282 F.2d 924 (6th Cir. 1960), 13858, Rudd-Melikian, Inc. v. Merritt

Docket Nº:13858.
Citation:282 F.2d 924
Party Name:RUDD-MELIKIAN, INC., Defendant-Appellant, v. Henry T. MERRITT, doing business as Coffee Service Co., Plaintiff-Appellee.
Case Date:October 12, 1960
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 924

282 F.2d 924 (6th Cir. 1960)

RUDD-MELIKIAN, INC., Defendant-Appellant,


Henry T. MERRITT, doing business as Coffee Service Co., Plaintiff-Appellee.

No. 13858.

United States Court of Appeals, Sixth Circuit.

October 12, 1960

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William A. McKenzie, of Graydon, Head & Ritchey, Cincinnati, Ohio, for appellant.

Marshall P. Eldred, of Brown & Eldred, Louisville, Ky., for appellee.

Before MILLER and O'SULLIVAN, 1 Circuit Judges, and BOYD, District judge.


Appellee, Henry T. Merritt, doing business as Coffee Service Co., brought this action in the United States District Court for the Western District of Kentucky to recover damages in the amount of $15, 202.98 for alleged breach of contract on the part of the appellant, Rudd-Melikian, Inc. Jurisdiction was claimed by reason of diversity of citizenship and the amount involved. Section 1332, Title 28 U.S.C.A.

For the purposes of this opinion the following facts are sufficient to present the issues. By written contract of March 6, 1953, appellant appointed appellee a distributor and operator of appellant's products, namely, coffee vending machines and 'Kwik Kafe' coffee. Under the contract appellee agreed to buy 60 'Coffee Cub' machines to be delivered and accepted at stated intervals on and before June 20, 1953. The contract required that appellee make a deposit with appellant of $1, 500.00, to be credited on the purchase price of the machines, and, in the event appellee breached the contract, to be retained by appellant as liquidated damages. Appellee agreed to operate or resell, subject to certain restrictions, the machines purchased 'in the following described territory only: Jefferson County, State of Kentucky, Clark and Floyd in State of Indiana.' The Indiana counties were directly across

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the Ohio River from Louisville, Jefferson County, Kentucky. Appellee agreed to install, maintain and render efficient service for all machines sold to him by appellant, and to keep on hand at all times an adequate supply of spare parts and commodities sufficient to meet the requirements of its purchasers. Appellant agreed to sell to appellee, at published prices when the supply was available, his total requirements of Kwik Kafe coffee, a blend specially prepared for use in appellant's coffee dispensing machines. Appellee agreed that he would not sell said coffee except for use in appellant's coffee dispensing machines sold or operated by appellee.

At the time this contract was entered into there was in existence a contract of November 21, 1952, by which a similar franchise was granted by appellant to John L. Manus for Jefferson County, Kentucky, and Clark and Floyd Counties in Indiana. By contract of January 31, 1953, Manus assigned to appellee the right to operate and sell appellant's equipment in Jefferson County, Kentucky. Appellee bought thirty of appellant's machines from Manus at approximately $625.00 each. In a related agreement to the contract between appellant and appellee involved in the present case, appellant and Manus entered into a written agreement by which the contract with Manus was cancelled and appellee was assigned a credit of thirty machines on his obligation to purchase a total of sixty Machines, by reason of his purchase of the thirty machines from Manus. This contract also provided that appellant would sell thirty machines to appellee to be operated in the territory previously assigned to Manus.

On April 30, 1953, appellee bought ten more machines from appellant. The contract provided for the delivery and acceptance of ten machines on May 20, 1953, and another ten machines on June 20, 1953.

By letter of May 7, 1953, appellee advised appellant that he had encountered a good deal of resistance to installing the machines where other service existed, that many installations were unsatisfactory, but that the coffee was well liked and would eventually be well received. This letter closed by stating:

'As acceptance of further machines from you would require purchase of a second truck and employment of a second route man, which we are presently unable to finance, please do not ship further machines without our request. We will notify you of our progress and when we are able to extend our operation by accepting more machines.'

