
Breach of Contract

a) This contract shall be able
to be declared terminated by
the Tenant and shall proceed to
immediate resolution, in all
the following cases: iv) for
non-compliance with the
Complimentary Contracts as
defined below in this contract.

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ENTIRETY OF THE AGREEMENT CLAUSE

ASSET PURCHASE AGREEMENT

TRANSPORTATION AND USE OF

LEASE AGREEMENT

se aseguran y garantizan entre
si que este acuerdo contiene
todos los acuerdos y
condiciones relativos a la
compra de los Activos.
Cualquier acuerdo entre las
partes, previo a la firma de
este contrato, relacionado con
la referida transaccién, queda
expresamente cancelado y dejado
sin efecto, y cualquier
modificaci6én o enmienda futura
que las partes interesen hacer
a este contrato no sera valida
si la misma no se formaliza por
escrito como una enmienda a
este contrato.*

guarantee to each other that
the present agreement contains
all the terms and conditions
relative to its objective. Any
agreement between the parties
entered into before the
execution of this contract,
related to the aforementioned
transaction, is expressly
cancelled and left without
effect, and any modification or
future amendment that the
parties may be interested in
making to this contract shall
not be valid if the same is not
formalized in writing as a
specific amendment to this
agreement.

EXHIBIT 1 CONCRETE MIXER TRUCKS AGREEMENT | EXHIBIT 3
EXHIBIT 2
Page 16 Page 10 Page 36
20. Acuerdo Total: Las partes 15. The parties represent and THIRTY-TWO(32): ENTIRETY OF THE

CONTRACT: The appearing parties
insure and guarantee that this
Contract contains all the
agreements and conditions
related to the lease of the
Lease Property and the Building
that the appearing parties have
agreed to. Any agreement
previous to the signing of this
contract is hereby expressly
canceled and without effect;
and any future modification or
amendment that the parties
agree to shall not be valid if
the same is not formalized in
writing as a specific amendment
to this contract.

*Page 16 of the agreement was omitted from the certified translation, thus we transcribe this clause

in Spanish.

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CHOTCE OF LAW CLAUSE

ASSET PURCHASE AGREEMENT

TRANSPORTATION AND USE OF

LEASE AGREEMENT

EXHIBIT 1 CONCRETE MIXER TRUCKS AGREEMENT | EXHIBIT 3
EXHIBIT 2
Page 13 Page 8 Page 22
11.Applicable Law and 10.This contract shall be FIFTEEN (15): JURISDICTION: The
Successors interpreted by and governed by

This agreement shall be
interpreted and shall be
governed by the laws of the
Commonwealth of Puerto Rico and
all the appearing parties
submit to the jurisdiction and
competency of the Superior
Court of Puerto Rico, Court of
san Juan, for everything having
to do with this agreement. This
present agreement shall bind
the successors, heirs and
transferees on both sides.

the laws of the Commonwealth of
Puerto Rico and all the parties
appearing hereby submit to the
jurisdiction and competence of
the Puerto Rico Superior Court,
Court of San Juan, for
everything related to this
agreement. This present
agreement shall be binding for
the successors, heirs and
transferees of both parties.

Lease Holder expressly submits
to the jurisdiction of the
Court of Justice selected by
the Tenant should any conflict
between the parties arise, by
or as a result of this present
contract.