Appellant replied by letter of May 18 that it was holding up shipment of units produced for delivery in May, but that it was its policy to grant extensions of 30 days at a time and not to exceed two extensions during a six months contract, and that notice of a desire for extension should be given at least 20 days in advance of the proposed shipping date. The letter also stated:

'I will plan to have our Territory Manager for your area, Mr. Wm. Guthrie, call on you in the near future to assist you in any was possible.

We trust this will meet with your approval and look forward to hearing from you in the near future.'

Under date of June 16, 1953, appellee wrote appellant, stating:

'Lest there be no misunderstanding about my letter to you of May 17, 1953, we are unable to accept delivery of more machines. When we are in position to accept and operate more I will notify you immediately.'

The date referred to was an incorrect reference to the letter of May 7, 1953.

Thereafter, correspondence was exchanged between the parties over a period of months, in which appellee advised appellant of additional locations which he had obtained, which he considered excellent, the necessity of converting the nickel machines into dime machines, and a gradual increase in the machine gross of the business. By letter of March 30,

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1954, appellee advised of his small working capital, the necessity of converting seven machines which operated on two nickels to operation on a dime, and suggested that appellant authorize him to draw against the $1, 000.00 on deposit with appellant for parts, cannisters, and conversion mechanisms 'in order to improve our service and our revenues.' This request was denied by letter of April 22, 1954, which stated:

'This is to inform you that we will not be able to comply with your request to credit any deposit monies you may have with this company against your purchase of anything but equipment according to the contract. This is a firm policy of our company and, as far as I know, there have been no exceptions to it.'

This correspondence made no reference to a breach or cancellation of the contract.

Under date of October 13, 1954, appellant's counsel wrote appellee that 'your Distributor's Sales Contract dated March 6, 1953, is considered as being in breach and the deposit moneys thereunder are declared forfeited in accordance with the terms thereof.' Appellee considered the letter as only a forfeiture of his deposit and not as a termination of his franchise. He continued to operate the machines and also continued buying parts from appellant.

In 1955 appellee began to make efforts to sell the business. Appellee testified that in these efforts he was assisted by appellant's vice-president and his assistant who came from Chicago to Louisville and attempted to interest possible purchasers in taking over appellee's franchise. This continued through the summer of 1956. About October, 1956, while negotiations were being carried on with the Louisville Grocery Company, which appeared to be an interested prospect, appellee learned that appellant had given a franchise for the Lousville area to Koffee-Break, Inc. This terminated the negotiations with the Louisville Grocery Company. The present action for damages followed.

The case was tried to a jury, which returned a verdict in the amount of $7, 044.98 for the appellee. This appeal followed.

In order for appellee to recover, it was necessary that appellee obtained under the contract of March 6, 1953, an exclusive franchise to operate in the Louisville area. The District Judge was of the opinion that the construction of the contract in that respect was a question of law for the Court, which view is concurred in by the parties. The District Judge instructed the jury that from the language of the contract, the nature of the contract, the restricted territory, and the actions of the parties surrounding the execution of the contract, it was intended to be and was an exclusive contract and gave to the appellee the exclusive right to enjoy the fruits of the franchise within the restricted district.

Appellant contends that this construction of the contract was erroneous and that the franchise given to the appellee was not an exclusive one. It is pointed out that nowhere in the contract is it provided that the franchise was to be an exclusive one. Appellant relies upon the parol evidence rule as prohibiting the Court from adding to the contract provisions not contained in the written instrument itself.

We do not consider this issue as one involving the parol evidence rule. If the contract provided that the franchise was a nonexclusive one, any evidence directed to the fact that the parties had orally agreed that the franchise was to be an exclusive one, would not have been competent in that it would have been an attempt to vary by oral evidence the terms of a written instrument. But the written contract contained no provision as to whether it was an exclusive franchise or a nonexclusive one, and the evidence on this question did not contradict or vary any provision of the written contract. Under the Kentucky law, which is controlling in this case, a franchise contract can be an exclusive one even though there is no express provision in the written contract

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to that effect. The White Company v. W. P. Farley & Co., 219 Ky. 66, 292 S.W. 472, 474...

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